Small Hydropower Investment and Financing Models and Risk Assessment Methods

DOI

10.2991/978-94-6239-672-2_61How to use a DOI?

Keywords

small hydropower; investment and financing model; risk assessment; Monte Carlo simulation; conditional value at risk; probability of default

Abstract

Small hydropower plays a vital role in mountainous power grids and rural revitalization. However, due to their small project scale, significant cash flow fluctuations, and mismatches between financing terms and hydrological risks, traditional financial evaluation methods struggle to accurately reflect the true risks. This study takes representative run-of-river small hydropower projects in Sichuan as its subject, integrating cash flow simulation, weighted average cost of capital, debt service coverage ratio, conditional value at risk, and default probability models to create a comprehensive risk assessment method for small hydropower investment and financing. Through Copula scenario generation and Monte Carlo simulation, the distributions of NPV, IRR, and DSCR, as well as default probabilities, under different investment and financing models are calculated. Sensitivity and stability analyses are conducted under various scenarios, including water inflow, electricity prices, policies, and contract terms. The results show that PPP, green bonds, and hybrid financing offer advantages over highly leveraged traditional loans in terms of risk-adjusted returns and stability in responding to policy interference. This research provides a methodological reference for optimizing the green investment and financing structure of small hydropower and for risk pricing by financial institutions.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Ruoxing Liu
AU  - Bufeng Ni
AU  - Jia Yang
AU  - Chenye Gao
PY  - 2026
DA  - 2026/05/12
TI  - Small Hydropower Investment and Financing Models and Risk Assessment Methods
BT  - Proceedings of the 2026 3rd International Conference on Applied Economics, Management Science and Social Development (AEMSS 2026)
PB  - Atlantis Press
SP  - 625
EP  - 631
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-672-2_61
DO  - 10.2991/978-94-6239-672-2_61
ID  - Liu2026
ER  -