geophysical site investigations are carried out during project feasibility phase
17.2 Risks associated with hydropower projects
Table 17-1: HPP project checklist (continued)
Information required
Preliminary cost estimate divided in main components: civil works, E&M
equipment, transmission line X X Generally, a preliminary cost estimate is given in Phase 2, which includes the cost relation of the main project components (i .e ., civil works, E&M equipment and transmission system) . During Phase 2, it is recommended to check that the list of cost items is complete and that the estimates are adequate .
Detailed cost estimates are part of due diligence (Phase 3) . Costs for civil works are usually based on the bill of quantities (BOQs) and unit costs of materials . These figures must be benchmarked to comparable costs for national civil works . The assessment must be undertaken by an independent engineer experienced in the local civil sector .
For the E&M equipment and the transmission system, assessment of the CAPEX is based on supplier quotations . This should include a completeness check, i .e ., not only the equipment but also delivery to the site, and implementation, including commissioning Detailed cost estimates based
on BOQ and/or quotations for engineering and design, civil works, E&M equipment,transmission line, environmental mitigation, project
management and supervision X
OPEX
Preliminary cost estimate divided into main components:concession and other fees, salaries, insurance,
and maintenance X X
During Phase 2, rough estimates for main cost components should be checked . These include the following:
• Maintenance costs: about 0 .5% of CAPEX for civil structures; 2 .0%
for equipment .
• Salaries: about 2 employees per plant, depending on size and number of plants and degree of automation .
• Insurance costs: about 0 .5% of CAPEX (civil works and equipment) .
• Concession fee: annual concession fee is usually 2% of revenues from generated electricity sales .
In Phase 3 of the appraisal process, the focus shall be on the developer’s operational concept, especially staff for plant O&M and maintenance procedures . Based on this, estimated staffing expenses and maintenance costs will be assessed .
Detailed cost estimate based on operational concept: concession and other fees, salaries, insurance costs, maintenance costs,other costs
X
Table 17-2: Risks of Hydropower Projects
Risks Description Mitigation
Political risks
Political change Due to local or national changes in government,
policy, legislation, regulation, instability, or unrest Enact special legislation, sovereign guarantees, political-risk guarantees
Corruption Due to damage to project implementation
or developer reputation caused by effects of corruption
Enact anti-corruption policy, vet contractors, insist on transparent practices, adopt third-party monitoring
Licensing Due to shortcomings in administration or changes
in the legal framework that might delay licensing process
Enact special legislation, sovereign guarantees, political risk guarantees
Transboundary issues Upstream and downstream riparian rights and treaties, border security issues, etc .
Develop treaties, agreements, water management plans, benefit-sharing agreements, co-development, co-ownership Economic and financial risks
Cost escalation Due to inflation, commodity prices, competition for resources, etc .
Enhance supervision, enhance investigation and design, adopt fixed-price EPC, hedge against price increases of inputs, transfer risk through bonds, contracts, insurance, etc .
Foreign exchange Due to currency gap between costs and revenues Transfer risk to contractor, hedging
Electricity market Due to changes in tariffs, regulatory mechanism
for setting prices, etc . Seek long-term off-take agreement, hedging (continued) Source: FICHTNER
Table 17-2: Risks of Hydropower Projects (continued)
Risks Description Mitigation
Economic and Financial Risks (continued)
Financing package Due to financing instruments/tenure of available finance
Seek sovereign guarantees, refinance option, low debt interest rate, longer repayment periods
Performance of contractors / schedule
delays Delays due to inadequate scheduling Prequalify contractors, contract terms and
conditions, transfer risk through bonds and insurance, warranties and guarantees, etc . Technical Risks
Hydrological Due to lower or higher-than-expected water
flows, floods, unusual seasonal variations
Thorough hydrology analysis, contingency margin for output, detailed investigation during feasibility and design phases
Geotechnical seismic Due to geological activity structural problems arise Detailed analysis, site-specific design
Electro-mechanical equipment
performance Due to underperformance as per project
specifications Supervision, inspection, quality assurance,
reliability tests, guarantees and warranties
Construction Due to construction delays Supervision, inspection, quality assurance,
reliability tests, guarantees and warranties
Operation and maintenance Due to underperformance of O&M Detailed O&M contracts, guarantees and warranties
Social Risks
Land and water use conflicts Due to conflicts with local water users or
downstream riparian, water use Formal agreement with stakeholders, modify design
Resettlement and social unrest Due to resettlement, local employment and
compensation Formal agreement with stakeholders, modify
design
Public health and safety risks Due to threats to public safety or health during all
project phases Safety management plan, formal agreement
with stakeholders, modify project International objection on social,
environmental or cultural grounds Develop and carry out strategic
communications strategy, modify project
Cultural heritage issues Preservation of historically significant sites and
artifacts Design pre-project activities to investigate,
preserve, or modify project Environmental Risks
Water quality Modify project, compensate for impacts
Sedimentation Modify project
Upstream/downstream flow regime Modify project, compensate for impacts
Wetlands protection Modify project, compensate for impacts
Biodiversity Modify project, compensate for impacts, pest
management
Fish habitat Modify project, compensate for impacts
Table 17‑2: Risks of Hydropower Projects (continued)
Risks Description Mitigation
Economic and Financial Risks (continued)
Financing package Due to financing instruments/tenure of available finance
Seek sovereign guarantees, refinance option, low debt interest rate, longer repayment periods
Performance of contractors / schedule
delays Delays due to inadequate scheduling Prequalify contractors, contract terms and
conditions, transfer risk through bonds and insurance, warranties and guarantees, etc.
Technical Risks
Hydrological Due to lower or higher-than-expected water
flows, floods, unusual seasonal variations
Thorough hydrology analysis, contingency margin for output, detailed investigation during feasibility and design phases
Geotechnical seismic Due to geological activity structural problems arise Detailed analysis, site-specific design
Electro-mechanical equipment
performance Due to underperformance as per project
specifications Supervision, inspection, quality assurance,
reliability tests, guarantees and warranties
Construction Due to construction delays Supervision, inspection, quality assurance,
reliability tests, guarantees and warranties
Operation and maintenance Due to underperformance of O&M Detailed O&M contracts, guarantees and warranties
Social Risks
Land and water use conflicts Due to conflicts with local water users or
downstream riparian, water use Formal agreement with stakeholders, modify design
Resettlement and social unrest Due to resettlement, local employment and
compensation Formal agreement with stakeholders, modify
design
Public health and safety risks Due to threats to public safety or health during all
project phases Safety management plan, formal agreement
with stakeholders, modify project International objection on social,
environmental or cultural grounds Develop and carry out strategic
communications strategy, modify project
Cultural heritage issues Preservation of historically significant sites and
artifacts Design pre-project activities to investigate,
preserve, or modify project Environmental Risks
Water quality Modify project, compensate for impacts
Sedimentation Modify project
Upstream/downstream flow regime Modify project, compensate for impacts
Wetlands protection Modify project, compensate for impacts
Biodiversity Modify project, compensate for impacts, pest
management
Fish habitat Modify project, compensate for impacts
18
Acronyms
ADB Asian Development Bank AVR Automatic Voltage Regulator B/C Benefit/Cost ratio
BOO Build-Operate-Own BOT Build-Operate-Transfer
BREP Balkan Renewable Energy Program CAPEX Capital Expenses
DSCR Debt-Service Coverage Ratio E&M Electrical and Mechanical E&S Environmental and Social
EIA U.S. Energy Information Administration EP Equator Principles
EPC Engineering, Procurement and Construction ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan ESMS Environmental and Social Management System FDC Flow Duration Curve
FIDIC Fédération Internationale des Ingénieurs-Conseils FIRR Financial Internal Rate of Return
FiT Feed-in Tariffs FS Feasibility Study
GIIP Good International Industry Practice GIS Geographic Information System GRP Glass-fiber-reinforced Plastic
GW Gigawatts
H Head
HPP Hydro Power Plant
HVAC High-Voltage Alternating Current ICOLD International Commission on Large Dams
IEA International Energy Agency IFC International Finance Corporation IHA International Hydropower Association IP Indigenous Peoples
IR Insulation Resistance
IRENA International Renewable Energy Agency IRR Internal Rate of Return
kW Kilowatt
LCOE Levelized Cost of Electricity LUC Levelized Unit Costs
MFWL Maximum Flood Water Level NPV Net Present value
O&M Operation & Maintenance OPEX Operating Expenses PFS Pre-Feasibility Study
PID Process & Instrumentation Diagram PM Preventive Maintenance
PMF Probable Maximum Flood PPA Power Purchase Agreement PPP Public-Private-Partnership SHPP Small Hydro Power Plant SPV Special Purpose Vehicle TBM Tunnel Boring Machines TPC Total Plant Costs TWh Terawatt-hours
USACE United States Army Corps of Engineers USGS US Geological Survey
WACC Weighted Average Cost of Capital