COST OF ELECTRICITY GENERATION FROM HYDROPOWER PLANTS

Hydropower plants are generally considered to be capital-intensive power projects because

most of the cost is associated with the construction of the plant and very little with its
operation. This means that large amounts of funding must be available at the outset. In the
past the high cost of building a hydropower plant was often borne by the public sector, but
since the liberalization of electricity markets that started toward the end of the 1980s, it
has often fallen to private sector companies to fund them, something that they have often
been reluctant to do.
Some major schemes are still funded by the public sector and others are funded through
financial-support mechanisms such as the World Bank. Increasingly, too, private
investment is finding its way into hydropower. However, financing is often complicated
by the fact that at least some of the benefits of a new hydropower project, particularly in
the developed world, will accrue to the government. These benefits include flood control
and the supply of irrigation and drinking water.
Another factor that affects the economics of hydropower is the long life that can be
expected from a well-designed project. While most power plants have useful lives of 30–
40 years at most, a hydropower plant can continue to operate for over 100 years provided
the turbines are maintained and periodically replaced. However, financing of a project is
unlikely to be possible over 100 years, so costs will be weighed heavily on the early years
of the project. Once the cost of loans needed to build a hydropower plant have been paid
(i. e that is the economical life of the hydropower project ) , the cost of electricity from
the plant is likely to be as cheap or cheaper than virtually all other sources. Hydropower
plants can have an operating lifespan of up to 50 years or more, which is quite long
compared to thermal power plants. Typically economic and financial analyses assume a
lifespan of 30–40 years. Hydrology determines how much water will be available for
electricity generation throughout the year, based on historical seasonal rain patterns and
geography. Hydrological study results are essential for the financial analysis since plant
operation is crucial to project financial viability. Hydrology determines the optimal size
and average load factor for a hydropower plant, which summarizes how much electricity
can be produced throughout the year with a specific installed capacity. Therefore,
hydrology’s stochastic nature makes it essential to assess Project sensitivity to annual
energy yield fluctuations and to predict how much electricity can be sold throughout the
year, because Project cash flow will be volatile. Hydrology is affected by climate change
impacts (rain patterns, water flows), which has potential to increase uncertainties
connected to water flows and hydrology. Hydropower plants’ cost structure includes high
capital costs and low operating costs compared to thermal plants, which have smaller
investment costs but higher operating costs due to fuel use. This implies that hydropower
projects have longer-term benefits and therefore may seem less attractive if the analysis
period chosen is too short. Therefore, even though the period selected for the financial
analysis may be shorter than that considered for the economic analysis, it should still be
long enough to capture longer-term project benefits. In addition, the financial analysis
should consider residual values of the HPP if the analysis period is shorter than the plant
operating lifespan. Economic analysis is conducted primarily in response to a request by
the country in which the project will be located, or an international financial institution
such as development banks. However, for large hydro projects especially in case of
negotiated tariffs, economic analysis is essential and provides all stakeholders (including
developers) with valuable insights on the value of the project to the economy. Economic
analysis evaluates project costs and benefits from the perspective of the economy/society.
Benefits and costs (transnational, national and regional) including project external
effects are quantified and expressed in monetary terms to derive the economic net benefit.
The breakdown of costs for a hydropower plant suggests that typically 60–70% of the
total is accounted for by the civil works. Equipment only accounts for 25–35% while
engineering and consultancy takes the remaining 5–10%. Since the civil engineering
portion of the project will involve considerable labor costs, overall costs will vary with
these costs. Labor costs in some regions are likely to be much lower than in others.
Actual capital costs for hydropower plants vary widely but typical costs, based on
published figures for recent plants, are between $1000/kW and $2000/kW. Many of these
plants have been built in developing countries where labor costs tend to be lower than in
developed countries. The U.S. Energy Information Administration (EIA) has estimated
that the cost of a new 500 MW hydropower plant in the United States, commissioned in
2011 and entering service in 2015, would be $2134/kW, just outside the upper limit of the
preceding range.
Small hydropower plants tend to cost more than the larger projects because many of the
costs do not scale with size. Typical costs are from $1500/kW to as much as $5000/kW or
$7500/kW. However, the actual costs of such projects will depend on both size and the
type of technology being used. Very small schemes based on pumps as turbines could be a
much lower cost.

For pumped-storage for large systems :

Variables Limits
Power (MW) >100-400
Head (m) >50-500
Price of the energy >0,2 and <0,8
(M€/MW)
Discharge (m3/s) >2

Price of the energy (M€/MW)

Max Price of 1040 MW = 832 M€

Min Price of 1040 MW = 208 M€

Even with relatively high capital costs, hydropower can offer a low cost of electricity
option. For example, in the United States, the EIA estimated that the cost of electricity
from a new hydropower plant entering service in 2017 would be $89.9/MWh. Of the
common technologies this was only undercut by a natural gas combined cycle power plant
without carbon capture and storage. This price will be based on some form of financing
and loan repayment. However, for plants in the United States that have paid off their loans,
generation costs are estimated to be between $20/MWh and $40/MWh, undercutting
virtually any alternative source.

See the Pew Center website: http://www.pewclimate.org/technology/factsheet/hydropower