Hydro power policy 2018-28: Government funding declines 34 pct

By: | Published: March 22, 2018 5:14 AM

The government has revised downwards the proposed size of the Centre’s funding of hydro power projects by way of 4% interest subvention by 34% to Rs 11,049 crore for the 2018-2028 period.

Hydro power policy, hydropower plants, economyThe government will set up a hydro power development fund (HPDF) to provide capital support in the form of interest subvention, sources said.

The government has revised downwards the proposed size of the Centre’s funding of hydro power projects by way of 4% interest subvention by 34% to Rs 11,049 crore for the 2018-2028 period.

A modified hydro power policy draft being sent to the Cabinet by the power ministry also proposes to limit the benefit of interest subvention to government-owned projects, while private investors will be helped by transfer of funds equivalent to the interest subvention to their buyers, namely, then distribution companies (discoms).

Another change in the draft policy — the initial draft prepared by the ministry in early 2017 — is that infrastructure costs such as construction of roads, bridges, and flood moderation infrastructure that are not directly related to power generation should not be included to calculate electricity tariffs. This will make hydro power more affordable and competitive.

The government will set up a hydro power development fund (HPDF) to provide capital support in the form of interest subvention, sources said. Resources will be pooled from the existing power system development fund, national clean energy fund and non-lapsable central pool of resources (NLCPR) of department of north eastern region (DoNER), they said.

The power ministry said capital subsidies would be provided to public sector projects through an escrow account to ensure repayment of bank loans. To encourage the uptake of hydro power from private power plants, discoms would be receiving funds (equal to 4% interest subvention for five to seven years of construction and three years after the commissioning of plants) from the central government for signing hydro power purchase agreements (PPAs) for at least five years.

The new proposal is designed to support 33 projects with combined capacity of 7,893 MW, while the earlier draft spoke of 40 projects totalling 11,639 MW. The hydro power sector is reeling under cost overruns of about Rs 52,697 crore.

The average price at which discoms purchase power is Rs 3.5/unit, whereas hydro power prices can be as high as `6.4/unit. Owing to huge capital requirement, hydro tariffs are unusually high in initial years, discouraging cash-strapped discoms from procuring from this source. The capital cost of hydro projects is more than `8 crore/MW, which is significantly higher than coal-based plants (`6 crore/MW) and solar and wind power units (`4-5 crore/MW).

Long construction periods and delays in cash inflow result in higher finance charges, and contribute to unattractive tariffs. A parliamentary committee report attributed the sluggish growth of the hydro sector to “lack of coordination among the ministries, state governments, departments, and agencies related with the development of hydro power”.

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