Effects of operation and maintenance costs on the financial sustainability of micro hydropower schemes

Implementation of hydropower, a renewable energy source with lifespan, requires effective operation and maintenance (O&M) strategies. However, existing guidelines lack consensus on estimating O&M costs, particularly for small-scale projects, which may be more sensitive to O&M fluctuations. This study analyses the economic performance of four hydropower schemes, focusing on the impact of O&M costs on several key financial metrics: the Internal Rate of Return (IRR), Net Present Value (NPV) and Levelised Cost of Electricity (LCOE). We show that higher O&M costs reduce financial viability in a scheme-specific manner: scheme 1 becomes unprofitable when O&M costs exceed 3%, dropping its IRR to 1.8%; scheme 2 remains viable up to 4% but fails to meet the minimum 3.5% IRR required for economic feasibility; schemes 3 and 4 are more resilient, maintaining profitability up to 5% O&M costs, with scheme 4 achieving IRR of 10%. We emphasise that hydropower performance is sensitive to capital costs, generation, and O&M costs. Scheme 4 achieved the best balance among these factors. The novelty of this research lies in comparing different O&M cost estimations of hydropower schemes and their effects on NPV, IRR and LCOE, offering insights into O&M cost thresholds and recommending scheme-specific O&M planning.