Buying hydro power may become mandatory for discoms

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Jan 11 2014, 01:22am hrs
The Union power ministry is planning to make it mandatory for power distribution companies (discoms) to buy electricity from hydel projects a move that would put them on a par with renewable power plants. The idea is to attract investments into the sector and raise the falling share of hydroelectricity in the countrys power mix.

Since the proposal has the potential to increase discoms power purchase costs, the ministry has decided to consult electricity regulators and state governments on the issue. Sources said the proposal will be first put up before electricity regulators who are meeting in Chandigarh on January 17. Thereafter, the ministry is expected to call a meeting of state energy ministers to discuss this issue.

Specifically, the idea is to put in place a policy of hydropower purchase obligation (HPO) similar to renewable power purchase obligation, which mandates discoms to buy a certain share of electricity from generating stations running on wind, solar energy and bio-mass. Under the mechanism, discoms in states lacking renewable resources can fulfil their obligation by buying renewable energy certificates from others. Apart from discoms, captive power generators are also required to comply with the policy.

We are considering HPO for hydropower plants along the lines of renewable power purchase obligation and will soon begin consultations with stakeholders, including state governments, on it, a senior power official said.

The ideal ratio of thermal and hydropower is 60:40. But, in India, the share of hydel power in the energy basket has fallen from 26% in 2007-08 to 16%, and is projected to further decline to 13% by 2022.

India has the potential to generate 1.5 lakh mw electricity from hydro resources, but it has harnessed only 40,000 mw. The Union power ministry had envisaged capacity addition of 8,237 mw in the hydropower sector during the 11th Plan. However, only half the targeted capacity could be added.

Some industry experts feel the proposed HPO can go a long way in boosting investor sentiment on the hydropower sector if it is implemented properly. Others think HPO needs to be complemented with other incentives, such as an increase in the return on equity (RoE) for hydel projects, if the desired result is to be achieved.

Debasish Mishra, senior director, Deloitte, told Fe: HPO will definitely give a boost to investment in hydel projects provided state electricity regulators set reasonable targets and ensure adherence by utilities and consumers. Else it will meet the same fate as renewable power purchase obligations.

Apart from HPO, the RoE on hydel projects should also be increased if the share of hydropower is to be restored to the ideal level of 40%, said Ashok Khurana, director-general, association of power producers.

Apart from the risk of geological surprises, lack of road connectivity, especially in border areas, hampers capacity addition based on hydro resources. The Centre has constituted a ministerial panel headed by finance minister P Chidambram to suggest ways to expedite development of supporting infrastructure for hydel projects.