ECONOMIC VIABILITY OF A SMALL HYDROPOWER PLANT

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ECONOMIC VIABILITY OF A SMALL HYDROPOWER PLAN

ABSTRACT

In this study the financial and economic feasibility of OnuakuRiver in Aku community of Abia state was evaluated using indicators like the Net Present value (NPV), Payback Period, Benefit cost ratio (BCR) and Internal Rate of Return (IRR) to ascertain the feasibility and viability of the project. Here the breakeven point of the project, profit, cash flow, present and future value of project as well as the expected yearly revenue of the project is shown in advance within the economic life or span of the project. Furthermore a sensitivity analysis to show the responds of the project to both variation in investment cost and the price of electricity, was also carried out using a Microsoft excel based platform to carry out the computations.With an investment cost of less than N12million, a net present value of three million six hundred and thirty thousand, fifty seven naira fifty eight kobo,(N3,630,057.58) was gotten at the 30 years life span of the project with an internal rate of return of 14.25%. Also from the analysis a project payback period of ten years which is timely enough for the client or investor to recover the investment made on a project that can span up to thirty years (minimum) - fifty years (maximum). The benefit cost ratio of the project from analysis is 1.23 which is above unity. Furthermore, sensitivity of the project to variations in investment cost showed that the project is sensitive to variation in the investment cost, as a 30% increase in investment cost throws the project into a negative NPV, and an IRR less than the hurdle rate of 12%. The sensitivity to the variation in the price of electricity shows how the project responds to reduction in electricity price, as a reduction by 20% in electricity price, throws the project into a negative net present value making the project not viable at 20% reduction in electricity price. Hence the results from the analysis above have provided additional information for the decision makers, client and the design engineer to see reasons why this project should be embarked on.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

All living things depend on energy for survival, and modern civilizations will continue to thrive only if existing sources of energy can be developed to meet the growing demands, hence Energy is “Life” Energy is“Existence”, it is the dividing line between the rich and the poor, between the developed, developing and the underdeveloped (Ohunakins et al., 2011). For a country to grow beyond its subsistence economy, tackle the problem of poverty, the country will need to have minimum access to energy services for the larger proportion of its population (Ohunakins et al., 2011). However, in Nigeria energy supply has been epileptic in nature, causing the socio-economic status of the country to be downgraded (Ohunakins et al., 2011). Nigeria’s energy demand increases with an increase in population, but power supply has remained unreliable and insufficient with a country generation capacity of about 3500 MW as at 2011 (Okeke, 2011).

Nigeria as a nation has started feeling the impact of adverse climate change, that may be attributed to the overdependence on fossil fuel fired power plants which is the main source of greenhouse gas emissions (GHG), coupled with activities of manufacturing industries, oil prospecting firms and deforestation, to mention but a few. Renewable energy (RE) has been identified as the only alternative of addressing these problems. RE is energy derived from an energy source that can generate itself through natural processes within a relatively short period; unlike fossil type resources that take millions of years to form and which is not regenerative. 

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