India needs to tap Hydro Power’s potential; here’s what should be done to remove hurdles

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New Delhi | Published: November 5, 2018 1:53:26 AM

The north-eastern state of Arunachal Pradesh best represents this scenario, having a mere 118 MW of installed capacity compared to a potential 50,000 MW.

Time and cost overruns and other factors have come in way of tapping the sector’s potential

Despite India being resource-rich, hydro power is yet to contribute a commensurate share to its energy mix, accounting for only 13.2% of the installed generation capacity of 343,899 MW. The north-eastern state of Arunachal Pradesh best represents this scenario, having a mere 118 MW of installed capacity compared to a potential 50,000 MW.

Besides what this entails for a rapidly expanding economy, the underutilisation of resources denies the system hydro power’s advantage of starting and stopping generation faster than other conventional modes, which helps balance the transmission grid. This is especially important given the recent surge in solar and wind power generation, which can be uncertain and intermittent.

Since the sector was opened to private participation in 1991, just 3.2 GW (or 7% of the installed hydro capacity) has been commissioned by private players to date, with time and cost overruns coming in the way of investment. The sector is reeling under cost overruns of about `52,697 crore. Of the 37 hydro projects with 12,178 MW capacity under implementation, work at 16 plants with 5,190 MW capacity is stalled—mostly due to fund constraints. The largest among the stalled assets is the NHPC’s (formerly National Hydro Power Corporation) 2,000-MW Lower Subansiri project on the Assam-Arunachal border—protests by activists over project impact is behind the impasse. Lack of clear policy guidelines, long gestation periods, uncertain geological conditions and infrastructural challenges are the other factors impeding the sector’s growth.

Sharad Mahendra, COO, JSW Energy, tells FE the sector would get a boost if the government opted for a hydro-purchase obligation policy, as in the case of solar and wind energy. With its 1,000-MW Karcham-Wangtoo plant and the 300-MW Baspa hydro plant, JSW Energy owns 40% of the total private hydro capacity. The Karcham-Wangtoo facility is a run-of-the-river plant on the Sutlej in Kinnaur district of Himachal Pradesh – by making immediate use of the river flow, run-of-the-river projects check submergence of landmasses, reducing the impact on the local population. However, issues peculiar to hydro power like catchment area treatment and creation of local area development fund add to the capital cost of such projects.

“The tenure of loans for hydro projects is another issue,” Mahendra says. “The depreciation period for hydro projects is only 12 years, stricter than for coal-based power plants.” Though electricity from hydro plants becomes cheap after the servicing of loans, high tariffs in the initial years makes it unattractive to discoms. While the average price at which discoms purchase power is Rs 3.5/unit, hydro power can cost as much as `6.4/unit.

To make hydro power more affordable, the power ministry has initiated policy measures through which the cost of construction of roads, bridges, and flood moderation infrastructure would be excluded while calculating tariffs for such plants. The NITI Aayog’s draft national energy policy proposes a rehabilitation package for revival of stranded hydro projects, with the project life of such projects being increased (60 years instead of the present 35 ) to allow access to long-term financing. The ministry has also forwarded a proposal to support 33 projects with a combined capacity of 7,893 MW. Under this has been proposed central funding of `11,049 crore through 4% interest subvention for the 2018-2028 period. To encourage private players, discoms would be receiving funds from the Centre to sign hydro power purchase agreements (PPAs) for at least five years. Sources say the government would also be setting up a hydro power development fund to provide capital support in the form of interest subvention.

Commenting on the policy proposals, Kameswara Rao, leader energy, utilities and mining, PwC India, says, “they are largely incremental, with a few fiscal sops. Since the real risks are much higher, they are unlikely to spur new investment”. He feels, “an ideal policy would include state support to expedite construction and creation of additional revenue streams, such as for water management and ancillary services”.

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