Small Hydropower Investment and Financing Models and Risk Assessment Methods

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.