As recent Asian Development Bank (ADB) and Asia-Pacific Economic Co-operation (APEC) Energy Working Group (EWG) meetings make clear, Southeast Asian hydro power is at a cross-roads.
It must either sell itself as environmentally benign or be considered as no more commercially and socially viable than nuclear energy.
At stake is a cascade of eight dams on the Lower Mekong, now all but abandoned due to environmental issues, plus many others on Mekong tributaries in the Lao PDR and Myanmar. If the Lao dams are abandoned, the country’s development strategy, which relies very heavily on earnings from power exports to Thailand and Vietnam, will be wrecked.
Other hydro projects in the region that would be more or less affected by the same situation could include several large projects in Myanmar along the Salween River. Only China’s cascade of another eight dams along the Upper Mekong in Yunnan province seem likely to be unaffected. This is because China’s demand for power is so vast that all energy sources urgently need to be tapped.
The Asian economic downturn is depressing growth in power demand, but the chief threat facing hydro in the region is that the increasing availability of low cost natural gas will make hydro uncompetitive.
As the ADB somewhat bleakly observed at the fourth meeting of the Greater Mekong Sub-region’s (GMS) electric power forum in Hanoi last October, ‘the prospects for hydro power export projects in the region depend largely on the availability of cheap gas for Thailand’.
The implication is that if low cost gas is available (and it is), even a very modest hydro programme becomes non-viable. The threat becomes even more pressing when the present context of deregulation and privatisation of power supplies is taken into consideration.
For the foreseeable future, power in Southeast Asia will probably be supplied mainly under what the APEC EWG calls a ‘contract-based’ system. Although this is a mid-point between ‘natural monopoly’ utilities on the one hand and fully ‘competitive power provision’ on the other, a contract-based system still requires independent power producers (IPPs) to operate within free markets. This being so, IPPs must necessarily favour the primary fuel that offers the best commercial viability.
As was pointed out by the World Bank at APEC’s EWG workshop on the security of fuel supplies for the power industry (held in Hawaii on 3-4 February 1998), the most commercial fuel is natural gas (see Table below).
Overall, in the Bank’s ranking, hydro rates little above nuclear power and well below gas or oil, although the Bank emphasises that the local situation is always crucial.
Stark contrast
Price is of course a consideration, and gas scores better than all other fuels in this regard, although there is a wide range in financing costs. This reflects the fact that LNG-based gas projects are difficult to finance (1) whereas pipeline-based ones (5) are easy.
But gas is also far more attractive to IPPs for other reasons: significantly, environmental concerns and security of supply particularly favour gas. A final aspect of the threat is that gas favours ‘in-house’ generation of domestic power demand. It is easy to transport and domestic power generation produces the greatest value added for the consuming country.
Large hydro in Southeast Asia, in stark contrast, is almost entirely predicted on power exports. This is of course fine for the exporting country which in this case reaps the value added, but not for the consuming country which does not. So what should be done by a cash-poor, consuming country like Thailand, whose power sector is rapidly privatising?
For all three reasons cited above — price, broad-based desirability and greatest value added — it seems it should abandon regional hydro in favour of low cost gas.
Moreover, this argument applies to any country in a similar situation and could affect power exports from other primary energy sources besides hydro.
Not only are export-predicted hydro projects across Southeast Asia threatened by gas: plans for regional inter-connection of grids, at least for the foreseeable future, are also affected. Interconnection relies to a great extent on the profits, and reliability, available because power is exported from large hydro projects.
The antidote
The essential antidote must be to rehabilitate hydro’s unjustifiably battered environmental reputation. After all, a strong environmental case would also tend to increase hydro’s attractiveness with regard to economics and financing.
An excellent start would be to revisit the environmental impact matrix prepared by the International Solar Energy Society (ISES) for the United Nations Conference on Environment and Development in Rio de Janeiro back in June 1992.
The matrix compared the environmental impact of 14 energy options across 34 categories of impact within the total energy cycle — raw materials extraction and plant construction, energy production, consumption and waste disposal.
The 14 options range from energy efficiency (the least impact) through solar and the other renewables, to hydro, gas, oil, coal and nuclear, the five fuels covered by the World Bank table above.
Of these five, coal produced the most impact (ISES score 256), then oil (235) and then gas (221). Note the very small spread between the fuels. Thus from an environmental impact perspective across the full fuel cycle, gas is not much better than either oil or coal.
Nuclear came next (217), very close to but marginally better than gas. Hydro scored 158, almost 60 points below its nearest rival and nearly 100 points better than coal. As a benchmark, energy efficiency scored 121.
Thus hydro, over its full energy cycle, clearly belongs with the renewables rather than with the thermal fuels and nuclear, at least from an environmental perspective.
If these results are then plotted within the World Bank grading scheme, the comparison is instructive. There is very little agreement between the two perceptions, though both agree on the comparative merits of gas, oil and coal. What is more, gas is highly over-rated by the World Bank from an environmental standpoint while hydro and nuclear are highly under-rated.
ISES admitted that it had been forced in many cases to resort to rule of thumb in order to accommodate all energy options within a single matrix. Even so, it systematically assessed, however roughly, the environmental impact of all 14 energy options over 34 categories of environmental impact within the full energy cycle.
Speculation
It is interesting to speculate what impact this re-evaluation of environmental concerns among the five fuel options would have on other elements of the World Bank table. For if, as seems likely, a high environmental grade for hydro would improve at least its financing grade and quite probably its economic score too, then those same grades for gas, oil and coal would have to drop while those for nuclear would have to improve. In short, an entirely new perception of the relative merits of the five options is possible.
The hydro power industry should also consider that even as the ADB’s GMS project and ASEAN’s interconnection scheme — both hydro export-based — falter under the twin burdens of environmental criticism and economic downturn both of which favour gas, many interest groups want them to proceed.
The groups include the World Bank, which is quietly urging Mekong riparian countries to push ahead with the GMS, the ADB, APEC, ASEAN and of course the national governments themselves. All groups can see the benefits of what they are trying to achieve. However, at present, under what now seem likely to be highly skewed perceptions, other options appear more economically and socially feasible.
Skewed perceptions?
The question of whether perceptions of gas or hydro are skewed requires full and careful study. It would greatly benefit the hydro power industry to initiate such a project. For unless it takes a far more aggressive, proactive stance to establish its own environmental credentials it will be swept away by the common misperception that gas is superior.
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