ADB to Finance Bhutan's Second Green Power Development Project through PPP

15 December 2014

The Asian Development Bank (ADB) approved financing support to develop the Nikachhu hydropower plant—a run-of-the-river hydropower plant—in central Bhutan totaling $120.5 million in a package of loans and grants, through a public-private partnership. With expected capacity of 118-megawatt (MW), this Second Green Power Development Project follows the successful model of the Dagachhu hydropower project, financed by the Asian Development Bank (ADB) in 2008 under the Green Power Development Project.

Power generated through the project will boost renewable energy generation in Bhutan, and further expand cross-border power trading in the region. To date, Bhutan is the only South Asian country with a surplus of power for export. This second ADB-financed hydropower plant will contribute to the country's energy exports to India, and firm up Bhutan's strategy of exporting clean energy to generate revenue.

Expected outcomes include:

Total project cost is estimated at the equivalent of around $139 million, and will be implemented over 5 years. DGPC will provide $18.86 million. THyE, a special purpose company owned by DGPC, will build and manage the plant.

ADB, through its Technical Assistance Special Fund, will also support the project through a capacity development technical assistance (TA) for Acceleration of Hydropower Trading Development. Estimated to cost $1 million and financed on a grant basis, it will strengthen key sector frameworks and systems through

  • Strategic assessment of sector reforms for a functional segregation of distribution and transmission, between an independent system operator and a separate power trading entity;
  • Improvements in the current hydropower development policy, and a draft tariff policy to address long-term sustainable tariff and subsidy mechanisms;
  • Project implementation support to DGPC and ThyE, through equity financing with the joint venture’s private partner, and strengthening safeguards and monitoring to ensure project compliance.

The Sustainable Hydropower Development Policy—formulated by the Royal Government of Bhutan in 2008, with support from ADB—enables private participation and foreign direct investment in the country's hydropower development. Hydropower generation contributes to one-fifth of the country’s gross domestic product, and accounts for one-third of government revenue. Continued hydropower development is critical in maintaining affordable electricity prices for households, businesses, and industries, while also sustaining the country's export earnings and revenue, which serves as the primary source for government spending on socioeconomic development for social services such as health, education, and rural development.

 

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