European hydro plants can be more cost effective, says Pöyry study

15 December 2014

Approximately 30% of Europe's hydro power plants can cut costs by five to ten percent on average, a new study from Pöyry Management Consulting experts suggests.

More than 250 plants of major European operators have been analysed for their cost efficiency as part of the hydro power benchmarking study. The results have shown that the most efficient hydro power plants are the more modern ones which are permanently invested in, particularly storage power plants and power plants with Francis turbines.

For the study, Pöyry adopted a customized approach, which is the first to take structural and technical differences of hydro power plants into account, systematically including hydro power specific cost drivers. Economic and structural data of every single power plant is collected. Part of the economic data is operation & maintenance expenses (O&M), which provides the basis for the cost performance comparison.

For structural data, all potential cost drivers and non-modifiable features of the power plant are collected, including information on geographical situation, turbine type, installed capacity, net production as well as length of dams and weirs. The benchmarking study allows for a complete overview on the O&M cost structure, on the basis of which differences to other power plants and potential areas of improvement can be identified, the company said in a statement.

"Cost efficiency plays a significant role particularly for European hydro power plant operators," said Dr. Christoph Müser, Managing Director at Pöyry Management Consulting.

Hydro plants are facing challenges in the current market environment created by the liberalised single market. Sinking market prices and an increasing number of regulatory requirements result in a decrease in revenue. Sustainable growth opportunities to generate new sources of income are currently very rare for the capital-intensive hydro power sector since investments in new generation capacities require long-term security of investment and a stable political environment. Currently, however, this is in contrast to additional public burdens, administrative barriers and uncertain market developments.

"Therefore, hydro power plant operators cannot rely on growth options in order to retain their competitiveness but depend on the constant improvement of their efficiency, which can primarily be achieved by cost optimisation," Müser added.



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