An externality evaluation model for hydropower projects: A case study of the Three Gorges Project

• We identify a hydropower project's externalities based on Externality Theory.
• We establish the externality evaluation model for a hydropower project.
• We calculate and analyze the externalities of the Three Gorges Project (TGP) as a case.
• The model lays the foundation for the reasonable evaluating of a hydropower project.
• The case shows that its positive externality value is near five times the negative.

Hydropower has become an important method for relieving energy tensions and facilitating energy structure adjustments in China. However, the development of hydropower has been restricted due to issues related to migration, ecology, and benefit sharing. The key is to establish a reasonable and scientifically based benefit sharing system that considers all input and output factors in a project's life cycle. Most of the studies performed in this field to date have focused on the direct costs and benefits of hydropower projects; however, the systematic identification and integral assessment of externalities is seriously lacking. Therefore, this paper 1) identifies a hydropower project's externalities using the Externality Theory based on analysis of input and output factors; 2) chooses or designs a specific calculation method for each externality and subsequently establishes an externality evaluation model for hydropower projects; and 3) calculates and analyses the externalities of the TGP (Three Gorges Project). The results show that the TGP has several considerable positive externalities, whose monetary value is approximately five times that of the negative externalities. Additionally, there are so many externalities that should not be ignored that it is necessary to include externalities in the evaluation of hydropower projects. These results lay a foundation for establishing a scientific and reasonable benefit-sharing system and provide the public with important and quantitative information to objectively understand the TGP.