The Upper Arun Hydropower project is currently being considered for development in Nepal, and an updated feasibility study was recently completed. I had the privilege of performing the economic and financial analyses by being embedded with CSPDR, a global engineering company specializing in hydropower development.
The Upper Arun Hydropower project promises to produce 4500 GWH of electricity annually and is anticipated to cost around $1.4 billion. Our analysis found that the project was economically robust with a high net present value that remained positive under the evaluated risk impacts of cost overruns, schedule delays, the price of fuels for alternative generation, and climate change.
To verify our results, we employed sensitivity analyses, a “switching values” test, and Monte Carlo simulations to capture the probabilities of a full range of real-world outcomes. The project is sensitive to several risk factors, but it exceeded the necessary economic hurdle rate and is now moving on to the detailed design stage.
A full financial analysis at this stage of development was premature since tariff rates will drive financial viability, and those rates have yet to be negotiated. However, the expected “levelized tariff” that would account for full cost recovery, including an adequate return on investment, fits well within the national and regional tariff structure.
It was a genuine pleasure working with CSPDR, the World Bank, and the Nepal Energy Authority on this significant and important project.
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Richard Swanson, Ph.D.
Asset valuation and project finance expert, specializing in financial and economic analysis of civil infrastructure assets.