Inclusive Approach

Granting renewable energy status to hydro could revive segment

The government has been contemplating including large hydropower plants, typically projects of over 25 MW capacity, in the ambit of renewable energy. This would alter the definition of the sector and give a thrust to the government’s efforts to achieve the 175 GW by 2022 renewable energy target. It would also help the hydropower segment regain its momentum, which has been comparatively sluggish in the recent past. At a recent Renewable Watch conference on “Hydro Power in India”, leading developers shared their views on the subject…

Do you think hydro-based power generation should be brought under the purview of renewable energy and why? What would be its implications on the segment?

 

Gyan Bhadra Kumar

The inclusion of large hydro projects within the definition of renewable sources of energy has been a point of contention for a long time. I believe that it should be included as it is a completely non-consumptive source of power and uses the water cycle for its replenishment. With a negligible carbon footprint for power production, hydropower is a natural renewable source and it should be classified accordingly by the government. Most countries consider hydropower, irrespective of the plant capacity, as a part of their renewable energy portfolio. In 2010, the National Association of Regulatory Utility Commissioners, the American association representing the regulators of essential utility services in the states, passed a resolution recognising hydropower as a potential renewable energy source.

About 90 per cent of hydro projects in India, both existing and planned, are run-of-the-river, that is, they use the potential energy of running water. Only a few projects require pondage in India, which only negligibly alters the geological set-up of the area during the construction of the plant. Two of the largest plants in the country, the 1,000 MW Karcham Wangtoo and the 300 MW Baspa projects by JSW Energy, have been running on the same principle. This also supports the case for hydro as a renewable source of energy.

The inclusion of hydropower in renewable energy has multilevel implications for the sector and the segment. The segment requires a strong push as capacity additions have been falling over the past few years. The segment, which was growing by itself until now, needs a helping hand as most policies are now focused on the development of solar and wind energy. By bringing large hydro at par with these, the policies that govern renewable sources will be extended to this segment as well, giving a significant boost to its business.

Solar and wind capacities have largely been developed on the back of renewable purchase obligations. Granting renewable energy status to hydropower will result in the obligatory purchase of hydropower by discoms, which will help develop more capacity. Consequently, developers who have been dormant in the segment will become active again. More development will give rise to economies of scale in the equipment manufacturing industry for hydropower and help bring down costs. This will lead to cheaper hydropower.

Hydropower has certain advantages over other renewable sources of energy. These plants can run round the clock for at least eight months in a year as opposed to solar and wind power plants that are intermittent in nature. While the plant load factor of solar and wind power plants typically ranges from 16 per cent to 22 per cent, that of hydropower plants is between 45 per cent and 68 per cent. Despite the fact that it has advantages not only over coal-based power but also over solar and wind energy, policy-based intervention to develop the segment has so far been elusive.

One of the major issues plaguing the segment is the lack of access to financing. While multiple financial devices such as green bonds are available for the development of renewable energy, nothing is available for the highly cost-intensive hydropower segment. The inclusion, as proposed, will help the segment get better financing options as well as boost stakeholder confidence, while bringing down interest rates. This will translate into a lower cost of power generation.

The high cost of hydropower has resulted in high tariffs and therefore, almost no power purchase agreements (PPAs) are being signed for upcoming power plants, further dampening investor and developer interest. As opposed to conventional power, which costs around Rs 2.50 per unit currently, hydropower costs upwards of Rs 4.50 per unit due to the high equipment and construction costs involved. As a result,  hydropower seldom finds off takers.

In addition to enabling the achievement of the 175 GW by 2022 target, the development of hydropower is also significant for the country’s long-term energy security. The development of large hydro capacity will result in decreased dependence on power imported from Bhutan and Nepal, as well as reduced generation from coal-based sources. The hydropower segment in India needs a fillip and the immediate answer to that is to bring it under the purview of renewable energy.

M.M. Madan

Given the current state of the hydropower segment, it is necessary to identify the prevailing issues, a key one being the lack of focus from the Ministry of Power. This should be addressed by all stakeholders in the sector. The government has been focusing largely on the renewable energy sector, particularly on solar and wind.

The question that needs to be raised before the government is that hydropower is a renewable source of energy. Since small-hydro projects (typically projects of less than 25 MW capacity) are considered as renewable energy projects, so should large hydro projects be. Across the world, hydropower, large or small, is considered a renewable source of energy and treated accordingly. For a considerable amount of time, we have been requesting the government to declare hydropower a renewable source.

One of the most significant benefits of bringing hydropower under the purview of the renewable energy sector is targeted growth. So far, the solar and wind energy segments have found great support in achieving their targets as specified by the government under its 175 GW by 2022 target, in which the solar target is 100 GW and the wind target is 60 GW. If hydro is included among renewables, it will be given its own target. Therefore, the segment will get the much-required boost.

The various challenges faced by the segment as well as the recommendations and possible solutions have been communicated to the government at regular intervals. Many of these solutions have been accepted but are awaiting approval from the ministry. Even as the government talks about giving a thrust to the segment, not much has translated into policies that can be implemented. In the recently released draft National Electricity Plan, where targets for all sources of power have been defined, hydropower has been given less than 10,000 MW for the next 10 years. This raises concerns about its future.

A large capacity of about 60,000 MW has already been awarded in Arunachal Pradesh, but is yet to be constructed. There has been nearly no hydropower development in high potential states such as Jammu & Kashmir and Himachal Pradesh. The lack of infrastructure, along with high capital costs for setting up hydropower projects, leads to a high cost of generation, resulting in no PPAs. Only government policies such as bringing hydropower under renewable sources of energy can help reduce the cost of hydropower.

Harvinder Manocha

The hydro power segment has been stagnant for quite some time and needs to move forward. While the segment has enough competence and knowledge at all levels to regain momentum, lack of ownership has marred its growth. Initially, the private sector was quite bullish on the future of hydropower, but the lack of favourable measures and a conducive business environment has shifted the focus of private companies away from it.

The hydropower segment has been rendered untouchable by various stakeholders. There are only a handful of private companies investing in it. The state governments too have not come up with favourable policies for the advancement of the segment. Financing is either unavailable or inaccessible as no specific financial instruments have been provided. Considering these factors, policy disruption for hydropower is the need of the hour. The segment should be brought under the purview of renewable energy to bring it back on the path of development. Classifying hydropower as renewable energy will have multiple consequences. The price of hydropower, which has been rendered uncompetitive due to solar and wind power, needs to be brought at par with that of the latter. However, expensive infrastructure, long gestation periods and high interest on loans are some of the factors that increase the cost of power generation. If included as a renewable energy source, hydro projects may get the required benefits such as subsidies and lowinterest loans with longer tenors.

Renewable purchase obligations (RPOs) have facilitated the growth of solar and wind energy. Similarly, it should be made mandatory for discoms to purchase hydropower as hydropower purchase obligations within RPOs. The next two years are critical for the segment and its future will be determined by the policies laid down by the government now. A strong governmental push and policy intervention are required to revive the segment.

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