Power deal with Tata worth Nu 480 bn and to include pump storage reservoir dams

On 19th November, a Memorandum of Understanding (MoU) for 5,000 MW of clean energy projects was signed in Thimphu between the Managing Director (MD) of Druk Green Power Corporation (DGPC), Dasho Chhewang Rinzin, and the CEO and MD of Tata Power, Dr Praveer Sinha, in the presence of the Prime Minister, Dasho Tshering Tobgay, Minister for Energy and Natural Resources, Gem Tshering, Chairman of Tata Sons, N. Chandrasekaran, Ambassador of India to Bhutan, Sudhakar Dalela, and other senior officials.

This is comprised of 4,500 MW of hydropower comprising the 1,125 MW Dorjilung project, 740 MW Gongri Reservoir, 1,800 MW Jeri Pumped Storage and 364 MW Chamkharchhu IV will be developed in phases together with another 500 MW of Solar projects.

Except for Dorjilung, the Detailed Project Reports for all the projects are not done, but the estimated cost of the hydro projects is Nu 450 billion (bn) and another Nu 30 bn for the solar component.

After the total cost, the next obvious question is on ownership of the projects, and here, the broad understanding is that DGPC will have majority ownership, not that different from the 600 MW Khorlochhu Project where Tata Power recently acquired a 40% stake for Nu/INR 8.30 bn in the 600 MW Khorlochhu Hydroelectric Project where an investment of over Nu/INR 69 bn will be made to develop the project.

An interesting feature of this partnership is the concept of reservoir project and pumped storage project working together. This will involve building a reservoir project on the Gongri river to store water in the form of 740 MW Gongri Reservoir project. This project by, itself, will generate power on its own.

However, it will also have an additional role to store water in the reservoir at non peak hours and pump them up to the 1,800 MW Jeri Pumped Storage to be built on the smaller Jeri tributary of Gongri located higher up.

DGPC MD explained that in India, power is most at demand during the peak hours or morning, and evening which also commands the highest price on the energy exchange.

So, during the non-peak hours, both the dams will store water, which is to be released to generate power during the peak hours.

The Gongri Reservoir generation will fall to 150 to 140 MW during winters so pump storage is even more important.

Electricity will be needed to pump water during the non-peak hours, and here, the 5,000 MW of solar projects that Bhutan plans to build in total will also come into play during the day.

DGPC MD explained this is part of the hydro-solar hybrid model where one can be used to support the other.

A reservoir and pump storage will also allow for more flexibility for Bhutan to supply constant power required for running AI data centers, industries, etc.

Storage projects can supply power during the night too, while solar comes into play during the day, especially in the winters months when hydropower generation goes down.

The aim is not to produce and export all the power, but use what can be used within the country and export the surplus, especially during the summer when both demand and production is high.

The DPR for the pumped storage consisting of two projects will be done by 2026.

The advantage of tying up with Tata is that apart from bringing in equity, Tata is a good name with which project financing can be raised more easily. Tata will also offtake the power being exported to India and help access the commercial markets there.

Given that the partnership is of Nu 480 bn, Bhutan will also have to come up with its equity portion for which it is looking at various schemes like borrowing, bonds, issuing shares, etc.

For the 500 MW solar projects with Tata, no particular spot has been identified but it will probably be in higher altitude barren areas with no trees. Tata Power Renewable Energy Limited (TPREL), a subsidiary of Tata Power, will lead the development of the 500 MW of solar projects across Bhutan.

The signing of the MoU is not the end of the matter, but just the start, and now both sides will have to sit down and negotiate everything, from share ownership to project financing.

One of the main reasons why Bhutan is going in so big with Tata is due to the positive experience with the 126 MW Dagachu project where Tata Power is a partner, and also the 600 MW Khorlochhu project.

Talks are on over Dorjilung right now with Tata.

The DGPC and Tata partnership has the support of the Royal Government of Bhutan and the Government of India.

It is in keeping with Bhutan’s overall energy sector vision to take its overall generation capacity to 25,000 MW by 2040 for its energy security and regional energy integration. Bhutan plans to achieve this target through diversification in its energy portfolio beyond the traditional hydropower to solar and geothermal, and diversifying project structuring and financing through such strategic partnerships.

The same session also witnessed the signing the Concession Agreement for the 600 MW Khorlochhu project and signing of the MoU for the sale of power from the 32 MW Yungichhu project.