Do the arithmetic : Building wind farms can be a good

September 30 –

In the latest democratic convention speech by ex-President Bill Clinton, other than making a strong case for Obama, Clinton popularised the word “arithmetic” to highlight the importance of mathematics in policy debate. In the context of energy here at home, the “arithmetic” to highlight some of the grey areas of energy economics is worth forthcoming. Furthermore, a strategy to address continued energy shortages that may continue indefinitely, based on pundits’ forecast of demand and supply of energy vis-à-vis economic growth, is more urgent. What can be done to reduce that uncertainty of energy supply economics, till the large hydro-power plants are constructed, to address the increasing demand of <100MW each year? Furthermore, are there other cost efficient and timely fixes for this mess we are in?

On August 14th 2012, the Post reported that the average production cost of hydro projects under the Public Private Partnership model comes to US$ 1,236.88 per KW of installed capacity. Meanwhile, NEA  projects cost US$ 2,630.5 per KW and IPP projects US$ 1,481.73 per KW. The article also mentions the comment made by Subarna Das Shrestha, President of the Independent Power Producers’ Association of Nepal (IPPAN), “though PPP projects claim to have a lower production cost, the actual cost comes to about US$ 2,000 per KW.” Taking these figures into account is helpful to give a rough estimate on what would be the cost for focusing solely on hydro generation.

To mention a few cases, the latest signing of the $ 1.6 billion multipurpose West Seti Project is exemplary. The calculation of the 750MW project comes to about $2133 per KW if we do simple arithmetic. Another is the second largest project in operation right now, the Middle Marsyangdi Hydroelectric Project (70 MW), which created a massive controversy due to the cost of the project which doubled from a roughly estimated $180.5 million to about $ 370.4 million. With the dollar exchange rate of 2001, the cost of the project increased from $2579 per KW to $5291 KW—an astounding figure for a poor country such as Nepal. Furthermore, with the project beginning construction in 2001 and ending at 2008, it took us a long eight years to finish it, with some of the time and cost factor attributed to the civil war.

Three criteria that remain important when it comes to energy development in Nepal from a business angle are the total cost of project, time span, and return on investments (RoI), which this op-ed seeks to highlight. What is the overall cost of production per KW of Wind Energy? For the inland cost, the Global Wind Energy Council estimates it to be roughly between $1266 /KW to $1710/KW (at 2006 prices) in the European market, where technology itself costs around roughly 80 percent of the total cost, and the remaining 20 percent goes to installation, land, road, grid connections and other financial costs including consultancy.

This data from the European market can provide important references for Nepal where technology costs are likely to be affected if imported from Europe or neighbouring China and India, where technology is relatively cheaper. Furthermore, the remaining 20 percent of the cost can go down in the context of Nepal, as land price, grid connection, and human resources for many of the works for wind power installation can be relatively cheaper. In the context of India and China, the cost of production price per KW falls around $1350 to $1450 per the International Renewable Energy Agency, which can further fall in the PPP model presenting us with a lucrative possibility to introduce a new technology to address the current gestation period of the energy crisis, and add on to the overall energy potential of Nepal—the more the merrier.

Apart from cost the construction period is the second most important factor in the context of Nepal. Hydro has been taking an average of 4-5 years and in some cases as the Middle Marsyangdi Hydroelectric Project almost nine years. A technical feasibility of Wind Power that needs a year of wind data collection, by placing wind anemometers (average cost $350) and Data logger (average cost $400) in the sites that are already considered feasible—a very small cost to conduct technical feasibility followed by the cost of wind analysis and project development. Afterwards, construction time is relatively short—a 10 MW wind farm can easily be built in few months time, if the customs are willing to cooperate. The Chinese average installation of one 1.5 MW turbine comes to one and a half days.

The third angle for assessing wind power is the Return on Investment (RoI) so we measure the profit of these investments. If the sites have a high wind velocity, the total investment can be obtained in about 6-7 years. The ROI in India comes around 14-16 percent per annum, depending on wind velocity, capacity factor and electricity  rates. In Nepal such indicators indicate a great business opportunity for Nepali banks, whose market capitalisation is usually too low to finance large-scale hydro projects. More importantly, building a 10 MW wind farm in less than a year’s time will provide them with quick and better ROI figures—something the Banks and Financial Institutions are struggling to make after a regulation on real estate. What can be lucrative for BFIs than to make an investment which they can afford from their own balance sheet? I leave it up to the readers to do the arithmetic.

 

Dhakal is the COO of WindPower Nepal Pvt Ltd

Source : The Kathmandu Post