Are hydropower investment in Nepal economically viable

1

Are hydropower investments economically viable for Nepal? Applying cost and benefit analysis tool for economic analysis of hydropower investments

2

TABLE OF CONTENT

Are hydropower investments economically viable for Nepal? Applying cost and benefit analysis tool for economic analysis of hydropower investments 1

Abstract 4

1. Introduction 6

2. Literature review 7

2.1. Approach of economists and funding agencies 7

2.2. Approach of Federal Electricity Regulatory Commission (FERC) (USA) for hydropower 10

2.3. Approach of Reventazon Hydroelectric Project (PHR) in Costa Rica 12

3. Methodology 15

3.1. Scenarios 15

3.2. Hypothesis 16

3.3. Approach and key assumptions 17

4. Results, Interpretation and Recommendations 21

4.1. Results for Scenario 1 21

4.2. Results for Scenario 2 24

4.3. Interpretation of results and key recommendations 27

5. Conclusion 30

6. Bibliography 31

3

TABLE OF TABLES

Table 1: Costs of economic analysis ......................................................................................9

Table 2: benefits of economic analysis................................................................................ 10

Table 3: FERC’s cost and benefit elements for re-licensing hydropower project ............. 11

Table 4: PHR hydropower project- technical details ........................................................... 13

Table 5: PHR hydropower project- cost benefit analysis approach ................................... 13

Table 6: Basis of calculations of cost and benefits for Nepal Hydropower development . 17

Table 7: Other key details for data analysis ........................................................................ 20

Table 8: NPV, EIRR and Benefit/Cost Ratio for Scenario 1 ............................................... 21

Table 9: Sensitivity analysis for Scenario 1......................................................................... 21

Table 10: NPV, EIRR and Benefit/Cost Ratio for Scenario 2............................................. 24

Table 11: Sensitivity analysis for Scenario 2....................................................................... 24

TABLE OF FIGURES

Figure 1: Economic analysis process .....................................................................................8

Figure 2: CBA of Tanahu Hydropower Project, Nepal ...........................................................8

Figure 3: Methodology for economic analysis for hydropower licensing by FERC ........... 11

Figure 4: Supply against peak system load ........................................................................ 15

4

Abstract

It is ironic to state that Nepal has hydropower potential of 83,000 MW and yet the

country observed a load shedding of 12 hours per day per consumer in 2013. Apart from

the difficulties faced by connected consumers, 60% of population doesn’t have access to

electricity. World Bank (2013) cites poor reliability and access to power as most serious

infrastructure bottlenecks for economic development of Nepal. The timely development of

hydropower sector in cost-effective way requires assessment of the costs and benefits

related to the hydropower sector investments.

This research paper seeks to find the answer for research topic – “Are hydropower

investments economically viable for Nepal? Applying cost and benefit analysis tool for

economic analysis of hydropower investments”.

Literature review for carrying out CBA of hydropower investments is followed by the

methodology, results & interpretation of economic analysis. The paper finally presents

recommendation.

Word Count: 4160

5

Abbreviations

CBA Cost and Benefit Analysis

CIF Cost, Freight & Insurance

EIRR Economic Internal Rate of Return

FERC Federal Electricity Regulatory commission

FPA Federal Power Act

IRR Internal Rate of Return

kWh Kilo watt hour

MW Mega watt

NEA Nepal Electricity Authority

NPV Net Present Value

6

1. Introduction

It is ironic to state that Nepal has hydropower potential of 83,000 MW (The World Bank,

2013) and yet the country observed a load shedding of 12 hours per day per consumer

in 2013 (Nepal Electricity Authority, 2013). Apart from the difficulties faced by connected

consumers, 60% of population doesn’t have access to electricity (Hydroelectricity

Investment & Development Company Limited, 2013). World Bank (2013) cites poor

reliability and access to power as most serious infrastructure bottlenecks for economic

development of Nepal. Therefore it is important for Nepal to focus on increasing reliability

and accessibility of electricity for its population through development of Hydropower

project in cost-effective manner as stated by the World Bank:

“Increasing access to electricity in a timely and cost-effective manner is one of the most

significant development challenges facing Nepal today.”

The timely development of hydropower sector in a cost-effective way requires

assessment of the costs and benefits related to the hydropower sector investments. The

hydropower investment costs are generally huge and may require host government to set

aside a greater proportion of limited resources for its development, therefore such

investments must be carefully analysed using economic analysis tools. One of such tools

is cost-benefit analysis (CBA) (B., 2011).

This research paper seeks to find the answer for research topic – “Are hydropower

investments economically viable for Nepal? Applying cost and benefit analysis tool for

economic analysis of hydropower investments”

The second chapter presents literature review for carrying out economic analysis of

hydropower investments followed by the methodology for economic analysis of the

hydropower investments in Nepal in the third chapter. The fourth chapter presents the

results & interpretation of the economic analysis followed by recommendations. The fifth

chapter presents the conclusion.

7

2. Literature review

While there is a vast amount of literature on economic analysis of investment projects, it

is important to understand the views offered by the economists, governments, regulatory

agencies as well the donors or funding agencies for hydropower project. Standard

literature (B., 2011) (Squire & Tak, 1975) discuss the central problem facing all

economies i.e. the limited availability of resources for allocation. In addition, the concern

over the limited availability of natural resource, like flowing water from which hydropower

is harnessed, dates back to the days of Malthus (Malthus, 1798). Tools for economic

analysis help in making such allocation decisions by measuring costs and benefits and

then by comparing them. If benefits exceed the costs then investments should be made

or resources should be allocated, else, rejected (B., 2011). Elements of economic

analysis of hydropower projects have essentially the same elements as any other project

but industry specific issues are also valued. The next paragraphs have been divided into

three broad economic analysis approaches as listed below:

Approach of economists and funding agencies (including Asian Development Bank);

Approach of Federal Energy Regulatory Commission (USA) for hydropower; and

Approach of Project Developer: Reventazon Hydroelectric Project (PHR) in Costa

Rica.

2.1. Approach of economists and funding agencies

2.1.1. Objective of economic analysis

The objective of a society is of paramount importance and the economic analysis of

hydropower investments must measure the extent to which the investment project

deviates or promotes achievement of society’s objective (Squire & Tak, 1975). In other

words enhanced incomes for investments or consumptions through better allocation of

resources may also be termed as the purpose of economic analysis (Asian Development

Bank, 1997). The traditional practices of economic analysis focused on maximisation of

economic growth or national income (Squire & Tak, 1975). The belief was that the equity

objective could be met by redistributing the maximum economic benefits through subsidy

or taxation programmes. This led to less focus on equity objective as growth objective

always valued the income generated from investment or consumption activity equally.

8

The shadow prices, of input (consumed by project) or output (produced by project) which

would have better reflected the contribution to society, were ignored over the prevailing

market prices (Squire & Tak, 1975). However situations are changing and valuations are

being done more or less considering shadow pricing, wherever appropriate, of inputs and

outputs to society. In subsequent paragraphs, this paper focuses on the process and

elements of cost and benefits analysis.

2.1.2. Process followed in economic analysis

The process followed in cost and benefit analysis may graphically be depicted as in

Figure 1:

Figure 1: Economic analysis process

2.1.3. Costs and benefits in economic analysis

Before we discuss key elements of cost and benefits, the economic analysis of Tanahu

hydropower project (144 MW) in Nepal, funded by Asian Development Bank is

summarized below (Asian Development Bank, 2013).

Figure 2: CBA of Tanahu Hydropower Project, Nepal

Identification of project (Assumption

stage)

• At this stage the project is identified and assumptions are developed for project conceptualisation

Identification and estimation of costs and benefits related

to investments

• At this stage costs and benefits related to project are identified

• The cost and benefits are valued

Comparisions of cost and benefits

• At this stage the cost and benefits are compared and conclusions are drawn

Tanahu Hydropower Project, Nepal

Costs

Valuation of traded inputs: Border price equivalent values

Valuation of non-traded inputs: World price numeraire*(1/Shadow Price (1.07)) Estimates of capital costs and O&M cost: Detailed project report

Treatment of data: adjustment to remove taxes, financing costs and contingencies

Benefits

Benefits: 527.92 GW, Average resource cost savings- US$ 0.279/kWh

Valuation: Incremental Benefits- measure of willingness to pay; non incremental – alternative energy consumed.

Economic Analysis Results

NPV (@12%): US$ 160 million EIRR: 18.40 %

Source: Asian Development Bank

9

2.1.4. Costs in hydropower investments

The basic principle of cost estimation is to find out the costs of additional resources

required for the hydropower project. It is essentially the difference in costs between “with

and without” project situations (Asian Development Bank, 1997). The proper measure of

economic cost is opportunity cost (B., 2011). The main cost elements of hydropower

projects are as presented in Table 1:

Table 1: Costs of economic analysis

Cost element/type Description

System cost Past projects in Nepal have focused on costs incurred in creating

complementary facilities (e.g. approach roads, transmission lines)

for realising the benefits of hydropower investments(Asian

Development Bank, 1997)

Sunk costs Sunk costs are not used in economic analysis for new hydropower

projects (Asian Development Bank, 1997)

Contingencies The contingencies resulting from engineering challenges of

hydropower are considered.

Working capital Only those inventory costs which claim additional resources of the

nation are considered as working capital for economic analysis.

Transfer payments Since taxes, subsidies and duties are considered in price therefore

transfer payments are not considered separately

Depreciation It’s not considered in economic analysis.

External costs For hydropower projects the external costs like environmental

pollution and noise pollutions are minimal

Source: Asian Development Bank, 1997, Subhes, 2011

10

2.1.5. Benefits

The main benefits are as presented in Table 2:

Table 2: benefits of economic analysis

Benefit element/type Description

Sales Sales of power (incremental and non-incremental) are

considered for economic analysis in Nepal hydropower

investments (Asian Development Bank, 1997)

Pollution reduction Benefits on account of pollution reduction is included in cost

benefit analysis

Unquantifiable benefits Unquantifiable benefits such as improvement in scenic beauty

Source: Asian Development Bank, 1997, Subhes, 2011

2.1.6. Valuations, comparison and sensitivity

Valuations: Valuations are done at shadow pricing. Shadow price would exist if

market operates perfectly and resources are allocated efficiently (B., 2011).

Comparison: The cost benefit analysis may be compared using NPV (positive

NPV is preferred), benefit to cost ratio (ratio greater than ‘1’ are preferred) and

EIRR (greater it is better is the viability.)

Sensitivity: Sensitivity analysis is carried out to measure the impact on NPV and

EIRR by changing the various variables of investments. The variables for which

the project viability is highly sensitive are further analysed and mitigation measures

are designed (Asian Development Bank, 1997).

2.2. Approach of Federal Electricity Regulatory Commission (FERC) (USA) for hydropower

FERC is empowered under Federal Power Act (FPA) to issue hydropower licenses for

non-federal projects and it has jurisdiction has over two third of the hydropower project in

USA (U.S. Fish & Wildlife Service, 2014). For issuance of license FERC carries out cost

benefit analysis based on methodology presented in Figure 3.

11

Annual Gross

Power

Benefit

Annual

Benefits of

avoided

pollution

Annual Costs

of Operation

Annual

Benefits of

Project

Service

Annual Costs

of

Environmental

Measure

Annual

Benefits of

Environment

al Measure

Power

Generation

Environmental

Measures

Project

Operation

Annual Net

Benefits

+

=

+ - + -

Framework of FERC’s Economic Analysis Methodology

Colored boxes indicate the quantified benefits and dotted boxes indicate parameters which

are quantified qualitatively or not taken into consideration for evaluation

Figure 3: Methodology for economic analysis for hydropower licensing by FERC

Source: U.S. Fish and Wildlife Service, 2014

The methodology presented in Figure 3 is explained at Table3.

Table 3: FERC’s cost and benefit elements for re-licensing hydropower project

Parameters Cost/ Benefit elements Explanations

Power Generation Annual Gross Power

Benefits

These are avoided cost for sourcing

power from alternative (coal fired)

sources

Annual Benefits of

avoided pollution

These are avoided cost of pollution due

to securing power from the hydropower

project

12

Parameters Cost/ Benefit elements Explanations

Project Operation Annual Costs of

Operation

It reflects the past and future costs of

investments and current operation &

maintenance of costs

Annual Benefits of

Project Service

The annual benefits due to flood control,

irrigation, navigable waterways and water

supply

Environmental

Measure

Annual Costs of

Environmental

Measure

Direct cost introduced to mitigate the

damage to environment

Annual Benefits of

Environmental

Measure

May result in fish & wildlife improvement,

recreational facilities etc.

Source: U.S. Fish and Wildlife Service, 2014

There have been some important recommendations for improvement in this methodology

by U.S. Fish and Wildlife Service; few of them are listed below:

Discount rate for evaluation to be lowered to two to seven percent instead of ten

percent.

Plant life of 30 years or more to be considered.

Market price of electricity should be used for evaluation instead of least cost

thermal coal option.

2.3. Approach of Reventazon Hydroelectric Project (PHR) in Costa Rica

PHR is a new hydropower project with a capacity of 305 MW on Reventazon River in

Costa Rica (John A. Dixon, Inter American Development Bank, 2013, 2013). The details

of project are as presented in Table 4:

13

Table 4: PHR hydropower project- technical details

Project Parameters Remarks

Height of dam 130.0 meters

Flooding area 6.9 sq. km. (690 Ha)

Reservoir length 8.0 km

River diversion 4.2 km

Project cost US$ 1380 million

Project life 40 years

The economic analysis was carried out to assess the impact of mitigation measures. This

is also known as expanded or enhanced CBA. The CBA analysis results for PHR are

presented at Table 5:

Table 5: PHR hydropower project- cost benefit analysis approach

Cost benefit

analysis

Remarks CBA results

Normal CBA

(CBA 1)

Costs (normal project costs)

+ Benefits (normal cost benefits)

US$115.16 million

Second CBA

(CBA 2)

Costs (normal project cost + unmitigated

environmental cost)

+ Benefits (normal project benefits + positive

environment externalities)

US$88.99 million

Enhanced CBA

(CBA 3)

Costs (normal project costs+ costs of

environmental intervention after project re-

design + remaining environmental costs after re-

design)

+ Benefits (normal project benefits + positive

environment externalities +additional benefits

after mitigation, if any)

US$96.85 million

14

Table 5 shows that environmental mitigation measures improve CBA.

The next chapter discusses the CBA approach to be followed for the Nepal’s hydropower

investments.

15

3. Methodology

Nepal’s hydropower investments would be analysed using CBA tool. Analysis approach

will draw from the experiences of FERC along with the enhanced CBA from PHR, Costa

Rica. Further, the CBA will be carried out for following scenarios.

3.1. Scenarios

3.1.1. Scenario 1: Capacity addition in line with Nepal Electricity Authority (NEA) projections

Scenario 1 is situation where Nepal develops its hydropower potential to meet its

projected internal peak demand (Appendix A).

In 2013, the peak demand of power in Nepal was 1094.62 MW, however the available

supplies were 719.6 MW. The power supply mix against demand is as shown in

Figure 4.

This scenario is based on the projected peak load of the system given by the NEA.

It is assumed that the unmet peak demand is mainly met by adding hydro-power

capacity.

Figure 4: Supply against peak system load

Source: Nepal Electricity Authority, 2013

607 , 56%

10 , 1%

103 , 9%

375 , 34%

Power supply- source wise (in MW and percentage)

HYDRO (NEA+IPP+Others)

NEA Thermal

Power Imports from India

Unment Demand

16

3.1.2. Scenario 2: Rapid capacity additions

Nepal develops its hydropower project for internal demand and exports (Appendix A).

In this hypothetical scenario, Nepal develops its hydropower potential rapidly to meet

internal as well as external demand from India.

The hydropower capacity expansion stop on reaching capacities which are close to

43,000 MW as this is the maximum exploitable economical limit (Hydroelectricity

Investment & Development Company Limited, 2013).

3.2. Hypothesis

3.2.1. Uneconomic Investment

The investments in hydropower sector are uneconomic if economic analysis of “Scenario

1” gives following results:

NPV is negative; or

EIRR is less than 10%; or

Benefit to cost ratio is less than one.

3.2.2. Economic Investment

The investments in the hydropower sector in Nepal are economic, if CBA of “Scenario 2”

gives following results:

NPV is positive;

EIRR is more than 10%; and

Benefit to cost ratio is more than one.

3.2.3. Conditionally Economic Investment

The investments in hydropower sector in Nepal are conditionally economic if economic

analysis of “Scenario 2” gives following results:

NPV is negative; or

EIRR is less than 10%; or

17

Benefit to cost ratio is less than one.

AND

Economic analysis of “Scenario 1” gives following results:

NPV is positive; and

EIRR is more than 10%; and

Benefit to cost ratio is more than one.

3.3. Approach and key assumptions

Cost and benefit calculation are explained in Table 6

Table 6: Basis of calculations of cost and benefits for Nepal Hydropower development

Parameter Cost/ Benefit

elements

Explanations Values

Power

Generation

Annual

Gross Power

Benefits

For Scenario 1: The gross

power benefit is the avoided

cost of purchase of power

from alternate sources

(imports from India or DG set

generated power). The 2013

average tariff paid by Nepal is

assumed for benefit

calculation.

Tariff rate = US$ 0.07/

kWh (Please refer to

Appendix B). This is far

less than the

assumptions made by

ADB for Tanahu hydro-

project which values

power sales at US$

0.161/kWh (Asian

Development Bank,

2013).

Power generation with

capacity factor of 50%

(International

Renewable Energy

Agency, 2012) by a

unit size plant

18


elements

Explanations Values

= 1*50%*8760 MWh =

4380 MWh = 4380000

kWh

Annual Benefits/MW =

US$ 0.07/

kWh*4380000 kWh =

0.3066 ~ US$ 0.31

millions

For Scenario 2: The gross

power benefit is summation of

benefits in scenario 1 and

benefits from power exports.

Prevailing tariffs in India are

assumed to be market prices.

Tariff rate = US$ 0.071/

kWh (Please refer to

Appendix C)

Annual Benefits/MW =

US$ 0.071/ kWh *

4380000 kWh = US$

0.3109 ~ US$ 0.31

million

Annual

Benefits of

avoided

pollution

For benefits of avoided

pollution, prices of CO2

would be multiplied to the

annual avoided CO2. It is

assumed that the Carbon

Emission Reduction (CER)

benefits will be equally shared

between Nepal and India

Avoided CO2 = 3345 t

CO2 /MW/ Year (CDM

– Executive Board,

2012)

Assumed price of 1 t

CO2 = US$ 11.56

(CDC Climat

Research, 2012) =

US$ 38668/MW/year ~

US$ 0.0387 million

Benefits to Nepal =

50%*US$ 0.0387 ~

0.0193 million

19


elements

Explanations Values

/MW/year

Project

Operation

Annual

Costs of

Operation

The following costs have

been considered:

Incremental capital costs

needed for installation of

unit size plant has been

arrived by the key

projects undertaken in

Nepal since 2000

onwards.

Cost of unit generation

has been taken from the

NEA.

Economic cost of land is

taken separately by

assuming that every 100

MW plant creates a

reservoir of 2 sq. km. =

200 hectares and this

translates to 2 Ha/ MW. It

is further assumed that

5% of this land supports

agriculture = 0.1 Ha/MW

Cost of investment =

US$ 2.28 million/ MW

(Please refer Appendix

D)

Cost of generation =

US$ 0.0148/kWh

(Please see Appendix

B)

Annual Cost/MW =

US$ 0.0148/kWh*

4380000 = US$ 0.0648

~ 0.07 millions

Economic cost of one

hectare land = US$

61182.00/year (Please

see Appendix E) = US$

0.0061 million

MW/Year

Annual

Benefits of

project

service

The annual benefits from

services is assumed to be

zero as it is difficult to quantify

the benefits

It is assumed to be zero

Environme

ntal

Annual

Costs of

Costs of environmental

measure are assumed to be

US$ 0.02 million/ MW/

Year

20


elements

Explanations Values

Measure Environment

al Measure

US$ 1 million for every 50

MW of capacity addition.

These estimates are quite

close to the values assumed

in PHR, Costa Rica analysis.

Annual

Benefits of

Environment

al Measure

Since such benefits are

difficult to measure in light of

limited data, it has been

assumed to be zero.

It is assumed to be zero

Table 7 consists of other key assumptions

Table 7: Other key details for data analysis

Other parameters Values, if any Rationale

Life of

hydropower

projects

30 to 50 years FERC considers life to be more than 30. Nepal uses

50 years for evaluation purpose (Department of

Electricity Development, Ministry of Energy, 2003)

Discount Rate 10% Suggested for evaluation by Department of

Electricity Development, 2003

Prices used 2013 prices All prices are 2013 prices; 1 US$ = NRs.98.14

(Nepal Rastra Bank, 2014)

21

4. Results, Interpretation and Recommendations

4.1. Results for Scenario 1

(Please Refer to Appendix F)

Table 8: NPV, EIRR and Benefit/Cost Ratio for Scenario 1

Case NPV (US$ millions) EIRR

Benefit/Cost ratio

(B/C)

Case with benefits

from CER included 423.94 11.30% 1.08

Case without the

benefits from CER 62.18 10.20% 1.01

Table 9: Sensitivity analysis for Scenario 1

Sensitivity Graph

1. Sensitivity with respect to changes in investment costs

0%

2%

4%

6%

8%

10%

12%

14%

16%

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

-30% -20% -10% 0% 10% 20% 30%

Bil

lio

ns

NPV (@10% dicount rate) EIRR

22

Sensitivity Graph

2. Sensitivity with respect to changes in operating costs

3. Sensitivity with respect to changes in environmental mitigation costs

0%

2%

4%

6%

8%

10%

12%

14%

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

-30% -20% -10% 0% 10% 20% 30% 40%

Bil

lio

ns


10%

10%

10%

10%

11%

11%

11%

11%

11%

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

0% 20% 40% 60% 80% 100% 120%

Bil

lio

ns


23

Sensitivity Graph

4. Sensitivity with respect to changes in avoided costs of power purchased from other sources (tariff)

5. Sensitivity with respect to changes in price of CER

0%

2%

4%

6%

8%

10%

12%

14%

16%

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

-10% -5% 0% 5% 10% 15% 20% 25%

Bil

lio

ns


10%

10%

10%

11%

11%

11%

11%

11%

12%

12%

12%

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

-150% -100% -50% 0% 50% 100%

Bil

lio

ns


24

4.2. Results for Scenario 2

(Please Refer to Appendix g)

Table 10: NPV, EIRR and Benefit/Cost Ratio for Scenario 2

Case NPV (US$ millions) EIRR Benefit/Cost ratio

(B/C)

Case with benefits

from CER included 6143.92 11.56% 1.09

Case without the

benefits from CER 1738.97 10.45% 1.03

Table 11: Sensitivity analysis for Scenario 2

Sensitivity Graph

1. Sensitivity with respect to changes in investments costs

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

-30% -20% -10% 0% 10% 20% 30%

Bil

lio

ns


25

Sensitivity Graph

2. Sensitivity with respect to changes in operating costs

3. Sensitivity with respect to changes in environmental mitigation costs

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

-30% -20% -10% 0% 10% 20% 30% 40% 50%

Bil

lio

ns


9.80%

10.00%

10.20%

10.40%

10.60%

10.80%

11.00%

11.20%

11.40%

11.60%

11.80%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

0% 100% 200% 300% 400% 500%

Bil

lio

ns


26

Sensitivity Graph

4. Sensitivity with respect to changes in avoided costs of power purchased from other sources (tariff)

5. Sensitivity with respect to changes in price of CER

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

-15% -10% -5% 0% 5% 10% 15% 20% 25%

Bil

lio

ns


10%

10%

11%

11%

11%

11%

11%

12%

12%

12%

12%

12%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

-150% -100% -50% 0% 50% 100%

Bil

lio

ns


27

4.3. Interpretation of results and key recommendations

Parameters Explanations

Economic viability of

hydropower

investments

Interpretation

Results of Scenario 1 and Scenario 2 demonstrate economical

viability of hydropower investments in Nepal. In both cases NPV

is positive, EIRR is more than 10% and B/C is greater than 1.

Therefore, as per hypothesis, the hydropower investments in

Nepal are economic.

Recommendation

Nepal should continue to develop its hydropower project to not

only meet its internal peak system demand but also to meet the

needs from India. Nepal may resort to rapid capacity additions if

required. These results are in consonance with the views of the

World Bank (The World Bank, 2013)

Investment costs Interpretation

Nepal’s hydropower development is economically sensitive to the

investment costs. Though, at average costs of US$ 2.28

million/MW, the hydropower development is economical but if

costs of development rise by more than 10% then the capacity

addition targets might not be economically viable.

Recommendation

It may be important for Nepal to develop large hydro projects

where economies of scale may be realised. Recently Nepal has

been trying to attract foreign investments in medium and large

hydropower investments (New Spotlight News Magazine, 2013)

Further, Nepal may resort to competitive bidding for developing

hydropower projects with multiple stages of bidding where in initial

stages technical competency of parties are evaluated. Once the

technical evaluation is done, the technically shortlisted parties

may be asked to submit their price offer and final selection is

made only on the least cost basis (least tariff or least EPC). This

28


is consistent to Nepal’s Hydropower Development Policy, 2001

(Ministry of Energy, 2001)

Operating costs Interpretation

Hydropower investments are moderately sensitive to the changes

in operating costs and are uneconomical when operating costs

inflate more than 30% (Scenario 1) or 40% (Scenario 2).

Recommendations

Though the economic viability is moderately sensitive to the

operating costs, the need for keeping the costs low are important

as they provide for:

Avenues of possible low tariff for impoverished population; and

Generating reasonable profit margins for sustaining

operations.

NEA may like to identify high cost items in its operating costs and

take proactive action to minimise them for current and new

projects (Nepal Electricity Authority, 2013).

Environmental

mitigation costs

Interpretation

Hydropower investments are less sensitive to the environmental

mitigation costs. Even a 100% (Scenario 1) or 400% (Scenario 2)

increase in mitigation costs keeps the NPV of investments

positive.

Recommendations

Wherever possible, the environment mitigation costs may be set

aside for mitigation measures and if needed, may be increased as

well. The PHR project in Costa Rica, has indicated that projects

with economic mitigation costs have more benefits (reflected in

NPV) compared to projects which do not have such mitigation

plans (John A. Dixon, Inter American Development Bank, 2013).

Avoided costs of

power purchased

Interpretation

Hydropower investments are highly sensitive to the avoided cost

29


from other sources

(tariff)

of power from alternate sources. An eight percent reduction in

average prices of power from imports and/or diesel generation

may lead to NPV being negative. Reduction in price of power may

be highly unlikely as average power tariff from alternate sources

are rising at a compounded average annual growth rate of 5%

since 2008 onwards (Appendix E) (Nepal Electricity Authority,

2013).

Recommendations

Nepal should, while planning for hydropower potential, may like to

sell power to industrial consumers in India as they have more

flexibility to pay over and above the market prices. Further these

sales could be through long term Power Purchase Agreement to

secure long terms benefits from investments.

Avoided cost of

pollution. Carbon

Emission Reduction

Benefits

Interpretation

Hydropower investments are not so sensitive to the changes in

the avoided cost of pollution. The avoided cost of pollutions may

be measured from the CER revenues. Registered CER add

another benefit line and may improve the economic viability of the

hydropower investments.

Recommendations

Nepal may like to include consider CER for estimating benefits

specifically for their power exports. The developers need to

proactively register their project for CERs.

30

5. Conclusion

Economic analysis tool used for analysing hydropower investments in Nepal provides a

rather lucid answer to the question set at the beginning of this paper. The objective was

to assess whether the hydropower investments in Nepal is economically viable or not.

Under the adopted methodology and assumptions the answer is “Yes”. This answer is in

consonance with the views of many stakeholders including funding agencies (The World

Bank, 2013) and Government of Nepal (Department of Electricity Development, Ministry

of Energy, 2003).

Also, the scenario where Nepal develops its hydropower projects, not only to meet its

internal peak demand but also for exports of power to India, is economically more viable

than the option where Nepal just meets its internal peak demand. Government of Nepal

may think of rapid hydropower capacity additions as this will help the country in realising

its human development goals (The World Bank, 2013).

Further, the sensitivity analysis results highlighted that investments are highly sensitive to

changes in the capital costs and tariff rates. The economic viability of investments

improves with decrease in development & installation costs. Government may adopt a

policy to invest in large hydro project where economies of scale could be realised.

Further, for reducing development costs government may select developers

competitively.

In addition to above, government may also proactively initiate & support efforts for

efficiency improvement of hydropower operations. Further, government may promote

CER registration for new projects to improve the economic viability of projects.

31

6. Bibliography

Asian Development Bank, 1997. Guidelines for Economic Analysis of Projects. Manila:

Economics and Development Resource Center.

Asian Development Bank, 2013. Tanahu Hydropower Project. [Online]

Available at: http://www.adb.org/sites/default/files/43281-013-nep-ea.pdf

[Accessed 2014 01 2014].

B., S. C., 2011. Economic analysis of energy investments. In: Energy Economics:

Concepts, Issues, Markets & Governance . London: Springer Verlag London Limited, pp.

163,164.

CDC Climat Research, 2012. Will there still be a market price for CERs and ERUs in two

years time?. [Online]

Available at: http://www.cdcclimat.com/IMG/pdf/12-05_climate_brief_no13_-

_supply_demand_for_cer_eru_in_the_ets.pdf

[Accessed 15 01 2014].

CDM – Executive Board, 2012. UPPER MARSYANGDI-2 HYDRO : PROJECT DESIGN

DOCUMENT FORM FOR CDM PROJECT ACTIVITIES (F-CDM-PDD). [Online]

Available at:

https://cdm.unfccc.int/filestorage/q/8/GYSRJLTPV58WNCZ0BA17EOM42IX6KD.pdf/PDD

_Revised_2%20Aug%202012.pdf?t=bHd8bXpmNjFyfDDdYbRuRmSsHRmPpkUAXMUj

[Accessed 15 01 2014].

Department of Electricity Development, Ministry of Energy, 2003. Guideliness for study of

hydropower project. [Online]

Available at: http://www.doed.gov.np/documents/Guidelines-for-Study-of-Hydropower-

Projects.pdf

[Accessed 15 01 2014].

Hydroelectricity Investment & Development Company Limited, 2013. Hydroelectricity

Investment & Development Company Limited. [Online]

Available at: http://www.hidcl.org.np/nepal-hydropower.php

[Accessed 10 01 2014].

32

International Renewable Energy Agency, 2012. RENEWABLE ENERGY

TECHNOLOGIES: COST ANALYSIS SERIES, Abu Dhabi: IRENA Secretariat.

John A. Dixon, Inter American Development Bank, 2013, 2013. An Expanded Cost-

Benefit Analysis (CBA) of the Reventazón Hydroelectric Project (PHR), in Costa Rica,

Washington, D.C.: Inter-American Development Bank, Felipe Herrera Library.

Malthus, T., 1798. An Essay on Principle of Population. London: Electronic Scholarly

Publishing Project.

Ministry of Energy, 2001. The Hydropower Development Policy. [Online]

Available at: http://www.doed.gov.np/policy/hydropower_development_policy_2001.pdf

[Accessed 16 01 2014].

Nepal Electricity Authority, 2013. A YEAR IN REVIEW - FISCAL YEAR 2012/13,

Kathmandu: Nepal Electricity Authority.

Nepal Rastra Bank, 2014. Nepal Rstra Bank. [Online]

Available at: http://www.nrb.org.np/fxmexchangerate.php

[Accessed 14 01 2014].

New Spotlight News Magazine, 2013. More Than Fantastic Hydropower Meet. [Online]

Available at: http://www.spotlightnepal.com/News/Article/More-Than-Fantastic-

Hydropower-Meet

[Accessed 16 01 2014].

Squire, L. & Tak, H. G. v. d., 1975. Economic Analysis of Project: A World Bank

Research Publication, 8th Edition. Baltimore: The International Bank for Reconstruction

and Development/ The World Bank.

The World Bank, 2013. Nepal Overview. [Online]

Available at: http://www.worldbank.org/en/country/nepal/overview

[Accessed 09 01 2014].

U.S. Fish & Wildlife Service, 2014. U.S. Fish & Wildlife Service. [Online]

Available at: http://www.fws.gov/policy/hydrochap1.pdf

[Accessed 13 01 2014].

33

Appendix A. - Projected internal peak demand by NEA and assumed capacity additions under Scenario 1 and Scenario 2

Projected

Demand

(NEA)

Existing Supplies (Real for 2013, assumed

from 2014 onwards)

Scenario 1 (Capacity addition at

normal rate) New assumed

hydropower capacity addition to

meet peak demand

Scenario 2: (Rapid capacity addition) New assumed

hydropower capacity addition (a) to meet peak

demand and (b) to exports power to India

Fiscal

Year

No. of

years

System Peak

Load

HYDRO

(NEA+IPP+

Others) (MW)

NEA Thermal

(MW)

Power

Imports from

India (MW)

Unmet

Demand (MW)

Supplies from

new hydropower

(MW)

Year on year (y-

o-y) capacity

additions (MW)

Year on year (y-

o-y) capacity

additions (MW)

for exports to

India

Year on year (y-

o-y) capacity

additions (MW)

for meeting

Nepal's internal

peak demand

Additional

capacity

additions for

exports (MW)

Total Power

Availability

Actual for 2013

2013 1 1,094.62 607.10 10.00 102.50 375.02 - -

-

Projected by

NEA Assumed Projections from 2014 onwards

2014 2 1,271.70 607.10 10.00 200.00 454.60 454.60 454.60 500.00 454.60 954.60 1,771.70

2015 3 1,387.20 607.10 10.00 100.00 670.10 670.10 215.50 1,000.00 215.50 2,170.10 2,887.20

2016 4 1,510.00 607.10 10.00 100.00 792.90 792.90 122.80 2,000.00 122.80 4,292.90 5,010.00

2017 5 1,640.80 607.10 10.00 100.00 923.70 923.70 130.80 2,500.00 130.80 6,923.70 7,640.80

2018 6 1,770.20 607.10 10.00 100.00 1,053.10 1,053.10 129.40 3,000.00 129.40 10,053.10 10,770.20

2019 7 1,906.90 607.10 10.00 100.00 1,189.80 1,189.80 136.70 3,000.00 136.70 13,189.80 13,906.90

2020 8 2,052.00 607.10 10.00 100.00 1,334.90 1,334.90 145.10 3,000.00 145.10 16,334.90 17,052.00

2021 9 2,206.00 607.10 10.00 - 1,588.90 1,588.90 254.00 3,000.00 254.00 19,588.90 20,206.00

2022 10 2,363.00 607.10 10.00 - 1,745.90 1,745.90 157.00 3,000.00 157.00 22,745.90 23,363.00

34

Projected

Demand

(NEA)

Existing Supplies (Real for 2013, assumed

from 2014 onwards)

Scenario 1 (Capacity addition at

normal rate) New assumed

hydropower capacity addition to

meet peak demand

Scenario 2: (Rapid capacity addition) New assumed

hydropower capacity addition (a) to meet peak

demand and (b) to exports power to India

Fiscal

Year

No. of

years

System Peak

Load

HYDRO

(NEA+IPP+

Others) (MW)

NEA Thermal

(MW)

Power

Imports from

India (MW)

Unmet

Demand (MW)

Supplies from

new hydropower

(MW)

Year on year (y-

o-y) capacity

additions (MW)

Year on year (y-

o-y) capacity

additions (MW)

for exports to

India

Year on year (y-

o-y) capacity

additions (MW)

for meeting

Nepal's internal

peak demand

Additional

capacity

additions for

exports (MW)

Total Power

Availability

2023 11 2,545.40 607.10 10.00 - 1,928.30 1,928.30 182.40 3,000.00 182.40 25,928.30 26,545.40

2024 12 2,741.10 607.10 10.00 - 2,124.00 2,124.00 195.70 3,000.00 195.70 29,124.00 29,741.10

2025 13 2,951.10 607.10 10.00 - 2,334.00 2,334.00 210.00 3,000.00 210.00 32,334.00 32,951.10

2026 14 3,176.70 607.10 10.00 - 2,559.60 2,559.60 225.60 3,000.00 225.60 35,559.60 36,176.70

2027 15 3,418.90 607.10 10.00 - 2,801.80 2,801.80 242.20 3,000.00 242.20 38,801.80 39,418.90

2028 16 3,679.10 607.10 10.00 - 3,062.00 3,062.00 260.20 3,000.00 260.20 42,062.00 42,679.10

Source: Nepal Electricity Authority, 2013 and Author’s assumptions

35

Appendix B. - Average electricity tariff rates in Nepal in 2012 and 2013 (in US$/kWh)

Parameters 2013 2012

Generation expenses (US$/kWh) 0.0044 0.0037

Administration Expenses (US$/kWh) 0.0037 0.0031

Provision for Employee benefits (US$/kWh) 0.0066 0.0132

Total Generation expenses (US$/kWh) – Operating cost for purpose of analysis 0.0148 0.0201

Transmission Expenses (US$/kWh) 0.0016 0.0014

Average Tariff (US$/kWh) from alternate sources

0.0699 0.0703

Average tariff since 2008 from alternative sources: CAGR = 5%

2008 2009 2010 2011 2012 2013

0.05 0.07 0.06 0.06 0.07 0.07

Source: Nepal Electricity Authority (Nepal Electricity Authority, 2013)

36

Appendix C. - Average electricity tariff rates in India in 2013 (in US$/kWh)

Non domestic Domestic Average

State Power tariff rates (US$/kWh) State Power tariff rates

(US$/kWh) State

Power tariff rates

(US$/kWh)

Maharashtra 0.18 Maharashtra 0.14 Maharashtra 0.16

Andhra Pradesh 0.15 West Bengal 0.13 Andhra Pradesh 0.13

Kerala 0.14 Kerala 0.12 West Bengal 0.13

West Bengal 0.13 Andhra Pradesh 0.12 Kerala 0.13

Karnataka 0.13 Madhya Pradesh 0.11 Karnataka 0.11

Andaman & Nicobar 0.12 Delhi 0.10 Delhi 0.11

Delhi 0.12 Karnataka 0.10 Tamil Nadu 0.10

Tamil Nadu 0.11 Punjab 0.09 Andaman & Nicobar 0.10

Odisha 0.11 Tamil Nadu 0.09 Odisha 0.10

Rajasthan 0.11 Haryana 0.09 Rajasthan 0.10

Tripura 0.10 Tripura 0.09 Madhya Pradesh 0.10

Lakshadweep 0.10 Odisha 0.09 Punjab 0.10

Punjab 0.10 Rajasthan 0.09 Tripura 0.10

Uttar Pradesh 0.09 Andaman & Nicobar 0.08 Haryana 0.09

Haryana 0.09 Bihar 0.08 Lakshadweep 0.08

Madhya Pradesh 0.09 Meghalaya 0.07 Uttar Pradesh 0.08

37

Non domestic Domestic Average

State Power tariff rates (US$/kWh) State Power tariff rates

(US$/kWh)

State Power tariff rates

(US$/kWh)

Jammu & Kashmir 0.08 Lakshadweep 0.07 Bihar 0.07

Chattisgarh 0.07 Himachal Pradesh 0.07 Meghalaya 0.07

Meghalaya 0.07 Uttar Pradesh 0.06 Himachal Pradesh 0.07

Puducherry 0.07 Goa 0.06 Jammu & Kashmir 0.07

Bihar 0.07 Jammu & Kashmir 0.05 Goa 0.06

Uttarakhand 0.07 Uttarakhand 0.05 Uttarakhand 0.06

Himachal Pradesh 0.07 Dadra & Nagar Haveli 0.04 Puducherry 0.05

Goa 0.07 Daman & Diu 0.04 Chattisgarh 0.05

Daman & Diu 0.06 Puducherry 0.04 Daman & Diu 0.05

Dadra & Nagar Haveli 0.05 Chattisgarh 0.04 Dadra & Nagar Haveli 0.04

Source: PHD Research Bureau, 2013, (Progress Harmony Development Research Bureau, 2013)

For analysis purpose the prevailing tariffs in state of Bihar, Uttar Pradesh and Himachal Pradesh are used because they are neighbouring state of

Nepal. West Bengal has not been considered in analysis despite being a neighboring state because the tariff were significantly higher than the

average tariff of US$ 0.071/kWh prevailing in other three neighboring states

38

Appendix D. - Investments in hydropower projects in Nepal in 2013 prices (in US$)

Inv estment Years Type Of Costs Name Of The Project Capacity (MW) Cost (Million UE$) Cost Per MW (Million US$/MW)

2014 Onwards Present Estimated Costs (2013) Kulekhani Ii i Hydroelectric Project 14.00 24.76 1.77

Chameliya Hydroelectric Project 30.00 99.90 3.33

Rahughat Hydroelectric Project 32.00 67.00 2.09

Upper Trishuli 3a Hydroelectric Project 60.00 125.78 2.10

Ilam (Puwakhola) Hydropower Station 6.20 15.70 2.53

Trisuli Jalvidyut Company Limited (Tjcl) 42.00 57.73 1.37

Tanahu Hydropower Limited (Thl) 140.00 403.00 2.88

Upper Tamakoshi Hydropower Limited 456.00 441.17 0.97

Sanjen Jalavidhyut Company Limited (Sjcl) 57.30 73.77 1.29

Madhya Bhotekoshi Jalavidhyut Company Limited 102.00 125.16 1.23

Rasuwagadhi Hydropower Company Limited 111.00 139.43 1.26

Bagmati Storage Hydroelectric Project 418.00 875.00 2.09

Uttar Ganga Storage Project 300.00 775.00 2.58

Upper Modi A Hydroelectric Project 335.00 479.00 1.43

2000-2013 Inflation Adjusted Costs (2013) Kali Gandaki 'A' Model Test Project 144.00 843.27 5.86

Middle Marsyangdi 70.00 329.29 4.70

Modi Khola 14.80 18.37 1.24

Average Cost 2.28

Source: Nepal Electricity Authority, 2013 (Nepal Electricity Authority, 2013)

39

Appendix E. - Economic cost of land in 2013 (in US$)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Land Area (Ha) 14,335,000.00 14,335,000.00 14,335,000.00 14,335,000.00 14,335,000.00 14,335,000.00 14,335,000.00 14,335,000.00 14,335,000.00

Percentage of Land

(for agriculture)

0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Contribution of

Agriculture to GDP

37% 36% 35% 34% 33% 34% 37% 38% 37%

GDP (US$) 7,273,933,993.00 8,130,258,976.00 9,043,715,356.00 10,325,618,017.00 12,545,438,605.00 12,854,834,975.00 16,010,389,262.00 19,123,129,346.00 18,962,962,963.00

Per Hectare

Contribution (US$/Ha)

23,468.40 25,522.26 27,601.15 30,613.10 36,100.41 38,111.65 51,655.42 63,365.79 61,181.52

Source: The World Bank, 2013 (http://data.worldbank.org/indicator/AG.YLD.CREL.KG)

It is assumed that economic contribution by per hectare of agricultural land in 2013 is same as that of year 2012.

40

Appendix F. - Economic analysis of Scenario 1

Fiscal

Year

No. of

years

Cumulativ

e capacity

(MW)

Year on

year

(y-o-y)

capacity

additions

(MW)

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironm

ental

damage

(US$

millions)

Benefits

from

Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discounti

ng factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

Present

Values of

yearly

Benefits

(US$

millions) 2014 0 454.60 454.60 1,036.49 29.46 2.77 9.09 139.38 8.77 (929.66) 1.00 (929.66) 1,077.81 148.15

2015 1 670.10 215.50 491.34 43.42 4.09 13.40 205.45 12.93 (333.87) 0.91 (303.52) 502.05 198.53

2016 2 792.90 122.80 279.98 51.38 4.84 15.86 243.10 15.30 (93.65) 0.83 (77.40) 290.96 213.56

2017 3 923.70 130.80 298.22 59.86 5.63 18.47 283.21 17.83 (81.15) 0.75 (60.97) 287.14 226.17

2018 4 1,053.10 129.40 295.03 68.24 6.42 21.06 322.88 20.32 (47.55) 0.68 (32.48) 266.89 234.41

2019 5 1,189.80 136.70 311.68 77.10 7.26 23.80 364.79 22.96 (32.07) 0.62 (19.91) 260.68 240.77

2020 6 1,334.90 145.10 330.83 86.50 8.14 26.70 409.28 25.76 (17.13) 0.56 (9.67) 255.24 245.57

2021 7 1,588.90 254.00 579.12 102.96 9.69 31.78 487.16 30.67 (205.73) 0.51 (105.57) 371.30 265.72

2022 8 1,745.90 157.00 357.96 113.13 10.65 34.92 535.29 33.70 52.33 0.47 24.41 241.03 265.44

2023 9 1,928.30 182.40 415.87 124.95 11.76 38.57 591.22 37.22 37.28 0.42 15.81 250.71 266.52

2024 10 2,124.00 195.70 446.20 137.64 12.96 42.48 651.22 40.99 52.94 0.39 20.41 246.47 266.88

2025 11 2,334.00 210.00 478.80 151.24 14.24 46.68 715.60 45.05 69.69 0.35 24.43 242.18 266.60

2026 12 2,559.60 225.60 514.37 165.86 15.61 51.19 784.77 49.40 87.14 0.32 27.76 238.03 265.79

2027 13 2,801.80 242.20 552.22 181.56 17.09 56.04 859.03 54.07 106.21 0.29 30.76 233.73 264.49

2028 14 3,062.00 260.20 593.26 198.42 18.68 61.24 938.81 59.10 126.31 0.26 33.26 229.52 262.78

2029 15 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.24 172.26 66.63 238.89

41

Fiscal

Year

No. of

years

Cumulativ

e capacity

(MW)

Year on

year

(y-o-y)

capacity

additions

(MW)

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironm

ental

damage

(US$

millions)

Benefits

from

Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discounti

ng factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

Present

Values of

yearly

Benefits

(US$

millions) 2030 16 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.22 156.60 60.57 217.17

2031 17 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.20 142.36 55.07 197.43

2032 18 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.18 129.42 50.06 179.48

2033 19 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.16 117.66 45.51 163.17

2034 20 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.15 106.96 41.37 148.33

2035 21 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.14 97.24 37.61 134.85

2036 22 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.12 88.40 34.19 122.59

2037 23 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.11 80.36 31.08 111.44

2038 24 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.10 73.05 28.26 101.31

2039 25 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.09 66.41 25.69 92.10

2040 26 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.08 60.38 23.35 83.73

2041 27 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.08 54.89 21.23 76.12

2042 28 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.07 49.90 19.30 69.20

2043 29 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.06 45.36 17.55 62.91

2044 30 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.06 41.24 15.95 57.19

2045 31 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.05 37.49 14.50 51.99

2046 32 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.05 34.08 13.18 47.26

2047 33 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.04 30.98 11.98 42.97

42

Fiscal

Year

No. of

years

Cumulativ

e capacity

(MW)

Year on

year

(y-o-y)

capacity

additions

(MW)

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironm

ental

damage

(US$

millions)

Benefits

from

Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discounti

ng factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

Present

Values of

yearly

Benefits

(US$

millions) 2048 34 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.04 28.17 10.89 39.06

2049 35 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.04 25.61 9.90 35.51

2050 36 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.03 23.28 9.00 32.28

2051 37 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.03 21.16 8.19 29.35

2052 38 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.03 19.24 7.44 26.68

2053 39 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.02 17.49 6.76 24.25

2054 40 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.02 15.90 6.15 22.05

2055 41 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.02 14.45 5.59 20.04

2056 42 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.02 13.14 5.08 18.22

2057 43 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.02 11.95 4.62 16.57

2058 44 3,062.00 - - 198.42 18.68 61.24 938.81 59.10 719.57 0.02 10.86 4.20 15.06

Present value of all costs : 5,684.66

Present value of all benefits: 6,108.60

Net Present Value: 423. 94

Benefit to Cost Ratio: 1.075 ~ 1.08

Economic IRR: 11.30%

43

Appendix G. - Economic analysis of Scenario 2

Fiscal Year No. of

years

Cumulativ

e capacity

(MW) over

and above

scenario 1

Year on

year

(y-o-y)

capacity

additions

(MW) over

and above

scenario 1

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironme

ntal

damage

(US$

millions)

Benefits

from Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discountin

g factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

including

the costs

of

scenario 1

Present

Values of

yearly

Benefits

(US$

millions)

including

the

benefits of

scenario 1

2014 0 500.00 500.00 1,140.00 32.40 3.05 10.00 156.00 9.65 (1,019.80) 1.00 (1,019.80) 2,263.26 313.80

2015 1 1,500.00 1,000.00 2,280.00 97.20 9.15 30.00 468.00 28.95 (1,919.40) 0.91 (1,744.91) 2,698.73 650.31

2016 2 3,500.00 2,000.00 4,560.00 226.80 21.35 70.00 1,092.00 67.55 (3,718.60) 0.83 (3,073.22) 4,322.49 1,171.86

2017 3 6,000.00 2,500.00 5,700.00 388.80 36.60 120.00 1,872.00 115.80 (4,257.60) 0.75 (3,198.80) 4,979.41 1,719.63

2018 4 9,000.00 3,000.00 6,840.00 583.20 54.90 180.00 2,808.00 173.70 (4,676.40) 0.68 (3,194.04) 5,497.48 2,270.96

2019 5 12,000.00 3,000.00 6,840.00 777.60 73.20 240.00 3,744.00 231.60 (3,955.20) 0.62 (2,455.87) 5,185.08 2,709.30

2020 6 15,000.00 3,000.00 6,840.00 972.00 91.50 300.00 4,680.00 289.50 (3,234.00) 0.56 (1,825.51) 4,885.90 3,050.72

2021 7 18,000.00 3,000.00 6,840.00 1,166.40 109.80 360.00 5,616.00 347.40 (2,512.80) 0.51 (1,289.46) 4,720.93 3,325.89

2022 8 21,000.00 3,000.00 6,840.00 1,360.80 128.10 420.00 6,552.00 405.30 (1,791.60) 0.47 (835.79) 4,322.45 3,511.07

2023 9 24,000.00 3,000.00 6,840.00 1,555.20 146.40 480.00 7,488.00 463.20 (1,070.40) 0.42 (453.95) 4,076.75 3,638.60

2024 10 27,000.00 3,000.00 6,840.00 1,749.60 164.70 540.00 8,424.00 521.10 (349.20) 0.39 (134.63) 3,829.82 3,715.60

2025 11 30,000.00 3,000.00 6,840.00 1,944.00 183.00 600.00 9,360.00 579.00 372.00 0.35 130.38 3,595.35 3,750.16

2026 12 33,000.00 3,000.00 6,840.00 2,138.40 201.30 660.00 10,296.00 636.90 1,093.20 0.32 348.33 3,373.26 3,749.35

2027 13 36,000.00 3,000.00 6,840.00 2,332.80 219.60 720.00 11,232.00 694.80 1,814.40 0.29 525.57 3,162.93 3,719.26

2028 14 39,000.00 3,000.00 6,840.00 2,527.20 237.90 780.00 12,168.00 752.70 2,535.60 0.26 667.70 2,964.24 3,665.20

44

Fiscal Year No. of

years

Cumulativ

e capacity

(MW) over

and above

scenario 1

Year on

year

(y-o-y)

capacity

additions

(MW) over

and above

scenario 1

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironme

ntal

damage

(US$

millions)

Benefits

from Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discountin

g factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

including

the costs

of

scenario 1

Present

Values of

yearly

Benefits

(US$

millions)

including

the

benefits of

scenario 1

2029 15 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.24 2,244.44 915.30 3,332.00

2030 16 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.22 2,040.40 832.09 3,029.09

2031 17 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.20 1,854.91 756.45 2,753.72

2032 18 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.18 1,686.28 687.68 2,503.38

2033 19 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.16 1,532.99 625.16 2,275.80

2034 20 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.15 1,393.62 568.33 2,068.91

2035 21 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.14 1,266.93 516.66 1,880.83

2036 22 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.12 1,151.75 469.69 1,709.84

2037 23 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.11 1,047.05 426.99 1,554.40

2038 24 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.10 951.86 388.18 1,413.09

2039 25 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.09 865.33 352.89 1,284.63

2040 26 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.08 786.66 320.81 1,167.85

2041 27 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.08 715.15 291.64 1,061.68

2042 28 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.07 650.14 265.13 965.16

2043 29 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.06 591.03 241.03 877.42

2044 30 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.06 537.30 219.12 797.66

45

Fiscal Year No. of

years

Cumulativ

e capacity

(MW) over

and above

scenario 1

Year on

year

(y-o-y)

capacity

additions

(MW) over

and above

scenario 1

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironme

ntal

damage

(US$

millions)

Benefits

from Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discountin

g factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

including

the costs

of

scenario 1

Present

Values of

yearly

Benefits

(US$

millions)

including

the

benefits of

scenario 1

2045 31 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.05 488.46 199.20 725.14

2046 32 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.05 444.05 181.09 659.22

2047 33 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.04 403.68 164.62 599.29

2048 34 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.04 366.98 149.66 544.81

2049 35 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.04 333.62 136.05 495.28

2050 36 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.03 303.29 123.69 450.26

2051 37 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.03 275.72 112.44 409.32

2052 38 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.03 250.66 102.22 372.11

2053 39 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.02 227.87 92.93 338.28

2054 40 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.02 207.15 84.48 307.53

2055 41 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.02 188.32 76.80 279.57

2056 42 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.02 171.20 69.82 254.16

2057 43 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.02 155.64 63.47 231.05

2058 44 39,000.00 - - 2,527.20 237.90 780.00 12,168.00 752.70 9,375.60 0.02 141.49 57.70 210.05

Present value of all costs: 69,369.38

Present value of all benefits: 75,513.30

46

Fiscal Year No. of

years

Cumulativ

e capacity

(MW) over

and above

scenario 1

Year on

year

(y-o-y)

capacity

additions

(MW) over

and above

scenario 1

Capital

cost (US$

millions)

Operating

costs

(US$

millions)

Land cost

(US$

millions)

Cost of

mitigation

of

env ironme

ntal

damage

(US$

millions)

Benefits

from Tariff

(US$

millions)

Benefits

from

av oided

pollution

(US$

millions)

Total

(US$

millions)

Discountin

g factor

(US$

millions)

Discounte

d Total

(US$

millions)

Present

Values of

yearly

costs

(US$

millions)

including

the costs

of

scenario 1

Present

Values of

yearly

Benefits

(US$

millions)

including

the

benefits of

scenario 1

Net Present Value: 6,143.92

Benefit to Cost Ratio: 1.088~1.09

Economic IRR: 11.56%

Are hydropower investment in Nepal economically viable

Documents

Transcript of Are hydropower investment in Nepal economically viable