A Presentation on

Economic and Financial Analysis of Micro

Hydropower Projects

By: Mr. Khimananda Kandel

BE Civil/ MBS (Finance)
Managing Director
Epsom Engineering Consultancy Pvt. Ltd.
Phone: 015546792/9851070202
Email: epsom_econ@yahoo.com
khimanandakandel@yahoo.com

Financial and Economic Analysis

Financial Analysis is made in terms of direct cost and revenue of the

schemes.

Economic cost is analyzed in terms of direct cost incurred in the

schemes and the social revenue expected from the schemes.

Generally Following Financial / Economical Parameters are expected

for the project appraisal.

NPV should be positive.

IRR should be more than the bank interest rate.
B/C Ratio should be more than 1.
Acceptable Payback Period.

Assumptions

Project Life : 15 Years

Discount Rate Generally taken as 10%.

Operation and Maintenance cost (2 to 3%) of total Project

cost.

Subsidy is not considered as investment.

Commercial Use of Energy > 10% of total energy capacity

of the plant.

Construction period is generally taken as 1 Year.

Net Present Value

NPV = PV of CIF PIV of COF

NPV = Total Present Value Cost of Investment
The project should have positive Net Present Value and in
case of different alternatives project with higher value of
NPV is generally selected depending upon the size of
investment.

Internal Rate of Return

Thus internal rate of return (IRR) is that discount rate at

which the project's Net Present Value (NPV) is zero.

Benefit Cost Ratio

Where,
Cft = Cash inflows
t = Time period
k = Discount (Interest) rate
Cf0 = Cash outflows at time zero.
The project with B/C ratio greater than 1 is considered
feasible.

Payback Period

The payback period should be at acceptable level.

Estimate Project Cost

Cost of Civil Structures.

Cost of Mechanical Components.
Cost of Electrical Components.
Cost of Transmission and Distribution.
Transportation Cost.
Installation Cost
Supervision and Monitoring Cost
Power Output Verification and Testing
Contingencies
Value Added Tax (VAT)

Sources of Revenue For Financial

Analysis

Selling of Electricity to the Community for domestic use.

Selling of Electricity for Commercial Use. ( Agro

processing mills, computer centre, Rural Carpentry,
hotels etc.)

Generally meters are not used in micro hydro and in

case of it, tariff / watt / month is adopted for individual
households.

Sources of Revenue for Economic

Analysis

Saving of Kerosene.
Saving of Diesel.
Saving of Dry cells.
Benefit from Quality Lighting
Extra use of Time
It is extremely difficult task to quantify the economic
revenue and is generally calculated from adopting some
general assumptions.

THANK YOU