and F Analysis Analysis of Hydropower Hydropower Kurt Goldsmith
PREFACE
Our present age is characterised by growing concern about energy, its supply, its cost and its rational utilisation. Economically exploitable energy resources are becoming scarcer, costs of exploitation are rising and there is increasing sensitivity about whatever impact the energy sector may make on the ambient environment, in particular about the pollution caused by the use of fossil fuels. Yet economic well-being and progress are unthinkable without adequate availability of energy. The problem to be faced is how to reconcile the needs for more energy, particularly in areas still largely deprived of it, with the ability to pay for it and the disturbance energy-intensive development can entail. This brings into focus economic thinking in the widest sense. Although often discussed in global terms, the energy sector is in fact made up of discrete projects, each of which has its particular advantages and disadvantages if compared with an alternative solution which can meet the same objective. These features need to be appraised on an equitable basis before the overall merit of the project can be established and before it can be concluded that this project offers the best option. The purpose of this book is to acquaint engineers with the processes that come into play in economic project appraisal – economic rather than technical because it is presupposed that the economic test of merit is applied only to projects that have been shown to be technically feasible and sound. The book is aimed at the engineer, not the economist, on the premise that basic project appraisal is more closely linked with conceptual engineering development and design rather than with economic theory in general although it must be appreciated that engineering economics – the subject of the book –does involve some economic thinking. Engineers ought to be familiar with the methods used in practical project evaluation and with the questions to be asked, and answered, when the feasibility of a project comes into question. Project optimisation often requires reexamination of the technical features of the project and of their impact on the functioning of the system into which the project is to be fitted and this is basically an engineering exercise. The material presented is intended to provide a practical survey of present approaches to the subjects involved and not a detailed theoretical treatise. Theory is kept to a minimum and mathematical derivations are taken for granted – there are many textbooks offering more extensive treatment of the
theoretical background. Although this book is part of a series on hydropower development, economic appraisal requires examination also of all alternatives to hydropower – all types of thermal power and also transmission from existing networks which could replace a particular hydro scheme. Primary attention is given, however, to the role of hydro generation in electricity supply, either as a single-purpose development or in conjunction with other uses of water. The utility aspects of hydropower therefore stand in the foreground of the present treatment. Computerisation now plays an important role in all development work. A number of flexible computer programmes are available to deal with the computations here described. It may be thought unnecessary therefore to know how such calculations are carried out provided the right information can be fed into the machine. This is a dangerous approach and can lead to greatly misleading information. It is important to ensure that the basis for all economic calculations is properly understood so that the suitability of particular programmes for a specific case can be properly appreciated and the results correctly interpreted. The processes described in this book are based on current thinking which is fashioned to a large extent by public and private financing institutions wishing to apply a common yardstick to a wide range of different situations. Ideas on project appraisal will undoubtedly change in time and some of the elements discussed here may well become outdated; others may gain greater emphasis. Stress is therefore laid on the basis on which the various processes are founded, in the hope that they may be further developed in the light of new ideas that may come about.
