Will Bhutan be able to export electricity in the future?

Significant cost increases and delays in ongoing hydropower projects have raised concerns about Bhutan’s ability to export electricity after the projects come on stream.

It has also put pressure on the Himalayan kingdom’s already ballooning national debt.

Hydroelectric debt accounted for 73% of total external debt at 162.48 billion ngultrums ($2.17 billion) at the end of December.

Cost escalation and project delays will increase the export tariff. About 75% of the electricity generated in Bhutan was exported to India in 2021.

The cost of the two main hydropower projects underway in the country, the 1,200 MW Punatsangchhu-I (PI) and the 1,020 MW Punatsangchhu-II, soared to 93.75 billion ngultrums from an estimated 35 billion in 2006 and 89, 77 billion ngultrum against 37 billion estimated in 2009. respectively. Both projects fall under the intergovernmental (IG) model.

Managing Director of Druk Green Power Corp, Dasho Chhewang Rinzin, said the cost of project inputs (equipment, construction materials and labor) is market-based and inflation has led to escalating costs. costs.

He added that the delays have further added to the cost of the project and that there may be a need to account for interest accrued during construction.

For PI, a dam was preferred to a dam, which is cheaper (17 billion ngultrums), said Director of the Department of Hydropower and Power Systems (DHPS), Karma P Dorji. The construction of a dam was recommended after the right bank of the PI dam site suffered multiple landslides.

“Each day of delay in building IP equates to no less than 13 million ngultrums to 14 million per day,” he said.

The two governments determine the export tariff for IG and JV hydroelectric projects at the time of commissioning of the project.

Karma P Dorji said the rate at which electricity will be sold by Bhutan to India at the Bhutan-India border is mutually determined by the two governments taking into account the cost of the project, its costs of financing, operating and maintenance expenses, depreciation at rates applicable to similar projects in India, prevailing market conditions, relevant factors such as policies, laws and regulations, and past precedents for IG models.

“We need to come up with innovative rate setting, like increasing loan repayment years,” he added.

To ensure predictability, Karma P Dorji said the two governments will review the rate at certain intervals.

Bhutan’s export tariff rates are increasing. Chukha Hydro exports at 2.55 ngultrums per kWh; it was 0.70 ngultrums per kWh than in 1988 when the project was commissioned. Chukha’s tariff is reviewed every four years.

Kurichhu and Tala export at 2.12 ngultrums per kWh and Mangdechhu at 4.12 ngultrums. Mangdechhu’s tariff will increase by 10% every five years until the loan is repaid for 35 years. After the loan is repaid, it will be increased by five percent every five years.

But there are also fears that India’s tariff rate could drop, while Bhutan’s rises.

Dasho Chhewang Rinzin said the tariff in India is decreasing mainly due to the addition of solar and wind renewables, but base load demand must continue to be met by traditional coal and other power sources. , including hydroelectricity, for which production tariffs are increasing.

“The overall tariff in India continues to be higher compared to that of Bhutan,” he said, adding that hydropower tariffs tend to be generally lower compared to other conventional sources like coal and natural gas.

Fossil fuels account for 59.8% of the total electricity generated in India.

Dasho Chhewang Rinzin said India’s efforts to add 500 GW of generation capacity are mainly based on solar and wind power, and these renewable sources are intermittent and require support from other sources to balance the load. of production. India aims to produce 500 GW of electricity by 2030.

Electricity produced from hydroelectric projects has the advantage of being able to immediately stop and increase the capacities which guarantee the stabilization and the reliability of the network. As such, hydropower will continue to play a major role in the energy balancing system due to its operational flexibility,” he added.

Dasho Chhewang Rinzin said the role of hydropower would be very critical for the stability of national, bilateral and sub-regional networks.

“It is important for Bhutan to invest in storage or reservoir hydropower projects, which can be operated in flexi mode as needed by the grid,” he added.

However, Dasho Chhewang Rinzin also said that the domestic tariff in Bhutan is increasing due to various factors such as higher production cost for more recently commissioned projects, inflation and factors that contribute to cost increase. delivery of goods and services.

He added that for hydropower projects in India and Bhutan, the tariff is normally determined on the basis of a cost-plus model which bears all costs including debt service and includes a return on investment. eligible.

The Ministry of Finance’s 2021 Public Debt Situation Report indicates that the electricity export tariff is set taking into account the overall cost of the project, including the expected cost of servicing the debt. This means that there would be revenue from the sale of electricity which would provide an adequate cushion for servicing the debt and which would self-liquidate.

Bhutan also imports power from India during the lean season from the Indian Power Exchange daily market to fill the power supply gap.

The import price, i.e. the landed cost of electricity at the Bhutan-India border, will be around three to four ngultrums per kWh on average during off-peak hours, according to the DHPS.


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