Indian Hydro Power Sector – Overview & Outlook

Electricity is one of the most essential requirements for the development of any nation and the notion stands very much applicable in the case of India which is endeavouring for a sustainable growth of the economy. ‘Clean Energy’ is the new buzzword of the 21st century across the globe; the nations are moving towards renewable energy sources like wind, solar, hydro, geo thermal and bio energy in order to save the environment.

Among all renewable energy sources, hydropower is one the best form of energy security for any country however, depending on how much resource is available. Hydro power besides being renewable has peaking benefits which no other source can offer. It offers clean & green energy, also in case of grid collapse – hydro power is best to revive it because hydropower station can be started instantaneously. Going forward, with storage option, a hydro projects can play a major role in control of floods and drought.

India has moved up to the second spot from third position in this year’s ‘Renewable energy country attractiveness index’ released by EY. Today, India is all set to become the 3rd largest market for solar power globally. Also, the country ranks 4th in wind power installation, however in hydro it stands at the 6th rank in installed capacity. Looking at the population growth and required industrial and infrastructure growth in the country, it becomes necessary for the Government to seriously look into the development of hydro power which is essential for the sustainable growth of the economy.

Sector Overview:

Of the total identified Hydro Power potential of 1,50,000 MW in India, the country has been able to develop a total hydropower capacity of only 44,594.42 MW as on May, 2017. In addition, the country has installed capacity of 4,177 MW of small hydropower (capacity of less than 25 MW) and 4,786 MW from Pump Storage Project, so far. Only large dams are classified under hydropower, small dams, with capacities up to 25 mw, come under the ambit of renewable energy. There are only 9 hydropower stations built with an installed capacity at a scale of 1,000 MW and more in India. The maximum capacity of a generating unit in India is 250 MW.

India’s hydropower resources are mainly located in the Himalayan range of North Eastern & Northern India, which is 40 per cent and 35 per cent respectively. North Eastern state Arunachal Pradesh alone possess about 35 per cent of India’s hydropower potential and Northern states Uttarakhand, Himachal Pradesh and Jammu & Kashmir collectively possess 35 per cent of India’s hydropower potential. Basin wise, Brahmaputra river basin has hydropower potential of about 66,000 MW however, merely 4 per cent of it has been harnessed so far. Similarly, Indus basin is having about 34,000 MW potential and about 35 per cent of Indus basin potential has been tapped. On the other hand, Ganga basin has about 21,000 MW of which only 25 per cent has been developed till date.

Earlier, the energy experts shared the ‘Nehruvian’ view that large dams were “the temples of modern India”. However, the country has seen a steep fall in Hydropower’s share from over 45 per cent in the mid-1960’s to 26 per cent by 2005. Hydropower has made a muted recovery since then, even in the recent past years the hydropower capacity has increased only marginally — from 40,531.41 mw in March 2014 to 41,267.42 mw in March 2015, to 42,783.43 mw at the end of FY2016 when the total capacity of renewable energy projects expanded to 42,850 megawatts, overtaking hydropower in the total energy mix, out of the country’s total capacity of about 3 lakh mw on April 30 2016.

Key Issues & Challenges:

Indian hydropower sector has many operational hurdles that need to be addressed to make the sector vibrant once again. Recently, big corporate names have walked out of hydel power projects in the state of Himachal Pradesh as there was no infrastructural help given by the state government for construction of these projects as well as evacuation of power. Such delays result in higher cost of power generation which makes the entire project unviable.

Indian hydropower sector have been crippling with multiple challenges that have been mainly instrumental in discouraging and de-motivating the hydropower projects developers in the country. These include financial, environmental, social, regulatory and infrastructural challenges. However, these issues can be tackled effectively through socio-political intervention and appropriate regulatory framework.

High Tariff Challenges

During the initial years, the tariffs from hydropower projects are higher as compared to other sources. This is mainly because of financing cost and construction of projects in remote areas with inadequate infrastructure and also due to lack of incentives like tax concessions. Further, since taxes constitute 15-25 per cent of project cost, they are major contributors to the project cost of Hydro Projects.

In addition, as per the current regulations, State Government is to be provided 12 per cent free power as royalty from any Hydro Power Project to be developed in the State. This provision of free power to the State affects the financial viability of the project severely. Due to the very challenging and difficult logistics, cost of the project in any case is high and provision of high royalty in terms of free power, makes the project even more costlier and tariff becomes almost unsustainable.

Financing Challenges

 Hydropower projects are capital-intensive and financing them, by finding an optimum balance between bankability and affordability, is often a challenge. Although the operating cost of hydro projects are minimal and the project life longer than thermal, there are multiple other factors that make hydropower difficult to finance. Due to long gestation period of hydro projects, interest on loan mostly leads to increasing the overall project cost. Also, during operation period, higher interest on outstanding loan leads to higher yearly tariff.

Non-availability of longer tenure loan necessitates higher provision for depreciation so as to generate resources required to meet repayment obligations. Long term funding for hydropower project development is essential and needs to be directed through a policy. There is an urgent need of creating a sub sectoral limit for lending to hydropower projects on priority basis by banks so as to revive hydropower sector in India.

Negative Public Perception

Construction and operation of hydropower dams can significantly affect natural river systems as well as fish and wildlife populations. Furthermore, hydropower projects involve submergence causing the displacement of project area people. The rehabilitation of project affected people is also a major issue which is more pronounced in the case of storage-based hydropower projects. These factors have resulted in negative public perception about hydropower projects resulting in sustained opposition to project construction in many cases often resulting in time and cost over-runs.

State or central government should organize Public Awareness Programs emphasizing why Hydro Power is safe and sustainable for green development. NCSDP (National Committee on Seismic Design Parameters) should hold seminars in collaboration with State Governments in every State and downstream area/s where Hydro Projects are planned, so that people become aware of safety aspects which are taken care for the design of the Dam and how it safeguards the people of the downstream.

Delay in Environment Clearances

Hydropower projects often require forest areas for their implementation and compensatory afforestation on non-forest lands. Progress of many projects has been affected on account of delay and non-clearance on environment and forest aspects.

Though, environmental and social impacts are inevitable but they can be mitigated. Hydropower development in India has seen significant strides in understanding and addressing these impacts and the lessons learned from past engagements are now being incorporated in project selection and design.

Infrastructure Challenges

Lack of proper infrastructure like roads, bridges, etc., particularly in North Eastern states results in longer construction periods, thereby increasing the project cost and causes unnecessary delays. Related state agencies need to provide adequate infrastructure support which will help in completing the projects at faster pace.

Lack of Long Term PPA

Under the prevailing power scenario in India which is seeing major policy push to increase renewable capacity (mainly solar and wind), make the selling of hydropower difficult. Discom’s seem reluctant to enter into long term Power Purchase Agreements (PPAs). Experts believe that there should be separate Hydropower Purchase Obligation (HPO) and the government should consider bringing all hydropower projects, regardless of the capacity under the renewable definition.

Recent Developments:

According to media reports, the government is looking at a policy push to resurrect the languishing hydro power sector. The power ministry is working on a comprehensive policy to revive the ailing hydro-power sector, which is drowning in spate of stalled and stressed projects. Officials said this would cover projects of the private sector and those of state-owned NHPC. The policy aims to provide Rs 16,709 crore support to revive 40 stalled hydel power projects which can add 11,639 (MW) capacity. Further, the government is also looking at financial incentives. In addition interest subvention would be supported with central funding for at least half the interest payment while (More of) Tax depreciation would help bring private sector interest.

The key change in the policy is that the incentives that were accorded to smaller hydro power plants of less than 25 MW will be available to bigger projects. Post clearance of the policy the distinction between large and small hydro plants would disappear. Presently, smaller hydro power plants are classified as renewable energy which entitles them to various incentives. The bigger plants, which are stuck, will now be entitled to these benefits. The policy also provides for Hydro Purchase Obligation (HPO) for hydro projects of over 25 MW capacity, under which discoms would be required to buy a proportion of power from these plants.

The policy entails that the government provides interest subvention of 4 percent during construction for up to 7 years and for 3 years after the start of commercial operation to all hydro power projects. The policy also asks for the Power Ministry to engage with bankers and financial institutions for modifying lending terms and conditions for hydro power projects. Reviving stuck projects, which have already been delayed and have cost overruns, would result in generation of high-cost power. The policy proposes to impose a coal cess which will help capitalise the Hydro Power Fund under the Power Ministry for providing funds to the projects under the policy.

Conclusion

India has the fifth largest hydropower reserves in the world, with untapped potential of over 100GW. Though, India had launched 50,000 MW ‘Hydropower Initiative’ back in 2003 to harness the hydropower potential in the country under which 162 projects totalling installed capacity of 47,970 MW were identified for preparation of PFR and subsequent development of the projects. However, even after 14 years of launching, not a single project out of 162 projects of the Initiative has been commissioned.

Hydropower capacity addition target (excluding small hydro) in India for XII Plan and XIII Plan period has been set for 10,897 MW and 12,000 MW respectively. However, with the present growth rate in hydro power sector it looks a distant dream. At present the projects clearances and execution is marred with many issues which can be resolved by policy makers and stake holders on a fast track basis. To give a boost to Hydro Development, certain benefits / incentives could be extended to the developers of Hydro Projects.

India’s hydro-resources are largely available in some of the least-developed parts of the country and hydropower plants, if designed appropriately offer significant potential for regional development and poverty alleviation. Hydropower projects that forge equitable systems of benefit-sharing and implement targeted local area development can help local communities improve the quality of their lives quite significantly.

Hydropower is the only large power source which has got merits of delivering 24X7 generation reliability like fossil fuel based power plant as well as ensuring benefits of renewable power like no emission of greenhouse gases and no depletion of natural resources. Since, India’s supply energy mix is predominantly thermal and is rapidly adding renewable capacity, the country badly needs hydro capacity for smoother grid management.

Promotion and development of hydropower is the need of the hour so as to meet the rising power demand in the country through clean source of power for the sustainable development.

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