HYDROPOWER DEVELOPMENT IN BHUTAN – A PERSPECTIVE

1. HYDROPOWER DEVELOPMENT IN BHUTAN – A PERSPECTIVE BIMSTEC WORKSHOP ON “SHARING OF EXPERIENCES IN DEVELOPING HYDRO PROJECTS” 30th & 31st October 2006, New Delhi Country Presentation Bhutan Tashi Dorjee Department of Energy, MTI & Kencho Dorji Chukha Hydropower Corporation Ltd.

2. Outline of the Presentation • Bhutan – Salient Features • Institutional Set-up for Energy Sector • Hydropower Potential • Energy Sources & Status of Hydropower Development • Economic Impact of Hydropower • Future Plans for Development of Hydropower • Planning and Policy interventions to enhance the role of hydropower • Opportunities & Challenges for Hydropower Development • Electricity Act 2001 • Role of Private Sector • Conclusions

4. Bhutan – Salient Features • Located in the eastern part of the Himalayas • Area – 38,394 Sq. Km • Population – 672,425 (69.1% living in rural areas) • Altitude range from 100 – above 7500 m above mean sea level • 170 Km north south distance and 340 km east west distance • 72% under vegetation cover • Climate – Wet summer monsoon and cool dry winters • GDP per capita, 2004: 843 US$ • GDP growth, 2004 at 2000 prices: 7.5% • Overall National electrification coverage: ~50% (~60% of rural areas still non-electrified)

5. Institutional Set-Up for Energy Sector • Under Ministry of Trade & Industry • Electricity & Renewable Energy Policy, Planning & Regulations • Utility functions (Generation, transmission & Distribution companies) – CHPCL, KHPCL, BHPCL, BPCL • Project Authority – Tala • Import of Fossil Fuels (Trade) • Under Ministry of Agriculture • Fire-wood, food and animal draught power

6. Energy Sector Organization Ministry of Trade & Industry Department of Energy (Policy, Plan, Regulation) Department of Trade Fossil Fuels Project Authority like Tala Power Corporations like BPCL, CHPCL, KHPCL, BHPCL, Proposed DHPC

7. Hydropower Potential and Status (as of October 2006) Hydro Power – Backbone Of Bhutanese Economy Hydropower potential 30,000 MW Technically feasible 23,760 MW Current installed capacity 468 MW(1.5%) Capacity by December 2006 1488 MW(5%) Three Main Regional Basins: Basin I : 4819 MW, 20874 GWh Basin II : 8182 MW, 25842 GWh Basin III : 10759 MW, 52531 GWh

8. List of Potential HydropowerProjects identified in PSMP 2004

9. Sources of Energy & Status of Hydropower Development • Primary energy – Bio-mass (1.2 million m3 per annum consumption, 1.8 m3 per capita) for lighting, cooking and heating • Import during 2005 of Kerosene (12545 kl), Diesel (51,440 kl), Petrol (13,775 kl), LPG (4472 MT) – increasing demand ! • Solar PV installed – 343 kW • Diesel Power installed capacity – 16.404 MW • Hydroelectric installed capacity – 468.068 MW, 2576 GWh (1.5% of total potential) without Tala

10. Status of Hydropower Development

12. Impact of Hydropower on the National Economy • Key to achieving economic self reliance • Prior to harnessing of hydropower, Bhutanese economy almost entirely dependent on foreign aid • In the 9th Plan (2002-2007) about 46% dependent on external aid. • Revenue from sale of electricity provided ~45% of national revenue (>60% after full commissioning of Tala). • Electricity Sector contribution to GDP: ~12% (expected to be increased to ~30% once Tala in on line) • ~75% of hydropower generation exported to India. • Earnings from this sector ploughed back into the social sector. • Large social spin-off benefits • Sustainable development of natural renewable resources and contribute to mitigating GHG emissions • Affordability • Domestic tariff kept low to stimulate economic growth. • Encouraged development of large industries that consume ~70% of total electricity consumption within the country (peak internal demand ~120 MW) • Rural electrification given high priority (100% electrification by 2020). • Environmentally benign • All major rivers in Bhutan flow through deep valleys. • No settlements effected. • Run of the river projects • Catchment well conserved (~72% forest coverage)

13. Future Plan for Hydropower Development • 20 Years’ Power System Master Plan (2003-2022) updated • Six Projects (4484 MW, 21085 GWh) short-listed for development during 2007-2024, short-listing by Multi Criteria Analysis (70% Techno-economic, 30% Socio-environmental). • Total investment required: US$ 3,660.8 million (About US$ 200 million per annum requirement for 244 MW per annum capacity addition • Average development cost estimate > 0.835 million US$ per MW

14. Planning and Policy interventions to enhance the role of hydropower • Vision 2020 • 3000 MW Generation Capacity addition by 2017 ( 4484 MW addition by 2025 ) • Electricity for all by 2020 • 20 Years’ Power System Master Plan (2003-2022) updated • RE Master Plan – Integrated Dzongkhag wise electrification

15. Hydropower projects in pipeline for development in the next 20 years

16. Renewable, Clean form of Energy CDM & Substitution to fossil fuels/reduction in GHG emission Export /Market demand in India and South Asia (peaking energy) Benign environment (political, social & physical/techno-economic). Resources constraints (capital intensive & skills & technology !) Conservative Environment laws ! Risks (long gestation, weather, geology, seismology) Market (pricing, competition) Transport cost (land locked !) Hydro DevelopmentOpportunities &Challenges

17. Electricity Act 2001 - Provides the legal framework for regulation of electricity industry in the Kingdom - Provides mechanisms for licensing and regulating the operations of Power companies - Defines the roles and responsibilities of suppliers and protect the interests of the general public

18. Private Sector Participation • Present Scenario - Private sector in general is in its infancy (developing) - Involved in small hydro generation, transmission (JV with Indian firms), distribution system (RE works) - No capacity & resources for large hydro projects development - IPP, Public-Private model for hydropower development not existing • Power sector not in FDI Policy • IPP Policy guidelines to be prepared soon • Electricity Act 2001 - No license required for hydro capacity upto 500 kW

19. Private Sector Participation • Private participation: Avoided Cost and Additionality. ADDITIONALITY: Is the benefit to the consumers and to the economy of having the energy services available NOW rather than having to wait until the government can provide the energy services much later. • Concessions to meet energy shortage. • Not for increasing revenue from electricity sales. • In Bhutan’s context, mainly for enhancing revenue. • Public private partnership to enhance investor confidence. • IPPs in small plants but subsidy maybe necessary.

20. Some conclusions • Hydropower resource has brought about immense development benefits all geared towards achieving economic self-reliance and overall socio-economic development of the country. • In the Bhutanese context, large hydropower project has the benefit of economy of scale, as well as it provides large spin-off social benefits such as road access, rural electrification, employment opportunities, hospital, school etc and thus fulfils the national strategy of regional balanced development. • Hydro power projects in Bhutan are mainly run of the river schemes and have had minimal environmental impact. There have been minimum and/or no displacement and rehabilitation of people living in the Project area.

21. THANK YOU FOR YOUR KIND ATTENTION