Cost Effectiveness Analysis Report: Micro Hydro Power (MHP) Indonesia

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This page presents a report / study on return and investment and cost effectiveness of the micro hydro power (MHP) developments under Program Nasional Pemberdayaan Masyarakat Lingkungan Mandiri Perdesaan (PNPM- LMP) (herein after is referred to as PNPM Green), a pilot under PNPM Perdesaan (Rural)), a Government of Indonesia (GoI) program of the Go, aims at assisting villagers located in rural locations to benefit from improved socio-economic and local governance conditions, and conducted as Technical Assistance to Government of Indonesia (GoI).

Excecutive Summary

The scope of the study covers the MHP developed under earmarked block grant for MHP with the assistance of MHP Technical Support Unit (TSU), and the MHP developed under Natural Resources Management (NRM) block grant without TSU support. There are 155 MHP sites developed under PNPM Green with the size ranging from 2 kW to 78 kW and 40 of them have been commissioned and handed over to the community.

The study is focused on the return on investment and cost effectiveness of MHP that have been put into operation. 15 sites are selected as the sample study covering 10 TSU-supported sites and 5 non-TSU supported sites, of which 11 are located in Sulawesi and 4 sites are in Sumatera. When the site visit was conducted, these sites have been handed over to the community for about 2 years to 2 months.

Key Findings

  • The average capital cost per MHP installation in the survey sample is Rp.IDR 545.1million (or approximately $54,500) whilst average cost per kW is RpIDR. 33.6 million (or approximately $3,500/kW). By comparing these data with analysis of other similar studies, a very favorable overall assessment may be made of the PNPM program from a pure capital cost point of view, considering that the average of capital cost/kW of MHP PNPM Green is still comparable with the range of capital cost per installed capacity of MHP developed in other schemes (US$ 2000/kW to US$ 10,000/kW for installed capacity between 5 kW to 30 kW). Capital cost/kW of TSU sites is slightly higher than Capital Cost of Non-TSU sites
  • Smaller number of Household connected compared to the planned number of household connected are found in sites where alternative energy service, notably electricity from PLN grid, is available
  • The average in-kind contribution proportion of TSU supported sites, based on 10 TSU sites visited, is about 2% of the total capital cost whilst that of non-TSU supported sites is about 9%.
  • Most of the MHP sites of PNPM Green deploy operation and management team that consists of the manager (head of the team), secretary, finance/accounting (bendahara), and operator(s).All the communities surveyed are collecting more revenue than they are disbursing in operational costs). On average the operating profit registered by the communities is 35%.
  • It is observed that villages that have already established proper tariff and management team (UPT) are mostly aware of the importance of keeping revenue and expenses records but have low awareness in keeping technical records
  • A positive assessment may be made of the operational status of the MHPs surveyed, in terms of number of household connected, electricity consumption pattern, planned vs actual electricity connection and installed capacity and power output delivery. The majority of schemes appears to be working well and, as discussed further below, is providing a valuable service to the communities. Some communities do appear to be experiencing some operational difficulties and there is a concern about the number of planned connections that fail to materialize. Important operational issues found during the survey is mismatch of design and actual water flow capacity resulting in under delivery of power output, lack of monitoring and recording of technical performance such as kWh generated and regular maintenance of MHP installation and construction (e.g power house, weir, access to weir and forebay, etc).
  • Simple cashflow analysis suggests that without taking into account the fuel saving cost into the calculation and not considering major repair, most of the MHP schemes under PNPM Green, both TSU and non-TSU shows a negative NPV. Only when fuel cost saving is factored in the calculation, 13 out of 14 sites shows positive result. This indicates these MHPs are not viable in generating financial return. In general – micro hydro schemes in rural communities are not expected to be profitable investments. That is why the government needs to step in and provide grant funding in the first place.
  • Many community households are able to enjoy significant fuel cost savings thanks to the electrification of their village. Moreover, electric power has also resulted in enhanced economic benefits through, for example, shops being able to stay open for longer and new business ventures being set up (e.g. baking, games rental). The expectation is that this economic productivity will only increase over time with the result that the income of the community will be significantly enhanced. It should be noted that there are also some (very limited) economic costs associated with the scheme. For example, there is a negative income impact upon those households that previously sold kerosene and other fuel. However these costs are significantly outweighed by the benefits incurred by (usually) the same households.
  • The PNPM program has also brought significant intangible benefits to the villages. For example, the better quality of light enjoyed by connected households enables children to study for longer periods and also enhances the social interaction of the community.


Further Information