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Cost Analysis of Hydropower

October 12, 2020

Without access to reliable information on the relative costs and benefits of renewable energy technologies it is difficult, if not impossible, for governments to arrive at an accurate assessment of which renewable energy technologies are the most appropriate for their particular circumstances. These papers fill a significant gap in publically available information because there is a lack of accurate, comparable, reliable and up-to-date data on the costs and erformance of renewable energy technologies. The rapid growth in installed capacity of renewable energy technologies and the associated cost reductions mean that even data one or two years old can significantly overestimate the cost of electricity from renewable energy technologies although this is not generally the case for hydropower, which is a mature technology. There is also a significant amount of perceived knowledge about the cost and performance of renewable power generation that is not accurate, or indeed even misleading. Conventions on how to calculate cost can influence the outcome significantly, and it is imperative that these are well-documented. The absence of accurate and reliable data on the cost and performance of renewable power generationtechnologies is therefore a significant barrier to the uptake of these technologies. Providing this information will help governments, policy-makers, investors and utilities make informed decisions about the role renewables can play in their power generation mix. This paper examines the fixed and variable cost components of hydropower by country and region and provides the levelised cost of electricity from hydropower, given a number of key assumptions. This up-to-date analysis of the costs of generating electricity from hydropower Renewable energy echnologies can help countries meet their policy goals for secure, reliable and affordable energy to expand electricity access and promote development. This paper is part of a series on the cost and performance of renewable energy technologies produced by IRENA. The goal of these papers is to assist government decision-making and ensure that governments have access to up-to-date and reliable information on the costs and performance of renewable energy technologies. will allow a fair comparison of hydropower with other generating technologies.
1.1 DIFFErENt MEaSurES oF CoSt
Cost can be measured in a number of different ways, and equipment costs (e.g. wind and hydropower turbines, PV modules, solar reflectors), replacement costs, financing costs, total installed cost, fixed and variable operating and maintenance costs (O&M), fuel costs and the levelised cost of energy (LCOE).The analysis of costs can be very detailed, but for purposes of comparison and transparency, the approach used here is a simplified one. This allows greater scrutiny of the underlying data and assumptions, improved transparency and confidence in the analysis, as well as facilitating the comparison of costs by country or region for the same technologies in order to identify what are the key drivers in any differences.
The three indicators that have been selected are:
» Equipment cost (factory gate “free on board” and delivered at site “cost, insurance and freight”);» Total installed project cost, including fixed financing costs and
» The levelised cost of electricity LCOE.
1 IRENA, through its other work programmes, is also looking at the costs and benefits, as well as the macro-econmic impacts, of renewable power generation technologies. See WWW.IRENA.ORG for further details.
2 Banks or other financial institutions will often charge a fee, usually a percentage of the total funds sought, to arrange the debt financing of a project.
These costs are often reported separately under project development costs.
2 Cost Analysis of HydropowerThe analysis in this paper focuses on estimating the cost of hydropower energy from the perspective of an individual investor, whether it is a state-owned electricity
generation utility, an independent power producer, an individual or a community looking to invest in renewables (Figure 1.1). The analysis excludes the impact
of government incentives or subsidies, system balancing costs associated with variable renewables and any system-wide cost-savings from the merit order effect3. Further, the analysis does not take into account anyCO2 pricing, nor the benefits of renewables in reducing other externalities (e.g. reduced local air pollution, contamination of natural vironments). Similarly, the benefits of renewables being insulated from volatile fossil fuel prices have not been quantified. These issues are important but are covered by other programmes of work at IRENA.
It is important to include clear definitions of the technology categories, where this is relevant, to ensure 0that cost comparisons are robust and provide usefu insights (e.g. small hydro vs. large hydro, run-of-river vs. pumped hydro). It is also useful to identify anyadditional functionality and/or qualities of the renewablepower generaTion cosT indicaTors and boundaries
boundaries for costs are clearly set and that the available
data are directly comparable.

The data used for the comparisons in this paper come from a variety of sources, such as business journals, industry associations, consultancies, governments, auctions and tenders. Every effort has been made to ensure that these data are directly comparable and are for the same system boundaries. Where this is notthe case, the data have been corrected to a common basis using the best available data or assumptions. It is planned that these data will be complemented by detailed surveys of real world project data in forthcoming work by the Agency.

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An important point is that, although this paper tries to examine costs, strictly speaking, the data available are actually prices, and not even true market average prices, 2but price indicators. The difference between costs and prices is determined by the amount above, or below, the normal profit that would be seen in a competitive market.
The cost of equipment at the factory gate is often available from market surveys or from other sources. A key difficulty is often reconciling different sources ofdata to identify why data for the same period differs.
The balance of capital costs in total project costs tends to vary even more widely than power generation equipment costs as it is often based on significant local content, which depends on the cost structure of where
the project is being developed. Total installed costs can therefore vary significantly by project, country and region depending on a wide range of factors.