EP 1130-2-500
27 Dec 96
APPENDIX E
BENEFITS EVALUATION PROCEDURES
E-1. It is expected that the majority of rehabilitation studies analyzed under this guidance will be
for navigation and hydropower projects. The following steps outline basic procedures that can be
used to evaluate rehabilitation for these project purposes. Deviation from these steps is
encouraged when other techniques are more appropriate.
E-2. Hydropower Analysis. The conceptual basis for evaluating the benefits from energy
produced by hydroelectric power plants is society's willingness to pay for these outputs.
Step 1. Determine the Energy and Capacity Values for the Project.
The energy and capacity values are based on the cost of the next best alternative. The
energy value is the measure of the systems energy production cost. When there exists a demand
for electric energy, adding a hydropower facility to a system instead of a thermal power source
typically results in reduced system production cost. The capacity value of a hydroelectric facility
reflects the greater reliability and operating flexibility of the hydropower system. The energy and
capacity values are estimated using systems analysis. This analysis should only be attempted by
those trained in hydroelectric benefit evaluation. Complete consideration of this technique is
found in ER 1105-2-100. For small facilities, previously calculated energy and capacity values
may be used. In the report Power Benefits Forgone Due to Water Supply Withdrawals White
River Basin Projects, by North Pacific Division, dated 22 June 1990, for Area 25 the capacity
value was estimated at 7,000 per megawatt of capacity annually and the energy value was
estimated at .40 per megawatt hour. For the Missouri River System, in the Institute for Water
Resources' report Economic Value Functions for Missouri River System Analysis Model, the
capacity value was estimated at 4,000 per megawatt annually and the energy value at per
megawatt hour. The value used for major rehabilitation analysis should reflect conditions in the
project area.
One particular issue in economic evaluation is the industry response to temporary versus
permanent interruptions due to the unsatisfactory performance on individual hydropower units.
The question to be answered is whether temporary losses in generating capacity will result in the
electric generating industry building permanent replacement capacity. If so, there is a "capacity
loss" without major rehabilitation; if not, there is no capacity restoration as a source of benefit
from rehabilitation. The issue arises since the system contains some percentage of excess capacity
to compensate for unplanned outages. This issue is currently the subject of research. Until
procedures are established for calculating capacity losses due to unreliable performance, care
should be taken in including a capacity loss avoidance as a benefit from major rehabilitation.
Step 2. For the period of analysis determine the annual capacity and annual energy
outputs.
For each alternative, estimate the annual firm capacity and annual energy generation. This
should reflect planned outages, plant reliability, modernization and power loss during
rehabilitation or repair.
E-1
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