A Review of the Economic Analysis of Power Projects in Asia and Identification of Areas of Improvement

Abstract

The purpose of this paper is to examine the methodology used in the economic analysis of power projects in the ADCs and identify possible areas of improvements in the methodological and empirical content of the economic analysis. At the outset, it is instructive to point out that the focus of the paper is narrowly confined to microeconomic issues pertaining to the ex-ante economic analysis cf power projects, while recognizing the importance of the impact of macro and sector-policy changes on power projects and feedback of the latter on the former, these aspects are not dealt with in this paper. The paper begins with a brief description of the Taxonomy of Power Projects in the data sec. Against this background, an examination of demand, least-cost, cost-benefit and sensitivity analysis underlying the economic analysis of these power projects is undertaken. The focus is on procedures adopted in the identification, quantification, valuation and measurement of costs and benefits in power projects. The issues emerging from this review lead to a discussion of the areas where improvements in the economic analysis of power projects are needed. The paper ends by describing a sequence along which methodological and empirical improvements in the economic analysis of power projects are desirable and feasible.