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Hydropower future lies in emerging markets

Norway has already developed 75% of its enormous reservoir capacity for hydropower. In the future, growth for the Norwegian hydropower industry will come from projects abroad, and the biggest potential will be in emerging markets, according to SN Power.

Statkraft is Norway’s largest domestic hydropower producer and Europe’s largest within renewable energy. The group develops and generates hydropower, as well as wind, gas, and solar power, and is a major player in the European power exchanges, with employees in more than 20 countries.

However, the company has a separate subsidiary for hydropower and wind power in emerging markets outside Europe called SN Power. It was created in 2002 as a joint venture with the Norwegian Investment Fund for Developing Countries (Norfund). SN Power’s purpose is to act as a commercial investor, developer and operator of hydropower projects in emerging markets, with a focus on contributing to economic growth and sustainable development.

Øistein Andresen, SN Power chief executive. © SN Power

Fast Growing Economies

SN Power has slowly built up its portfolio, initially through acquisitions, but more lately through new developments also known as greenfield projects. According to Øistein Andresen, SN Power chief executive, the company achieved scale in 2006-2007 when it purchased the 360 MW Magat hydropower plant in the Philippines, the country’s largest, and the power company Electroandes in Peru.

SN Power currently has 15 operating plants in five countries in Asia and Latin America, with a total net installed capacity of 950 MW. Its largest generation portfolio is in Peru and its single largest plant is in the Philippines.

The company’s strategic focus on emerging markets is based on a strong underlying demand for power in these economies, which are growing faster than their counterparts. Emerging economies have also been less affected during the recent financial crisis than the US and Europe, said Andresen.

The other reason behind SN Power’s focus on emerging markets is the drive for renewable energy in these countries, supported by the World Bank through the International Finance Corporation, as well as increased interest from global financial institutions.

“If you look at IEA estimates up to 2030, hydropower will grow by 75-80% from today’s level,” said Andresen. “Of that, 80% is in emerging markets. (The big growth) will not be in Europe and the US.”

New Focus on Africa
The company has ambitious plans to grow its annual hydropower production from 1,000 MW to 4,000 MW by 2015. Of that, 700 MW will come from a new focus area on Africa and Central America.

As part of this goal, SN Power created a subsidiary in 2008 called SN Power AfriCA, held 51% by SN Power and 49% by Norfund, specifically targeting opportunities in these regions. This year, Norwegian power companies Trønder Energi and BKK purchased a 39% interest in SN Power from Norfund. Together, they will invest USD 700 million in SN Power AfriCa by 2015.

SN Power AfriCA is currently working on several business opportunities within renewable energy, primarily hydropower, in the sub-Saharan region of South Africa. According to Andresen, Africa has only utilized 9% of its hydropower potential. The company is especially looking at the countries attached to the Southern African Power Pool, a soon-to-be deregulated power regime that will connect South Africa with countries as far north as Tanzania.

In Central America, SN Power is studying the features of the region and the development of the Central American Electrical Interconnection System. This regional power grid includes Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. Its first project in Central America is located in Panama, where SN Power AfriCA has entered into a five-year strategic alliance with the Panamanian Credicorp Group and purchased a controlling interest in the Bajor Frio hydropower project.

“What both Panama and South Africa have in common is their connection with integrated regional power markets,” said Einar Stenstadvold, SN Power AfriCA chief executive, in the 2009 annual report. “The integrated electricity between South Africa and its neighbours to the north resembles the creation of the Nordic interconnected power market and power exchange, which makes SN Power’s Norwegian expertise an advantage.”

SN Power expects the main part of its growth into 2015 may come from India. Pictured here is the Malana hydropower station located about 500 kilometres from Delhi by road. © SN Power

Growth in India

However, the main part of SN Power’s growth into 2015 may come from India. The highly populated nation has both a fast growing economy and a huge, untapped hydropower potential, which could be in the order of 50,000 MW, according to Andresen. More than 1,000 MW of its planned 4,000 MW growth target will come from India alone.

As part of its expansion plans, SN Power recently signed an exclusive agreement with Tata Power, India’s largest integrated private power utility, to develop joint hydropower projects in India and Nepal. The partners aim to have up to 4,000 MW in operation by 2020.

SN Power has been the sole foreign investor in the Indian hydropower market ever since 2004, when it bought a minority share in Malana Power Company. Together with majority owner LNJ Bhilwara, they operate the Malana hydropower station in India. They are currently building Allain Duhangan greenfield project in Himachal Pradesh, the largest hydropower project registered under the Clean Development Mechanism (CDM) to generate carbon credits.

Common with many of SN Power’s greenfield projects is that they are built in developing regions that qualify for CDM credits. The project in India for example will generate credits corresponding to annual reductions of 495,000 tonnes of CO2 which can in turn be sold to the carbon credit market. The company is also focused on developing projects that contribute to economic growth and sustainable development in the region.

“Norfund has the mandate to combat poverty and access to energy is one of them,” said Andresen. “The main challenge is that people don’t have access to modern electricity services and that is a prerequisite for development.”

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