Hypothetical Financial Analysis of a Typical Microhydropower.

Khem Gyawali/506Pitamber Paudel/509

Ramendra Kumar/514

IntroductionNo any quick solution of fulfilling the

increasing energy requirement. Main reasons of Hindrance in development

of livelihood of Far hilly regions is nothing other than unavailability of energy.

Transmission is expensive in those region.MHP may be the Quick solution.Just installing of MHP is not enough.

Potential users having Economic generating activities required.

Otherwise low plant load factorTraining and other support programs

should be provided to local people so that they are encouraged for small cottage industries and entrepreneurship

Subsidies are required to disseminate any new energy technology

So in this project we have studied the variation in economic performance due to variation in plant load factor and subsidy

ObjectivesMain objective:To perform financial and economic analysis of a

typical MHP taking plant factor of 0.4 in starting year and demand in increasing trend of 4% per annum 

Specific objectives are: To perform financial and economical analysis with

and without subsidyTo find unit cost with and without subsidyTo study effect on financial and economic analysis

MethodologyLiterature review of few Micro Hydro.Financial and economic analysis was done

with subsidy and without subsidy.Unit cost was also calculated.The results were compared.On basis of results conclusions were drawn.

Hypothetical Technical detailsInstalled capacity : 24kWDesign flow :82 lpsGross Head : 58.50mTurbine type : Pelton Major components of Micro HydroDiversion weirHeadrace canal Desilting basinForebayPenstock pipePowerhouse buildingTurbineGeneratorTransmission line

Criterion for Accepting and Rejecting a Project(Financially only)

Net Present Worth (NPW) Criterion:The present worth of each net cash flow at the MARR. Add up these

present worth figures, their sum is defined as the project’s NPW.PW (i) = ∑An/ (1+i) n

Where PW (i) = NPW calculated at iAn= Net cash flow at the end of period ni=MARRn= Project life

A positive NPW means that the equivalent worth of the inflow is greater than the equivalent worth of the outflows. This means the project makes a profit.If PW (i)>0, accept the investment.If PW (i) =0, remain indifferentIf PW (i) <0, reject the investment.

Annual EquivalentEqual payments on an annual basis. Knowing that net present worth,

annual equivalent can be calculated by multiplying amount by the capital recovery factor.

If AE (i)>0, accept the investment.If AE (i) =0, remain indifferentIf AE (i) <0, reject the investment.

 

Internal Rate of Return (IRR)Internal Rate of Return (IRR) is defined as the discount rate which makes

the NPW of the project equal to zeroIf IRR>MARR, accept the project.If IRR=MARR, remain indifferentIf IRR<MARR, reject the project

Benefit Cost ratioFor a benefit cost profile, let B and C be

present values of benefits and costs.B=∑bn (1+i)-n

C=∑cn (1+i)-n

B/C ratio= B/CIf B/C (i)>1, accept the investment.

If B/C (i) =1, remain indifferentIf B/C (i) <1, reject the investment.

Subsidy policy of AEPC in MHPThe subsidy for MHP projects/schemes is as

follows:  A subsidy amount of NPR 15,000 per

household will be provided for new MHP project from above 5 kW to 500 kW. But the subsidy will not be more than NPR 125,000 per installed kW.

 

Assumptions for economic and financial analysisThe project life is taken for 15 years.Three staffs one manager and two operators are sufficient to

manage plant. The salary of manager is Rs 5000/month and increases Rs 250/month in a year. The operators salary is Rs 3500/month and increases Rs 200/month in every year.

Initial office expense is about Rs 5000/year and miscellaneous cost is Rs 4000/year. These costs increase 4% in a year.

Replacement cost for wooden poles occur each 5 years. The price increases by 5% in next period.

Operation and maintenance cost remains constant which is 2% of the initial investment.

Current energy demand is 40% of total capacity. Plant factor is 0.4.

The demand goes on increasing 4% per annum on average.The selling price of electricity per unit is Rs 5.In economic benefit calculation only substitution of kerosene and

dry cell batteries are taken. Their prices are assumed to be constant in fifteen years for simplicity.

RESULT

NPV of cash flows from year 1 to 10 Rs1,909,346.02 NPV (Rs1,726,953.98)AE (10%) (Rs227,049.16)

IRR 1.365%

NPV of cash flows from year 1 to 10 Rs1,909,346.02 NPV

Rs523,046.02

AE (10%) Rs68766.84

IRR 15.392%

NPV of cash flows from year 1 to 15 Rs8,275,634.57

ENPV Rs4,639,334.57

AE (10%) Rs609,950.84

EIRR 28.542%

Total cost Rs5713584Total benefit Rs10352919

B/C ratio 1.81

NPV of cash flows from year 1 to 15: 8,275,634.57

ENPV : Rs 6,889,334.57 AE (10%):Rs905,766.84

EIRR: 75.241%Total cost: Rs3463584Total benefit: Rs10352919

B/C ratio: 2.9

Unit cost with subsidy Rs 4.34Unit cost without subsidy Rs7.17

Simulations

ConclusionsBy doing this project we got knowledge about

financial analysis of any project in general .Especially in case of MHP just installing is not enough but its load factor must be adequate .In many situation local people have to be provided training on small entrepreneurship and skill development so that income generating activities increase resulting increase in energy consumption and thus load factor. Finally while thinking of any energy projects such points must be reckoned in mind.

Subsidies plays major role in development and dissemination of any new energy technology.

RecommendationsEnd use applications in micro hydro increase

revenues but total cost remains same. It also reduces cost of electricity per unit.

While approaching to MHP in any locality economic generating activity should (small entrepreneurship consuming electricity) also be encouraged so that adequate plant load factor is obtained.