The Nam Theun 2 Hydropower Project, or simply NT2, is a hydroelectric dam on the Nam Theun River in Laos. Commercial operation of the plant began in April 2010.[1] The scheme diverts water from the Nam Theun, a tributary of the Mekong River, to the Xe Bang Fai River, enabling a generation capacity of 1,075 MW, from a 350 m (1,148 ft) difference in elevation between the reservoir and the power station.Nam Theun 2 Dam. (2022, June 9). In Wikipedia. https://en.wikipedia.org/wiki/Nam_Theun_2_Dam

1. Economic Analysis of Power Generation:
A Case Study of Nam Theun 2 Hydroelectric Project
Presented By:
Brabina Mahat(078MshpE006)
Krishna Kamal Sah(078MshpE009)
Priti Shah(078MshpE013)
Rakesh Maharjan(078MshpE015)

2. Silent Features of Project.
Name: Nam Theun 2 Hydroelectric Project
Project type: Storage/transfer
Capacity :1000 MW
Construction Period :5 Years (Commissioning Expected in 2010
A.D)
Developer : NamTheun 2 Power Company (NTPC)
O&M By: NTPC
Dispatch Controlled By: Electricity Generating Authority of
Thailand
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3. Economic Impact of The Project
The economic impact of the project is evaluated from the regional
perspective.
Lao PDR Perspective Thailand perspective
The project’s objective is to
develop hydroelectric power as a
key source of foreign exchange
and, secondly, to devote a small
part of the output to domestic
consumers as a low-cost source of
supply.
The demand for power had been
growing rapidly and at the time the
project was planned, large capacity in
the order of 1,500 MW were
estimated to be required up to 2010
The NT2 project will supply part of
this and help diversify Thailand’s
power supply and in particular to
reduce dependence on natural gas as
an energy source.
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4. Economic Analysis Methodology
a) Demand Analysis :
Thailand Perspective :
The electricity Demand in Thailand increases rapidly with the recovery of
economic growth after the financial crisis of the late 1990s.
The load forecast for Thailand is shown below.
2003 2005 2010 2015
PDP 2003 17,843 20,295 27,711 36,754
PDP 2004 18,121 21,143 29,308 40,474
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Max.Demand(MW)
Year
Load Forecasts of Thailand
PDP 2003 PDP 2004
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5. Demand Analysis(Continued)
The electricity Demand in Thailand is forecast based on Medium Economic
Growth and income elasticity.
Income elasticity =
%𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑒𝑙𝑒𝑐𝑡𝑟𝑖𝑐𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑
%𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐼𝑛𝑐𝑜𝑚𝑒
Observation from table 9.1: Load factor is in increasing order from 73 to 75. This
means usage is more in further years. Also, reserve margin from 15 to 35 which
means if <15% tight market, 15 to 20% balanced market and >20% over
supplied.
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6. Demand Analysis(Continued)
Lao PDR Perspective :
The NT2 project was designed to:
To reduce the undependability of electricity in other countries
declining imports.
To increase the export by at least 5,354GWh and an additional 200-
300 GWh for Domestic uses.
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7. Least Cost Analysis
Thailand Perspective: The PROSCREEN modeling indicated that absent
NT2, EGAT’s next best alternative is to build and operate more combined-cycle gas
turbines(CCGT). The study found that by implementing NT2 as against the CCGT
option, the accumulated present value (at a 10% discount rate) of real resource
savings over the study period amounted to $277 million at 2003 prices.
$277= 0
𝑡 𝑃.𝑣(𝑡)(𝑁𝑇2)
(1+𝑖)𝑡 − 0
𝑡 𝑃.𝑣(𝑡)(𝐶𝐶𝐺𝑇)
(1+𝑖)𝑡
7
2.7
3.8
0
0.5
1
1.5
2
2.5
3
3.5
4
Price(Cent/kWh)
Economic Value of Energy
NT2
CCGT

8. Least Cost Analysis(Continued)
Lao PDR Perspective: The weighted cost for the Construction of NT2 is the least from the
remaining next least cost of hydropower. The alternative site is not cost-effective as compared to the
NT2.
Weight represents the percent of total energy use supplied by this resource in the without-project case
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0.016
0.024
0.026
0.027
0.028
0
0.005
0.01
0.015
0.02
0.025
0.03
Nam Theun 2 Theun Hinboun
Extension
Thakho Nam Mo Xe Kaman 3
Cost
($/kWh)
Hydropoweer Projects

9. Project Cost
Project costs include pre-development and pre-operating expense, construction costs, operating and
maintenance (O&M) expenses, and the dedicated transmission line in Thailand funded by EGAT.
The total project investment cost in financial terms, excluding the costs of project financing, interest
during construction, and price contingencies, was estimated at $1,036.2 million at constant 2004
prices.
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2004 2005 2006 2007 2008 2009 2010 Total
Pre-operting 23 71.6 21.7 28.5 20.2 53.8 0 218.8
Construction 50 140.8 177.2 172.9 102.2 39.2 0 682.3
Transmission 1.4 6.3 6.1 28.8 69.2 15.6 7.4 134.8
0
100
200
300
400
500
600
700
800
Investment cost(Financial)
Pre-operting Construction Transmission

10. Project Cost(Continued)
The economic cost of the project is $1042.5 million. Costs are allocated into traded goods,
nontraded goods, foreign skilled labor, local skilled labor, local unskilled labor, fuel, and transfer
payments, and are adjusted by the appropriate conversion factors.
Traded costs (including fuel) are multiplied by the shadow exchange rate factor (SERF), and
unskilled labor costs are multiplied by the shadow wage rate factor (SWRF).
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2004 2005 2006 2007 2008 2009 2010 Total
Pre-operting 23.2 72.1 21.9 28.7 20.4 54.2 0 220.5
Construction 50.4 141.8 178.5 174.1 102.9 39.5 0 687.2
Transmission 1.4 6.3 6.1 28.8 69.2 15.6 7.4 134.8
0
100
200
300
400
500
600
700
800
Investment cost(Economic)
Pre-operting Construction Transmission

11. Project Cost(Continued)
Identification of costs:
Capital cost and contingencies: Land, buildings, machinery and
equipment, and various aspects of construction and installation. Only
physical contingencies not the price contingencies.
Working Capital: Cash, accounts receivables and payables, and
physical stocks of goods
 Depreciation and interest during construction
 Transfer payments: They transfer command over resources from one
party to another without reducing or increasing the amount of
resources available for the economy as a whole.
 External costs: air and water pollution, carbon emissions, and other
environmental hazards
Sunk cost: cost of equipment, rent etc.
System cost
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12. Project Cost(Continued)
Shadow exchange rate factor (SERF) is the ratio of the shadow exchange rate (SER) to
the official exchange rate.
The shadow exchange rate (SER) is the economic price of foreign currency. Even with
a floating exchange system, where the rate is determined by the market, there is no
guarantee that the SER is equal to the market or official exchange rate (OER). That
would be the case only if there were no taxes and subsidies on the demand and supply
of tradable goods, and the present exchange rate reflected the long-run equilibrium
value of foreign currency over the life of a project.
SER = OER × ( wm × (1 + tm - sm) + wx × (1 – tx + sx ))
1.08 is used for Lao PDR for economic analysis.
i.e Financial Cost =100Baht ,economical cost =108Baht
Shadow wage rate factor (SWRF) = Shadow wage rate is the social opportunity cost of
labour and may differ from the observed wage because of distortions in labour market and
in product markets as well. Shadow exchange rate is the economic price of foreign
currency.
When no taxes and subsidies then SER=OER otherwise SER not equal to OER.
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13. Project Benefits
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Gross
Project
benefits
Incremental benefits
1. Sales revenue plus
consumer surplus when a
project reduces the
market price
Non incremental benefits 1. Domestic resources
cost saving at
economic price

14. Regional Cost Project Benefits
Regional perspective, the project economic cost includes all the costs in the two
countries, that is, the pre-development and construction costs for the NT2 project, plus
the cost of the associated transmission line in Thailand, and the operating and
maintenance costs of both NT2 and the Thai transmission line.
Total consumed =Consumed in Lao +Export To Thailand –Losses-THH Losses
Total cost = Construction cost+ O&M Cost +Dividends
Total Benefits=Revenue from Thai +CS Lao-losses +THH Losses
Net benefits =Total Cost –Total benefit.
At 12% opportunity cost NPV=
𝑅𝑡
(1+𝑖)𝑡
Rt= cash Flow at t
The NPV of Total Cost=$816.6 million i= discount rate
The NPV of total benefits =$1206 million t= time of the cash flow
EIRR=17.5%
B/C RATIO=1.478
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15. Regional cost Project Benefits (Continued)
EIRR(Economic Internal rate of Return)
0= 0
𝑡 𝐵(𝑡)
(1+𝑖)𝑡 − 0
𝑡 𝐶(𝑡)
(1+𝑖)𝑡
0= 0
𝑡 𝑁𝐵(𝑡)
(1+𝑖)𝑡
B(t)=Benefit of Particular year
C(t)= Cost of particular Year
i= rate of return
t= particular year
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16. Distribution within the Region
Lao PDR is affected as follows.
i. Lao PDR gains share of the dividends, royalty payments and all of the tax payments.
ii. Loss of consumer surplus.
iii. Jobs for unskilled labour.
iv. The government of Lao PDR will be beneficiary of the exchange rate misalignment (caused
by taxes)
Thailand is affected as follows:
i. Gain of consumer surplus.
ii. EGAT gains the difference between the sales price to Thai consumers and the negotiated
price to Thai consumers and the negotiated price it pays to the project.
iii. Project investors received the dividend.
The increase in the negotiated export price to 28% above the base price, the export to Thailand is
not viable becomes negative indicating that the return to the country is below the 12% discount
rate.
EIRR(Economic Internal ate of Return)
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17. Sensitivity Analysis
Sensitivity analysis determines the effect on the NPV of variations in the input variables. In NT2
sensitivity analysis is done on varying revenue from sell and capital cost . The project is not
sensitive to changes within an expected range with switching values of around 55% for a capital
cost increase and around 50% for a fall in sales to EGAT.
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18. Risk Analysis
Risk analysis was undertaken from the regional perspective.
There is a 90% chance that the NPV will fall to $211 million or rise to $558 million,
indicating that the project is robust against simultaneous changes in key variables. The key
result is the probability of project failure, defined by a negative NPV, which is well below
5%, indicating a very low risk.
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19. Thank You
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