LAUSR

Abstract Given the importance of hydropower in the supply of electricity worldwide, we argue that the assessment of its impact on local ecosystems be included among generation costs. A cost-benefit analysis, based on an ecosystem services valuation approach, which includes the maximum value of ecosystem services before and after the implementation of hydropower projects has been considered. The study focuses in hydropower plant Baba, located in a tropical area, at the central coast of Ecuador, which it is part of a multifunctional project (flood protection, water supply and water transfer). It was found that the ecosystem services value decreased with the construction of the hydropower plant, the ecological balance returning losses for $ −314.7 million/yr. If these losses were added to the conventional hydropower cost assessment (investment and O&M), the generation costs would reach 0.4520 $/kWh. Furthermore, the plant was hypothetically redesigned to reduce the impact of water transfer to the conceding basin, an uncommon option as far as hydropower projects are concerned. This option led to better ecological performance and a significant reduction of hydropower generation costs (0.2723 $/kWh).