Money. It makes the world go ‘round.
This saying is not too far off the mark when it comes to hydroelectric power.
After all, hydropower is a business. Ultimately, hydro facilities are conceived, built and operated to make money.
Do they have other benefits? Absolutely. But hydropower plants are not built only to provide low-cost electricity to the local region (this can be achieved through other generating technologies). They are not constructed solely to supply drinking water or provide flood control or offer recreational opportunities (a dam can do all of these things).
So, I was interested to read an article a month ago about a failed attempt in India to build a hydro project using viability gap funding, structured as a public-private partnership (PPP).
According to The Indian Express, the 210-MW Tuivai project on the Tuivai River was cleared in 2013 to become the country’s first hydro project financed using this mechanism. Essentially, if a project promises high economic value but the financial returns are not adequate for an investor seeking profit, the government can meet a portion of the cost to make the project viable.
The central government meets up to 20% of capital cost of a project being implemented in PPP mode. The state government can contribute another 20% of the cost. Potential investors bid for these projects based on the amount of viability gap funding needed, with those needing the least support receiving the award.
Mizoram was the first Indian State to use viability gap funding and the first northeastern state to take up a large project as a PPP.
At that time, development of Tuivai was expected to cost Rs 1,751 crores (US$281 million). However, these funding plans fell through near the end of 2014 because banks and private developers shied away from going ahead with the project.
Despite this, the project is still being developed. The government of Mizoram recently signed a memorandum of understanding with the North Eastern Electric Power Corporation (NEEPCO) to develop Tuivai. One change: According to its website, the project has been reduced in capacity to 51 MW. The revised cost estimate is Rs 300 crore (US$48 million).
Private investment absolutely is needed to develop hydropower. But it can be difficult attracting that money. India’s approach seems like a good one, but clearly it still has a way to go before it is successful for hydro.
We [PennWell’s Hydro Group] absolutely believe in hydropower as a business, and this is an aspect of the industry we cannot overlook. On HydroWorld.com, we have a section called Business & Finance part way down the home page in the middle column. We regularly publish business news related to hydropower there.
We also offer business information through our HydroWorld Market Index here. Check it out.
So here’s where I’m looking for perspectives from others. In your experience, what are successful modes of financing new hydro development worldwide? What is needed in this sector, and how can this funding “gap” be filled? Comment below or send me an email at email@example.com.