Hydropower PSUs like NHPC and SJVN are increasingly losing ground to private players. They are unable to match terms offered by the latter for allocation of projects because of prevailing policy constraints. The government has not allowed PSUs to offer upfront premium and extra free power for allocation of projects on the grounds that this would add to power generation costs, leading to a rise in the overall electricity tariff level of the country. There is nothing wrong with this policy intention. However, it does not seem to be serving the objective. The goal of the national hydropower policy is to encourage competition in the sector. But the existing policy constrains PSUs from competing against private players on an equal footing.
Hydro resources belong to states and they are asserting their right to optimise revenues from harnessing them. It is not clear how the Centre will achieve its stated goal of keeping hydro electricity tariffs low, when it has no control over the harnessing of hydro resources. States are in no mood to heed the Union power ministry?s policy advice.
Significantly, hydropower projects are perceived as a risky investment. PSUs are well-placed to manage risks involved in the implementation of hydropower projects. PSUs have proved their capability by executing large-sized and multipurpose hydropower projects. It would be unfortunate if they lose interest in the sector. Private projects operate under merchant policy regime and can earn hefty profits by selling their power in the free market, unlike PSU projects where allocation is made by the government and tariffs are determined by electricity regulatory commissions. The hydro policy allows hydropower plants to sell 40% of their generated power in the free market. However, the Centre?s overriding concern to keep electricity tariffs low keeps PSU plants from benefiting from this provision.
States cannot be blamed for demanding upfront premium and offering extra free power for allocation of hydro projects. When the Centre cannot dissuade states from charging upfront premium and extra free power, there is no point in preventing PSUs from offering similar terms for allocation of projects. In any case, it has no control over how states want to harness their hydro resources. In the same vein, it also cannot stop private players from offering upfront premium and additional free power.
India has the potential to generate 150 gw from hydro resources. But thus far, it has harnessed only 25% of the potential. This is because the gestation period of hydropower projects is much longer than that of thermal power projects. Besides, there is the risk of time and cost overruns because of geological surprises. If the PSUs continue to lose projects because of policy constraints, the pace of capacity addition to hydropower generation in the country could further slow down.
PSUs are able to compete against private players for allocation of hydropower projects in other countries as they are not constrained to match the latter?s terms. For example, SJVN has bagged the Arun-III project in competitive bidding. It has offered 22% free power to get the project. It will have the freedom to sell power generated from the plant in free market in India, which offers the promise of making profit for the company. It is unfortunate that because of policy constraints, SJVN is unable to compete with private players in India. It is going to other countries for projects. Power availability, even at a higher price, is a much better option than load-shedding.
That is the reason Indian PSUs are ready to implement projects in neighbouring countries like Bhutan, Myanmar and Nepal and export power to India despite high transmission costs. The Indian government is also encouraging hydro PSUs to invest in these countries because this is also an option for overcoming the country?s growing power shortfall. But surprisingly, the Centre is unable to shed its policy dilemma on allowing PSUs a level playing field in India.
Hydropower is cheaper than other sources because there is no recurring fuel cost. If India can expedite the pace of harnessing hydro resources for power generation, it would ease some of the upward pressure building on tariffs for power available from coal- and gas-based plants. This would, in turn, help the Indian industry to keep its electricity cost under check and stay competitive. Peak power shortage in the country is currently estimated at 12%. It is projected to further rise in the coming years. Hydropower plants are a good source of meeting the peak power requirement. So, India needs to quicken the pace of capacity addition in hydropower if it has to find a credible solution to its worsening peak power shortage.
noor.mohd@expressindia.com