Using DNPV Methodology to Unlock SHP’s Energy Potential in Colombia for Green Hydrogen Production

Abstract

Small Hydropower Plants (SHPs), a mature technology with a recognized lower environmental impact, present favorable conditions in Colombia as a primary clean energy alternative for renewable hydrogen production. This paper presents a financial evaluation of the average facility required to support the development of three hydrogen hubs. The analysis of Discounted Free Cash Flows and the use of classical indicators NPV, and IRR, risk metrics VaR, and CvaR, and Monte Carlo simulations, was complemented with the Decoupled Net Present Value (DNPV) methodology. This approach separates identified risks from expected cash flows by including risk premiums into revenues and expenses. DNPV proves to overcome some of the shortcomings of NPV and to be useful when evaluating high-risk investments and long-term initiatives by avoiding project underestimation. Valuation results show an average value 1.35 times higher for the 30-year valuation and 1.47 times higher for the 50-year analysis. This enables the provision of renewable energy at competitive prices and lays the groundwork for the supply required for hydrolysis within the country’s short-term renewable hydrogen strategy.