Cost-Benefit Analysis of the Nam Che 1 Hydropower Plant, Thathom District, Laos: An Ex-Post Analysis

Abstract

Hydropower construction is accompanied by both biodiversity loss and creation of livelihood opportunities for community members. The Nam Che 1 Hydropower Project (NCH1HP), intended to support the economic development of Laos, was subjected to an initial environmental examination that yielded a feasibility report. This feasibility report focused on financial analysis rather than detailed and comprehensive socio-economic and environmental analysis. However, the project development affected the hydrological landscape, leading to significant environmental and social impacts, and called into question the project’s actual costs and future benefits. Therefore, we conducted an ex-post economic evaluation of the NCH1HP. Specifically, we used cost-benefit analysis to evaluate the NCH1HP, considering the environmental and economic ripple effects of its long-term economic impact. In this study, we found that while the NCH1HP could be beneficial according to the financial analysis only, it may have a negative side effect when considering the environmental impact after the dam construction. However, a comprehensive long-term economic analysis that also took into account the spillover effects of the project showed that the project was beneficial. Policymakers need to be aware of the potential environmental impacts and economic spillovers when evaluating such projects and the NCH1HP should be re-evaluated taking them into account in a comprehensive manner.

1. Introduction

Hydroelectricity is an essential source of domestic electricity generation in many countries. Hydropower energy plays a vital role in the daily activities of humans and its development has positive socio-economic and environmental impacts [1]. It is also considered a sustainable source of energy [2]. Hydropower development is reflected in both economies and diseconomies, with the latter resulting from environmental impacts. Major impacts include large-scale loss of productive land and ecological imbalance in the project area [3]. Indeed, hydropower development has been reported to bring not only economic benefits, but also a wide range of environmental and social effects [4]. These impacts call for significant changes in economic development and natural resource utilization to maximize the sustainable use of resources [4]. Hydropower greatly contributes to power generation and electricity production. It is also classified as clean energy and considered environmentally friendly compared with fossil fuels [5]. In the context of climate change, hydropower is considered a cheaper source of energy and has the potential to meet the demands of economic development [6]. However, as mentioned above, hydropower development is characterized by tradeoffs among sustainability, environmental impacts, and economic development, and, therefore, requires a comprehensive evaluation of its positive and negative effects.

Over the past decades, dozens of hydropower projects have been developed in Laos [7]. The nation is expected to have about 200 hydropower plants installed by 2030 catering to both local and international demand [8]. Hydropower dams have brought many benefits to the Lao people and the country as a whole. According to the Lao government’s 8th National Socio-economic Development Plan, hydropower energy generation has been a critical contributor to the economic and energy demand of the country and its neighbors. Economic growth and an increase in the population have elevated energy consumption in Laos [9]. The promotion and generation of hydropower and its export to neighboring countries form part of the country’s critical economic developmental strategies [9]. However, although hydropower construction is considered crucial for national economic development, several studies have expressed concern about the various adverse environmental and social impacts on residents, particularly community members who live near the project areas.

Perera [10] conducted a cost-benefit analysis (CBA) of a proposed mini-hydro power dam in Gatambe, Sri Lanka and categorized the total project cost as direct and indirect, including project, resettlement, and environmental costs; the benefits mainly comprised the revenues from power sales throughout the 30 years of the project lifespan and the new job opportunities generated. The study also estimated the environmental costs and subsequently identified the environmental impacts that indicated the severe consequences of the project. The CBA showed that the project was not feasible because its costs outweighed its economic benefits. The estimated cost was so high because the net present value (NPV) was equal to LKR −239,020.56, which contributed to the high environmental cost (LKR 261,075.29). This, in turn, contributed to the incremental cost.

Chutubtim used CBA to conduct a case study in Thailand, applying the transfer method to analyze the project’s potential impact by estimating the quantitative effects on its lifespan [11]. The analysis yielded a negative NPV owing to lower electricity generation brought about by environmental costs.

Recent studies have emphasized the environmental, rather than the economic, impacts of dam construction. Briones Hidrovo et al. estimated the hidden environmental costs of hydropower by applying a CBA model based on an ecosystem service valuation method [12]. Their study included the value of ecosystem services before and after dam construction, focusing on flood protection, water supply, and water transfer. They found that the environmental impact on the ecosystem amounted to USD 314.7 million/year as ecological losses. On adding this value to the conventional hydropower cost assessment, including the construction and operation periods, the costs reached a loss value per kWh of USD 0.4520/kWh.

A similar study on ecological losses from hydropower construction in Tibet applied a multi-scale evaluation model based on ecosystem valuation of plants, rivers, and watersheds [13]. It reported that small hydropower plants cause more ecological loss than larger-capacity plants (USD 0.021/kWh loss in 40 MW plants vs. USD 0.040/kWh loss in 1 MW plants). Pang et al. evaluated the ecological impacts of small hydropower plants through an energy analysis of plants located in Guizhou Province, Southwest China [14]. They found that the current cost of hydropower exceeded that of alternatives. The authors highlighted that the environmental impact of dams would be extensive and irreversible. For example, in 2010, downstream ecosystem degradation totaled 2.35 × 10¹⁸ seJ (2.35 × 10¹⁸ solar equivalent Joules) as a result of ecosystem service loss, which accounted for 38% of the total energy utilized in the annual operation of this plant. The periodic downstream drying up of the river is the main contributor to the ecological impacts of energy costs.

The diverse environmental effects are well known as the negative cost of a project (i.e., external cost) that must be taken into consideration. The costs and benefits of a project’s long-term economic impact should be fully quantified [15].

The Nam Che 1 Hydropower Project (NCH1HP) is part of the hydropower project initiatives in Laos and the overarching road map for the economic development of the country. The project contributes essential socio-economic benefits that can enable Laos to achieve its economic development goals. However, its development is not without costs; its construction may negatively impact local communities near the project site. Several costs are accurately reported at the local level, with a wide range of effects on the community, particularly the residents living near the project area [16].

Although the project has already been studied for feasibility and subjected to an initial environmental examination (IEE), its implementation demonstrated the lack of a detailed and comprehensive socio-economic and environmental analysis. For example, in the 2014 IEE report, the environmental and social impacts are generally described in terms of their effect, such as the impact on the physical environment, only focusing on the damaged farmland at the project site [17]. The project feasibility study report stipulated that it would assist the national economy, and the income generated from the project would improve the socio-economic conditions within Laos. It concluded that the project benefits outweighed the environmental effects. However, the project report did not include other environmental effects within the project cost. Economic losses can arise from the long-term impacts of the clearing of the forest in the catchment area on the project itself and the livelihoods that rely on the land [17]. Thus, the project report did not accurately capture all of the environmental and long-term economic impacts in the computation of the project’s costs and benefits, especially the adverse environmental effects, such as deforestation of the dam reservoir, which resulted in severe damage to the carbon dioxide sink and ecology [18].

As the NCH1HP is classified as a small hydropower project, the report is focused on financial analysis. However, project evaluation should consider not only the project’s economic viability, but also the long-term impacts in terms of climate change policy. Moreover, the potential benefits of the long-term economic impacts of project implementation should be considered when qualifying the manner of sustainable development [18]. Basically, in Laos, hydropower classification according to size has led to concepts such as small hydropower and large hydropower projects. The project with an install capacity greater than 15 MW is under the control of the central level (ministry). The install capacity of this project is with an aggregated installed capacity of nearly 15 MW. So, this project is under the control of the provincial level. The first author is one of the stakeholders representing the public sector in Laos and is temporarily studying the ex-post economic evaluation of this project at a university. An ex-post economic evaluation of the NCH1HP will assist in capturing the environmental impacts of the project and the long-term economic impacts highlighted in the computation of its costs and benefits. Therefore, the present study aimed to assess the costs and benefits of the NCH1HP in the Thathom District of Laos. We set the following research objectives: (1) to assess the economic impact of the NCH1HP, focusing on assessing the long-term economic effects in the computation of its costs and benefits; (2) to assess the environmental effects of the NCH1HP: given the massive growth of hydropower in Laos, the authorities should consider the environmental and social impacts, particularly on the livelihoods of residents near the project area; and (3) to offer recommendations for both public and private policymakers involved in the commencement of hydropower projects. The results showed that the external environmental and economic factors significantly affected the feasibility of the project. Additionally, since the external impact, such as long-term environmental and economic factors, has significant consequences on the project feasibility study, reconsidering these factors of the project’s long-term economic impact represents the best strategy for obtaining the maximum benefits of the project.

Hydropower project development is a vital factor that drives nations’ long-term economic development and several studies have used CBA to assess small hydropower projects across the globe [9]. Hitherto, no study has performed an ex-post evaluation of small hydropower plants in Laos. Most existing analyses highlight social and environmental impacts using economic compensation as a comprehensive valuation tool. However, it is essential to examine both positive and negative externalities that result in long-term economic effects [7,19]. Although financial analysis indicates that the NCH1HP has beneficial economic impacts, external influences, such as environmental and economic ripple effects that have long-term economic impacts. should also be considered. This study fills this gap by re-evaluating the environmental and economic impacts of the project after dam construction and recommends the inclusion of these and other similar dimensions in project evaluation. Our findings can serve as a significant guideline and source of information for policymakers, environmental managers, environmentalists, and other concerned organizations, and facilitate better decision-making regarding future hydropower project development.

2. Materials and Methods

2.1. Study Area

The NCH1HP is located in Xamkothong village, Thathom District, Xaysomboun Province, about 300 km to the north of Vientiane (Figure 1). Geographically, the project area is located at an elevation of 380 m above sea level and between the latitudes of 21°07′621 N and 34°37′11 E [17]. The project has been generating electricity since the latter part of 2019. The Nam Che River is a major river in the Nam Ngiep River network in Laos.

The main purpose of this project was to generate electricity. The NCH1HP increased the plateau’s small pond by constructing a dam on the Nam Che River. The dam controls a catchment of approximately 442.98 km². The project was also expected to create a small retention reservoir from which water would be released into the powerhouse; it is located 0.3 km away from the Nam Che waterfall. The NCH1HP was identified as one of the most promising small-scale hydropower schemes in this region [20]. The power station is in a small valley at the base of the escarpment. It generates two sets of 10 MW power, driven by two turbines, and operates under a gross head of 49.39 m with a design discharge of 24.30 m³/s. The plant factor of the station is approximately 59% and the annual power generated is 50.68 GWh. The electricity produced is connected to the power station switchyard with the existing Électricité du Laos transmission line, about 15 km from the proposed connection point at the Thavieng Village substation. The project started in 2017 and will end in 2070 (a total of 53 years). The first three years of this period are for construction and the dam is expected to have an operational life of 50 years with annual power generation of 50.68 GWh [20]. During the project period, the private sectors are allowed to develop the hydropower project under the BOOT (Build-Own-Operate-Transfer) model, and the dam will be transferred to the government after the project is completed.

2.2. Data Analysis

In the present assessment of the NCH1HP’s economic impact, we considered both tangible and intangible benefits and costs. The assessment was based on data collected from the feasibility study report and the IEE report [17,20]. The data consisted of information gathered from the NCH1HP, including data from government organizations (e.g., the Department of Natural Resources and Environment of Xaysomboun Province and the Department of Mining and Energy of Xaysomboun Province). The main tangible benefit was the annual electricity generation per year. According to the feasibility study report, the tangible costs included construction costs (cost of civil work, hydromechanical works, electromechanical equipment, transmission system, environmental mitigation cost, and other owner administration costs) [20]. Other tangible benefits included employment generation for residents, residents’ access to roads after dam construction, and fish capture from the reservoir. Meanwhile, social and environmental impacts, such as reservoir inundation, deforestation (carbon sequestration loss), ecological loss, and other economic activities, were classified as intangible costs.

Regarding the benefits and costs above, we formulated three scenarios and identified three stakeholder groups, namely, Investor, Government, and Resident, for project evaluation through CBA.

Scenario 1: Traditional CBA, based on the stakeholders involved (investor and government), is applied to determine project feasibility.

Scenario 2: CBA explores the environmental impact after dam construction, such as the benefits of carbon dioxide reduction, carbon sequestration loss, and ecological loss, considering the three stakeholder groups.

Scenario 3: The positive impacts, considered as an additional benefit in the long term, include economic activities, namely, flood control, tourism, irrigation, fish capture, and employment generation. The three stakeholder groups are considered.

We then incorporated the monetized environmental and economic ripple effects of the long-term economic impact into the private costs and benefits of the project.

2.2.1. Economic Valuation of Carbon Sequestration Loss

The loss of carbon sequestration through deforestation increases greenhouse gas emissions. The 26.25 ha of vegetated landscapes cleared for the project could perform significant carbon sequestration function [20]. We estimated the value of carbon sequestration from the sum of the vegetation cover, which included the forest and paddy fields. The estimated social cost of carbon sequestration was based on the value of damage in the inundated area, causing carbon to be released to the atmosphere. Total carbon emissions were estimated by multiplying the size of the forest by carbon dioxide emissions and the project’s lifespan. The total cost of carbon emission was determined by the cost of carbon emission multiplied by the total carbon dioxide emission as follows:

TECO₂ (t) = SF (ha) × ECO₂ × PL (year)

(1)

TSCCO₂ = SCCO₂ (USD/t) × TECO₂

(2)

where TECO₂ = total emission of carbon dioxide (t), SF = forest size (ha), ECO₂ = carbon dioxide emission (tCO₂), PL = project lifespan (years), TSCCO₂ = total social cost of carbon (USD/t), and SCCO₂ = social cost of carbon (USD/t).

2.2.2. Calculation of Ecological Loss

Forest and paddy lands at the project site have been inundated because of dam construction. However, ecological destruction typically refers to the inundation of riparian vegetation and land by reservoir impoundment [17]. Given the absence of official data on ecosystem disruption in the project area, the damage cost is difficult to estimate. Therefore, regarding the cost of ecological loss, we referred to the value from a previous study as a baseline [13]. The total ecological loss was calculated by multiplying the annual power generated (kWh/year) by the ecological loss cost (USD/kWh). The total ecological loss was estimated as follows:

TEL (USD/year) = APG (kWh/year) × ELC (USD/kWh)

(3)

where TEL = Total ecological loss (USD/year), APG = Annual power generation (kWh/year), and ELC = Eco-Loss cost (USD/kWh).

2.2.3. Calculation of Carbon Dioxide Reduction

To calculate the carbon dioxide reduction, we referred to the data output from the Nam Sim Hydropower Project (NSHP) as the baseline of the calculation [21]. The study estimated the benefit of carbon dioxide reduction using data from the United States Environmental Protection Agency and reported that the hydropower project reduces 19,994 t of carbon dioxide annually [22]. The social cost of carbon (SCC) is measured in USD per ton of carbon dioxide (CO₂) emissions each year (SCC = USD 42). Therefore, the benefit of carbon reduction could be calculated by multiplying the amount of carbon reduction (19,994 t) by SCC estimates. We calculated the benefits as follows.

TCCR (USD/year) = RCO₂ (t) × SCCO₂ (USD/t)

(4)

where TCCR is the total cost of carbon reduction, RCO₂ is the carbon dioxide reduction, and SCCO₂ is the social cost of carbon.

2.2.4. Calculation of Employment Generation

To quantify the benefits of job creation, we considered information, such as the average number of project staff and labor during the construction period, as follows: 2017 (year 1), 2018 (year 2), 2019 (year 3), and 2020 (year 4). The number of skilled workers in years 1 to 4 were 22, 23, 28, and 25, respectively. The number of unskilled workers in the same periods were 266, 252, 39, and 2, respectively. The project started in October 2017, accounting for only three months of the first year, during the project construction period. After year 4, the number of project workers and laborers was assumed to remain the same throughout the project’s lifespan [23]. We determined the total benefit by multiplying the number of workers by their annual salaries:

TB (USD) = NS (People) × MS (USD) × 12 months

(5)

where TB = total benefit, NS = number of staff, and MS = monthly salary.

2.2.5. Calculation of Fish Capture

The annual volume of fish caught from the Nam Che 1 reservoir is difficult to estimate owing to the absence of official fish catch data. Thus, we used the data from the Nam Pha Ngaiy hydropower project (NPGHP), which is in the same region as the NCH1HP [24]. Fish in both reservoirs occur naturally without human management. The volume of fish caught in the NPGHP reservoirs was 19 t per year [24]. This value was used as the baseline for our calculations. A recent regional market survey indicated that the price of fish in the Xaysomboun market was USD 2.14/kg [24]. Therefore, we derived fish productivity by multiplying the reservoir area by the volume of fish caught, compared with the Nam Che 1 area. The benefit of fish capture was calculated by multiplying the volume of fish by the recent regional market price, estimated as follows:

TBFC (USD) = AFC (kg/ha) × FP (USD)

(6)

where TBFC = total benefit of fish capture, AFC = amount/volume of fish capture, and FP = fish price.

2.2.6. Increase in Tourism Opportunities

Tourism opportunities were determined based on accessibility (good roads) to the dam cascade and reservoir for residents and tourists. This service is expected to offer more convenient ground transportation routes to tourist attraction sites and provide employment opportunities through transport services and selling of food, local products, and souvenirs [7]. Official data on tourism in this area are also non-existent. Thus, we derived the estimated benefit of tourism in the area from the benefit of road construction, pegged at USD 395,252 (USD 7904/year), and USD 734 obtained from tourism activities (selling of non-timber products, food, and handicraft/groceries) [17]. The project area straddles two villages, Namlong and Xamkothong, which are estimated to have 75 and 62 households, respectively.

TI (USD) = NH × I

(7)

TTB = RIB (USD) + LTI (USD)

(8)

where TI = total income, NH = number of households, I = income, TTB = total tourism benefit, RIB = road infrastructural benefit, and LTI = local tourism income.

2.2.7. Flood Control

We calculated the flood control benefit from the loss of property caused by flooding after quantifying the damage cost, using a replacement approach [11]. Paddy fields experience major damage as they are submerged in an inundated reservoir (approximately 2.39 ha). The benefit was calculated based on agreement number 261 issued by the governor of Xaysomboun Province. We derived the total benefit by multiplying the amount of damaged land in hectares by the compensated price in Lao kip. The total compensation for rice yield was determined by the same principle: the amount of rice yield multiplied by the compensation price in Lao kip for ten years. Notably, 1 ha was equivalent to 3 t of rice yield. Finally, we converted the amount to USD (2014) [25]. The flood control benefit was calculated as follows:

TLC = DL (ha) × CP (USD)

(9)

RC = RY (t/year) × CP (USD)

(10)

where TLC is total land compensation, DL is damaged land, CP is compensation price, RC is rice compensation, and RY is rice yield in a year.

2.2.8. Calculation of Irrigated Agriculture

Given the limited data available for the study area, the data used in this study were based on a survey conducted by Souksavath and Maekawa [26]. We concentrated on the livelihood conditions of the residents of the two villages located at the project site and who were, thus, directly impacted and benefited by its implementation. With the new irrigation system for the major agricultural activities of rice production, animal husbandry, and vegetable gardening, a family’s income was about USD 2804 each year. We applied this value as the benefit of irrigated agriculture in Nam Che 1 Dam.

2.2.9. Calculation of Economic Indicators

The present value of costs and benefits is determined by the present value of the costs and benefits expected from the project, which is based on the cash flow or the project’s budget each year and the aggregate amount for all the years it is in operation [20]. Therefore, the present values of cost and benefit can be calculated as follows:

$$\mathrm{PVC},\mathrm{PVB}={{\displaystyle \sum }}_{\mathrm{t}=0}^{\mathrm{T}}\frac{{\mathrm{B}}_{\mathrm{t}}{, \mathrm{C}}_{\mathrm{t}}}{{\left(1+\mathrm{r}\right)}^{\mathrm{t}}}$$

(11)

where PVC = present value of the cost of the project (USD/year), PVB = present value of future benefit of the project (USD/year), B_t = Benefit in year t, C_t = Cost in year t, r = discount rate, and T = 52 (total project lifespan of 53 years).

The benefit-cost ratio is the primary method for determining a project’s feasibility pending execution. The estimation is based on the costs and benefits of the project and the discounted rate over its entire lifespan. Both costs and benefits are translated into monetary terms and calculated by dividing the total discounted present value of the future benefit by the total discounted present value of costs. The results obtained indicate the relation between the relative costs and benefits of this project. If the project has a benefit-cost ratio (BCR) of 1.0, then it is feasible to execute [11].

$$\mathrm{BCR}=\frac{\mathrm{PVB}}{\mathrm{PVC}}$$

(12)

2.3. Cost-Benefit Analysis

We conducted the CBA based on the NCH1HP’s costs and benefits for 50 years (the project’s lifespan) for the present value of costs and benefits. The direct costs consisted of construction, maintenance, royalty fees, taxation, and depreciation costs. The benefits included the revenue accruing from power sales. The project’s lifespan was taken as 50 years, including three years of construction. We set the discount rate at 10% based on the project feasibility study. The construction of the hydropower project required 26.25 ha to be cleared. The destruction of forests has negatively impacted the environment, resulting in ecological losses and reduced carbon sequestration. In the present assessment, these losses were captured as an environmental cost and were added to the investment cost for the re-evaluation of the project’s economic feasibility.

Ideally, the environmental impacts should be captured as an economic valuation in terms of the costs and benefits of the project. We estimated the environmental cost by considering the loss of carbon sequestration and ecological losses. This project contributes to increased carbon dioxide emissions owing to deforestation, and such negative impacts are considered incremental externalities of the project cost. Therefore, the value of these impacts must be converted into monetary values.

The NCH1HP is operated for the sole purpose of electricity generation. The traditional benefit is the revenue from power sales. However, the project could provide multiple benefits in the form of several economic ripple effects from the dam construction, such as employment generation, fish capture, tourism, flood control, and irrigation [18]. Moreover, the project construction is assumed to avoid the release of carbon dioxide into the atmosphere, which is associated with avoiding the costs of thermal power generation.

3. Results

3.1. Benefits

The NCH1HP is expected to generate a maximum installed capacity of 10 MW and an average annual power generation of 50.68 GWh/year. The project payment for energy sales was assumed in USD and as fixed in the successive years, with an electricity generation rate of USD 6.50 cents per kWh. The total benefit of the project based on its 50-year lifespan in terms of power sales will, therefore, be USD 164,710,000. Notably, 1% of the benefits would be paid as royalty fees (USD 1,647,100) and 10% as tax (USD 16,471,000) to the government. These values are undiscounted and derived from the project’s feasibility report. The discounted values are shown in

Table 1. Summary of the present values of benefits (10% discount rate).

Components	Benefit (USD)/50 Years
Revenue of power sale	26,992,878
Royalty fee, 1%	269,929
Taxation, 10%	2,699,288
Benefit of CO2 reduction	6,880,947
Benefit of employment generation	2,973,852
Benefit of fish capture	58,305
Benefit of tourism	479,770
Benefit of flood control	7,735
Benefit of irrigation	22,976
Total = 40,385,680

[20].

The benefit assessment for carbon dioxide reduction was carried out following the corresponding values used in the NSHP 2.2.3. The total amount of carbon dioxide reduction was 19,995 t/year [21]. The monetary value of this reduction was USD 839,747/year when taking USD 42 as the social cost of carbon dioxide reduction [22]. The project installation reduced carbon dioxide production through its time horizon at an estimated cost of USD 41,987,400. This amount contributes to the government’s agenda for mitigating climate change.

We likewise determined the project’s contribution to the development of the region through the construction of the dam. The monetary valuation was obtained from the project’s benefits, such as carbon dioxide reduction, employment generation, fish capture, tourism, flood control, and irrigation. Regarding carbon dioxide reduction, the value of the project’s reduction of carbon dioxide through hydroelectrical power generation was USD 41,987,400. The value for employment generation was USD 11,970,720, which is expected to contribute to the payment of local skilled and unskilled workers. The monetary value for fish capture resulting from the dam construction was USD 335,775. We also estimated the benefit of increased tourism opportunities at USD 479,770. This amount is supposed to support the income and livelihoods of the local people in the two villages near the NCH1HP. Benefits from flood control and irrigation were estimated at USD 2,927,550 and USD 140,200, respectively. All the values mentioned above are undiscounted. The total discounted benefits are shown in Table 1.

3.2. Private Costs

The major costs of the NCH1HP were project construction and environmental costs. The latter included the economic loss value of carbon sequestration and ecological loss.

Project Construction Costs

The construction costs are for the first three years of the project, including civil works, hydromechanical equipment, electromechanical equipment, transmission system, environmental monitoring, planning cost, project administration cost, and 10% of the total project construction cost for contingency. Notably, the construction cost accounted for different percentages each year (i.e., 30%, 40%, and 30% for years 1, 2, and 3, respectively) [18]. The total discounted costs are shown in

Table 2. Summary of the present value of costs (10% discount rate).

Components	Costs (USD)/50 Years
Total Construction Costs
Year 1, 30%	6,635,014
Year 2, 40%	8,042,441
Year 3, 30%	5,483,483
Replacement cost, 85%	683,619
Maintenance cost, 2%	1,848,502
Royalty, 1%	269,929
Taxation, 10%	2,699,288
Carbon sequestration cost	2,550,680
Ecological cost	11,627,701
Total = 39,840,657

.

During the operation period, the project would accrue the additional cost of replacement and maintenance costs. According to the project’s feasibility study, after 25 years, the hydromechanical equipment must be replaced; 85% (USD 6,733,466) of the principal cost is assumed to be the replacement cost of the project. For additional maintenance costs, the operating and maintenance costs were estimated at 1% of the project cost and escalated by 2% each year. The total maintenance cost was USD 11,279,524. Likewise, 1% for the royalty fee and 10% for taxation amounted to USD 1,647,100 and USD 16,471,000, respectively. Moreover, 26.25 ha of land, including paddy fields and forest, would be inundated, resulting in a total carbon sequestration loss of 370,576.35 t/year. However, the forest at the project site has multiple carbon sequestration functions. Based on the carbon sequestration loss, we estimated the economic value for the entire lifespan of the project at USD 15,564,200. As for ecological loss from implementation, our results revealed an ecological loss per 1 kWh of power generation of USD 0.028. Therefore, based on the annual power generation of the project (50.68 GWh/year), the total ecological loss was estimated to be USD 70,952,000. All the values mentioned above are undiscounted. The total discounted costs are shown in Table 2.

3.3. Economic Analysis

Economic analysis mainly refers to the calculation of the potential costs of the project and the benefits derived from the impact of the project [27]. Our economic analysis employed the following three scenarios.

Scenario 1: After calculation, the project’s cost and benefit were USD 25,662,276 and USD 29,962,095, respectively. The details of the input parameters and economic analysis values for Scenario 1 are shown in

Table 3. Inputs table for Scenario 1.

Stakeholder Groups	Input Items	Present Value (USD at 10% Discount Rate)
	Discount Rate, 10%
	Project Lifespan, 53 Years
Investor	Costs
	Total construction costs	20,160,938
	Replacement cost, 85%	638,619
	Maintenance cost, 2%	1,848,502
	Royalty, 1%	269,929
	Taxation, 10%	2,699,288
	Benefits
	Revenue of power sale	26,992,878
Government	Cost
	0	0
	Benefit
	Royalty, 1%	269,929
	Taxation, 10%	2,699,288

and

Table 4. Summary of economic analysis value for Scenario 1.

CBA	Stakeholder Group	Economic Analysis Value (USD)
Costs	Investor	25,662,276
	Government	0
Total costs		25,662,276
Benefits	Investor	26,992,878
	Government	2,969,217
Total benefits		29,962,095
		BCR = 1.168

.

Scenario 2: After calculation, these costs and benefits are added to Scenario 1 as the environmental ripple effect from the project implementation and the value of each cost and benefit is indicated in

Table 5. Inputs table for Scenario 2.

Stakeholder Groups	Input Items	Present Value (USD at 10% Discount Rate)
	Discount Rate, 10%
	Project Lifespan, 53 years
Investor	Costs
	Total construction costs	20,160,938
	Replacement cost, 85%	638,619
	Maintenance cost, 2%	1,848,502
	Royalty, 1%	269,929
	Taxation, 10%	2,699,288
	Benefit
	Revenue of power sale	26,992,878
Government	Cost
	0	0
	Benefits
	Royalty, 1%	269,929
	Taxation, 10%	2,699,288
	Carbon dioxide reduction	6,880,947
Resident	Costs
	Carbon sequestration	2,550,680
	Ecological loss	11,627,701
	Benefit
	0	0

. The details of the economic analysis values for Scenario 2 are shown in

Table 6. Summary of economic analysis values for Scenario 2.

CBA	Stakeholder Group	Economic Analysis Value (USD)
Costs	Investor	25,662,276
	Government	0
	Resident	14,178,381
Total costs		39,795,657
Benefits	Investor	26,992,878
	Government	9,850,164
	Resident	0
Total benefits		36,843,042
	BCR = 0.926

.

Scenario 3: After calculation, these benefits add to the project cost and benefit together with the environmental ripple effect in Scenarios 1 and 2. The input parameters are shown in

Table 7. Inputs table for Scenario 3.

Stakeholder Groups	Input Items	Present Value (USD at 10% Discount Rate)
	Discount Rate, 10%
	Project Lifespan, 53 Years
Investor	Costs
	Total construction costs	20,160,938
	Replacement cost, 85%	638,619
	Maintenance cost, 2%	1,848,502
	Royalty, 1%	269,929
	Taxation, 10%	2,699,288
	Benefit
	Revenue of power sale	26,992,878
Government	Cost
	0	0
	Benefit
	Royalty, 1%	269,929
	Taxation, 10%	2,699,288
	Carbon dioxide reduction	6,880,947
Resident	Costs
	Carbon sequestration loss	2,550,680
	Ecological loss	11,627,701
	Benefits
	Fish capture	58,305
	Flood control	7,735
	Irrigation	22,976
	Tourism	479,770
	Employment generation	2,973,852

and the economic analysis values for Scenario 3 are given in

Table 8. Summary of economic analysis values for Scenario 3.

CBA	Stakeholder Group	Economic Analysis Value (USD)
Costs	Investor	25,662,276
	Government	0
	Resident	14,178,381
Total costs		39,795,657
Benefits	Investor	26,992,878
	Government	9,850,164
	Resident	0
Total benefits		36,843,042
		BCR = 0.926

.

4. Discussion

In Scenario 1, the NCH1HP showed a positive outcome, with the present values of cost and benefit of USD 25,662,276 and USD 29,962,094, respectively, of which the BCR was 1.168. This result indicated that the project was feasible. In Scenario 2, the calculation of the BCR included the value of environmental evaluation, which, as expected, reduced the weight of the BCR owing to the high cost of the environmental effect resulting from the high negative impacts on the environment. The values in Table 7 demonstrate the incremental cost of the project reflected in its environmental impact. Ecological loss is the most notable among the environmental costs, accounting for 82% of the total incremental cost. This amount represents the ecological loss and green cost of the project. Thus, the NCH1HP, which is in operation, can be inferred to be beneficial (as evaluated without environmental consideration), but damaging to the environment.

This study’s findings are similar to previous results, such as those of Briones Hidrovo et al. and Perera [10,12]. Another CBA of the Samanalawewa hydroelectric project in Sri Lanka found a negative NPV (LKR −1,259,645,987) [28]. Lee also found an unfavorable result when ecosystem loss is taken into account in the project cost; the project NPV was NTD −15,778 billion, with a 6% discount rate [29].

According to Scenario 2, the project was not feasible owing to the high cost of the environmental effect. Considering this unfavorable result, we applied a 10% discount rate to the project economic analysis based on the traditional discount rate from the project feasibility study report. The high cost of the project was due to the environmental effect, according to the guidelines for the evaluation of hydropower and multiple purpose project portfolios of the Mekong River Commission Secretariat [18]. The project discount rate is a key parameter in hydropower project construction. A 10% discount rate has a large impact on capital investment. Hence, the 10% to 12 rates ± of 2% to 5% might be used to examine the effect that a reasonable range of discount rate might have on the economic profitability of project construction [18]. A high discount rate typically causes a lower present value of future cash flow, whereas a lower discount rate leads to a higher present value. Therefore, to shift this unfavorable result in Scenario 2 to a positive benefit, the project would require a minimum discount rate of 8%, which increases the present value of cost and benefit by 15.18% and 27.9%, respectively, to produce a positive BCR (BCR = 1.028). In this study, the discount rate was fixed for the project period, but for the robustness purpose, we would like to set different scenarios for the long-term discount rate, such as increasing, decreasing, or mixed type, as a future task in the research. In Scenario 3, we investigated the indirect benefits from economic activities. We estimated that the residents indirectly benefited from the project at a value of USD 3,542,638. The BCR outcome is expected to increase the project’s economic viability when the relevant values are quantified with all of the other project variables.

Some studies have reviewed the factors that contribute to the benefits of dam construction. For example, Liang et al. identified flood control, sediment reduction, ice prevention, emission reduction, water supply, afforestation, energy substitution, and recreation as significant factors [30]. Gunatillake and Thiruchelvam identified the benefit of applying the transfer method to incorporate environmental costs in project assessment [31]. The accuracy of the estimation is favorable. Our study further confirmed the relevance of these influencing variables.

In summary, the present value of cost increased by 55.24% from Scenario 1 to Scenario 3 and, in the case of the benefits, by 34.78%. The present value of benefits in Scenario 2 was less than the present value of costs; the BCR of the project was below the economic analysis standard. The low BCR was due to the high cost of environmental effects. In Scenario 3, the BCR demonstrated a slight reduction with the influence of economic activities. However, the project is feasible under Scenario 3 because the BCR value falls within the economic analysis standard.

5. Conclusions

Our study categorically estimated the environmental and economic ripple effects of the NCH1HP after dam construction, which reflected the project’s contribution to economic development in the long term. We employed an ex-post evaluation of the NCH1HP based on CBA, following the BCR method to evaluate and incorporate the environmental and economic ripple effects into the project economic analysis.

In Scenario 1, the benefits and costs of the project translated into a BCR of 1.168, implying feasibility. However, Scenario 1 did not consider the project’s environmental impacts, appraising it only in terms of financial returns. It ignored the investment in components that generate non-financial benefits. In contrast, the second scenario recorded a BCR of 0.926, rendering the execution of the project infeasible. The low ratio was due to the project’s severe environmental impacts, which increased its costs and reduced the benefits. As a good practice, investments should consider projects’ influence on the environment. Scenario 3 harnessed all the potential benefits of the project associated with dam construction, driving up the BCR to 1.014 and rendering the project executable. In a nutshell, the estimation of project externalities reflected in both economies and diseconomies, that is, the “with environmental and economic ripple effects” value in Scenario 3, outweighed the “private cost and benefit” values in both Scenarios 1 and 2.

For achieving the objectives of the National Strategy on Poverty Eradication and Economic Development and supporting regional energy demands, decisions on the NCH1 dam construction should no longer be made in isolation, given that it is part of a suite of solutions for meeting the demands for electricity generation and economic development. Assessments should, therefore, account for all explicit potential impacts, with environmental and social factors given equal weighting to economic and financial ones.

We conclude that the dam construction’s environmental and economic ripple effects should be significant factors driving the project’s economic feasibility. Scenario 3 is the best option for choosing economically viable projects with good environmental sustainability. Based on this, we recommend that the already-executed NCH1HP be re-evaluated by accounting for environmental factors. This study provides valuable insights for implementing agencies by moving beyond highlighting the beneficial components only in terms of financial returns. The incorporation of environmental and social benefits (tourism, fishery, employment generation, etc.) can win the hearts of the public to ensure the project’s longevity. This is a precursor to identifying latent project benefits associated with users’ willingness to pay more for additional social and environmental benefits. An evaluation of the financial and economic benefits and the environmental costs indicates the effectiveness of the project after execution.

Regarding the outcomes of our study, we make the following recommendations for the hydropower dam sector and the policy outlook of the government and the related partner organizations targeting sustainable hydropower development in Laos.

The first significant contribution of this study is that it identified the poor feasibility of hydropower plants based on the high cost of the environmental and socio-economic impacts. Therefore, policymakers should be well informed of the potential impacts on the environment and prioritize these over a project’s economic feasibility. Generally, renewable energy sources, such as hydropower, are known to be clean and environmentally friendly. However, the present CBA indicates that environmental ripple effects influence climate change. In the case of the NCH1HP, which has been subjected to an IEE by government legislation, the environmental analysis was not comprehensive. The long-term feasibility of a project requires a detailed analysis.

In addition, to maximize the project benefits, government authorities and investors should not only look at electricity benefits but also consider other long-term economic impacts, such as on fisheries, flood control, irrigation, and tourism. A further recommendation is to make the project feasible with respect to these factors. Another implication of the current findings is the need to consider the economic ripple effects after dam construction, which are expected to provide a livelihood for the nearby residents and impact their well-being via future economic development. However, environmental impacts may be inevitable during project development. In cases wherein environmental destruction leads to high costs, the project may be infeasible to execute.

To address some of the environmental and socio-economic impacts that occur after the dam’s construction, the government will need to pursue a more sustainable development strategy to manage the investments in the hydroelectrical industry and to ensure a good business environment. One approach is to establish policy frameworks for green and eco-hydropower plants and reservoirs. Policymakers may need to consider legislating regulations over hydropower development that elaborate on the long-term goals and benefits of all related stakeholders.

This study provides findings on both environmental and economic ripple effects on the long-term project economy after dam construction. However, a limitation of our approach is that, in assessing environmental impact, we focused on carbon sequestration and ecological loss and used secondary data for the analysis. The ecological cost value and cost of carbon sequestration may be too general for the estimation. In addition, the ecological loss cost was drawn from secondary data from another region and not the actual damage data from the project area. Future researchers should examine environmental costs by utilizing the contingency value method, mainly by using the willingness to pay to quantify the actual damage costs.

Moreover, they should consider using ArcGIS, particularly using remote sensing tools, to classify forest types and their carbon sequestration functions to obtain the actual value from each function of the forest in the dam area. This method will yield more comprehensive data for determining the cost of damage to the environment as an impact of hydropower construction.

Since the project is located in a mountainous area, more attention may need to be paid to sediment issues and costs in the analysis. For example, a brief case study of Gavins Point Dam shows that available information on damages due to a lack of sediment management accounts for 70% of the actual construction cost and would likely exceed construction costs if all damage information were available [32].

In conclusion, to obtain optimal results in project evaluation, authorities should survey the residents near the project site to evaluate how much they are willing to pay for the conservation of the ecosystem. Site surveys are recommended as a means to include residents in policymaking.

This study tried to capture the intangible impact, such as some social cost and environmental damage, regarding the project size and its geographical site. Besides, the economic value was selected from the lesson learned and real practical work during the project implementation, although, these economic values do not cover a full impact. However, this project is probably a good example for the consulting firm for future analysis, which tries to include the externalities in terms of socio-economic and environmental impact in the appraisal.