Budhigandaki vs Upper Karnali vs Arun 3

In a country like Nepal where financial resource is scarce, we have no other option than use it wisely to get optimum benefits. However, things are not applied in Nepal as learned in economic class during our uni days.

National Planning Commission prepared a report two weeks back stating that Nepal can build 1,200 MW Budhigandaki Hydroelectric Project using domestic financial resources. The total project cost is estimated at USD 2.6 billion (NRs. 270 billion approx.) The report recommends the establishment of a Special Purpose Vehicle (SPV) where Employees Provident Fund, Citizen Investment Trust, Nepal Telecom, Nepal Electricity Authority, insurance companies, Hydropower Investment and Development Company Limited, Upper Tamakoshi Hydropower, Chilime Hydropower Company, Nepal Army, Nepal Police and general public would be the stakeholders. It further suggests providing viability gap funding/viability gap lending by the government in order to increase the profitability of the project. The government may provide viability gap lending at a nominal interest rate from the infrastructure tax (government is collecting NRs 5 per liter from the petroleum products)

My concern is not towards the report submitted by National Planning Commission. In fact, I appreciate the report. ‘It is a myth that one day foreigners will come and develop our nation’. It is us who have to roll up our sleeves and jump into the field, and National Planning Commission is in the right track.

Having said that, I have no idea who does the project selection in the first place? This is where we tend to do mistakes. Who decides which projects to be constructed by domestic resources, and which projects to be awarded to foreign investors? Who decides which projects will be for domestic consumption, and which will be export-oriented projects? 

We have a plenty of hydro potential. But among various potential, the benefits that we can derive varies from project to project since hydropower projects are site specific. 

This blogpost compares Budhigandaki Hydroelectric Project (1,200 MW), Upper Karnali Hydroelctric Project (900 MW) and Arun 3 Hydroelectric Project (900 MW) to give you a clear picture about how important project selection can be. The latter two projects are awarded to Indian companies with an aim of exporting electricity while Budhigandaki is for our domestic consumption.

Budhigandaki vs Upper Karnali vs Arun 3

Details/Projects	Budhigandaki	Upper Karnali	Arun 3
Installed Capacity	1,200 MW	900 MW	900 MW
Annual Energy (GWh)	3,383	3,466	3,685
Project Cost	USD 2.6 billion	USD 1.4 billion	USD 1.4 billion

Budhigandaki seems to be have the lowest energy generation among three projects. However, the project cost of Budhigandaki is the highest. The project cost is similar to the project cost of Upper Karnali and Arun 3 combined. (A lot of hydropower experts are claiming that the actual cost of Upper Karnali is much lower than USD 1.4 billion as claimed by the Indian Company. This is the project where 2 km approx. tunnel is required to gain a head of 160 m. Any person who is into hydro will understand what it means, and nobody will believe that the the project with such nature would cost USD 1.56 million or NRs. 16.30 crore per MW)

Budhigandaki vs Upper Karnali and Arun 3 combined

Details/Projects	Budhigandaki	Upper Karnali and Arun 3 combined
Installed Capacity	1,200 MW	1,800 MW
Annual Energy (GWh)	3,383	7,151
Project Cost	USD 2.6 billion	USD 2.8 billion

When Upper Karnali and Arun 3 are combined, the total energy production is 2.11 times the energy generation of Budhigandaki while the cost of constructing both projects is similar to Budhigandaki.

Many of us may say that the comparison between these projects is irrelevant since Budhigandaki is a storage project while Upper Karnali and Arun 3 are RoR projects. The main advantage of Budhigandaki is that it will balance out RoR projects that currently dominate Nepal’s energy portfolio. Again, let’s do another comparison

Details/Projects	Budhigandaki	Upper Karnali and Arun 3 combined
Firm Power Dry Season	934 MW 9h/Day in May	450 MW 24h/day May
Total Energy in May (GWh)	261	335
Firm Power Wet Season	918 MW 7h/day in June	1800 MW 24h/day in June
Totally Energy in June (GWh)	193	1,296

During the dry season, Budhigandaki will generate 1,200 MW 8h/day (in December) to 934 MW 9h/Day in May (driest month). The actual energy generation during the driest month (May) is 261 GWh only. Whereas, Upper Karnali and Arun 3 (combined) will generate 450 MW 24h/day in the month of May assuming 1/4^th of energy production in the driest month which is a typical nature of RoR projects in Nepal. In terms of GWh, they will generate 335 GWh during the month of May.

Budhigandki stands no change against these projects in wet season. During the month of June, the energy production of Upper Karnali and Arun 3 (combined) is 6.72 times the energy production of Budhigandaki.

No doubt, there are some benefits in Budhigandaki as it will generate 934 MW for 9 hours in the month of May which is more than the double compared to Upper Karnali and Arun 3 (combined) (although the total energy generation for that month is about 30 percent less). The additional 450+ MW for 9 hours will be crucial to balance out RoR projects but the justification of USD 2.6 billion for 3,383 GWh annual energy is not valid in my opinion.

After doing the comparison, one question arises in my mind, “What on Earth our top levels were thinking while deciding Budhigandki for us and Upper Karnali and Arun 3 for Indians?”

P.S. If we adopt Chilime model for the construction Budhigandaki (Nepal ko pani, Janata ko lagani), my preliminary analysis suggests that it requires PPA rate of NRs. 17 to 20 per kWh (flat rate) to make this project viable.