Relative price changes and the benefits and costs of alternative power projects

What are the conclusions that we have to draw from the foregoing discussion? We must conclude that the prevailing practice of evaluating benefits and costs in terms of present costs and prices is not only likely to lead to an under-statement of actual costs, but also may lead to gross inefficiencies in project selection. This danger is particularly great in cases of hydro projects with long construction time horizons or long-term project sequences that depend for their feasibility on some common facility. While the need to estimate future price relationships may seem to introduce new uncertainties into project evaluations the use of prevailing prices is even less satisfactory. A somewhat inaccurate estimate of future changes, as long as it points in the right direction and as long as it is backed up by a sensitivity analysis that tests the effects of the assumptions on overall benefits and costs will provide a better and more realistic picture. Today this issue is of particular urgency since the traditional cost advantage of hydro over thermal alternatives is quickly disappearing. Given the very dramatic cost reductions expected from the introduction of second and third generation atomic power plants it becomes mandatory for any power system planner to take these expected changes explicitly into account.