Paying the forest for electricity: a modelling framework to market forest conservation as payment for ecosystem services benefiting hydropower generation

The operation and longevity of hydropower dams are often negatively impacted by sedimentation. Forest conservation can reduce soil erosion, and therefore efforts to maintain upstream forest cover within a watershed contribute to the economic life span of a hydropower facility. The cost of forest conservation can be viewed as an investment in hydropower and be financed via a payment for ecosystem services (PES) scheme. A novel modelling framework is used to estimate payments for forest conservation consisting of: (1) land-use change projection; (2) watershed erosion modelling; (3) reservoir sedimentation estimation; (4) power generation loss calculation; and (5) PES scheme design. The framework was applied to a proposed dam in Cambodia (Pursat 1). The estimated net present value of forest conservation was US$ 4.7 million when using average annual climate values over 100 years, or US$ 6.4 million when considering droughts every eight years. This can be remunerated with annual payments of US$ 4.26 ha(-1) or US$ 5.78 ha(-1), respectively, covering forest protection costs estimated at US$ 0.9 ha(-1) yr(-1). The application of this type of PES represents a rational option that allows for conservation and development of hydropower watersheds susceptible to erosion and sedimentation.