A high-level Cost-Benefit Analysis - Sharavati Valley PSP, Karnataka

 

A high-level Cost-Benefit Analysis - Sharavati Valley PSP, Karnataka

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By Shankar Sharma, Power and Climate Policy Analyst


Synopsis:

A diligent analysis of all the costs and benefits, known as CBA, is considered essential all over the world as an economic decision-making tool to ensure that the overall benefits of a project proposal are at least 1.5 times the total costs. Whereas CBA is not being effectively deployed universally in India, its criticality in determining the true economic viability of large-scale and high-impact projects cannot be ignored. Hence, a discussion paper discussing various aspects of such an analysis is expected to benefit all such projects through continuous improvements in its methodology as applicable to India. As a case study, the project proposal for the 2,000 MW Pumped Storage Project in the Sharavathi LTM sanctuary in Karnataka is considered. No claim is made for the highest level of accuracy of the data used in this paper. The effort is only to indicate various components of such a rational CBA, and to highlight the serious blunders/ omissions made in the claim of the project proponent for a very high benefits/ cost ratio, which ranged from an unbelievably high figure of 2,643 in the original estimate, but which was brought down to 74.65 after questioning by MoEF&CC.

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1. Background:

A proposal by KPCL for setting up a 2,000 MW Pumped Storage Project in the Sharavathi LTM sanctuary in Karnataka has led to a public outrage because of the potential for destruction of about 400 acres of tropical rainforest land in and around a legally protected area (PA) in a river valley, and within a world heritage site of Western Ghats.

The need for an objective analysis of the costs and benefits (also known as CBA for brief) of this project proposal in comparison with other techno-economically feasible options was recognised because the project proponent has failed to do so. Whereas a more accurate CBA would be feasible only if all the related data was available, the purpose of the present study was to highlight the major costs and benefits, as they are known to accrue to the entire society, and to list various tangible and intangible costs/ benefits, if the financial value for the same was not readily available.

Such a discussion paper on the analysis of the costs and benefits is also seen as hugely relevant from the fact that scores of such PSPs in the ecologically fragile river valley of the country are being proposed/ implemented, and which have the potential to devastate these riverine ecosystems.

Such a high-level analysis was made feasible due to civil society efforts from several people.

2. Major components of the project proposal:

The project proposes to pump an adequate quantity of water from the existing lower reservoir at Gerusoppa through a set of pipelines to the existing higher reservoir at Talakalale at periods of the day when there is surplus power in the grid, and to use the same quantity of water to generate a max. capacity power of 2,000 MW through 8*250 MW capacity reversible hydro turbines placed in an underground powerhouse between these two reservoirs, at times when such additional power is required to maintain the frequency/ stability of the grid.

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PART A
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In part A, the basic calculation model of CBA, as used by the project proponent, is deployed to recalculate the costs and benefits, but considering many critical cost components, which seem to have been intentionally omitted by the project proponent to exaggerate the relative benefits of the project proposal. In this model, the total costs and benefits are simply compared with each other, but none of the other parameters for the economic decision-making, such as NPV, payback period, and internal rate of return, are calculated. Part B considers the same.


Some of the terms and abbreviations used in this CBA are as follows:

· DPR – detailed project report

· CBA – costs and benefits analysis

· O&M costs – operation and maintenance costs

· GWH – Giga watt hours = MU (million Units) = 1 million kW of power used/ generated for a duration of 1 hour

· ckt. Km – circuit kilometre – length of the power line

· S/C – single circuit on one tower

· D/C – double circuits on the same tower

· NPV – net present value

· IRR – internal rate of return

· kV – kilovolts

3. Major components of costs considered in the analysis:

3.1 Overall project cost, including the capital cost of civil, mechanical and electrical works and machines, including the interest on the finance during the construction period.

3.2 Cost of additional power transmission lines needed to connect the project to the grid. The project proponent has intentionally omitted to factor in this critical component of the project, without which the project will be inoperable. But the same is included in this calculation.

[Indicative cost of 400 kV D/C Quad Moose is `202 lakh/km (cost/ ckt. km. = Rs 101 lakh) and of 765 kV S/C is `Rs 159.25 lakh/ km.); about 60 hectares of forest land diversion needed as per KPTCL (Petition No. 173/TT/2016 of CERC)

A 400 kV double-circuit (D/C) line can typically carry a maximum power of around 1,000-1,200 MW, while a single-circuit (S/C) 765 kV line can carry a maximum power of 3,000-4,000 MW. About 28 kM of D/C 400 kV and D/C 220 KV lines may be needed, as mentioned in the above-mentioned KPTCL petition. Cost of 220 kV double-circuit (D/C) transmission line in India is approximately ₹1.56 crore per kilometre.]

3.3 O&M Costs associated with the operation and maintenance of the power plant, station auxiliary consumption, water conducting systems, and the associated transmission lines;

3.4 Cost associated with the compensation to be paid to the forest department instead of the forest lands diverted (NPV of the forest lands diverted);

3.5. Cost associated with the compensation to be paid to the project-affected people in place of the non-forest lands acquired;

3.6 Cost of electrical energy required to pump water from the lower reservoir to the upper reservoir;

3.7 Cost to the society from the changes in the flow of the river downstream of the lower reservoir;

3.8 Various costs to the local communities and the larger society due to the reduced rainfall because of the destruction of the tropical rainforest in the river valley;

3.9 Any other costs, to be specified.

4. Major components of benefits considered in the analysis:

4.1 Various benefits to society, both direct as well as indirect, of the electrical energy produced from the project in the form of the price at which the energy generated is sold;

4.2 Benefits to the flora and fauna within the sanctuary;

4.3 Other benefits, if any, to be specified.

5. Assumptions made;

i. In the absence of a DPR made available in the public domain, the provision made by the state government. The budget for the project during 2025-26, which is Rs 10,240 crore as per the media reports, is being used. This includes the capital cost, interest during construction, and compensation to be paid for the forest department and the project-displaced people; some of the associated data mentioned in the CBA document presented by the project proponent to the M0EF&CC is made use of in this calculation. Of the total project cost of (Rs. 10,240 crore), Rs. 254.395 crore is assumed as the compensation to the forest department (including the additional forest lands required for power lines, which is not included in DPR) and to the public. Rs. 10,085.80 crore is assumed to be the capital cost of the project to calculate the O&M costs. (= Rs.10, 240 crore + Rs. 100.18 crore (power line cost) – Rs. 254.395 crore for forest and private land acquisition).

Though the DPR is reported to have intentionally omitted to include the cost of additional transmission lines essential for the project, the same must be included in any diligent CBA analysis, and hence, the same is estimated on the basis of the available information from KPTCL communications. The assumed capital cost of the project (Rs. 10,085.80 crores) includes the estimated cost of Rs. 100.18 crores for the additional set of power lines.

ii. The cost of electricity needed to pump water from the lower reservoir to the upper reservoir has been left out intentionally by the project proponent. This cost component is critical for the CBA, and this amount of energy is estimated as 1.25 times the net generation projected in the DPR (1.25 * 4,111 MU per year for the economic lifetime of the project, which is shown as 40 years in DPR).

iii. O&M charges for the 40 years, though not mentioned in the CBA document presented by the project proponent to the M0EF&CC, can be considerably high because of the complexity and spread of the project assets, and hence are used here at 1.5% of the project cost every year for 40 years.

iv. The estimation of the cost of additional power lines, which are essential for the project but have been intentionally left out in the DPR, is done based on the available information in public fora.

6. High-level estimation of the costs:

6.1 Overall capital cost of the project, including civil, mechanical and electrical works and machines, PLUS the cost of additional power lines, is assumed as Rs. 10,085.80 crores to calculate the O&M costs.

6.2 Cost of new power transmission lines needed to connect the project to the grid: One 400 kV D/C and one 220 kV D/C power line for a distance of 28 kM (from PSP to Talaguppa S/S) is assumed to be constructed. At a cost of Rs 2.02 crore per ckt km for a 400 kV D/C, and Rs 1.56 crore per 220 kV double-circuit (D/C) for a length of 28 ckt kM each is assumed (Rs. 56.56 + 43.68 crores = Rs 100.18 crores in total is taken into account).

6.3 O&M costs: Estimated at 1.5% of the total project cost per year: Rs. 151.3 crores/ year, and Rs  6,051.48 crores for 40 years (@1.5% of Rs. 10,085.80 crores per year)

6.4 Cost associated with the compensation to be paid to the forest department instead of the forest lands diverted (NPV of the forest lands diverted): Rs 206.545 crores (as per submission by KPCL to EAC); and Rs. 47.85 crores for 60 hectares of forest lands in the project area to build the needed power lines is assumed. (Rs 206.545+ 47.85 crores = Rs 254.395 Crores)

6.5 Cost associated with the compensation to be paid to the project-affected people instead of the non-forest lands acquired: Rs. 27.45 crores (as per submission by KPCL to EAC)

6.6 Cost of electrical energy required to pump water from the lower reservoir to the upper reservoir: assumed 1.25 times the annual net energy to be generated (4,111 GWh per year) as per DPR = 5,138.75 MU per year @ Rs. 2.00 per unit calculated for 40 years = 5,138.75 MU/year* Rs. 2.00 per unit* 40 years = Rs. 41,110 Crores assumed (Rs. 1,027.75 Crores/ Year).

6.7 Cost to the society from the change in flow of river downstream of the lower reservoir, and the costs to the society due to the reduced rainfall were assumed to be intangible.

6.8 Cost to society due to damage to the flora/ fauna in and around the wildlife sanctuary is estimated to be immense, but not quantified.

6.9 Any other costs: Total of all other compensatory costs mentioned by KPCL to EAC: Rs. 206.545 crores. This is assumed to have been included in the total project cost of Rs. 10, 240 crores.

7. High-level estimation of the benefits:

7.1 DPR has assumed the benefit to the society of the electrical energy produced from the project (Annual net energy of 4,111 GWh (or 4,111 MU) as per DPR; considering revised levelized tariff of Rs. 3.32 per kWh or Unit, and monetization period of 40 years (4,111 MU x Rs 3.32 per Unit x 40 yrs = Rs.54,594.08 Crores); as per claims made by the project proponent to MoEF&CC. There seems to be a typographical error, wherein the project proponent has mentioned the benefits as Rs. 5,45,940.8 crores in the CBA submission to MOEF&CC.

7.2 All other benefits to society are assumed as intangible for the sake of this CBA.

8. Summary of the costs and benefits (economic life of the project assumed as 40 years as in DPR, and 6 years of project construction)


Costs Benefits


Cost component

Crores of Rupees

Benefit component

Crores of Rupees


1. Capital cost

10,085.80

1. Electrical energy produced over 40 years @ levelized tariffs of Rs. 3.32 per kWh : 54,594.08

2. O&M Cost for 40 years: 6,051.48

2. Benefits to flora and fauna: Nil

3. Pumping energy cost for 40 years: 41,110.00

3. Job benefits to locals: A few lower-level jobs

4. Land compensation cost: 254.395

4. Any other benefits to the local communities: Nil assumed

5. Other economic costs: Unknown

6. Other social costs: Unknown

7. Impact on flora/fauna: Assumed to be massive but not quantified


Total cost: 57,501.675

Total benefits: 54,594.08

Ratio of total benefits/ total costs = 54,594.08/57,501.675 = 0.95

9. This negative ratio (or returns) is in stark contrast to the CBA conclusion by the project proponent, which was shown as 2,643 (positive) in the original estimate (DPR), but which was brought down to 74.65 after the questioning by EAC. Even in the revised calculation, critical cost components such as capital cost, water pumping energy cost, O&M cost, and additional power lines cost have been left out intentionally/ ignorantly. Hence, there should be no surprise that the project proposal can only be disastrous not only financially, but also economically and ecologically.

Sensitivity Analysis

In order to minimise the financial risks associated with multiple uncertainties used in various parameters of costs and benefits, especially in the case of projects with an economic life of a few decades, a sensitivity analysis is also applied to CBA. In such an analysis three different scenarios are considered: (i) assumption that the total costs will go up by 10%; (ii) assumption that the total benefits will go down by 10%; (iii) assumption that the total costs will go up by 10%, and the benefits will go down by 10% at the same time. If the economic indicators such as NPV, IRR and Payback period all come out as positive in each of these sensitivity analysis scenarios, it can be assumed that the project has a positive economic projection.

10. NPV for these cost/ revenue streams for 46 years (6 years of construction time and 40 years of economic life time assumed), should indicate a troubling range of negative figures of (- ) Rs 40,936 Crores at 8% discount rate to (-) Rs 33,098 crores at 5 % discount rate. This calculation of NPV indicates that in the context of the present value of money, the project can result in a loss of the range of a few thousand crores (may be Rs. 33,000 crores to Rs. 41,000 crores).

11. Whereas, the project costs are unlikely to be any less, even if the benefits are increased by 25%, and the discount rate is assumed to be only 5%, the NPV will still be about (-) 30,000 crores. Additionally, considering the uncertainties of construction costs, the risks of landslides, earthquakes, etc, in the project area, climate change implications, global financial risks, etc., the present value of money in this project can be much less.

 12. The other indicator in the associated economic decision making is the ‘payback period’. Considering the average annual costs and annual revenue (assumed to be spread equally over 40 odd years), the payback period also is very large; of the order of excess of 40 years. The question, hence, that should be asked is: why should our society be burdened with the costs/ risks of such a high impact project, even when better alternatives are available.

13. Summary of economic indicators


NPV

Payback Period

Benefits/ Costs ratio


(-) Rs 40,936 Crores at 8 % discount rate

40 to 50 years depending on discount rates and energy price

0.85 to 1.05 depending on changes in costs and benefits


(-) Rs 33,098 crores at 5 % discount rate






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PART B

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14. In this part the associated costs and benefits of one techno-economically credible alternative of battery energy storage system (BESS) is deliberated on at a high level. The technology of BESS is relevant in the context that it can be built/ programmed to absorb/ store electrical energy at times when there is excess supply in the grid, and to instantaneously release the same when the grid needs it. The same is of great relevance in the present context of serious ecological and social threats associated with score of PSPs being planned/ proposed in river valleys in the country.



15. A BESS of a total capacity of 2,000 MW (same as that of Sharavati PSP), as being tendered for Maharashtra and Gujarat, can be in the form of multiple capacity BESS (such as 100 BESS each of 20 MW, OR 20 BESS of 100 MW each, OR 40 BESS of 50 MW each etc.), and installed at convenient locations in the grid without having to cut a tree, or seeking the diversion of forest land. Such a distributed BESS has the advantage of avoiding dedicated power lines, since they can be placed and connected at the existing sub-stations; and hence in minimising the associated transmission losses.



16. These BESS have higher cycle efficiency of 85% PLUS as compared to a max. of 76% in PSPs. In summary, it can be said that the ecological footprint of BESS can be visibly much less, except for the fact that pollution/ contamination associated with their manufacturing/ disposal have to be carefully managed.



17. A study report released by Prayas Energy Group, Pune with the title “Comparative Economics of 4-hrs Pumped Hydro and Battery Storage (2030)”, indicates that the levelized cost of electricity from a BESS capacity of 1 MW/ 4 MWh can be in the range of Rs. 3.8 to 4.1 per kWh as compared to Rs 9.5 to 14.9 per kWh in the case of a PSP of same capacity, including the replacement cost of Battery pack in a BESS.

(https://energy.prayaspune.org/images/pdf/grid-scale-battery-storage-costs-value-and-regulatory-framework-india_prayas-lbnl.pdf)



18. The other factors of true relevance in this study report are:

· The land requirement also is very attractive in the case of BESS, which may need about 0.1 acre/ MW, as compared to about 2.5 acres/ MW of PSP.

· The total project/ construction time needed for BESS is about 6 months, as against 4-10 years for a PSP.

· “Co-located battery storage systems are cost-effective up to 10 hours of storage, when compared with adding pumped hydro to existing hydro projects. For new builds, battery storage is always cost- effective irrespective of the hours of storage.”

· “4-6 hours of storage system is found to be cost-effective in 2030. However, significant regulatory interventions would be needed for cost effective deployment of grid-scale battery storage”



19. The only disadvantage of BESS is the need to replace the battery pack in it once in about 15 years, whereas, the typical lifetime for a PSP can be 30 years without any major replacement cost. But the overall cost to the society of a comparable capacity BESS is clearly attractive as compared to a PSP. The question, hence, that should be asked is: why should our society be burdened with the costs/ risks of such a high impact PSP proposal, even when a better alternative of BESS is available.



Total Ecosystem Supply Value (TESV) of the Sharavathi Pumped Storage Project area



20. In an article by the title “Ecological Insights of Sharavathi river basin, Central Western Ghats, Uttara Kannada and Shivamogga districts, Karnataka”, a team from IISc, Bengaluru has termed the Pumped Storage Project proposal at Gerusoppa, as Illogical doomsday path by today’s decision makers. In an assessment based on three decades of Research in the Western Ghats, this IISc team has expressed shock at the disastrous decision of our authorities to even conjure up such a ghastly PSP proposal in a rare and ecologically sensitive region of global importance.



21. This assessment says: “The National Wildlife Action Plan (NWAP) (2002-2016) indicated that ‘Areas outside the protected area network are often vital ecological corridor links and must be protected to prevent isolation of fragments of biodiversity which will not survive in the long run. Land and water use policies will need to accept the imperative of strictly protecting ecologically fragile habitat and regulating use elsewhere’. The action plan also indicated that ‘all identified areas around protected areas and wildlife corridors to be declared as ecologically fragile under the Environment (Protection) Act, 1986.”



22. In this larger context, the persistent statement by many of the environmental activists, that even the ‘areas outside the protected area network are often vital ecological corridor links and must be protected’ can be easily corroborated. Hence, the entire area identified for the PSP proposal in Sharavati valley is a rarity, rich and, hence, deserves utmost care in conservation.



23. This IISc assessment also says: “The estimated Total Ecosystem Supply Value (TESV) of the Sharavathi Pumped Storage Project (153 ha) and its surrounding areas is calculated to be 346.65 million rupees per year (Ramachandra et al. 2017). TESV encompasses Provisioning services (valued at 62.37 million rupees, 18%), Regulating services (187.66 million rupees, 54%), Cultural services (59.15 million rupees, 17%), and Supporting services (37.47 million rupees, 11%). If these services are provided for the next 50 years, considering a 3% discount rate, the estimated Net Present Value (NPV) would be a substantial 8,919.13 million Rs. (9 billion rupees)”.



24. In the context of vastly negative NPV of the proposed PSP, the immense value to our state/ country of preserving the ecological integrity of the rich biodiversity in the proposed project area, which is in the heart of Western Ghats, should become crystal clear.



25. It should be stated as a clear example of policy dichotomy at the highest level, that whereas, ‘India set to add 30 GW of storage by 2027, outpacing demand forecast’, it is also a serious concern that ‘India identifies over 200 GW pumped hydro storage potential, 8 GW under construction’. The deeply concerned observers of the power sector in the country, cannot help but wonder whether it is a sign of the scarce intellectual abilities, and lack of commitment to uphold the Principles of our Constitution, due to which the concerned authorities seem to refuse to take note of the unacceptable level of ecological cost of river valley PSPs, and the unambiguous relevance of BESS for the future of the power sector, as highlighted in web links below.

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India identifies over 200 GW pumped hydro storage potential, 8 GW under construction

https://share.google/uJFqUBlS69q4ivy42



India set to add 30 GW of storage by 2027, outpacing demand forecast

https://share.google/TlvEFVkNILZQgMLBt



Gujarat Floats Tender for 2,000 MW/4000 MWh Standalone BESS Project

https://www.mercomindia.com/gujarat-floats-tender-for-2000-mw-4000-mwh-standalone-bess-project



Maharashtra floats tender for 2,000 MW/4,000-MWH battery energy storage

https://www.mercomindia.com/maharashtra-floats-tender-for-2000-mw-4000-mwh-battery-energy-storage



Power Generation Company Signs PPA with BESCOM for Solar Project with Battery Storage

https://www.dsij.in/dsijarticledetail/power-generation-company-signs-ppa-with-bescom-for-solar-project-with-battery-storage-id001-51078

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Conclusions:

Whereas multiple reports, such as scores of reports from IISc, Bengaluru, have copiously and unambiguously established the critical need to adequately conserve the rich biodiversity in proposed project area, two reports of large size tenders for 2,000 MW stand-alone BESS capacity, each in Maharashtra and Gujarat, and smaller size BESS tenders in Karnataka and Kerala (as in news links above), should prove beyond any doubt the ever-increasing acceptability/ attractiveness/ necessity to adopt BESS technology in place of PSPs in our country.

26. Since the estimated Total Ecosystem Supply Value (TESV) of the Sharavathi Pumped Storage Project area, and its surrounding areas is about Rs. 35 crore per year, and is expected to provide an NPV of about Rs. 900 crores, the most legitimate question should be: why should our society approve of a project to destroy about 400 acres of ecologically very high value forest land at a capitol cost of Rs. 10,340 crores only to get an NPV of about (-) Rs. 30,000 crores? The much better option of BESS, which comes with all positive economic indicators, should be resolutely pursued.



27. In the larger context of the overall welfare of our country, which cannot be feasible without the ecological wellbeing of natural resources, such as forests and rivers, the very need for scores of PSPs in the river valleys of the country should be diligently reviewed, keeping in view the true welfare of all sections of the society, including that of flora, fauna and the general environment. But deplorably, the concerned authorities have failed/ refused to establish why these PSPs in river valleys are critical to the demand/ supply of electricity, and why BESS cannot be deployed in their place. Such an objective and diligent analysis should be effectively deployed before permitting the destruction of our rich but fragile forest/ riverine ecosystems for the sake of PSPs.

28. Any project proposal seeking diversion of forest/ agricultural/ revenue lands and/ or large mass of water should be considered for any kind of regulatory approval, if and only if it is supported with such a detailed and credible analysis of all the costs and benefits (CBA) to the society, and only after an objective comparison of such CBA results with all the credible alternatives.

29. The process of considering various clearances pending before MoEF&CC for the 2,000 MW PSP in Sharavati valley, Karnataka, and other similar river valley PSPs in the country, should be kept in abeyance until all the required studies are completed satisfactorily, and a clear national level policy on PSP/ BESS is prepared.