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Jul 8, 2025
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It might surprise you, but the world’s largest source of renewable electricity isn’t the sun or wind – it’s water flowing through hydropower dams. Hydropower is one of the oldest energy technologies, yet it quietly generates more electricity than all other renewables and is expected to stay in the lead well into the 2030s. Why should we care about a century-old technology that harnesses rivers? Let’s dive into how hydropower works, why it remains crucial for a clean energy future, and what challenges and opportunities lie ahead.
Image Source: International Hydropower Association
How Hydropower Works (and Why It’s Special)
At its core, hydropower harnesses the kinetic energy of moving water - rivers, tides, and waterfalls - to generate electricity. This process is elegantly simple: water flows through turbines, spinning them to produce power, which is then distributed to homes, businesses, and industries.
A Natural Battery: Pumped storage hydropower works like a giant battery: excess electricity is used to pump water uphill, which is later released to generate power when needed. It’s the world’s largest form of energy storage - 179 GW in 2023 - accounting for over 94% of long-duration storage.
On-Demand and Reliable: Unlike wind and solar, hydropower can run 24/7 if water is available. Countries like Norway and Nepal rely heavily on it for consistent, responsive electricity, even during demand spikes.
Built to Last: Many hydropower plants operate for decades, some over 100 years, with periodic upgrades. Their long lifespan and proven performance make them valuable long-term investments.
Hydropower’s Role in Today’s Energy Mix
Hydropower is a major force in clean energy, often overlooked despite its vast contribution. Let’s look at some key numbers to put its scale in perspective:
1. Hydropower is still the global renewables leader.
In 2024, hydropower supplied 14.3% of total global electricity (more than any other renewable source) and contributed nearly 45% of all renewable energy worldwide. That’s nearly half of clean energy output, far outpacing wind and solar.
2. Capacity continues to grow, though pipelines are stretched.
Global installed hydro capacity reached ~1,443 GW by the end of 2024, climbing 1.7% year-on-year. Conventional hydro added ~16 GW, while pumped storage (PSH) saw a 5% increase (+8.4 GW), totaling ~189 GW of storage capacity.
The International Hydropower Association projects we need to add ~26 GW per year through 2030 to stay aligned with net-zero goals, but current 5-year trends are below that pace, risking a shortfall in the clean energy transition.
3. Pumped-storage hydro: the grid’s water battery.
PSH comprises over 90% of global long-duration energy storage, with capacity nearing 189 GW by the end of 2024.
China alone added 7.8 GW of PSH in 2024 and is on track to exceed 130 GW by 2030—surpassing its target by ~8%, as energy markets incentivize storage during peak demand pricing. This underscores PSH’s growing strategic value in grid resilience.
4. Hydropower holds a firm position in the low-carbon energy mix.
In 2024, renewables and nuclear together delivered over 40% of global electricity, with hydropower leading the pack at 14%, followed by nuclear (9%), wind (8%), solar (7%), and bioenergy/waste (3%).
Despite rapid solar and wind expansion, hydropower’s share remains stable and essential, especially for providing reliable, dispatchable power.
5. Regional insights with global relevance.
China, with 436 GW installed hydropower capacity, leads the world. The U.S., Brazil, and Canada follow, together accounting for nearly half of global hydro capacity.
Several nations rely heavily on hydropower for their electricity. Norway (88% from hydro), Canada, and Brazileach meet well over 50% of their electricity needs with water-powered generation.
Image Source: International Hydrpower Association
Key Advantages of Hydropower
Hydropower’s appeal goes beyond its green credentials. Here’s why it continues to attract long-term investment and policy focus:
Massive Clean Energy Output: Large dams like China’s Three Gorges (22.5 GW) deliver huge, zero-emission power - enough to supply cities and industries without the vast land footprint of wind or solar.
Grid Stability & Flexibility: Hydro can quickly adjust output to meet demand, helping stabilize the grid and complement variable renewables. Pumped-storage hydro stores excess power and delivers it during peak times or outages.
Long Lifespan & Upgradability: Hydropower assets can last nearly a century with proper maintenance. Older plants can be modernized with efficient, eco-friendly tech, offering long-term returns and upgrade opportunities without building new dams.
Low Operating Costs: With free water as fuel and low maintenance needs, hydro is cost-effective over time - especially once capital costs are repaid. Many plants also offer added benefits like irrigation and flood control.
Built-in Energy Storage: Reservoirs store energy naturally, enabling fast response to demand spikes. Pumped-storage hydro provides most of today’s large-scale energy storage, critical for a renewable-powered grid.
Benefit | Hydropower | Solar/Wind |
|---|---|---|
Reliability | High | Variable |
Grid Flexibility | Yes | Limited |
Storage Capability | Yes (PSH) | Limited |
Emissions | Zero | Zero |
Lifespan | Decades | 20-30 years |
Challenges and Considerations
Hydropower’s advantages come with important caveats. These factors require careful consideration:
High Upfront Costs: Building a new hydropower dam is capital-intensive and can take 5–10 years or more from planning to commissioning. This is a very different profile than a solar farm that can be built in under a year. Financing can be tricky, often requiring public-private partnerships or multilateral development bank support. The payoff is long-term, but the initial investment hurdle is significant. In recent years, global investment in hydropower has actually been slowing – the IEA reported that hydropower investment fell by over 10% in 2022. Long lead times, regulatory hurdles, and competition from cheaper wind/solar projects have tempered investor enthusiasm somewhat. At the same time, there’s recognition that to hit climate goals we must upgrade and expand hydropower. The project pipeline worldwide is about 590 GW of new hydro at various stages, but that’s still hundreds of GW short of what’s needed in net-zero roadmaps. Bridging this gap will require innovative financing (such as green bonds or energy asset tokenization), supportive policy, and streamlined licensing.
Environmental and Social Impact: Large dams can disrupt ecosystems, harm wildlife, and displace communities. They may lower water quality and emit methane from decaying material. Modern practices focus on minimizing harm through environmental reviews, community input, and sustainable designs like run-of-river systems or upgrading existing dams. Hydropower must balance clean energy with environmental and social responsibility.
Climate Sensitivity: Climate change threatens hydropower through droughts, reduced river flows, and extreme rainfall, which can cause flooding and sediment buildup. In 2023, global hydropower output dropped 5%. To adapt, operators use climate forecasts, redesign dams for resilience, and explore solutions like floating solar panels. Hydropower must stay flexible to remain reliable in a warming world.
The Future of Hydropower
Hydropower is evolving. Aging plants are being modernized with smarter tech, boosting efficiency without new dams. Pumped storage is making a comeback as the best large-scale energy storage for renewables. Meanwhile, small-scale and dam-free hydro projects are expanding access in remote areas with less environmental impact.
As climate change affects water availability, hybrid systems (like floating solar on reservoirs) and advanced forecasting are helping hydro stay resilient. Governments are also stepping up with new incentives and streamlined regulations.
Bottom line:
Hydropower may not grab headlines, but it remains a reliable, scalable, and essential part of the energy mix. With smart upgrades and sustainable approaches, it’s well-positioned to support the push to net-zero. At Penomo, we’re transforming physical infrastructure into investable assets that power a cleaner future. Learn how you can get involved.
About Penomo
Penomo is a digital asset infrastructure platform specializing in tokenized energy and AI infrastructure financing. By transforming physical infrastructure into compliant digital securities, we connect private capital markets with institutional-grade renewable energy and AI investments. Through tokenization, Penomo is streamlining capital access, enhancing liquidity, and enabling efficient financing for the global energy transition and AI expansion.
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