Hydropower has historically provided the backbone of low-cost electricity in a significant number of countries around the world and is often the cheapest way to generate electricity where good, unexploited resources exist. In addition to the electricity generated, where reservoir storage exists, hydropower can also contribute to system stability and provide a range of ancillary grid services. The LCOE of large-scale hydro projects at high-performing sites can be as low as USD 0.020/kWh, while average costs were of the new capacity added in 2019 was slightly less than USD 0.050/kWh.

For large hydropower projects the weighted average LCOE of new projects added over the past decade in China and Brazil was USD 0.040/kWh, around USD 0.080/kWh in North America and USD 0.120/kWh in Europe. For small hydropower projects (1-10 MW) the weighted average LCOE for new projects ranged between USD 0.040/kWh in China, 0.060/kWh in India and Brazil and USD 0.130/kWh in Europe.

Hydropower technologies are mature and cost reduction potentials are therefore small and generally limited to improvements in civil engineering techniques and processes. However, its low cost, its growing importance – where storage reservoirs exist – in facilitating the high penetration of variable renewables and unrivalled ability to provide grid flexibility make hydropower an increasingly valuable component of the energy transition.

The total installed costs for the majority of hydropower projects commissioned between 2010 and 2019, range from a low of around USD 600/kW to a high of around USD 4 500/kW. However, given the highly site-specific nature of hydropower it is not unusual to find projects costs outside this range. For instance, installing hydropower at an existing dam built for other purposes may have costs as low as USD 450/kW. On the other hand, projects at remote sites, can be economic despite the additional costs due to lack of local infrastructure, given the costs of alternative generation or grid connection can be much higher.