ADB supports innovative project for cross-border power trade, rural electrification in Bhutan

Oct 30, 2008 - Asia Pulse Data Source

MANILA — The Asian Development Bank (ADB) is supporting an innovative power project in Bhutan that will produce clean energy for export to India and increase electricity coverage in rural areas where the bulk of the poor live.

The Green Power Development Project -- which includes Bhutans first public-private partnership for an infrastructure project -- will help tap the countrys under-utilized hydropower resources, increase government revenues for development spending, and improve the standard of living for nearly 9,000 rural power consumers.

It will also help promote clean energy development, foster cross-border cooperation, and provide a potential model for future private investments in the sector.

The project will help finance the construction of the 114-megawatt (MW) Dagachhu hydropower plant that will generate 500,000 megawatt-hours of power annually, mostly for export to India. It will also support a rural electrification program that will provide electricity to domestic households and businesses in remote regions of the country using renewable energy sources of hydropower and solar power.

Expanding generating capacity for the export of clean power and increasing rural access to electricity will enhance energy and social security. It will provide the government a long-term revenue stream to finance its development needs and to cut poverty. It will help stimulate regional trade in clean energy and reduce pollution, said Kaoru Ogino, Energy Specialist with ADBs South Asia Department.

The project is seeking a Clean Development Mechanism (CDM) status on a cross-border basis. By replacing fossil fuels currently used by power companies in India, the project will help cut greenhouse gases and entitle the operators to carbon emission credits that can be sold for additional revenue. The governments of Bhutan and India have already approved the projects CDM eligibility.

The Dagachhu power plant will cost US$ 201.5 million to be split 60:40 between debt and equity. ADB will provide a 30-year, US$ 51 million loan from its ordinary capital resources and a 32-year, US$ 29 million loan from the Asian Development Fund (ADF).

Additional financing of US$ 55.5 million is expected from the Austrian government export credit agency, OeKB, along with US$ 45 million from the government and its company and fund, and US$ 21 million from Indias Tata Power Company.

The state-owned Druk Green Power Corp., Bhutan and Tata Power Company, India have set up a joint venture company for the Dagachhu project which will serve as a showcase for public-private partnerships, leading to increased foreign direct investments in energy development and a reduced state debt burden.

The rural electrification initiative will receive an ADB grant of US$ 25.2 million, US$ 6.7 million from the government and US$ 1 million from the Asian Clean Energy Fund, subject to Japanese governments approval.

The Asian Clean Energy Fund is administered by the Clean Energy Financing Partnership Facility, set up by ADB and development partners to support clean energy projects.

The project is also expected to install over 100 solar power systems generating energy for off-grid rural users including schools, health clinics and other community facilities in isolated remote areas.

Additional assistance to help build the capacity of power sector agencies involved in the project is also being provided, with ADBs Regional Cooperation and Integration Fund granting US$ 888,000 and ADBs technical assistance funding program providing US$ 600,000.

The Austrian Government, which is one of the major proponents of the project, will support engineering implementation of Dagachhu hydropower development.

Bhutan -- the only South Asian country with surplus energy available for export -- has large reserves of untapped hydropower resources. While it exports the bulk of its power supply, most of its rural dwellers still do not have electricity.

The government uses some of its royalty revenues from power exports to cross-subsidize electricity prices for poorer customers, while the rest goes for development needs including infrastructure, health and education.

The government is aiming for 100 percent electricity coverage by 2013. It also has forged an agreement with India to raise generating capacity to 10,000 MW by 2020, with the power available for export. Bhutan currently has installed capacity of 1,500 MW.

Accelerating the development of hydropower for export will generate more revenue that will enable the government to continue providing cross-subsidies to maintain low-cost supply to rural customers, making the power industry environmentally, economically and financially sustainable, said Mr. Ogino. vcs/PR/rsm