Bhutan : Green Power Development Project

Energy / Energy sector development and institutional reform - Large hydropower generation

The Green Power Development Project has two components: (i) regional clean power trade, and (ii) renewable energy access for the poor. Under the first component, the Dagachhu hydropower development (a 126-megawatt [MW] run-of-river type) aims to export power from Bhutan to India through the existing grid to India. The rural electrification component will provide access to electricity sourced from hydropower to 8,767 households and facilities with grid extensions, and electricity sourced from solar energy to 119 remote public facilities (e.g., schools, health clinics, and other community facilities) on an off grid basis.

The Dagachhu hydropower development will be promoted by a joint venture company between Druk Green Power Corporation (DGPC) in Bhutan and Tata Power Company (TPC) in India through a public private partnership (PPP). The rural electrification component will be mainly served by Bhutan Power Corporation (BPC), a public utility service company.

Bhutan has substantial clean and renewable hydropower capacity. Theoretical potential hydropower is 26,760 MW, of which only about 6% is being used. Of the total 1,500 MW installed, 80% is exported to India after meeting domestic consumption. Power exports account for the largest source of Government revenue in the form of taxes and dividends from hydropower companies. Despite the nations being net power surplus for export, most rural residents do not have access to electricity. Only 40% of rural households use electricity as their main source of lighting as compared to 96.4% of urban households. Expansion of rural electrification will provide access to more remote rural areas where the costs of investment, operation, and maintenance will be higher due to low population density and unfavorable terrain.

Since about 70% of the population lives in rural areas, electricity for all is a significant implementation challenge. Operating subsidies are essential to ensure the sustainability of expanding rural electrification. In Bhutan, subsidies are regulated and provided from royalty revenues yielded from power exports to cross-subsidize electricity prices, in particular for rural domestic customers. The Government distributes the remaining power export revenues to support socioeconomic goals, such as health and education, as well as infrastructure development, e.g., rural roads and bridges. Thus, rural electrification and hydropower export are strongly interrelated with inclusive economic growth and poverty reduction. Expanding generation capacity for export and rural access to electricity will enhance energy and social security.

The Government aims for (i) 100% electrification by 2013, and (ii) an additional 10,000 MW of hydropower development and trading by 2020. In rural areas, electricity from hydropower and solar sources will replace kerosene and fuelwood. Given the coal-dominated Indian power market, clean energy development for power export will promote low-carbon energy sources and foster economic cooperation in the South Asia region.

Accelerating the development of hydropower for export is of strategic significance for Bhutan's economy. Given the Government's limited fiscal capacity for large infrastructure projects, the hydropower development strategy is to leverage public and private investments through private participation in development projects. This approach is expected to accelerate hydropower development, and generate income for more socioeconomic development. To promote the country's strategy, the project preparatory technical assistance (TA) supported the Government in establishing a policy and institutional framework for public and private participation in hydropower development. The Dagachhu hydropower development is a demonstration PPP facility in line with the Hydropower Development Policy, which is to promote private and foreign investments for hydropower generation in Bhutan. Further TA support will be provided to develop Government capacity for hydropower export.

Dagachhu Hydropower Development and Rural Electrification

Attached CDTA: Promotion of Clean Power Export Development

- Capacity Building for hydropower

- Financial structuring study for medium-size hydropower projects

- Preparation of documents for carbon finance

Dagachhu Hydropower Development:

The Dagachhu hydropower plant has been operated since March 2015. No houses and buildings were relocated for the plant construction, but 25 households were compensated for partial loss of land for the construction of access roads. There are no outstanding safeguard issues.

Rural Electrification:

BPC has achieved the target number of households electrified on a grid extension sourced from hydropower electricity. Where there are very remote and economically unviable places for on-grid extensions, the solar home systems were installed. Particularly, the off-grid electrification focused on schools, clinics, and public community facilities. Because of a series of support from ADB and other donors, Bhutan is almost achieving electrification to all the households (As of the end 2014, the national electrification ratio stood at 98%).

1. Engineering and Civil works for the Dagachhu hydropower component through ICB in accordance with the ADB's Procurement Guidelines (2007, as amended from time to time).

2. Procurement of materials for rural electrification following ICB. All construction works and material transportation are to be outsources through national competitive bidding.