PPP hydro projects have ‘lowest’ production cost

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    Hydropower projects developed under public private partnership (PPP) have been found to be cheaper than those built by state-owned Nepal Electricity Authority (NEA) or the private sector.

    According to an NEA study based on the detailed project reports (DPR) submitted by individual projects that are under construction, costs are lower for projects built under the PPP model. However, none of the seven projects under construction has come into operation.

    Projects developed by the NEA had the highest production cost per kilowatt (kW) followed by projects built by independent power producers (IPPs).

    According to an NEA source, the average production cost of hydro projects under the PPP model comes to US$ 1,236.88 per kW. Meanwhile, NEA projects cost US$ 2,630.5 per kW and IPP projects US$ 1,481.73 per kW.

    Ram Chandra Pandey, general manager of the Generation Construction Division at the NEA, said the figures showed that projects based on the PPP model are best for developing countries like Nepal. “Electricity generated by these projects will also cost less for consumers,” he added.

    According to him, there is risk sharing in the PPP model and work is done in a transparent manner, so it is basically cheaper. He added that despite the success and effectiveness of the projects undertaken by the NEA, they have a very high production cost.NEA officials said the reason was that it had to develop infrastructure like roads and new transmission lines to transmit the energy generated by these projects.

    “IPP and PPP projects do not have to build infrastructure or transmission lines,” added Pandey. “But the NEA, being a government body, has to do so which adds to the production cost.”

    A source at the Ministry of Energy (MoE) said as per policy directives, attractive projects are given to the private sector. “As a result, the NEA has to construct comparatively less attractive projects which also impose an additional financial burden to it,” he said. “If the cost of transmission lines and infrastructure is excluded, NEA projects are the cheapest.”

    Pandey said that as most of the IPPs do not have technical and financial expertise in developing hydro projects, they may not do wise financing resulting in a higher production cost. IPPs, however, claimed that the figure related to PPP projects was not as charming as presented by the NEA.

    Subarna Das Shrestha, president of the Independent Power Producers’ Association of Nepal (IPPAN), said that though PPP projects claim to have a lower production cost, the actual cost comes to about US$ 2,000 per kW. “A number of expenses might not be added while doing a DPR, but the cost goes up when the project is being constructed.”

    He added that it takes some US$ 2,000 per kW to construct projects by IPPs. He also claimed that projects built by IPPs would cost less if bank interest rates were not that high and the government policy was supportive.

    According to the NEA, it is building four projects with a combined capacity of 136 MW while seven projects with a total capacity of 965 MW are being developed under the PPP model. IPPAN sources said that IPPs were building 23 projects which have a combined capacity of 2,300 MW.

    Source : Ekantipur