Hydropower has by far been the most mature renewable energy resource used for electricity generation in our planet. Recently, the investors’ interest was whipped up by the mass development of small hydropower (SHP) stations, as they are the most prosperous for additional hydropower penetration in developed electricity markets. In Greece, the increasing interest for building SHP stations got off the ground since 1994. Ever since, an enormous number of requests keep piling up in the Greek Regulatory Authority of Energy and the Ministry of Development, with the object of creating new SHP stations of total capacity over 600 MW. The present work is concentrated on the systematic investigation of the techno-economic viability of SHP stations. The study is concluded by a sensitivity analysis properly adapted for the local market financial situation, in order to enlighten the decision makers on the expected profitability of the capital to be invested. According to the results obtained, the predicted internal rate of return (IRR) values are greater than 18% for most SHP cases analysed. Finally, as per the sensitivity analysis carried out, the installation capacity factor, the local market electricity price annual escalation rate and the reduced first installation cost are found to be the parameters that mostly affect the viability of similar ventures.
Hydropower has by far been the most mature renewable energy resource used for electricity generation, providing almost of our planet electricity consumption (Paish, 2002). In Greece, several—mostly large—hydroelectric plants (Korbakis and Kaldellis, 2001) are in operation, exceeding 3100 MW of electrical power. Recently, the investors’ interest was whipped up by the mass development of small hydro power stations (RAE, 2003), being in accordance with the E.U. target to increase small hydro capacity by 4500 MW (50%) before the year 2010.
In this context, it is important to mention that small hydro power (SHP) plants are the most prosperous way for additional hydro power penetration in European electricity market, considering that most large-scale opportunities have either been already exploited or face serious contradictions by local societies as environmentally unacceptable (Kaldellis (2002a) and Kaldellis (2002b)). On the other hand, SHP units usually operate as “run-of-river” systems, thus any dam or barrage used is quite small, not really disturbing the water flow rate. Although to date there is no internationally agreed definition of SHP plant size, the official size in the local electricity generation market is set equal to 10 MW maximum (law 2244/94).
In Greece, an increasing interest for building SHP stations got off the ground since 1994, after the 2244/94 law was voted, permitting private investors to build and operate their own electricity generation stations based on renewable energy sources. In the last 5 years a fair number of SHP plants were established by individuals and local municipalities (Korbakis and Kaldellis, 2001; European Commission, 1999), while at the same time an enormous number of requests keep piling up in the Greek Regulatory Authority of Energy (RAE) and the Ministry of Development, with the objective of creating new SHP station over 600 MW.
The present work is concentrated on the systematic investigation of the techno-economic viability of SHP stations in Greece. The proposed analysis takes into account previous works on this field (Liu and Ye, 2003; Georgakelos, 2002; Karlis and Papadopoulos, 2000), along with available information concerning the local hydro potential (Kaldellis and Kavadias, 2000). Accordingly, the impact of the governing techno-economic parameters on the financial behavior of SHP plants is analysed (Kaldellis and Gavras, 2000). This study is concluded by a sensitivity analysis properly adapted for the local market financial situation, in order to enlighten the decision makers on the expected profitability of the capital to be invested.
An extensively thorough techno-economic analysis is hereby presented, concerning the small hydropower installations in Greece, together with the most important parameters of the problem. The method applied is based on a well-elaborated theoretical model, on long-term measurements and real market techno-economic information. For this purpose, a numerical code is developed in an “expert-type mode”, in order to predict the resulting IRR values of any similar type investment under variable external conditions. On top of this, this numerical tool is used to carry out a comprehensive sensitivity analysis, so as to demonstrate the impact of the main techno-economic parameters on the behaviour of a SHP venture for 10 or 15 years of operation.
According to the results obtained, the predicted IRR values of a SHP installation are greater than 18% for most cases analysed, in comparison with the local economy inflation rate of 3.5% and with the corresponding market annual capital cost of 6–8%. Subsequently, the IRR value maximizes after 10–15 years of operation. It is also worth mentioning the insignificant IRR amendment upon increase of the installation service period, a fact that undermines the long-term operation of similar applications mainly due to the current subsidization practice. This fact is contradicting the established international opinion that hydropower plants are generally characterized as long-term investments.
The sensitivity analysis provides clear evidence that the installation capacity factor, annual escalation rate of local market electricity price and reduced first installation cost are the parameters that mostly affect the viability of a SHP station. Finally, the current subsidization scheme is definitely necessary to encourage similar investments, leading, however, to several peculiarities. For example, the current first installation cost subsidization status principally supports installations with high capacity factor values instead of sites possessing lower hydraulic potential, although latter cases need further financial support to be realized.
Summarizing, several opportunities for sequence of small hydropower plant developments subsist in the mainland of Greece, which—if properly designed and realized—should lead to considerable profits, contributing to the country's independency from imported oil and accomplishing the Kyoto protocol obligations.
