Hydropower has been responsible for a sizeable share of energy generation in India for a number of decades. Historically part of the conventional energy category, it has recently received a policy push with its inclusion in the renewable energy category. The hydropower segment has promising potential to meet the country’s energy demand sustainably, as well as to help balance the load given the greater integration of intermittent renewable power. The Himalayan and north-eastern regions harbour most of the hydropower potential in the country, although states in other regions can also accommodate more hydro capacity. In recent years, the segment growth has been modest as compared to solar and wind power. Having received renewable energy status in 2019, the hydropower segment is expected to witness fresh growth. However, challenges such as financing and obtaining clearances still remain.
Renewable Watch reviews the current status, key developments and future outlook for the hydropower segment…
India has a hydropower potential of around 148,701 MW at a capacity factor of 60 per cent, which can be used to meet a power demand of about 84,000 MW. However, only part of this potential has been exploited so far, with 45,699 MW installed as of October 2020. Currently, hydropower accounts for about 12.2 per cent of the installed power capacity in the county. For the year 2019-20, the total hydroelectric energy produced by large hydro plants in India was 156 TWh, having an average capacity utilisation factor of 38.71 per cent. The share of hydropower in the generation mix for this period was about 12.4 per cent.
Hydropower constitutes a very small part of the annual power capacity addition. However, this trend is not surprising as over the past 10 years, 1 GW per annum of hydropower capacity has been added on an average. The pace has been particularly slow as the procurement cost of renewables such as solar and wind energy has declined rapidly. Only 300 MW of hydropower capacity has been added in the year 2020 so far, while no new capacity was added in the year before. The Central Electricity Authority (CEA) expects a total power capacity addition of 26,117.14 MW for the year 2020-21 comprising 10,591.15 MW of thermal, 1,145.99 MW of hydro and 14,380 MW of other renewable energy sources. Beyond large hydro projects, India has potential for other forms of hydropower. About 56 pumped storage projects have been identified with a probable installed capacity of 94,000 MW. Meanwhile, the hydro potential from small, mini and micro schemes has been estimated at 6,782 MW from 1,512 sites. Thus, in total, India has a hydropower potential of about 250,000 MW.
The small-hydro power (SHP) segment continued to grow at a slow pace. The total generation from SHP plants in 2019-20 stood at 8,702.75 MW, up from 8,236.36 MUs recorded in 2018-19. The capacity addition over the past year has been meagre, although consistent, with 129 MW being added between September 2019 and September 2020.
The total installed capacity stands at 4,740 MW as of September 2020. Thus, the segment has to install 260 MW to achieve the 5,000 MW target set for hydropower by the Ministry of New and Renewable Energy. Given the current pace of capacity addition, this can be achieved with a slight push to propel activity. The states currently leading in SHP development are Karnataka with 1,280.73 MW and Himachal Pradesh with 911.51 MW of installed capacity. However, other states are slowly warming up to the segment. Among recent developments, the Odisha government has inaugurated the 24 MW Baitarani SHP project in November 2020 at Singhanali in Odisha. Hyderabad-based Baitarani Power Project Private Limited has commissioned this hydropower project, which will generate 100 MUs of electricity and supply power to the state grid.
The segment has been overshadowed by the dynamic solar and wind segments, needing greater attention to be able to grow properly. The reasons for the sluggish growth of the hydropower segment include delays in obtaining approvals and permissions, high tariffs and modest returns. There is limited interest from private players in this segment. Further, geographical and seasonal factors result in unpredictable power generation, which affects the revenue stream.
Pumped hydro storage
While new storage technologies are being tested, hydropower pumped storage plants (PSPs) continue to be the oldest and largest energy storage technology available for utilities. PSPs offer the unique advantage of acting as a load in the pump mode by raising water to the upper reservoir during times of surplus power and running in generating mode during power-deficit situations of the grid. It provides other advantages such as large grid storage and long discharge time, high ramp rate, voltage support, grid stability, black-start facility. It balances the grid for demand-driven or generation-driven variations, improves the overall economy of power system operation, and increases the capacity utilisation of thermal, solar and wind stations. As per a 2019 report by the Institute for Energy Economics and Financial Analysis (IEEFA), India has a total operational and under-construction pumped storage capacity of 5.7 GW, while another 8.9 GW has been proposed. As per the IEEFA’s report, until battery storage becomes cost-competitive, pumped hydro can play a key role in driving India’s path to energy security.
Recently, Andhra Pradesh has proposed the development of seven hydro PSPs across some selected districts in the state. The projects are also expected to compensate for the irregularities in the total input power from the existing renewable capacity due to sudden cloud covers and variations in wind speeds. Although battery storage was also an option, pumped hydro was considered better suited for storage at high volumes. The proposed aggregate capacity for all the plants is nearly 6.3 GW. The districts that have been identified for the plants include Kadapa, Ananthapuram, Nellore, Kurnool, Vizianagaram and Visakhapatnam. A similar PSP project is currently being developed in the state by the Greenko Group as a part of its integrated renewable energy project (IREP). Under the IREP, the company is setting up 1.68 GW of pumped storage, 1 GW of solar and 550 MW of wind energy projects across Andhra Pradesh. The state also has an operational 900 MW PSP plant in Srisailam, Kurnool district.
One of the key initiatives taken by the government towards the hydropower segment has been the launch of the 50,000 MW hydro initiative in 2003. Over the years, the CEA has prepared pre-feasibility reports of 162 projects, totalling 50,000 MW, with the help of various agencies. Projects with a tariff lower than Rs 2.50 per kWh have further been identified for detailed project reports. About 78 projects have been found with a tariff of up to Rs 2.50 per unit, adding up to a cumulative installed capacity of 34,020 MW. Some of these projects are now either at different stages of development or are awaiting approvals.
More recently, the union cabinet, in March 2019, approved a slew of measures including the much-awaited renewable energy status for all hydroelectric projects, the introduction of a hydro purchase obligation, tariff rationalisation and increased budgetary support. The inclusion of hydroelectric projects in the renewable energy sector will help these projects avail of subsidies and benefits such as must-run status and accelerated depreciation benefit. This is expected to rejuvenate investment in the segment. However, since large hydro projects have significant social and environmental implications, statutory procedures such as forest and environmental clearance-related impact assessments are still required for these projects.
The measures approved by the Cabinet Committee on Economic Affairs (CCEA) also call for the introduction of hydropower obligations for large hydro projects. Power from SHPs, however, will remain a part of non-solar renewable purchase obligations. Tariff amendments have also been suggested to operationalise the hydro purchase obligation targets, and the necessary amendments have to be made to the tariff policy and regulations. Hydroelectric projects have a debt-equity ratio of 70:30 and their tariffs are designed to recover debt in the initial 12 years, making hydro energy unviable. The government has now allowed flexibility to developers to determine their tariffs, taking into account a project life of 40 years, debt repayment period of 18 years and a tariff escalation of 2 per cent. Further, the approved measures include budgetary support for funding the flood moderation component of hydropower projects on a case-to-case basis. It also include budgetary support for funding the cost of enabling infrastructure such as roads and bridges on a case-to-case basis. This will be limited to Rs 15 million per MW for projects with a capacity of up to 200 MW and Rs 10 million per MW for projects of more than 200 MW.
The draft policy for hydropower was released in 2017 but is awaiting the government’s approval. It is still unclear whether the policy will be adopted as it is or it will be modified. The draft policy offers multiple financial incentives to upcoming hydropower projects. It proposes to provide an interest subvention of 4 per cent either up to seven years during construction or for three years after the commencement of commercial operations. In addition, subsidies and incentives such as accelerated depreciation available for renewable energy projects including SHPs are proposed to be extended to large hydro projects as well. However, the status of these incentives remains uncertain.
BHEL recently commissioned two units with a capacity of 150 MW each at the Kameng hydroelectric project in Arunachal Pradesh. The project has a total capacity of 600 MW and is developed by the North Eastern Electric Power Corporation. The project is expected to generate 3,353 MUs of electricity annually. This accounts for the most significant chunk of hydropower capacity commissioned in the past year.
India continues to import hydroelectric power from Bhutan, having imported 5,794.48 MW in 2019-20. In June 2020, the Indian and Bhutanese governments signed a concession agreement for the development of the 600 MW Kholongchhu hydroelectric project in Trashiyangtse, Bhutan. This is the first time that an India-Bhutan hydropower project will be constructed as a 50:50 joint venture (JV) and not as a government-to-government agreement. The project will be implemented by a JV formed by India’s SJVN Limited and Bhutan’s Druk Green Power Corporation. The project is expected to be completed in 2025.
Owing to high tariffs and low returns, project financing has been an issue for the hydropower segment. The segment has now opened up to green financing, and in general, has seen some activity in this area. In November 2020, the CCEA approved an investment of Rs 1.8 billion for the development of the 210 MW Luhri Stage 1 hydroelectric project situated on the Satluj river in Shimla and Kullu districts of Himachal Pradesh. The project is currently being developed by SJVN Limited on a build-own-operate-maintain basis and is set to be commissioned by January 2026. It is expected that the plant will generate 758.2 MUs of electricity per year. Himachal Pradesh will also gain benefits of free power worth Rs 1.1 billion for 40 years that the project will be active. Further, families displaced by the project will be entitled to 100 units of free electricity per month for the first 10 years of the project.
In another development in October 2020, the Public Investment Board recommended that the 850 MW Ratle hydroelectric power project be developed through a JV company of the Jammu & Kashmir Power Development Corporation (JKPDC) and NHPC Limited. Ratle was the first project in India awarded through tariff-based bidding. The board further recommends an investment approval for Rs 52.81 billion for the project, including an infusion of Rs 8.08 billion equity by NHPC Limited in the JV company. The equity contribution of JKPDC in the company is pegged at Rs 7.76 billion to be provided as grant from the centre.
Challenges and future outlook
Due to its unique capabilities of quick starting and closing, hydropower stations are found to be a favourable choice to meet peak load in the grid. However, exploitation of the hydro potential has not been up to the desired level due to various constraints confronting the segment. These issues include a long gestation period, its capital-intensive nature and high tariffs. There is also a lack of investor confidence in the segment owing to resettlement and rehabilitation requirements and flooding concerns. There has not been much change since the cabinet approved measures to promote hydropower, as a formal policy is still awaited.
In spite of these challenges and reduced uptake due to the growth of the renewable energy market, there is still a slow and steady pipeline of hydropower projects in India. About 38 hydroelectric projects with a total capacity of 12,973.5 MW are currently under construction and are expected to come online in the next few years. Following the “lights out” experiment conducted in April by the power sector, the importance of hydropower has further been highlighted by the power ministry. The ministry has committed to reaching a target of 70,000 MW installed hydropower capacity by 2030. However, this is a tall target to achieve. Even if all the projects currently under development come online, the total installed capacity will still fall short of the target. In order to truly utilise the potential of the hydropower segment, the government must introduce reforms that enable greater capacity addition as well as assured power offtake and help hydropower projects across all categories to flourish.
By Meghaa Gangahar