Hydropower development is a costly and risky business for a developer

May 21, 2010 Letters

Dear Editor,
I refer to several articles in the press recently about the proposed 150 megawatts Amaila Hydro Power Project and would like to comment as follows: Using a figure of US$4000 per kilowatt (presently used for a plant in developing countries) the developer would price the Amaila Plant and transmission line at around US$600 million to construct.
Using a capital cost recovery period of 25 years the developer for the project, Sithe Global, or any one else would have to payback to the lenders most likely the Chinese and IDB, approximately US$71.2 million per year, based on 11% interest rate. After introducing a capacity factor for annual generation from the 150 MW plant, its energy cost works out to be US9.2cts i.e. G$18.86 per kilowatt-hour. The current rate in Guyana for residential power use presently is around G$26.6 per kilowatt-hour.
To the above you have to add the following costs – developer’s profit, transmission and distribution cost, maintenance of the plant and access roadway. In addition to these costs, if there is any change in site geological conditions necessitating design changes this will result in an enormous cost over-run that would further increase the cost per kilowatt-hour.
In other words since the Govt. would be purchasing the power produced for a period of 25 years, the cost to the Govt. may very well be the same as the present rate per kilowatt hour or probably more.
However, the country would have its own hydroelectric plant. The other factor too is that on account of impending global warming causing a period of less rainfall the developer would pass the cost on the Govt. since the plant would be generating at lower than anticipated capacity.
The Govt. also has to allow for the present plant in Kingston to be in an operational state at all times during and after construction of the hydro plant.
At the end of the 25 years the Govt. would also have to refurbish the turbines and generators (four would be required for the plant) and that would also be a separate extra cost to the Govt.
Even if this Motilal guy can successfully build the roadway in eight months’ time it will take another 1-2 years to design the plant before mobilization and construction can commence. By that time the roadway could be washed away. I would like to draw the Govt. attention to the roadway built by the previous Govt. for the upper Mazaruni Falls Hydropower Project in the 1970’s. The roadway washed away within a year after construction. Pontoon crossings at the two rivers would not be suitable for transporting heavy equipment and material and bridges would have to be built by the developer. All these extra charges would be passed on to the Govt. in the energy price.
The President’s statement that Hydro Power would cost pennies per kilowatt-hour is nothing more than a pipe dream.
If this project does go ahead which I doubt very much, I would suggest that an experienced hydro-power economist review the Terms of the Power Supply Contract before the President agrees to the Terms and Conditions.
M. Alli

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Hydropower development is a costly and risky business for a developer

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