Thukten Zangpo 

Significant cost escalation and delays with the ongoing hydropower projects have raised concerns as to whether Bhutan will be able to export electricity after commissioning the projects.

This has also exerted pressure on the already ballooning national debt.

Hydropower debt constituted 73 percent of the total external debt at Nu 162.48 billion(B) as of the end of December 2021.

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

The cost of the two major ongoing hydropower projects in the country, 1,200 megawatts (MW) Punatsangchhu-I (P-I) and 1,020MW Punatsangchhu-II escalated to Nu 93.75B from Nu 35B estimated in 2006 and Nu 89.77B from Nu 37B estimated in 2009 respectively. Both the projects are under the inter-governmental (IG) model.

Druk Green Power Corporation managing director Dasho Chhewang Rinzin said that the input cost of the projects (equipment, construction materials, and labour) are market-based and inflation resulted in cost escalation.

He added that the delays further added to the project cost and that eventually there will be the interest accrued during construction to consider.

For P-I, a barrage was preferred to a dam, which is cheaper (Nu 17B), Karma P Dorji, director of the Department of Hydropower and Power Systems (DHPS) said. Barrage construction was recommended after the right bank of the P-I dam site experienced multiple landslides.

“Each day of delay in construction of P-I works out to no less than Nu 13 million (M) to 14M a day,” he said.

The two governments determine the export tariff for IG and joint venture hydropower projects at the time of commissioning of the project.

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

“We need to come up with an innovative determination of tariffs like increasing the loan repayment years,” he added.

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

Bhutan’s export tariff rates are growing. Chukha hydropower exports at Nu 2.55 per unit (KWh); it was at Nu 0.70 per unit than in 1988 during the commissioning of the project. Chukha’s tariff is revised every four years.

Kurichhu and Tala export at Nu 2.12 per unit and Mangdechhu at Nu 4.12 per unit.  Mangdechhu’s tariff will increase by 10 percent every five years until the loan is repaid for 35 years. After the loan repayment, it will be increased by 5 percent every five years.

But there are also concerns that the tariff rate in India is falling, while Bhutan’s is rising.

Dasho Chhewang Rinzin said that the tariff in India was falling mainly due to the addition of solar and wind renewables, but the baseload demand has to be continued to be met by traditional coal and other energy sources, including hydro, for which the generation tariffs are increasing.

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

Fossil fuel accounts for 59.8 percent of the total electricity generated in India.

Dasho Chhewang Rinzin said that India’s push to add 500 gigawatts (GW) of generation capacity is mainly based on solar and wind, and these renewable sources are intermittent and need support from other sources to have generation-load balance. India aims to generate 500GW of electricity by 2030.

“Electricity generated from hydropower projects has the advantages of being able to immediately shut down and ramp up capabilities that ensure grid stabilization and reliability. As such, hydro will continue to play a major role in the balancing power system because of its operational flexibility,” he added.

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

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

However, Dasho Chhewang Rinzin also said that the domestic tariff in Bhutan was growing because of various factors like the higher cost of generation for the more recently commissioned projects, inflation, and such factors that are contributing to increases in the costs of delivery of goods and services.

He added that for hydropower projects in India and Bhutan, the tariff is normally determined based on a cost-plus model that takes care of all costs, including debt servicing and includes an allowable return on investments.

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

Bhutan also imports electricity from India during the lean season from the day-ahead market in the Indian Power Exchange to meet the energy supply deficit.

The import price, that is the landed cost of power at the Bhutan-India border will be around Nu 3 to Nu 4 per unit on an average for non-peak hours, according to DHPS.