ECONOMICS OF HYDROPOWER

NUSRAT KHURSHEDI
(feedback@pgeconomist.com)
Oct 24 - 30, 20
11

Government of Pakistan took a major initiative to overcome an ongoing energy crisis in the country and finally put its focus on hydropower and other cheap sources of power generation.

In this regard, prime minister Syed Yousuf Raza Gilani laid the foundation stone of Diamer-Bhasha dam. Dam will produce 4,500MW of electricity and store over eight million acre feet of water and help meet the country's future power and agricultural requirements.

Energy crisis is one of the major challenges faced by Pakistan. Despite the pivotal role of energy in the industrial, economic and social developments, energy sector is always neglected by various governments. Knowing the fact that urbanization growth is about 3.1 percent and industrial production about 4.9 percent and both are the key motors of economic growth and their demand for more energy increases every day, but production capacity remains weak and distribution systems inflexible.

A power shortage doesn't even make sense for a country as richly endowed as ours. The country has a hydropower potential of 46,000 MW (of which only 12 percent is in fact being utilized), massive coal deposits, nuclear power potential, a long coastline for wind generation, huge solar potential, and biodiesel generation opportunities.

Its current energy mix includes gas 50 percent, oil 30 percent, coal 5.5 percent, hydroelectric 12.7 percent, nuclear 0.8 percent, and renewable, almost zero percent.

The effects on the economy are easily marked by interruptions in energy supply to industry, for instance, have hit the country's exports hard and especially badly damage the small business enterprises and textile sector. Secondly, energy crisis has produced direct circular debt of Rs300 billion that may hit even the financial institutions if government does not tackle the crisis. Imported oil is expensive while indigenous gas is growing increasingly scarce, which is reflected in the power crisis.

Many now believe that Pakistan needs to initiate a transition towards greater use of renewable energy as an indigenous, clean and abundant resource. Hence, it is essential for the country to develop more intelligent fuel mix, more hydel, coal and renewable sources and reducing dependence on oil and gas.

And, in this hydropower has again turned out to be an important contributor to the future renewable energy sources par excellence, non-exhaustible, non-polluting and economically more attractive than other renewable sources. Hydroelectricity's low cost, near-less emissions, and ability to be dispatched quickly to meet peak electricity demand have made it one of the most valuable renewable energy sources in worldwide. Hydropower station also offer a range of additional benefits like many dams are used to control flooding, regulate water supply, irrigate land and prevent erosion, and reservoirs provide lakes for recreational purposes.

In terms of the renewable energy, hydropower is also certainly the largest and most mature application of renewable technologies. Hydropower accounts for about 17 percent of the world's total electricity generation and is critically important for many countries. It produces more than 50 per cent of electricity for more than 60 countries.

With growing concern over greenhouse gas emissions and increased demand for electricity, hydropower becomes a key component in energy policies of countries with abundant water sources. China currently obtains about 16 percent of its electricity from hydropower. The Asian giant added almost 100 gigawatts of hydropower capacity, increasing generation by almost 40 percent between 2005 and 2009.

In the case of Pakistan, it is estimated that the hydel: thermal mix is 34:66, instead of 70:30 required for overall economic development. Though induction of thermal generation initially helped in overcoming load shedding, it resulted in substantial increase in power tariff. Therefore, a sizeable injection of cheap hydropower through multipurpose storages is a viable option to keep the cost of electricity within affordable limits.

In a situation where every megawatt counts, it is baffling why the authorities have maintained a laissez-faire attitude towards developing small or large, run-of-the-river hydropower projects. As opposed to this, more expensive - and controversial - rental power projects impose on our economy.

With increased population, Pakistan is fast heading towards a situation of water shortage and per capita surface water availability was 5260 cubic meters in 1951 when population was 34 million, which was reduced to 1038 cubic meter in 2010 when the estimated population is about 172 million. The minimum water requirement is 1,000 cubic meters. In the year 2012, Pakistan will reach the stage of "acute water shortage". Small and large hydropower stations are also one of the best sources of storing water.

Side by side, irrigated agriculture is the backbone of Pakistan's economy. The agriculture sector is the major user of water and its consumption will continue to dominate the water requirements. Direct rainfall contributes less than 15 percent of the water supplied to the crops. The major user of water for irrigation is the Indus Basin Irrigation System.

About 105 MAF, out of 155 MAF of surface water, is being diverted annually for irrigation while around 48 MAF is pumped from groundwater.

One can say that hydropower requires no fuel and their operation and maintenance costs (O&M) are generally low. But, the initial capital costs are relatively high for per unit of capacity installed. On the other hand, the cost of generating electricity with oil, coal and gas is the cost of fuel and therefore a thermal investment is made and recouped in relatively short period of time. With renewable technologies, however, the initial capital outlay is large and must be recovered slowly over a period of many years, making it difficult to attract capital. Thus, investment in hydropower is generally discouraged at the outset. That's why, hydropower plants in Pakistan are capital intensive. Unfortunately, the high initial cost is a serious barrier for its growth. One should keep in mind that typically a hydro plant may operate up to 40-50 years and this period may be doubled with sizeable investments. However, external environmental and social costs of fossil fuels have been generally ignored and if we include the pollution and greenhouse gas emissions cost, then it is much higher than hydropower cost.

On the other hand, for other renewable energy resources like solar power we will depend on imported photovoltaic cells, for windmills we shall have to depend on an investors to bring in the necessary technology, equipment and parts, and we will see similar scenarios with biogas or energy from solid waste, or even nuclear energy.

When considering hydropower, it is also important to look at its effects in overall economics of the country. It should be noted that hydropower development means that a substantially larger percentage of the capital investment stays within the country as much of the developmental work can be done by local engineers and contractors. The more sophisticated thermal power plants are designed and built by specialized contractors, and this often means that large amounts of capital leave the domestic economy. In many instances, the same is true for the amount of capital necessary for fuel used by thermal power plants.

In addition, hydropower facilities require minimal maintenance and do not have the same requirements for skilled personnel as we do in more sophisticated thermal or rental power plants.

Similarly, hydropower production does not create hazardous or radioactive wastes that require safe long-term storage facilities. Many other environmental impacts associated with the overall fuel cycles of other energy sources are minor or nonexistent for hydroelectric power. These include impacts associated with resource extraction (e.g., coal mining, oil drilling), fuel preparation (e.g., refining), and transportation (e.g., oil spills, other accidents).

No doubt, in practice, no form of energy production is completely free of effects on the environment. Renewable energy sources have also negative environmental effects even if they are called as green energy. However, these negative effects cannot be compared to those of fossil energy sources.

Hydropower plays a major role in reducing greenhouse gas emissions. Hydro has a relatively small source of atmospheric emissions compared with fossil-fired generating options.

The main considerations are the land and water ecosystem impacts associated with construction and operating of dams. These concerns include effects of changing river flows on ecosystem regimes and flooding of extensive land areas resulting in relocation of residents and loss of agricultural land. However, small-scale dams could avert some of social and environmental problems. Small dams provide as much as 150 to 200 GW of new generating capacity worldwide. Only five percent of the world's small-scale hydropower potential has yet been exploited.

Hydropower is economically competitive. This holds particularly true for remote, underdeveloped areas, where renewable energy can also have the greatest impact because the cost of conventional energy supplies is significant. To facilitate the process of economic development and ensure greater social stabilization, hydropower can supplement the pool of national energy supply options in Pakistan, accelerating economic progress, improving productivity and enhancing income-generating opportunities, especially for people who are marginalised at present.