Banks Provide Critical Support for Hydro Project Development

The involvement of multi-national banking institutions is critical to the completion and modernization of hydroelectric projects, particularly in the developing world. This article details nearly US$16 billion in funding recently awarded for work at more than 50 projects with a total capacity nearing 10,000 MW.

Development of a hydroelectric project requires significant amounts of money and often involves formidable obstacles to be overcome, particularly in developing countries. Without the involvement of multi-national banking institutions, many of these undertakings would be impossible, and valuable opportunities to improve living standards in many countries would be lost. Although the projects mentioned in this article are only the tip of the iceberg, they provide valuable insight into the type of work being financed by multi-national development banks worldwide to encourage the continued growth of the hydroelectric industry.

Asian Development Bank

The Asian Development Bank focuses on delivering projects for the Asia and Pacific region that create economic and development impact. The bank had more than $17.5 billion in approved financing in 2010. Its main devices for assistance are loans, grants, technical assistance, equity investments and policy dialogue.

To encourage the shift to clean and efficient energy, ADB is expanding the use of renewable energy, facilitating the introduction of new clean energy technologies, identifying and promoting cost-effective energy efficiency improvements, and giving incentives for the public and private sectors to invest in these areas. On the supply side, ADB is emphasizing the expansion of renewable energy and using focusing on access to energy as a priority for economic growth, with a focus on helping the poor and protecting the environment. This work includes hydro projects such as those discussed below.

In February 2011, ADB approved a loan of $57.3 million to Papua New Guinea utility PNG Power Ltd. to fund renewable energy projects, including run-of-river hydro. This loan is part of a broader Town Electrification Investment Program approved by ADB in late 2010 that will improve the power supply in provincial urban centers by replacing diesel generation with renewable energy generation. Total cost of the program is estimated to be $150 million. Projects to be implemented under the first tranche of the program include run-of-river hydro plants in the Northern Province and Autonomous Region of Bougainville, as well as a 66 kV transmission line in West New Britain that will provide access to about 1 MW of spare capacity from the 3 MW Lake Hargy hydro plant.

Sri Lanka is using a $120 million loan from ADB to expand and improve its power network, including support for renewable energy that is to add hydropower to the national grid. ADB approved the loan, along with a technical assistance grant for the Sustainable Power Sector Support Project, in January 2011. The project will help the government reduce imports of fossil fuels by providing a credit line of nearly $1.3 million to private developers for about 19 small hydro facilities and by financing the detailed engineering design of the 30 MW Moragolla hydro plant. The government of Sri Lanka will provide about $42 million, for a total project cost of $162 million. This work supports the government's goal of providing nearly 100% of households in the country with electricity by 2016.
And Himachal Pradesh Power Corp. Ltd. in India is developing four run-of-river hydroelectric projects with a total capacity of 856 MW under the $800 million Multi-Tranche Financing Facility Himachal Clean Power Development program funded by ADB. The objective of the work is to help fulfill local demand, especially energy shortages in the winter months of December to February. Outcomes of the program are to include increased production and use of clean energy in a financially sustainable manner through run-of-river hydro schemes, improved state finances from sales revenue earned from power exports, partial offset of project operation expenses due to potential revenues derived from Clean Development Mechanism carbon credit sales, and improved capacity in HPC for better planning, implementation and management of hydro plants.

One of these four projects is 450 MW Shongtong Karcham on the Satluj River, for which the developer was seeking bids in August to supply electromechanical equipment. The remaining projects are 195 MW Integrated Kashang, 100 MW Sainj and 111 MW Sawra Kuddu.

China Development Bank

China Development Bank focuses on such areas as infrastructure development, industrial upgrading, regional coordination, and development and improvement of public welfare. Its mission is to strengthen China's competitiveness and improve the living standards of its people. In 2010, the bank issued debt securities totaling RMB850 billion (US$133.6 billion) and provided electric sector loans totaling RMB509.6 billion ($80.1 billion).
The bank has provided financial support to many power generation and transmission/distribution projects in China, including the Xiluodu and Xiangjiaba hydro projects on the Jinshajiang River.

In July 2011, the bank signed a $2 billion credit with Ecuador's government to support irrigation and hydro projects. Of this total, $680 million will be used for four hydro plants, including 21 MW Mazar-Dudas, 276 MW Minas San Francisco, 50 MW Quijos and 15 MW Villonaco. The eight-year loan has a 6.9% interest rate and two-year grace period.And in October 2010, the bank agreed to lend more than $11 billion to China Three Gorges Corp., developer of the 22,400 MW Three Gorges project. The credit lines will come as $7.2 billion and another $4 billion over five years and will be used to develop other hydro projects, as well as to build wind farms and undertake power projects in overseas markets. As of the time of this announcement, China Development Bank had loaned CNY47.8 billion ($7.5 billion) to China Three Gorges Corp. and its affiliates.

European Bank for Reconstruction and Development

The European Bank for Reconstruction and Development finances projects from central Europe to central Asia. The bank is owned by 61 countries, the EU and the European Investment Bank. The bank invests only in projects that could not otherwise attract financing on similar terms. Direct investments generally range from €5 million ($6.8 million) to €230 million ($313.1 million), and EBRD typically funds up to 35% of the total project cost.

By Elizabeth A. Ingram, Senior Editor, HRW-Hydro Review Worldwide