India has considerable potential for harnessing hydropower, with most estimates placing the country?s potential capacity at close to 1.5-lakh mw, with the Brahmaputra, Indus and Ganga basins contributing about 80% of this. The installed capacity currently stands at over 36,000 mw.
Central sector organisations such as National Hydroelectric Power Corporation and North Eastern Electric Power Corporation along with private developers have helped the country develop hydroelectric power stations. NHPC, for example, has well over 5,000 mw of completed projects, and has ambitious plans for the future. Private players such as the Jaypee Group, the Tatas and GMR have been quite active, with the Baspa-II project being one of the largest in the private sector.
The current thermal-hydro mix stands at approximately 74:26, while the 11th Plan only buttresses this imbalance, with almost 60,000 mw of scheduled capacity addition of approximately 77,700 mw scheduled to be derived from thermal plants. In this context, there is a need to develop hydropower for several pressing reasons.
While hydropower plants do have large upfront capital costs, they can also produce energy for longer periods, which significantly help reduce costs over time. For example, the World Bank estimates that the Bhakra Nangal plant, now more than 40 years old, has operating costs of only Rs 0.10 per unit.
Moreover, hydro and gas are technologies suitable for meeting peaking power requirements. As India adds thermal capacity in large volumes to meet its base load requirements, the need to meet peaking requirements will become increasingly evident.
While India, along with China, does not have carbon emission restrictions, the pressures of climate change are evident. Developing an energy portfolio, which includes clean energy sources, would be important to address this issue.
On the flip side, only about one-fourth of the country?s hydropower potential has been developed so far. While the reasons for the shortfall are many, they can be broadly classified as being related to problems around evacuation of power, project development and tariffs.
Most of the potential for hydro-based generation exists in relatively remote regions, with the hilly states of Arunachal Pradesh (with the potential of 50,000 mw), J&K, Himachal Pradesh and Uttarakhand accounting for a bulk of the potential. This presents huge challenges in the construction and cost of hydro projects, especially large ones.
Next, there are issues relating to the implementation or development of projects. Hydro power plants typically involve longer gestation periods and larger fixed costs than those of more conventional thermal power plants. Along with the geological surprises that may arise during the project execution phase, this means risks to developers are considerably higher than that for thermal plants.
Another issue is land acquisition and the consequent need to rehabilitate the local populace. Agitations over the Narmada dam in Gujarat and the Tehri Project in Garhwal are a reminder that hydro projects may not always be popular.
Finally, the current tariff regime does not particularly value hydropower. Hardly any environmental consideration is given to hydro projects that help provide pollution-free power. In addition, the country does not yet have a mechanism that provides for differential pricing for peak-load power, something that would favour the more flexible hydroelectric sources. Prevalence of the cost-plus approach also may not provide enough incentive to developers for the risk they undertake.
Building in differential pricing for peak-load plants and those that provide an environment-friendly source of energy would go a long way in incentivising developers to invest in the sector. The ministry of power has come out with standard bidding documents for long-term power procurement for all types of generation, including base load and peaking. However, it may be worthwhile to have provisions that relate to peaking power procurement that address specific points related to peaking power. This will encourage the hydro sector by providing a framework for peaking power procurement.
Next, the government must address some of the concerns of private sector developers. Land acquisition, clearances and permissions delay the implementation of projects. The government may consider handing over sites after conducting preliminary studies, obtaining statutory clearances including those pertaining to environmental, forest and techno-economic issues.
Given the experience of competitive bidding in states such as Himachal Pradesh and Arunachal Pradesh, the process needs to be made more robust to discourage speculative bidding over parameters such as upfront premium payable and the free power due to states.
Signing of power purchase agreements could be made more hassle-free. In addition, greater credit could be given in the tariff regime for hydropower, irrespective of project size, since it is a flexible and environment-friendly source of generation.
The country needs to take steps to harness the potential of this relatively environment-friendly source of power. Spreading awareness of the benefits of hydropower, granting speedy clearances, providing a certain premium for hydropower in the evaluation of least-cost generation expansion by valuing peak power appropriately and by giving credit to its environment-friendly and long-term energy security features are areas that the government could play a role in the near to medium term.
?The writer is executive director, KPMG