the construction of the baihetan dam: a cost-benefit...
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The Construction of the Baihetan Dam: A
Cost-Benefit Analysis
Cyril Ekierman
Juan Mejia
Carolina Miranda Rodrigues
University of Chicago
Fall 2015
BPRO 29000
Dr. R. Stephen Berry
Dr. George S. Tolley
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TABLE OF CONTENTS
I. Abstract………………………………………………………………………. 3
II. Introduction…………………………………………………………………... 4
a. Goal and Acknowledgements……………………………………………..5
b. Overview of China’s Energy …………………………………………......5
c. Basics of the Baihetan Dam……………………………………………….7
d. Baihetan Dam Power Production………………………………………...10
e. Baihetan Dam: Brief History………………………………………….....11
f. Dam Structure and Technology……………………………………….....11
III. Input Considerations
a. Economic Costs and Benefits……………………………………….......15
b. Environmental and Social Costs and Benefits……………...……………21
IV. Analysis……………………………………………………………………...32
a. Scenario 1………………………………………………………………. 32
b. Scenario 2………………………………………………………………. 36
c. Scenario 3………………………………………………………………. 39
d. Scenario 4………………………………………………………………. 42
e. Scenario 5………………………………………………………………. 45
f. Impact of Discount Rate…………………………………………………48
V. Conclusion………………………………………………………………….. 49
VI. Bibliography…………………………………………………………………51
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ABSTRACT
This paper focuses on a cost-benefit analysis of the Baihetan hydroelectric dam in
China. We first provide background information on the energy market in China and the
importance of the development of hydroelectricity for the country, focusing on the basic
elements of the Baihetan Dam itself and similar projects in the region. We then consider
which inputs to include in our model, and what advantages and disadvantages each would
bring. Finally we run five different scenarios over a 60 year period and see whether there
is a positive or negative NPV given different possible future discount rates. We determine
that under current circumstances, the overall discounted value over the time horizon is not
sufficient to justify the project.
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INTRODUCTION
Goal and Acknowledgements
The goal of this paper is to perform a cost-benefit analysis of the Baihetan Dam in
China and to determine whether the project’s benefits outweigh its social, economic, and
environmental costs. We will first provide background information on the project, which
is mostly centered on a brief history of the area under construction, China’s energy
consumption, and dam technology. We will then determine the various beneficial and
costly inputs that should be taken into consideration for the Baihetan Dam complex, and
how they contribute to our calculations. Finally we will run an analysis of these inputs in
different scenarios to determine how changes in the different variables would affect the
project’s viability.
In addition, we would like to thank our classmates May Huang and Shaun
Majumdar for their help translating original documents from Mandarin.
Overview of China’s Energy
China is the world’s largest energy consumer, and its growth rate of approximately
10% per year in the past decade has caused a strong increase in energy demand.
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Although studies have demonstrated divergence in the relationship between a
country’s GDP growth and energy consumption, it widely accepted that the relationship
between the two strengthens as the country becomes more developed. According to the
granger causality test, economic growth causes energy consumption and energy
consumption causes economic growth (International Journal of Economics and Finance,
2009). This relationship has crucial policy implications since China has a large gap
between the energy it supplies and how much is demanded. Therefore, in order to spur
economic growth, the government will be required to improve energy efficiency in order
to reduce this gap.
In addition, China is currently the world’s largest emitter of carbon dioxide, where
78% of its electricity demand is met by burning coal. Due to the serious environmental
costs that arise from this activity, the country has searched for viable energy alternatives
that can be sustainable in the long-run. Hydroelectric power represents a possible option,
Fig. 1. Relationship between GDP and Energy Consumption. Source: U.S. Energy
Information Administration (2012)
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with 16% of the country’s supply already coming from existing dams. China is already the
world’s leading country when it comes to hydroelectric power production, and many
projects in the Nu River along the western Yunnan Province have been proposed to further
grow its output capacity.
Fig. 2. Trends in the top five hydroelectricity producing countries. Source: U.S.
Energy Information Administration (2014)
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The rapid growth of GDP and personal incomes over the last few decades have led
to an increase in demand for electricity, both in terms of industry and consumer usage. This
demand has been mostly met by burning coal, which has increased on average 12% since
2001. Apart from its environmental toll, China’s reliance on coal burning has proved
problematic since its reserves have fought to meet the country’s demands (it became a net
importer of coal in 2009 for the first time) and natural disasters often impact production.
While other energy forms like nuclear power and natural gas could also serve as
alternatives to coal, the expenses and implications associated with them make the
Coal 78%
Hydro16%
Oil & Natural Gas4%
Nuclear 2%
Fig. 3. Chinese electricity generation by fuel type. Source: China Economic Review
(2009)
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development of hydropower appear to be much more feasible. Furthermore, China has been
rapidly developing new technology for generating electricity through hydropower, and
most of the turbines its dams use in the Yangtze and Jinsha River nowadays are
domestically produced. It also has the greatest potential for hydropower energy out of any
country in the world, with estimates of total capacity being around 380,000 megawatts
(Cheng, 1999; National Bureau of Statistics, 2006). Fig. 4 shows potential for hydropower
development in various countries, and it can be observed when compared to other countries
how China’s ratios show the technical and economic potential still untapped in its energy
market.
Country Ratio of economic potential to
actual
China 6.6
Indonesia 3.13
Brazil 3.0
India 3.0
Norway 1.8
United States 1.3
World Total >2.78
12 large hydropower bases were identified in 1989 that would equal a total of
214,726 MW of possible hydropower energy production (China Electricity Council, 2008).
Fig. 4. Potential for hydropower development. Source: MIT OpenCourseWare.
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Following this, the development of hydroelectric power began. Fig. 5 shows the total
capacity for each of the dams on the Jinsha and Upper Yangtze River, alongside their
expected start and end dates.
Base Dam Capacity Start End
Jinsha River Xiluodu 12,600 MW 2005 2015
Baihetan 12,000 MW 2008 2020
Wudongde 7900 MW 2006 Unknown
Hutiaoxia 6000 MW 2004 2015
Xiangjiaba 6000 MW 2006 2015
Hongmenkou 5000 MW Unknown Unknown
Xinli 2500 MW Unknown Unknown
Pichang 2500 MW Unknown Unknown
Guanyinyan 2500 MW 2008 2016
Yangtze River Three Gorges 18,200 MW 1993 2009
Zhuyangxi 3000 MW 2009 2016
Gezhouba 2715 MW 1970 1988
Shipeng 2130 MW Unknown 2020
Xiaonanhai 1000 MW 2007 2013
The Jinsha River specifically has the potential to generate nearly 48,000 MW,
including the Xiluodu and Baihetan Dams, which have the country’s second and third
largest hydropower capacity.
Basics of the Baihetan Dam
The Baihetan Dam is located in Ningnan and Qiaojia counties in Southwestern
China (IR, 2015). It strides both the Sichuan and Yunnan regions, and is specifically
located in the lower Jinsha River (a tributary of the larger Yangtze River which flows into
the East China Sea).
Fig. 5. Development of high capacity dams in Jinsha and Yangtze Rivers. Source:
China Economic Review (2009)
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Construction of the dam started in 2008 and is projected to end in 2020. The
construction of the dam is jointly financed by the China Development Bank, the China
Construction Bank, and the Yangtze Power Company (IR, 2015), and undertaken by the
China Three Gorges Project Corporation which is an energy company owned by the state.
The Baihetan Dam is a double-curvature arch concrete dam, which will be
approximately 289 meters in height (ChinaDaily, 2014). When completed, the dam will be
the fourth biggest hydroelectric plant in the world, and the third in China behind only the
Three Gorges and Xiluodu dams. The dam will have a reservoir capacity of approximately
20 billion cubic meters (ChinaDaily, 2014), a base width of 70 meters and crest width of
around 13 meters. The structure of the dam consists of a water diversion system, 18
Fig. 6. Known locations of dams in the lower and middle Jinsha River above Three
Gorges Dam. Source: Energy China Forum (2010).
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turbines, corresponding power generators, and a flood discharge system. The installation
energy production capacity of the dam is expected to be around 12,000 megawatts. The
annual power production of the plant is calculated at around 55 terawatts of electricity.
Baihetan is expected to compliment the power production of the Xolodu, Xiangjiaba, and
Wudongde power stations, which are also located along the Jinsha River (Adams, Yuach,
Qinc, & Xiao, 1999). The combined output of the four hydropower stations is expected to
double the power production of the Three Gorges Dam.
Construction of the Baihetan Dam and hydropower plant was approved in 2006 (ICA,
2008), with the main goal of generating energy in the southwest region for the highly
industrialized and populated eastern regions of the country (Yonghui, Baiping, Xiaoding,
& Peng, 2006). The plan was to tap into the vast potential of available water resources in
provinces like Sichuan and Yunnan to produce energy. The construction of the dam was
accorded to the China Hydropower Engineering Consulting Group Corporation (ICA,
2008). The East China Investigation and Design Institute were tasked with the design
aspects of the project and a feasibility assessment of the hydropower plant was undertaken
prior to its approval. Construction of the four dams was budgeted at 50 billion Yuan (6
billion US Dollars) each (Adams, Yuach, Qinc, & Xiao, 1999). The China Development
Bank, China Construction Bank and the Yangtze Power Corporation agreed to partner in
the financing of the project. The project was expected to generate around 300 million Yuan
(37 billion US Dollars) to the province of Sichuan which will distribute the electricity
produced to the country’s coastal regions (ICA, 2008).
Other than electricity production, the dam will provide a mechanism of flood
control on Jinsha River and silt retention (Yonghui, Baiping, Xiaoding, & Peng, 2006).
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The reservoir created by the dam will also serve as a water transport channel and a source
of water for other uses (ChinaDaily, 2014), but will require the displacement of over 65,000
people (IR, 2015).
Baihetan Dam Power Production
The Baihetan Dam will require 18 turbines in order to generate its maximum power
output of 12,000 MW, each one being responsible for 725 MW. The net capacity factor
however, which is the ratio of actual output to its potential output if it were to operate in
full capacity, is likely to be lower than the official figure of 52%. Many reasons might
cause an energy plant to have a capacity factor below 100%, which mainly include turbines
being out of service and operating at a reduced capacity because of malfunctioning parts,
and purposefully curtailing the output when not economical to operate at full capacity.
When it comes to renewable energy, and more specifically hydroelectricity, a third reason
also includes managing water level (i.e. keeping it from getting too high or too low) and
adapting to the ecosystem around. For large hydroelectric plants, capacity factors tend to
be around 40-50%. The Three Gorges Dam, for instance, operates around 46% capacity,
while Xiludo Dam operates around 47%. Fig. 7 shows the comparison of various world
regions and their capacity factor.
World Region Average Regional Capacity
Factor North America 47%
Latin America 54%
Europe 35%
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Africa 47%
Asia 43%
Oceania 32%
World 44%
Baihetan Dam: Brief History
The main impediment to construction of more hydroelectric power plants is the
complications that arise with displacing people when constructing a new dam. The fact that
people tend to settle clause to waterways and that China is densely populated mean that for
each new dam a large local population has to be displaced. The construction of the Three
Gorges Project alone resulted in the displacement of over 1.3 million residents of the area
(Bhargava & Rennie, 2015). For this reason, a number of proposed dams have been
canceled during the past three decades. In the case of the Baihetan Dam, it is estimated that
more than 65,000 people will have to be resettled.
Dam Structure and Technology
As previously mentioned, The Baihetan Dam will have a double-curved arch
concrete dam and reach a height of nearly 290 meters, with a total water storage capacity
of 20.60 billion cubic meters of water (Blomqvist and Rönntoft, 2012). It will also have six
discharge surface spillways, which are used in case of flooding, and seven outlets to control
water level. The spillways are particularly important in order to guarantee long-term safety
Fig. 7. Regional hydropower average capacity. Source: IJHD (2010).
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and viability without constantly damaging the environment. The dam will also include a
downstream plunge pool and three flood discharge tunnels.
There are three main types of turbines employed in dams around the world, which
are Francis, Kaplan, and Pelton turbines. In the case of the Baihetan Dam, all 18 used are
Francis turbines.
A turbine is a mechanical device that generates energy from the movement of
liquids and gases. A turbine is comprised of a moving rotor which has a number of blades
attached to it. Energy is generated through the movement of the blades (Hammill, 2011).
The turbines used in hydroelectric power production are water turbines, which utilize the
kinetic energy of water to generate electric currents in a generator (Hammill, 2011). Water
Fig. 8. Baihetan Dam. The six discharge surface spillways are marked with 1. The
deep outlets are marked with 2, and the plunge pool is marked with 3. Source:
Blomqvist and Rönntoft (2012).
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turbines are classified into two groups according to their mode of operation, which are
impulse turbines and reaction turbines.
Francis turbines are inward-flow reaction turbines, which tend to be the most
commonly used around the world due to their installation and maintenance being easier
and less costly. This kind of turbine was first developed in 1848 by James B. Francis, who
improved on existing water wheels designs that were inefficient in operating to a site’s
exact water pressure and flow. The main innovation made my Francis was to allow the
wheels to turn horizontally as opposed to vertically, making it more efficient and less likely
to malfunction.
A Francis turbine consists of four main components: spiral casing, guide vanes,
runner blades, and a draft tube. The spiral casing is mainly responsible for maintaining a
constant flow. The guide vanes convert pressure energy into momentum energy. The
runner blades are the center of the turbine where water hits and causes the turbine to turn,
therefore also being the part that affects power production the most. Finally the draft tube
connects parts and allows water to exit the turbine, and works to minimize how much
kinetic energy is lost in the process. This plays directly into how efficient the turbines at
the Baihetan Dam tend to be. Turbine efficiency is determined by the proportion of
mechanical energy that is not converted into electrical energy, and is therefore dissipated
in the process. In the case of Francis turbines, efficiency is around 90%.
Since the Francis turbine is a reaction turbine, it generates energy by reacting to the
pressure of water, which means extracting energy from the blades when water hits them
under strong pressure. This means that for most dams using Francis turbines water flow
and the rate at which it hits the turbine is one of the most important factors in determining
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power. Another major contributor to power in dams using Francis turbines is the height
measured from the reservoir at the top of the dam to the river that flows after. In sites where
there is a strong water flow and significant height difference, as is the case with the
Baihetan Dam, these types of turbines produce energy at a higher efficiency when
compared to the other two.
Fig. 9. Francis turbine used for Three Gorges Dam in China. Source: Voith Siemens
Hydro Power Generation (2003).
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INPUT CONSIDERATIONS
In the following section we will determine the costs and benefits of the Baihetan
Dam project. Using standard discounting methods, we are able to determine the net present
value of the project in order to determine whether this dam is worth building. In order to
determine the true return of the Baihetan Dam, we take in to account the social,
environmental and economic (or implicit) costs and benefits from the construction and
operation of the dam. We use publicly available information as well as comprehensive
economic reasoning and intuition to determine our model’s inputs.
Economic Costs and Benefits
The economic costs and benefits are the financial costs directly derived from the
construction and operation of the dam throughout our time-horizon. These include the
costs of construction, the costs of operating the dam when it is completed and the
opportunity cost of the energy produced by the dam. The benefits of the project mostly
consists of the value of the electricity produced throughout the dam’s lifetime.
Development and Construction Costs
Estimates for the construction cost of the Baihetan Dam vary drastically. In a report
released in 2008, the original estimate of the project’s cost ranged from $3.68 to $5.43
billion USD (Probe International, 2008). These estimates were the result of an analysis
conducted by the China Three Gorge Project Corporation, the owner and developer of the
project. We believe these estimates to be purposely understated in order to facilitate the
political discussion surrounding the construction of the dam and thus the approval of its
construction. Another analysis, conducted by Bentley Systems, Inc, the company
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contracted to provide software services for the dam, places the estimated cost of the project
at $13.1 billion USD (Bentley Systems, 2008).
In coming up with our model’s construction costs, we chose to use the upper bound
of the initial estimate as our starting point ($5.43 billion USD). We then chose to use a
multiplier of this estimate that would properly predict how the estimated and true cost of
the construction of the dam would compare. A study conducted by Oxford’s Saïd School
of Business in 2014 compared 245 large dams from 65 countries and found that “the
construction costs of large dams are on average +90% higher than their budgets at time of
approval”. It is important to note that this assessed construction cost multiple is done before
“accounting for negative effects on human society and the environment.” (Saïd School of
Business, 2014).
However, we also chose to look at The Three Gorges Dam’s estimated $8.35 billion
to $28 billion real construction cost ratio of 3.35. (Reuters, 2009). While it is unlikely that
this dam’s construction cost will be this large, it is nevertheless grossly understated. From
the available literature on previous project, we conservatively estimate that the multiplier
will likely be of 2.5. Accordingly, the true cost of constructing the Baihetan Dam will be
$13.57 billion.
Projected Cost Multiplier Estimated Cost
$5.43 2.5 $13.57
Operational Costs
Fig. 10: Estimated Construction Cost of Baihetan Dam ($Billions)
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In order to determine the dam’s operational costs, we must first determine the
number of workers that will remain on site once the dam is operational. Note that the cost
of the manual labor during the construction period has already been accounted for in the
previous section. In order to determine how many workers will continue to work
throughout the project’s lifetime, we look at the data available for large dams of similar
size worldwide. Unfortunately, there is no public information on the total number of
workers being employed by the Xiluodu dam that is of very similar size to the Baihetan
and just began operating this year. The Three Gorges employed 60,000 individuals total,
including 25,000 construction workers. It is estimated that around 3500 workers remain
employed at the Three Gorges (IR, 2015). We also know that 3,153 workers are needed to
maintain the Itaipu dam operational. We used these two dams, the only two dams in the
world with greater production capabilities than the Baihetan and Xiluodu, to estimate that
3000 workers will be needed to maintain the Baihetan dam operational.
After having calculated the number of workers that will remain employed once the
dam is operational, we use the average salary in the Chinese Qiaoija County, where the
dam is located, as the estimate of the average salary of a Baihetan Dam worker. This
number is equal to approximately ¥12,000 yuan/person/year (China Highlights, 2015),
which comes out to roughly $1,875 USD at the current fixed exchange rate (Bloomberg
Data, 2015). By multiplying the number of estimated workers by this average salary; we
conclude the yearly operational salary cost of the dam. This estimate comes out to
$5,625,000.
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Estimated number of
employees once dam is
operational
Estimated average salary of
employee
Estimated annual operational
cost of Baihetan dam
3000 $1,875 $5,625,000
Cost of Impact on Fishing Industry
It is very difficult to quantify exactly how much Baihetan will destroy the fishing
industry in the Jinsha River. This river is a tributary of the larger Yangtze River of which
the fish populations and in accordance, the region’s fishing industry, never truly recovered
from the destruction caused by the Three Gorges Dam. An assessment on the impact of
the Three Gorges conducted in 2015, estimates the negative effect of this dam on the fishing
industry to have a net present value of $0.7 billion. Since the Jinsha is a tributary of the
Yangtze River, we believe that the fishing industry in this region has already been heavily
impaired by the construction of the Three Gorges. More so, since the Baihetan is only one
of several dams that are being built along the Jinsha River, it is hard to calculate what its
individual impact on the river will be. Surely, the completion of the Xiluodu, Wudondgde,
Hutiaoxia, Xiangijiaba, Hogmenkou, Xinli, Pichang, Guanyinyan and Baihetan dam will
all have devastating effects on the fish populations of the Jinsha River. However, the EIA
documents claim that through restocking and the creation of fish reservoirs, 60 species of
fish, including 27 endemics species out of the 154 types of fish, and 56 endemic species
are expected to survive. The reason for this is that the change in habitat will actually benefit
Fig. 11: Estimated operational cost of the Baihetan Dam
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some species but most likely negatively affect most of the species in this ecosystem, which
have very specific ecological niches. (QQ News, 2014).
We decided to estimate the direct effect of the Jinsha River dams to be analogous
to that of the Three Gorges Dam. Studies have proven that multiple dams of smaller scale
have a more devastating impact on ecosystems than one large dam. However, we also
consider the fact that the Jinsha River has already seen its fish populations plundered by
the Three Gorges. Thus we estimate that the Jinsha dams, will together be responsible for
a NPV cost of $.7billion. Since 9 dams are going to be built along the Jinsha, we decided
to attribute the cost derived from the Baihetan to be 1/9 of this estimate.
Estimated cost to fishing
industry due to Jinsha River
dams
Number of dams under
construction in Jinsha River
Estimated cost to fishing
industry due to Baihetan dam
$.7Billion 9 $77,777,777
Revenue from Energy Production
The Baihetan has a production capacity of 12,000 megawatts and is projected to
output an average annual output of 56,000,000 MWh. Much like the Three Gorges, the
Baihetan will distribute its energy to Mainland China, to the coast areas in the south and
the east. We chose the price at which that the energy produced by the Three Gorges Dam
is distributed as the price that the energy produced by the Baihetan Dam will be sold at.
Originally, the energy produced by the Three Gorges sold at a price of ¥250/MWh or
Fig. 12: Estimated operational cost of the Baihetan Dam
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$35.7/MWh. (Qiaojia Investment Network, 2014). At this price the annual benefit derived
from the sale of energy produced by the Baihetan Dam is equal to $1,999,200,000/year.
Estimated annual MWh
production
Estimated $/MWh Annual Revenue from Energy
Production
56,000,000 $35.7 $1,999,200,000
Benefit from saved costs of carbon
The Baihetan Dam will be fulfilling energy requirements that would otherwise be
produced through the burning of coal. By estimating the efficiency of burning coal to
produce energy in China, as well as estimating C02 emissions per ton of coal in China, we
come up with an estimate of how much coal is not burned and thus how much CO2
emissions are avoided each year the Baihetan Dam is operational. (This is detailed under
the Environmental Costs section) We estimate this value at 10.40688 million tons (Mt).
We also assume coal based energy production technology to remain constant throughout
our model.
Shortcomings of Economic Costs and Benefits Consideration
We are aware that there are several shortcomings to our analysis of the economic
costs and benefits of the Baihetan dam. We acknowledge that our estimates are produced
using publicly available information and thus might be suffering from a strong bias due to
the Chinese government’s control of national media. We also acknowledge the presence of
unquantifiable costs and benefits. For example, the construction of this dam along the
Fig. 13: Estimated annual benefit from Energy produced
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Jinsha River might lead to increased industrialization in the region. Also, we have no
available information on the predicted maintenance costs of the Baihetan dam. The reason
for this is that this number can vary drastically depending on the occurrence of accidents
of ecological disasters and severely which in turn the dams’ operational costs. We would
also like to note that this dam, like the Three Gorges, will see its productivity increase
during the spring due to the fact that the water flow of the Jinsha and the Yangtze increases
during this time as a consequence of the melting of glaciers. This is significant because this
is also the period in the year during which energy demands are considerably lower, and
thus energy is cheaper. This could have implications for the cost benefit analysis of the
dam since the Baihetan will produce energy at its greatest capacity when it is selling it at
its lowest price.
Environmental Costs and Benefits
There are both costs and benefits for the environment derived from the construction
of a dam. On the one hand, the construction of the dam negatively impacts the surrounding
environments since it entails redirecting massive amounts of water, disturbing local
ecosystems and species’ ecological niches. On the other hand, hydro energy results in a far
smaller carbon footprint than fossil fuel alternatives. Since China produces roughly 80%
of its energy through the burning of coal, we believe it is sound to assume that the energy
being produced by the Baihetan Dam would supplant energy produced through coal. We
thus consider the positive carbon footprint of the Baihetan Dam to be the carbon footprint
that would result from burning the coal necessary to produce the equivalent amount of
energy.
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Although these two considerations make up the bulk of a dam’s true environmental
costs and benefits, there are other considerations that are much harder to quantify. For
example, it is nearly impossible to quantify in economic terms the value of the flora and
fauna being destroyed. More so, it is difficult to quantify how much we value, as a society,
not only the survival of unique endemic species.
Environmental Benefits
To quantify the benefit of the Dam’s positive carbon footprint, we look at the
emissions that would be released if the Baihetan’s average annual generation would instead
be generated by burning coal. To determine this, we first need to know China’s efficiency
at producing energy via coal. To do so, we decided to quantify this value for a given year
and assume that China’s energy production technology with coal will remain constant. By
dividing the total coal used in a year to make electricity in China by the total electricity
produced with coal in the same year, we are able to estimate the country’s efficiency when
producing electricity with coal.
We decided to use data from 2012 to determine China’s energy producing
efficiency with coal for that year. By assuming that this efficiency value will remain
constant in the future, we are able to determine a fixed value for the amount of coal that
would have to be burnt to match the Baihetan’s generation each year.
Using data from 2012 released by the EIA (Energy Information Administration),
we find that the “coal consumption by energy generation” is equal to 4,284.96997984
million metric tons. We then looked at the total electricity produced from coal sources in
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China in 2012. This value equals 23057.65946 TWh. Using this information we conclude
that the coal usage per unit of electricity, in China, is equal to 152.940 t/TWh. (EIA, 2012)
Coal Consumption due to
Energy Generation (Mt)
Electricity Production from
Coal Sources (TWh)
Coal Usage per Unit of
Electricity
4.28496997984 x 103 23057.65946 0.185837 Mt/TWh
Coal usage per unit of electricity
=Coal consumption for energy production /Electricity produced from coal
= 4.28496997984 x 103 / 23057.65946
=.0.185837 Mt/TWh
We assume that the efficiency of power plants running on coal remains constant throughout
our model.
In order to calculate the amount of coal that would be required to match the
Baihetan Dam’s generation ability, we multiply the estimated annual power generation of
the Baihetan Dam by the coal usage per unit of electricity (Mt/TWh).
The Baihetan is estimated to annually produce 56,000,000 MWh, or 56 TWh. Thus it would
require 10.40688 Mt of coal to produce the equivalent amount of energy.
Fig. 14: Calculating coal usage per unit of electricity in China
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Power Generation of
Baihetan
Coal usage per unit of
electricity
Estimated Coal Required to
Produce Baihetan’s Annual
Power Generation
56 TWh 0.185837Mt/TWh 10.40688 Mt/y
Coal required for producing Baihetan Dam annual power generation
=Power Generation of Baihetan x Coal usage per unit of electricity
= 56 TWh x 0.185837Mt/TWh
=10.40688 Mt.
Thus using this figure as our estimate, we predict that each year that the dam is operational,
10.40688 million tons of coal will be saved.
In order to calculate the amount of CO2 that would be released from burning this
much coal, we need to estimate on average how much CO2 China emits per unit of coal
consumed for generating energy. To do so we use China’s estimated CO2 emissions from
coal consumption for the year 2012. According to the EIA, 6512.700 million tons of CO2
were released in to the atmosphere due to the burning of coal in China in 2012 for the
production of energy. When we divide this number by 4.28496997984 x 103 Mt, the amount
of coal used in China to produce electricity in 2012, we get an estimate for the number of
metric tons of CO2 emitted per metric ton of coal consumption.
Fig. 15: Estimating amount of coal required to produce equivalent to Baihetan annual
power generation
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C02 Emitted from Coal
Consumption
Coal Consumed for the
Generation of Energy
Estimated CO2 Emissions per
unit of Coal Consumption
6512.700 Mt 4.28496997984 x 103Mt 1.5198 Mt C02/Mt of coal
consumed
CO2 emissions per unit of coal consumption
=C02 emitted from coal consumption / coal consumption for generating energy
=6512.700 Mt/4.28496997984 x 103Mt
=1.5198 Mt C02/Mt of coal consumed.
We use 2012 data on Chinese C02 emissions per unit of coal consumed for producing
energy and we assume it remains constant throughout the operation of the dam.
Having estimated CO2 emissions per unit of coal consumption for China, we proceeded
to calculate the amount of C02 that would be emitted annually if the energy produced by
the Baihetan Dam was instead generated through coal.
C02 emitted from coal
consumption
Coal consumption for
generating energy
Estimated CO2 emissions
from producing annual
energy with coal
10.40688 Mt 1.5198 Mt C02/Mt of coal =15.81735 Mt/y
Fig. 16: Estimating C02 emission per unit of coal consumed for generating energy
annual power generation
Fig. 17: Estimating C02 emissions from using alternative source (carbon) annual power
generation
26
Total CO2 emitted by matching production with coal
=Coal required to match production x CO2 emission per unit of coal consumption
=10.40688 Mt x 1.5198 Mt C02/Mt of coal
=15.81735 Mt/y
Thus we estimate that each year that the Baihetan dam is operational, 15,817,350.000 of
CO2 emissions from carbon will be avoided.
Estimating Benefit from Avoided Coal CO2 emissions
We use data from the United States Environmental Protection Agency to project
the social cost of CO2 emissions. The EPA has three different forecasts for the social cost
of emissions, and we choose to use their 3% discount model. This is their middle ground
model between their conservative 5% discount model and their 2.5% discount model which
prices the social cost of carbon dioxide in the future much higher. The model’s starting
point is $40/ton of CO2 for 2015 and forecasts up to the year 2050. (
Year
Social Cost of C02
emissions/t
2015 40
2016 41.28
2017 42.60096
2018 43.96419072
2019 45.37104482
2020 46.82291826
2021 47.80619954
2022 48.81012973
2023 49.83514246
2024 50.88168045
2025 51.95019574
2026 53.04114985
2027 54.15501399
27
2028 55.29226929
2029 56.45340694
2030 57.63892849
2031 58.73406813
2032 59.85001542
2033 60.98716572
2034 62.14592187
2035 63.32669438
2036 64.52990157
2037 65.7559697
2038 67.00533313
2039 68.27843446
2040 69.57572471
2041 70.68893631
2042 71.81995929
2043 72.96907864
2044 74.1365839
2045 75.32276924
2046 76.52793355
2047 77.75238048
2048 78.99641857
2049 80.26036127
2050 81.54452705
Annual growth rate % 3% discount rate average
2015-2020 3.2%
2020-2030 2.1%
2030-2040 1.9%
2040-2050 1.6%
We estimate that the social cost of carbon will continue to increase at an annual rate of
1.6% from the year 2050-2080.
Fig. 18: EPA’s projections for the social cost of carbon/Ton
(Note: Our Projections extend to 2068)
Fig. 19: EPA’s estimated annual growth rate of social cost of CO2 emissions
28
2020 cost of CO2 emitted by generating Baihetan’s power generation with coal
= C02 emitted from generating energy with coal x estimate of carbon cost
=15.817350000 Mt/Y x $40/ton
=$740,614,486
Above we demonstrate our methodology for estimating the annual benefit the
Baihetan dam will produce due to eliminating CO2 emission that would be released by
alternative energy sources (coal). Since the dam is expected to go operational in 2020, we
begin to quantify this benefit starting that year. We did the same process for each year in
order to get the annual social benefit that will arise from not burning 15.817350000 Mt of
coal each year. We assume that coal energy will remain at the same efficiency level and
thus the amount of annual coal being saved is fixed. However, the annual benefit from
saved coal emissions does vary since the social cost of a ton of CO2 does vary, increasing
each year.
Below we represent our results in a table extending up to the year 2068.
Year Social Cost of Carbon Tons of Coal Saved Social benefit from avoided CO2
Emissions
2015 $40.00 15,817,350 $632,694,000
Annual C02 emitted from
instead generating with coal
Social and environmental cost
of C02 emissions in 2020
Annual Cost of C02
emissions for 2020
15817350.000 t/Y $46.82291826/t $3479817x106/y
Fig. 20: Estimating C02 emissions/year from producing energy with coal
29
2016 $41.28 15,817,350 $652,940,208
2017 $42.60 15,817,350 $673,834,295
2018 $43.96 15,817,350 $695,396,992
2019 $45.37 15,817,350 $717,649,696
2020 $46.82 15,817,350 $740,614,486
2021 $47.81 15,817,350 $756,167,390
2022 $48.81 15,817,350 $772,046,906
2023 $49.84 15,817,350 $788,259,891
2024 $50.88 15,817,350 $804,813,348
2025 $51.95 15,817,350 $821,714,429
2026 $53.04 15,817,350 $838,970,432
2027 $54.16 15,817,350 $856,588,811
2028 $55.29 15,817,350 $874,577,176
2029 $56.45 15,817,350 $892,943,296
2030 $57.64 15,817,350 $911,695,106
2031 $58.73 15,817,350 $929,017,313
2032 $59.85 15,817,350 $946,668,641
2033 $60.99 15,817,350 $964,655,346
2034 $62.15 15,817,350 $982,983,797
2035 $63.33 15,817,350 $1,001,660,489
2036 $64.53 15,817,350 $1,020,692,039
2037 $65.76 15,817,350 $1,040,085,187
2038 $67.01 15,817,350 $1,059,846,806
2039 $68.28 15,817,350 $1,079,983,895
2040 $69.58 15,817,350 $1,100,503,589
2041 $70.69 15,817,350 $1,118,111,647
2042 $71.82 15,817,350 $1,136,001,433
2043 $72.97 15,817,350 $1,154,177,456
2044 $74.14 15,817,350 $1,172,644,295
2045 $75.32 15,817,350 $1,191,406,604
2046 $76.53 15,817,350 $1,210,469,110
2047 $77.75 15,817,350 $1,229,836,615
2048 $79.00 15,817,350 $1,249,514,001
2049 $80.26 15,817,350 $1,269,506,225
2050 $81.54 15,817,350 $1,289,818,325
2051 $82.85 15,817,350 $1,310,455,418
2052 $84.17 15,817,350 $1,331,422,705
2053 $85.52 15,817,350 $1,352,725,468
2054 $86.89 15,817,350 $1,374,369,076
2055 $88.28 15,817,350 $1,396,358,981
2056 $89.69 15,817,350 $1,418,700,724
2057 $91.13 15,817,350 $1,441,399,936
2058 $92.59 15,817,350 $1,464,462,335
2059 $94.07 15,817,350 $1,487,893,732
2060 $95.57 15,817,350 $1,511,700,032
2061 $97.10 15,817,350 $1,535,887,233
2062 $98.66 15,817,350 $1,560,461,428
2063 $100.23 15,817,350 $1,585,428,811
2064 $101.84 15,817,350 $1,610,795,672
2065 $103.47 15,817,350 $1,636,568,403
2066 $105.12 15,817,350 $1,662,753,497
2067 $106.80 15,817,350 $1,689,357,553
2068 $108.51 15,817,350 $1,716,387,274
Fig. 21: Estimated annual benefit from CO2 emissions
30
We acknowledge that there are many shortcomings and inputs not being quantified
in the environmental costs and benefits. For example, the EIA documents claim that
through restocking and the creation of fish reservoirs, 94 species of fish, including 29
endemic species are expected to disappear from the Jinsha River following the completion
of the Jinsha River Dams. Although we quantified which portion of the impact on the
fishing industry of the Jinsha we attribute to the Baihetan, we fail to quantify the social
cost of losing these species of fish. We also do not attribute an economic value to the
biodiversity loss of flora and fauna along the Jinsha River that will be caused due to the
construction of this dam. Unfortunately, not much research has been done on the expected
impact of the Jinsha River dams on the River. In fact, the construction of the Xiluodu Dam
began even before an environmental assessment report was even carried out.
More so, we fail to estimate and thus quantify other environmental impacts that will
be caused by the Baihetan. The largest unquantified environmental cost is the amount of
CO2 that will be released in to the atmosphere due to the transportation of materials to the
construction site, as well as the construction of the dam itself. We also note that the water
quality of the Jinsha River might be contaminated following the construction of the dams.
The Three Gorges Dam had devastating effects on the water quality of the Yangtze River
downstream from the dam. This not only negatively effects the local environment, but also
the many permanent residents that live off of this water source. We predict that the Baihetan
dam will also contaminate the air and create noise pollution once operational. However,
we consider this effect to be negligible when compared to the vast amount of CO2
emissions that would be released in to the atmosphere if the energy were produced using
coal instead.
31
The Jinshar River dams are expected to have devastating effects on the local fish
population, incomes and human populations dependent on fisheries. As many as 360,000
people will be displaced because of the Jinsha River Dams. The Baihetan dam is being
attributed with displacing a total of 67,000 individuals from the Ningnan and Qiaoija
counties. We thought it sensible to calculate the annual loss of revenue due to the
Baihetan’s impact on the local fishing industry, by multiplying the total number of
individuals displaced times the average salary of the Qiaoija county, before the
construction of the dam. We do this because this is a highly rural area, whose labor force
used to depend heavily on fishing. The average salary in the Qiaojia County is equal to
approximately ¥12,000 /person/year. This comes out to about $1875. Thus we are
attributing the Baihetan with an annual cost to the Yinsha River fishing industry of
$125,625,000.
32
ANALYSIS
This section is dedicated to the modeling of 5 scenarios using the inputs and
methodology described in the previous section. This analysis was conducted by calculating
the overall Net Present Value (NPV) for each variable on a 60-year time-frame, starting at
the beginning of the construction period. We aim to create these scenarios by adapting our
variables according to the context it is attempting to replicate. Mainly, we consider the
effects on the NPV of variations in initial construction costs, energy production efficiency
and prices of commodities.
The discount rate used remains constant throughout the various cases at 5%. This
is derived from the Chinese 50-year bond yield which historically trades between 3.5% and
5.0% (Bloomberg Data, 2015). Since the discount rate is key to the overall value of the
NPV, we provide an analysis of how various rates affect our end result at the end of this
section.
It must be noted that throughout our analysis, we make assumptions that certain
variables will remain constant. Notably, we assume that the conversion rate between the
Yuan and the Dollar will remain constant, and that the cost of production per megawatt for
both coal and hydroelectricity will also remain unchanged.
Scenario 1: The Official Story
In our first scenario, we input into the model the official figures for the project that
are stated by the Chinese government. The unreliability of government-provided
information in a single-party state like China makes this model an unrealistic, best-case
scenario. Similar and recent projects such as the Three Gorges Dam have demonstrated
33
that it is highly unlikely that the project will be completed on time and with the allocated
budget, and that power will be generated at the rate quoted by the authorities
INPUTS
General
Discount Rate 5%
Yuan/Dollar Conversion Rate 0.16
Technical
Total Production Capacity (Megawatt/Hour) 12,000
Annual Production (Megawatt) 42,048,000.00
Capacity usage factor 0.40
Total Construction Time (Years) 11
Remaining Construction Time (Years) 4
Social
Number of people displaced 67,000
Displacement Cost for (Three Gorges Dam) $11,088,000,000
Number of people displaced (Three Gorges
Dam) 1,300,000
Total Cost of displacement per person $8,529
Total Cost for Baihetan Dam $571,458,462
Economic
Initial budget $5,430,000,000
Overbudget factor 2.50
Number of operational workers 3,000
Yearly wage $1,920
Price per MWh $32.13
Alternative price per MWh 70.00
Total Cost of Overall Dam Projects to Fish
populations $700,000,000
Number of Dams 9
Number of Workers 3,000
Pay per year 1,875
Price of Coal ($ per Metric Ton) $120.00
Environmental
Coal Used in China (Megatons) (Annual) 4,284.97
Electricity Generated in China (Megawatts)
(Annual) 23,057,659,460.00
Megaton of Coal per Megawatt 1.85837E-07
Coal removed by Dam (MegaTons) (Annual) 7.81
Co2 Emissions in China (MegaTons) (Annual) 6,512.70
Megatons of Co2 Emissions per Megaton of
Coal 1.52
Megatons of Co2 Emissions removed by Dam
(Annual) 11.88
34
Overall NPV
Benefits
Revenue from Electricity Generation $14,351,528,335
Reduction in Co2 Emissions $8,085,009,480
Benefits Total $22,436,537,814
Costs
Development and Construction $10,250,870,274
Electricity Generation and Dam Operation $61,187,762
Impact on Fishing Industry $24,537,968
Cost of Price Difference between energy
sources $4,390,567,417
Resettlement of Local Population $431,524,608
Costs Total $15,158,688,029
Overall Net Present Value $7,277,849,786
Fig. 22: Input Table for Scenario 1
Fig. 23: Output Table for Scenario 1
35
Year Benefi ts Costs Overa l l NPV Cumulated NPV2009 0 520,841,361 -520,841,361 -520,841,3612010 0 496,039,392 -496,039,392 -1,016,880,7532011 0 472,418,468 -472,418,468 -1,489,299,2212012 0 449,922,351 -449,922,351 -1,939,221,5712013 0 428,497,477 -428,497,477 -2,367,719,0482014 0 408,092,835 -408,092,835 -2,775,811,8832015 0 388,659,843 -388,659,843 -3,164,471,7262016 0 370,152,231 -370,152,231 -3,534,623,9572017 0 352,525,935 -352,525,935 -3,887,149,8922018 0 335,738,985 -335,738,985 -4,222,888,8772019 0 319,751,415 -319,751,415 -4,542,640,2922020 1,498,387,955 832,626,605 665,761,349 -3,876,878,9422021 1,435,136,901 792,977,719 642,159,182 -3,234,719,7612022 1,374,674,067 755,216,876 619,457,191 -2,615,262,5702023 1,316,872,860 719,254,167 597,618,693 -2,017,643,8772024 1,261,612,544 685,003,969 576,608,576 -1,441,035,3012025 1,208,777,968 652,384,732 556,393,236 -884,642,0652026 1,158,259,301 621,318,793 536,940,508 -347,701,5572027 1,109,951,786 591,732,183 518,219,602 170,518,0452028 1,063,755,502 563,554,460 500,201,042 670,719,0872029 1,019,575,138 536,718,534 482,856,605 1,153,575,6922030 977,319,777 511,160,508 466,159,269 1,619,734,9612031 936,319,648 486,819,532 449,500,117 2,069,235,0772032 897,108,377 463,637,649 433,470,728 2,502,705,8052033 859,605,607 441,559,666 418,045,941 2,920,751,7472034 823,734,668 420,533,015 403,201,652 3,323,953,3992035 789,422,399 400,507,633 388,914,765 3,712,868,1642036 756,598,992 381,435,841 375,163,150 4,088,031,3152037 725,197,830 363,272,230 361,925,600 4,449,956,9152038 695,155,345 345,973,552 349,181,792 4,799,138,7072039 666,410,870 329,498,621 336,912,249 5,136,050,9562040 638,906,510 313,808,211 325,098,300 5,461,149,2552041 611,938,913 298,864,963 313,073,951 5,774,223,2062042 586,143,562 284,633,298 301,510,264 6,075,733,4702043 561,468,260 271,079,331 290,388,929 6,366,122,3992044 537,863,177 258,170,792 279,692,386 6,645,814,7852045 515,280,746 245,876,944 269,403,801 6,915,218,5862046 493,675,550 234,168,518 259,507,032 7,174,725,6182047 473,004,233 223,017,637 249,986,597 7,424,712,2142048 453,225,398 212,397,749 240,827,649 7,665,539,8642049 434,299,522 202,283,571 232,015,951 7,897,555,8152050 416,188,864 192,651,020 223,537,844 8,121,093,6592051 398,857,391 183,477,162 215,380,229 8,336,473,8882052 382,270,693 174,740,154 207,530,539 8,544,004,4272053 366,395,913 166,419,194 199,976,718 8,743,981,1462054 351,201,672 158,494,471 192,707,202 8,936,688,3472055 336,658,007 150,947,115 185,710,892 9,122,399,2402056 322,736,300 143,759,157 178,977,143 9,301,376,3832057 309,409,219 136,913,483 172,495,736 9,473,872,1192058 296,650,662 130,393,793 166,256,869 9,640,128,9882059 284,435,695 124,184,565 160,251,130 9,800,380,1182060 272,740,506 118,271,014 154,469,491 9,954,849,6092061 261,542,345 112,639,061 148,903,284 10,103,752,8942062 250,819,486 107,275,296 143,544,190 10,247,297,0832063 240,551,170 102,166,949 138,384,221 10,385,681,3042064 230,717,568 97,301,856 133,415,712 10,519,097,0162065 221,299,736 92,668,434 128,631,302 10,647,728,3182066 212,279,576 88,255,652 124,023,924 10,771,752,2422067 203,639,796 84,053,002 119,586,794 10,891,339,0362068 195,363,873 80,050,478 115,313,395 11,006,652,431
Fig. 24: Projected Yearly NPV Table for Scenario 1
36
Scenario 2: A Realistic Approach
In this scenario, we calculate for the NPV using figures we consider much more
likely to reflect the actual cost of the Baihetan Dam. First, the construction cost of the dam
will likely be much higher than what was originally announced by the Chinese government.
As detailed in the previous section, it is our opinion that a realistic estimate for the actual
cost of construction is 2.5 times the original budget. In addition, we lower the capacity
factor to 40% which tends to be the average for large dams.
INPUTS
General
Discount Rate 5%
Yuan/Dollar Conversion Rate 0.16
Technical
Total Production Capacity (Megawatt/Hour) 12,000
Annual Production (Megawatt) 42,048,000.00
Capacity usage factor 0.40
Total Construction Time (Years) 11
Remaining Construction Time (Years) 4
Social
Number of people displaced 67,000
Displacement Cost for (Three Gorges Dam) $11,088,000,000
Number of people displaced (Three Gorges
Dam)
1,300,000
Total Cost of displacement per person $8,529
-$6,000
-$4,000
-$2,000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2000 2010 2020 2030 2040 2050 2060 2070 2080
NPV over time (2009-2068): Scenario 1
Fig. 25. Cumulative NPV Plot for Scenario 1 ($Millions)
37
Total Cost for Baihetan Dam $571,458,462
Economic
Initial budget $5,430,000,000
Over budget factor 2.50
Number of operational workers 3,000
Yearly wage $1,920
Price per MWh $32.13
Alternative price per MWh 70.00
Total Cost of Overall Dam Projects to Fish
populations
$700,000,000
Number of Dams 9
Number of Workers 3,000
Pay per year 1,875
Price of Coal ($ per Metric Ton) $120.00
Environmental
Coal Used in China (Megatons) (Annual) 4,284.97
Electricity Generated in China (Megawatts)
(Annual)
23,057,659,460.00
Megaton of Coal per Megawatt 1.85837E-07
Coal removed by Dam (Megatons) (Annual) 7.81
Co2 Emissions in China (Megatons) (Annual) 6,512.70
Megatons of Co2 Emissions per Megaton of
Coal
1.52
Megatons of Co2 Emissions removed by Dam
(Annual)
11.88
Overall NPV
Benefits
Revenue from Electricity Generation $14,351,528,335
Reduction in Co2 Emissions $8,085,009,480
Benefits Total $22,436,537,814
Costs
Development and Construction $10,250,870,274
Electricity Generation and Dam Operation $61,187,762
Impact on Fishing Industry $24,537,968
Cost of Price Difference between energy
sources
$4,390,567,417
Resettlement of Local Population $431,524,608
Costs Total $15,158,688,029
Overall Net Present Value $7,277,849,786
Fig. 26: Input Table for Scenario 2
Fig. 27: Output Table for Scenario 2
38
Year Benefi ts Costs Overa l l NPV Cumulated NPV2009 0 1,226,036,166 -1,226,036,166 -1,226,036,1662010 0 1,167,653,492 -1,167,653,492 -2,393,689,6582011 0 1,112,050,944 -1,112,050,944 -3,505,740,6032012 0 1,059,096,138 -1,059,096,138 -4,564,836,7402013 0 1,008,662,988 -1,008,662,988 -5,573,499,7282014 0 960,631,417 -960,631,417 -6,534,131,1462015 0 914,887,064 -914,887,064 -7,449,018,2102016 0 871,321,013 -871,321,013 -8,320,339,2232017 0 829,829,537 -829,829,537 -9,150,168,7602018 0 790,313,844 -790,313,844 -9,940,482,6042019 0 752,679,852 -752,679,852 -10,693,162,4562020 1,145,531,213 637,475,902 508,055,311 -10,185,107,1452021 1,097,175,207 607,119,907 490,055,300 -9,695,051,8452022 1,050,950,821 578,209,435 472,741,386 -9,222,310,4592023 1,006,761,273 550,675,653 456,085,620 -8,766,224,8382024 964,514,259 524,453,002 440,061,257 -8,326,163,5812025 924,121,745 499,479,050 424,642,695 -7,901,520,8862026 885,499,765 475,694,333 409,805,432 -7,491,715,4542027 848,568,231 453,042,222 395,526,009 -7,096,189,4462028 813,250,752 431,468,783 381,781,969 -6,714,407,4772029 779,474,462 410,922,650 368,551,812 -6,345,855,6652030 747,169,854 391,354,905 355,814,949 -5,990,040,7162031 715,824,883 372,718,957 343,105,926 -5,646,934,7902032 685,847,510 354,970,436 330,877,074 -5,316,057,7162033 657,176,301 338,067,081 319,109,220 -4,996,948,4962034 629,752,642 321,968,649 307,783,993 -4,689,164,5032035 603,520,600 306,636,809 296,883,792 -4,392,280,7112036 578,426,807 292,035,056 286,391,751 -4,105,888,9602037 554,420,334 278,128,625 276,291,709 -3,829,597,2512038 531,452,581 264,884,404 266,568,176 -3,563,029,0752039 509,477,168 252,270,861 257,206,307 -3,305,822,7672040 488,449,835 240,257,963 248,191,872 -3,057,630,8952041 467,832,862 228,817,108 239,015,754 -2,818,615,1412042 448,112,082 217,921,055 230,191,027 -2,588,424,1142043 429,247,589 207,543,862 221,703,727 -2,366,720,3872044 411,201,289 197,660,821 213,540,468 -2,153,179,9192045 393,936,814 188,248,401 205,688,414 -1,947,491,5062046 377,419,446 179,284,191 198,135,255 -1,749,356,2512047 361,616,036 170,746,849 190,869,187 -1,558,487,0642048 346,494,937 162,616,046 183,878,891 -1,374,608,1732049 332,025,932 154,872,425 177,153,507 -1,197,454,6652050 318,180,170 147,497,548 170,682,622 -1,026,772,0432051 304,930,101 140,473,855 164,456,246 -862,315,7972052 292,249,420 133,784,624 158,464,796 -703,851,0012053 280,113,006 127,413,928 152,699,079 -551,151,9232054 268,496,871 121,346,598 147,150,274 -404,001,6492055 257,378,107 115,568,188 141,809,919 -262,191,7302056 246,734,835 110,064,941 136,669,894 -125,521,8362057 236,546,161 104,823,753 131,722,407 6,200,5712058 226,792,128 99,832,146 126,959,982 133,160,5532059 217,453,675 95,078,234 122,375,440 255,535,9932060 208,512,596 90,550,699 117,961,897 373,497,8902061 199,951,501 86,238,761 113,712,739 487,210,6292062 191,753,777 82,132,154 109,621,623 596,832,2532063 183,903,556 78,221,099 105,682,457 702,514,7102064 176,385,678 74,496,285 101,889,394 804,404,1032065 169,185,660 70,948,842 98,236,818 902,640,9212066 162,289,666 67,570,326 94,719,340 997,360,2612067 155,684,475 64,352,692 91,331,783 1,088,692,0442068 149,357,457 61,288,278 88,069,179 1,176,761,224
Fig. 28: Projected Yearly NPV Table for Scenario 2
39
Scenario 3: Soaring Construction Costs
Even though we estimated that realistically, the Dam’s construction would exceed
its original budget by a factor of 2.5, this can still be perceived as a conservative estimate.
The Three Gorges Dam, built between 1994 and 2008, exceeded its planned construction
cost by a factor of 3.35. In this model, we consider the effect on the NPV at the same
discount rate if the mismanagement at the Baihetan led to a similar increase in the
construction budget than for the Three Gorges.
INPUTS
General
Discount Rate 5%
Yuan/Dollar Conversion Rate 0.16
Technical
Total Production Capacity (Megawatt/Hour) 12,000
Annual Production (Megawatt) 42,048,000.00
Capacity usage factor 0.40
Total Construction Time (Years) 11
Remaining Construction Time (Years) 4
Social
Number of people displaced 67,000
Displacement Cost for (Three Gorges Dam) $11,088,000,000
Number of people displaced (Three Gorges
Dam)
1,300,000
-$15,000
-$10,000
-$5,000
$0
$5,000
$10,000
2000 2010 2020 2030 2040 2050 2060 2070 2080
NPV over time (2009-2068): Scenario 2
Fig. 29. Cumulative NPV Plot for Scenario 2 ($Millions)
40
Total Cost of displacement per person $8,529
Total Cost for Baihetan Dam $571,458,462
Economic
Initial budget $5,430,000,000
Over budget factor 3.35
Number of operational workers 3,000
Yearly wage $1,920
Price per MWh $35.70
Alternative price per MWh 70.00
Total Cost of Overall Dam Projects to Fish
populations
$700,000,000
Number of Dams 9
Number of Workers 3,000
Pay per year 1,875
Price of Coal ($ per Metric Ton) $46.50
Environmental
Coal Used in China (Megatons) (Annual) 4,284.97
Electricity Generated in China (Megawatts)
(Annual)
23,057,659,460.00
Megaton of Coal per Megawatt 1.85837E-07
Coal removed by Dam (Megatons) (Annual) 7.81
Co2 Emissions in China (Megatons) (Annual) 6,512.70
Megatons of Co2 Emissions per Megaton of
Coal
1.52
Megatons of Co2 Emissions removed by Dam
(Annual)
11.88
Overall NPV
Benefits
Revenue from Electricity Generation $15,946,142,594
Reduction in Co2 Emissions $8,085,009,480
Benefits Total $24,031,152,074
Costs
Development and Construction $13,749,670,308
Electricity Generation and Dam Operation $61,187,762
Impact on Fishing Industry $24,537,968
Cost of Price Difference between energy
sources $12,086,270,238
Resettlement of Local Population $431,524,608
Costs Total $26,353,190,884
Overall Net Present Value -$2,322,038,810
Fig. 30: Input Table for Scenario 3
Fig. 31: Output Table for Scenario 3
41
Year Benefi ts Costs Overa l l NPV Cumulated NPV2009 0 1,627,194,888 -1,627,194,888 -1,627,194,8882010 0 1,549,709,417 -1,549,709,417 -3,176,904,3052011 0 1,475,913,730 -1,475,913,730 -4,652,818,0352012 0 1,405,632,124 -1,405,632,124 -6,058,450,1592013 0 1,338,697,261 -1,338,697,261 -7,397,147,4212014 0 1,274,949,773 -1,274,949,773 -8,672,097,1932015 0 1,214,237,879 -1,214,237,879 -9,886,335,0722016 0 1,156,417,027 -1,156,417,027 -11,042,752,0992017 0 1,101,349,550 -1,101,349,550 -12,144,101,6492018 0 1,048,904,333 -1,048,904,333 -13,193,005,9822019 0 998,956,508 -998,956,508 -14,191,962,4902020 1,145,531,213 637,475,902 508,055,311 -13,683,907,1792021 1,097,175,207 607,119,907 490,055,300 -13,193,851,8792022 1,050,950,821 578,209,435 472,741,386 -12,721,110,4922023 1,006,761,273 550,675,653 456,085,620 -12,265,024,8722024 964,514,259 524,453,002 440,061,257 -11,824,963,6152025 924,121,745 499,479,050 424,642,695 -11,400,320,9202026 885,499,765 475,694,333 409,805,432 -10,990,515,4882027 848,568,231 453,042,222 395,526,009 -10,594,989,4792028 813,250,752 431,468,783 381,781,969 -10,213,207,5102029 779,474,462 410,922,650 368,551,812 -9,844,655,6992030 747,169,854 391,354,905 355,814,949 -9,488,840,7502031 715,824,883 372,718,957 343,105,926 -9,145,734,8242032 685,847,510 354,970,436 330,877,074 -8,814,857,7502033 657,176,301 338,067,081 319,109,220 -8,495,748,5302034 629,752,642 321,968,649 307,783,993 -8,187,964,5372035 603,520,600 306,636,809 296,883,792 -7,891,080,7452036 578,426,807 292,035,056 286,391,751 -7,604,688,9942037 554,420,334 278,128,625 276,291,709 -7,328,397,2842038 531,452,581 264,884,404 266,568,176 -7,061,829,1082039 509,477,168 252,270,861 257,206,307 -6,804,622,8012040 488,449,835 240,257,963 248,191,872 -6,556,430,9292041 467,832,862 228,817,108 239,015,754 -6,317,415,1742042 448,112,082 217,921,055 230,191,027 -6,087,224,1482043 429,247,589 207,543,862 221,703,727 -5,865,520,4212044 411,201,289 197,660,821 213,540,468 -5,651,979,9532045 393,936,814 188,248,401 205,688,414 -5,446,291,5392046 377,419,446 179,284,191 198,135,255 -5,248,156,2852047 361,616,036 170,746,849 190,869,187 -5,057,287,0972048 346,494,937 162,616,046 183,878,891 -4,873,408,2062049 332,025,932 154,872,425 177,153,507 -4,696,254,6992050 318,180,170 147,497,548 170,682,622 -4,525,572,0772051 304,930,101 140,473,855 164,456,246 -4,361,115,8312052 292,249,420 133,784,624 158,464,796 -4,202,651,0352053 280,113,006 127,413,928 152,699,079 -4,049,951,9562054 268,496,871 121,346,598 147,150,274 -3,902,801,6832055 257,378,107 115,568,188 141,809,919 -3,760,991,7642056 246,734,835 110,064,941 136,669,894 -3,624,321,8702057 236,546,161 104,823,753 131,722,407 -3,492,599,4622058 226,792,128 99,832,146 126,959,982 -3,365,639,4812059 217,453,675 95,078,234 122,375,440 -3,243,264,0402060 208,512,596 90,550,699 117,961,897 -3,125,302,1442061 199,951,501 86,238,761 113,712,739 -3,011,589,4042062 191,753,777 82,132,154 109,621,623 -2,901,967,7812063 183,903,556 78,221,099 105,682,457 -2,796,285,3242064 176,385,678 74,496,285 101,889,394 -2,694,395,9302065 169,185,660 70,948,842 98,236,818 -2,596,159,1122066 162,289,666 67,570,326 94,719,340 -2,501,439,7732067 155,684,475 64,352,692 91,331,783 -2,410,107,9892068 149,357,457 61,288,278 88,069,179 -2,322,038,810
Fig. 32: Projected Yearly NPV Table for Scenario 3
42
Scenario 4: Technological Advancements
In this scenario, we explore a situation where technological advancements improve
the efficiency of hydroelectric power production. In turn, the capacity for dams to produce
electricity increases to a factor now closer to that of coal, at 0.6.
INPUTS
General
Discount Rate 5%
Yuan/Dollar Conversion Rate 0.16
Technical
Total Production Capacity (Megawatt/Hour) 12,000
Annual Production (Megawatt) 63,072,000.00
Capacity usage factor 0.60
Total Construction Time (Years) 11
Remaining Construction Time (Years) 4
Social
Number of people displaced 67,000
Displacement Cost for (Three Gorges Dam) $11,088,000,000
Number of people displaced (Three Gorges
Dam)
1,300,000
Total Cost of displacement per person $8,529
Total Cost for Baihetan Dam $571,458,462
Economic
Initial budget $5,430,000,000
Over budget factor 2.50
Number of operational workers 3,000
-$15,000
-$10,000
-$5,000
$0
2000 2010 2020 2030 2040 2050 2060 2070 2080
NPV over time (2009-2068): Scenario 3
Fig. 32. Cumulative NPV Plot for Scenario 3 ($Millions)
43
Yearly wage $1,920
Price per MWh $35.70
Alternative price per MWh 70.00
Total Cost of Overall Dam Projects to Fish
populations
$700,000,000
Number of Dams 9
Number of Workers 3,000
Pay per year 1,875
Price of Coal ($ per Metric Ton) $46.50
Environmental
Coal Used in China (Megatons) (Annual) 4,284.97
Electricity Generated in China (Megawatts)
(Annual)
23,057,659,460.00
Megaton of Coal per Megawatt 1.85837E-07
Coal removed by Dam (Megatons) (Annual) 11.72
Co2 Emissions in China (Megatons) (Annual) 6,512.70
Megatons of Co2 Emissions per Megaton of
Coal
1.52
Megatons of Co2 Emissions removed by Dam
(Annual)
17.81
Overall NPV
Benefits
Revenue from Electricity Generation $23,919,213,891
Reduction in Co2 Emissions $12,127,514,220
Benefits Total $36,046,728,111
Costs
Development and Construction $10,250,870,274
Electricity Generation and Dam Operation $61,187,762
Impact on Fishing Industry $24,537,968
Cost of Price Difference between energy
sources
$18,129,405,358
Resettlement of Local Population $431,524,608
Costs Total $28,897,525,969
Overall Net Present Value $7,149,202,141
Fig. 33: Input Table for Scenario 4
Fig. 34: Output Table for Scenario 4
44
Year Benefi ts Costs Overa l l NPV Cumulated NPV2009 0 1,226,036,166 -1,226,036,166 -1,226,036,1662010 0 1,167,653,492 -1,167,653,492 -2,393,689,6582011 0 1,112,050,944 -1,112,050,944 -3,505,740,6032012 0 1,059,096,138 -1,059,096,138 -4,564,836,7402013 0 1,008,662,988 -1,008,662,988 -5,573,499,7282014 0 960,631,417 -960,631,417 -6,534,131,1462015 0 914,887,064 -914,887,064 -7,449,018,2102016 0 871,321,013 -871,321,013 -8,320,339,2232017 0 829,829,537 -829,829,537 -9,150,168,7602018 0 790,313,844 -790,313,844 -9,940,482,6042019 0 752,679,852 -752,679,852 -10,693,162,4562020 1,718,296,819 954,249,248 764,047,571 -9,929,114,8852021 1,645,762,811 908,808,808 736,954,003 -9,192,160,8822022 1,576,426,232 865,532,198 710,894,034 -8,481,266,8482023 1,510,141,910 824,316,379 685,825,530 -7,795,441,3182024 1,446,771,389 785,063,218 661,708,171 -7,133,733,1472025 1,386,182,618 747,679,256 638,503,362 -6,495,229,7852026 1,328,249,648 712,075,481 616,174,166 -5,879,055,6192027 1,272,852,346 678,167,125 594,685,221 -5,284,370,3982028 1,219,876,128 645,873,453 574,002,675 -4,710,367,7232029 1,169,211,693 615,117,574 554,094,119 -4,156,273,6042030 1,120,754,782 585,826,261 534,928,521 -3,621,345,0832031 1,073,737,325 557,929,772 515,807,553 -3,105,537,5302032 1,028,771,265 531,361,688 497,409,577 -2,608,127,9532033 985,764,452 506,058,750 479,705,702 -2,128,422,2522034 944,628,963 481,960,715 462,668,248 -1,665,754,0032035 905,280,901 459,010,204 446,270,696 -1,219,483,3072036 867,640,211 437,152,576 430,487,635 -788,995,6722037 831,630,501 416,335,786 415,294,714 -373,700,9572038 797,178,871 396,510,273 400,668,598 26,967,6412039 764,215,753 377,628,831 386,586,921 413,554,5622040 732,674,753 359,646,506 373,028,247 786,582,8102041 701,749,293 342,520,482 359,228,812 1,145,811,6212042 672,168,123 326,209,983 345,958,140 1,491,769,7612043 643,871,383 310,676,174 333,195,209 1,824,964,9712044 616,801,933 295,882,070 320,919,863 2,145,884,8332045 590,905,222 281,792,448 309,112,774 2,454,997,6072046 566,129,169 268,373,760 297,755,409 2,752,753,0162047 542,424,054 255,594,057 286,829,997 3,039,583,0132048 519,742,406 243,422,912 276,319,494 3,315,902,5082049 498,038,899 231,831,344 266,207,554 3,582,110,0622050 477,270,255 220,791,756 256,478,499 3,838,588,5612051 457,395,152 210,277,863 247,117,288 4,085,705,8492052 438,374,130 200,264,632 238,109,498 4,323,815,3472053 420,169,509 190,728,221 229,441,288 4,553,256,6352054 402,745,307 181,645,924 221,099,383 4,774,356,0182055 386,067,161 172,996,119 213,071,042 4,987,427,0602056 370,102,253 164,758,208 205,344,045 5,192,771,1052057 354,819,241 156,912,579 197,906,662 5,390,677,7672058 340,188,192 149,440,552 190,747,640 5,581,425,4072059 326,180,512 142,324,335 183,856,177 5,765,281,5842060 312,768,894 135,546,986 177,221,908 5,942,503,4932061 299,927,251 129,092,367 170,834,884 6,113,338,3772062 287,630,666 122,945,112 164,685,554 6,278,023,9312063 275,855,334 117,090,583 158,764,752 6,436,788,6832064 264,578,517 111,514,840 153,063,677 6,589,852,3592065 253,778,490 106,204,610 147,573,880 6,737,426,2392066 243,434,499 101,147,248 142,287,251 6,879,713,4902067 233,526,713 96,330,712 137,196,001 7,016,909,4912068 224,036,186 91,743,535 132,292,650 7,149,202,141
Fig. 35: Projected Yearly NPV Table for Scenario 4
45
Scenario 5: Changes in the Relative Prices of Commodities
Throughout each of these models, the estimate for the NPV is dependent on the
relative prices of electricity produced through hydropower or by burning coal. To consider
a situation in which coal becomes much more expensive than hydropower, we set the price
per metric ton of coal at 120$ instead of the current $46.50, and reduce the cost per
megawatt of electricity generated by the dam by 10%. This scenario reflects the possibility
of an international agreement between nations that would aim to reduce greenhouse gas
emissions by taxing coal, making it more expensive relative to hydropower.
INPUTS
General
Discount Rate 5%
Yuan/Dollar Conversion Rate 0.16
Technical
Total Production Capacity (Megawatt/Hour) 12,000
Annual Production (Megawatt) 42,048,000.00
Capacity usage factor 0.40
Total Construction Time (Years) 11
Remaining Construction Time (Years) 4
Social
Number of people displaced 67,000
Displacement Cost for (Three Gorges Dam) $11,088,000,000
-$15,000
-$10,000
-$5,000
$0
$5,000
$10,000
2000 2010 2020 2030 2040 2050 2060 2070 2080
NPV over time (2009-2068): Scenario 4
Fig. 36. Cumulative NPV Plot for Scenario 4 ($Millions)
46
Number of people displaced (Three Gorges
Dam)
1,300,000
Total Cost of displacement per person $8,529
Total Cost for Baihetan Dam $571,458,462
Economic
Initial budget $5,430,000,000
Over budget factor 2.50
Number of operational workers 3,000
Yearly wage $1,920
Price per MWh $32.13
Alternative price per MWh 70.00
Total Cost of Overall Dam Projects to Fish
populations
$700,000,000
Number of Dams 9
Number of Workers 3,000
Pay per year 1,875
Price of Coal ($ per Metric Ton) $120.00
Environmental
Coal Used in China (Megatons) (Annual) 4,284.97
Electricity Generated in China (Megawatts)
(Annual)
23,057,659,460.00
Megaton of Coal per Megawatt 1.85837E-07
Coal removed by Dam (Megatons) (Annual) 7.81
Co2 Emissions in China (Megatons) (Annual) 6,512.70
Megatons of Co2 Emissions per Megaton of
Coal
1.52
Megatons of Co2 Emissions removed by Dam
(Annual)
11.88
Overall NPV
Benefits
Revenue from Electricity Generation $14,351,528,335
Reduction in Co2 Emissions $8,085,009,480
Benefits Total $22,436,537,814
Costs
Development and Construction $10,250,870,274
Electricity Generation and Dam Operation $61,187,762
Impact on Fishing Industry $24,537,968
Cost of Price Difference between energy
sources
$4,390,567,417
Resettlement of Local Population $431,524,608
Costs Total $15,158,688,029
Overall Net Present Value $7,277,849,786
Fig. 37: Input Table for Scenario 5
Fig. 38: Output Table for Scenario 5
47
Year Benefi ts Costs Overa l l NPV Cumulated NPV2009 0 1,226,036,166 -1,226,036,166 -1,226,036,1662010 0 1,167,653,492 -1,167,653,492 -2,393,689,6582011 0 1,112,050,944 -1,112,050,944 -3,505,740,6032012 0 1,059,096,138 -1,059,096,138 -4,564,836,7402013 0 1,008,662,988 -1,008,662,988 -5,573,499,7282014 0 960,631,417 -960,631,417 -6,534,131,1462015 0 914,887,064 -914,887,064 -7,449,018,2102016 0 871,321,013 -871,321,013 -8,320,339,2232017 0 829,829,537 -829,829,537 -9,150,168,7602018 0 790,313,844 -790,313,844 -9,940,482,6042019 0 752,679,852 -752,679,852 -10,693,162,4562020 1,061,943,591 234,077,089 827,866,502 -9,865,295,9542021 1,017,567,948 222,930,561 794,637,387 -9,070,658,5672022 975,134,384 212,314,820 762,819,564 -8,307,839,0042023 934,555,142 202,204,591 732,350,552 -7,575,488,4522024 895,746,516 192,575,801 703,170,715 -6,872,317,7372025 858,628,656 183,405,524 675,223,132 -6,197,094,6052026 823,125,394 174,671,928 648,453,466 -5,548,641,1382027 789,164,068 166,354,217 622,809,851 -4,925,831,2872028 756,675,359 158,432,588 598,242,771 -4,327,588,5162029 725,593,136 150,888,179 574,704,957 -3,752,883,5592030 695,854,305 143,703,027 552,151,278 -3,200,732,2812031 666,952,932 136,860,026 530,092,906 -2,670,639,3762032 639,302,794 130,342,882 508,959,912 -2,161,679,4642033 612,848,001 124,136,078 488,711,923 -1,672,967,5412034 587,535,213 118,224,836 469,310,376 -1,203,657,1652035 563,313,525 112,595,082 450,718,443 -752,938,7222036 540,134,354 107,233,412 432,900,943 -320,037,7792037 517,951,331 102,127,059 415,824,272 95,786,4942038 496,720,197 97,263,865 399,456,332 495,242,8252039 476,398,708 92,632,253 383,766,455 879,009,2802040 456,946,540 88,221,193 368,725,347 1,247,734,6272041 437,829,724 84,020,184 353,809,540 1,601,544,1672042 419,537,664 80,019,223 339,518,441 1,941,062,6082043 402,033,857 76,208,784 325,825,074 2,266,887,6822044 385,283,449 72,579,794 312,703,656 2,579,591,3372045 369,253,158 69,123,613 300,129,545 2,879,720,8822046 353,911,202 65,832,013 288,079,189 3,167,800,0712047 339,227,232 62,697,155 276,530,077 3,444,330,1482048 325,172,267 59,711,576 265,460,691 3,709,790,8392049 311,718,627 56,868,168 254,850,459 3,964,641,2992050 298,839,879 54,160,160 244,679,720 4,209,321,0182051 286,510,777 51,581,104 234,929,672 4,444,250,6902052 274,707,206 49,124,861 225,582,345 4,669,833,0352053 263,406,136 46,785,582 216,620,553 4,886,453,5882054 252,585,566 44,557,697 208,027,869 5,094,481,4572055 242,224,483 42,435,902 199,788,581 5,294,270,0382056 232,302,813 40,415,145 191,887,667 5,486,157,7062057 222,801,377 38,490,614 184,310,763 5,670,468,4692058 213,701,858 36,657,728 177,044,130 5,847,512,5992059 204,986,751 34,912,122 170,074,629 6,017,587,2282060 196,639,335 33,249,640 163,389,695 6,180,976,9232061 188,643,633 31,666,324 156,977,310 6,337,954,2332062 180,984,380 30,158,403 150,825,976 6,488,780,2092063 173,646,987 28,722,289 144,924,698 6,633,704,9072064 166,617,517 27,354,561 139,262,956 6,772,967,8632065 159,882,650 26,051,963 133,830,687 6,906,798,5502066 153,429,656 24,811,393 128,618,263 7,035,416,8122067 147,246,370 23,629,898 123,616,472 7,159,033,2842068 141,321,167 22,504,665 118,816,502 7,277,849,786
Fig. 39: Projected Yearly NPV Table for Scenario 5
48
Impact of the discount rate:
Scenario NPV
($Million)/
Discount Rate
1 (Official) 2 (Realistic) 3 (3GD Budget) 4 (Technological
Changes)
5 (Different
Commodity
Prices)
3% 23,042 9,543 5,645 20,335 20,124
5% 11,007 1,177 (2,322) 7,149 7,278
7% 5,149 (2,592) (3,562) 961 1,164
10% 1,171 (4,756) (7,492) (2,941) (2,762)
-$15,000
-$10,000
-$5,000
$0
$5,000
$10,000
2000 2010 2020 2030 2040 2050 2060 2070 2080
NPV over time (2009-2068): Scenario 5
Fig. 40. Cumulative NPV Plot for Scenario 5 ($Millions)
Fig. 41. Variations in NPV with Discount Rate ($Millions)
49
CONCLUSION
Conducting such of cost-benefit analysis is extremely useful in trying to determine
a hydroelectric dam’s true value since it allows us to see the positive and negative outcomes
over time according in different future contexts.
Of the five scenarios we ran, each was also examined at different discount factors.
The first case takes inputs as the official numbers set forward, which yields a positive NPV
for all discount factors selected. The second case more than doubles the original estimate
for the construction cost (a more realistic view), still leading to a slightly positive NPV
under the two lower discount factors and negative ones for the larger rates. The third, which
takes costs overestimation from the construction of the Three Gorges Dam, turns out a
negative NPV for all discount factors except at 3%. The fourth assumed a higher capacity
factor for the Dam and yielded all positive results except for the highest rate. However this
scenario can probably be immediately dismissed since it is likely impossible dams will
reach a 60% capacity factor within our time horizon. Finally, when changing decreasing
the relative price of hydropower against coal in the last scenario, all cases were also positive
except for when applying a high discount rate 10%.
It is worth noting that the most realistic situation can be taken to be our second
scenario, in which the estimate of budget overrun is not an improbable outcome when
taking into consideration that most hydroelectric dam projects tend to underestimate costs
by a large factor. The last scenario is also a likely future outcome as it takes into account a
current trend in international energy markets which sees prices for renewables fall and the
price of coal increase. This is influenced by the worldwide tendency to move towards
50
renewable energy and but also China’s increased efforts in developing cheaper technology
for this transition process.
Finally it is also worth noting that certain variables are unquantifiable and therefore
could not be included in the model. These include political and social backlash that such
large public projects can foster. Positive effects could include, for instance, the national
and international effect on politics of having the world’s biggest carbon dioxide emitter
make significant efforts in switching to renewable energy. Negative effects can include
how the Chinese coal industry reacts to a possible slowdown in productivity given other
energy options, and the impact this has on workers and consumers. In truth these
immeasurable effects can only be observed in the long run but are worth noting as existing
factors that fall outside of our model.
China’s increasing energy demand will require large projects like the Baihetan Dam
and all the other hydroelectric sites being built in the region. However, the conditions for
the development of these projects today does not allow for strictly positive NPV when
environmental and social factors are taken into account. For these projects to have a true
positive value for China it will require significant changes in technology or commodity
prices given low discount rates, which are hard to guarantee in the long-term due to factors
such as political or environmental instability. Therefore, while the value of hydroelectric
megaprojects, such as the Baihetan Dam, will not be quantifiably strictly positive or
negative, we conclude they will likely do more harm than good.
51
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