MANILA, PHILIPPINES — The Asian Development Bank (ADB) will provide $120.5 million in a mix of loans and grants to build a run-of-the-river hydropower plant in central Bhutan though a public-private partnership. Clean power generated by the plant will be sold to India and in doing so, will help reduce carbon emissions.
“By developing the hydropower export, Bhutan can generate additional income that helps finance social services at home such as health, education and rural development,” said Kaoru Ogino, Principal Energy Specialist with ADB’s South Asia Department. “It will also have a positive climate impact in the region. Using clean energy from Bhutan, India will eliminate around 460,000 tons of carbon dioxide emissions every year that it would otherwise have generated through fossil fuels.”
The planned 118-megawatt plant will be located on the Nikachhu River in a narrow valley in the central Trongsa District. As a run-of-the-river plant, it will not need a large reservoir for water storage so the impact on the environment and communities in the area is minimal. The plant will be built and managed by Tangsibji Hydro Energy Ltd (THyE), a special purpose company owned by the Bhutan government-backed Druk Green Power Corporation (DGPC). DGPC intends to sell 26% of THyE to a foreign private company in 2015.
Additional financing for the $198.18 million hydropower plant will come from a $58.82 million syndicated loan, denominated in rupees, from a consortium of Indian commercial banks. DGPC will also provide $18.86 million.
The cofinancing from the Indian banks will be the first foreign commercial borrowing without government credit support in Bhutan’s power sector, indicating increasing confidence among banks to lend for energy projects in the hydropower-rich nation. The rupee-denominated loan also reduces the foreign exchange risk for the plant, whose energy exports will be also paid in the Indian currency.
The plant is expected to start operating in the middle of 2019. THyE has already signed a 25-year power purchase agreement with Power Trading Corporation of India, India’s largest power trading company.
The Nikachhu plant marks ADB’s second hydropower project in Bhutan. ADB also helped finance the Dagachhu hydropower plant in southern Bhutan. That plant, which completed construction in August, was the first infrastructure public-private partnership in Bhutan. It is also the world’s first cross-border project to get carbon credits under the Clean Development Mechanism, a multilateral carbon market scheme enabling emission-reduction projects in developing countries to earn certified emission reduction credits.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2013, ADB assistance totaled $21.0 billion, including cofinancing of $6.6 billion.