Cost Benefit Analysis of the Three Gorges Dam. Risako Morimoto and Chris Hope. Methodology . Goals: Calculate present value of costs and benefits Examine uncertainty. Method: Quantify each effect (e.g. kwhrs of electricity). Value each effect (e.g. determine its price)
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Risako Morimoto and Chris Hope
Quantify each effect (e.g. kwhrs of electricity).
Value each effect (e.g. determine its price)
Sum discounted benefits minus costs
Construction costs of the power station and transmission facilities
Operation and maintenance cost
Lost land from inundation (reservoir)
Aesthetic loss due to reduction in water flow
Sedimentation- lower power generation
Decline in fish catch downstream
Downstream pollution caused by dam construction
Economic growth (avoided economic losses from power shortages)
Avoided damages from air pollution (from coal)
What is capacity (GC) of dam?
What is the electricity price (EO)?
How will sedimentation reduce electricity over time (A)?
Use best guess of parameters and calculates annual costs and benefits.
Examines many different assumptions about parameters and calculate a distribution of NPV.
Discounts values back to current using 5% discount rate
The 5th percentile, mean, and the 95th percentile of the cumulative NPV with a 5% discount rate
95th Percentile run
5th Percentile run
The final NPV values are –114, 424, and 1321 billion Yuan for the 5th percentile, mean and 95th percentile runs.
The cumulative NPV is initially negative due to the large upfront construction and resettlement costs. As electricity starts to flow, NPV improves. Electricity at end of project matters less than in early stages.
If climate change reduces electricity at end, it would have only a small effect on NPV.