Alarmed by the precipitous fall in the share of hydroelectricity in the country’s power mix in recent years, the power ministry plans to shelve an earlier plan to introduce tariff-based competitive bidding process for allocation of hydropower projects.
The existing cost plus tariff regime for hydro projects is set to expire at the end of 2015 due to a sunset clause. After that, bidding will kick in automatically. However, the ministry is now having a rethink on the clause. The government has already made tariff-based bidding mandatory for thermal power projects with effect from January 2011.
Sources said the ministry was apprehensive that bidding could turn off interested investors because generation costs for hydro projects cannot be standardised as in case of thermal plants. Moreover, the projects cycle could encounter several geological surprises that cannot be anticipated at the time of bidding.
Hydropower is considered a clean source of electricity and has critical significance in the fight against the climate change. Besides, hydel plants can also be used to meet peak-hour power due to their operational flexibility.
But, in India, the share of hydroelectricity in power mix has now fallen to 17.7% (at the end of March 2013) from 26% in March 2007, sending alarm bells ringing among energy policy makers.
While a mandatory tariff bidding regime for allocation of coal and gas-based power projects is in place effective January 2011, the cost-plus regime still continues for hydel projects because the ministry has extended the compliance deadline till 2015 in the absence of consensus on the issue. The ministry has introduced mandatory bidding for thermal projects to encourage competition and bring down electricity tariff.
But unlike thermal plants, which are easy to build, hydro projects are considered risky due to the possibility of geological surprises, which can lead to cost escalation and time overruns.