The Challenge of Financing Hydro Projects in Pakistan and Vietnam

Hydro power is leading the renewable generation investment but project finance is still an issue
Published: Tue 22 Apr 2014

Star Hydro has recently achieved its first milestone with the New Bong Escape, the first private hydroelectric power plant in Pakistan.

Pakistan’s hydropower potential

More projects are in the pipeline, including the 147 MW Patrind project. Pakistan has a long history in developing independent power projects and now sees the potential and development paths in hydro power projects. The Pakistan government has recently announced plans to tap some of the enormous potential for hydropower in the country’s north and aims to add 13,000 MW of electricity to the national grid system.

Independent Power Producers currently provide about a third of Pakistan’s power generation. with assistance from the Asian Development Bank (ADB) and the World Bank. Since the public sector alone could not provide the required investment the government opened up the energy sector to attract private capital.

Lack of project finance

According to Waqar Ahmad Khan, CEO of the independent power producer Star Hydro Limited (SHPL) in Pakistan, independent power projects (IPPs) have a relatively safe investment climate in Pakistan.

The government has initiated a new policy which allows a 17% rate of return on the equity that an investor will spend on a hydropower project. Under the policy guidelines, the government has also guaranteed concessionary arrangements and agreements.

According to Khan, even though the investment framework is established, the challenge remains in financing these hydro projects in Pakistan. Khan hopes that the recent progress of the Patrind hydropower project will attract more investors in the country. What are the keys to successful financing and requirements for a successful investment framework? What is the investor’s perspective in view of policy and regulatory framework? These are some of the questions being explored by Mr Khan and other renewable energy developers at the upcoming 4th Clean Power Asia conference in Bangkok.

Vietnam’s small hydropower projects

In Vietnam, small hydropower projects have been constructed since the 1960’s.

Compared to other renewable technologies, hydropower is a more mature technology in Vietnam and can achieve returns on investment. Grid-connected small hydropower projects are highly bankable.

As part of the effort to meet increasing electricity demand, Vietnam is planning to develop additional small and medium scale hydropower plants. However, the Hydro Power Department of the General Department of Energy of Vietnam recently announced that out of the 418 planned small hydroelectric power projects, 167 will be cancelled due to delays and the negative impact on the environment.

Ky Hong Tran, Energy Specialist of the World Bank in Vietnam will present an overview of small hydropower developments in Vietnam and what needs to be done to make improvements. Tran will share the World Bank’s achievements, challenges and lessons learnt in the financing of small hydro projects in Vietnam and he will illustrate how the emission reduction purchase agreement under the Renewable Energy Development Project works.

Interested to hear more? Attend the Visit Clean Power Asia, this year incorporated in Asian Utility Week, with a 20% discount! Register here.

 

Written by Elly Kreijkes, Global Programme Director, Renewable Energy & Energy Storage, Synergy Events