Untapped Potential

Focus on reviving the hydropower industry in India

Hydropower is one of the oldest en­ergy generating technologies that is still in use. The oldest hydroelectric plant (HEP) in the Indian subcontinent, with a capacity of 130 kW, is situated in Dar­je­eling district of West Bengal and was dep­loyed in 1897. India is endowed with enormous hydroelectric potential and ra­nks fifth in the world in terms of exploi­table hydro potential. The country’s hy­dro­­power potential is estimated at roughly 148,700 MW, and as of today just one-third of this has been utilised, creating significant opportunity in this space. As per the In­ter­national Energy Agency, India has the ma­ximum estimated potential for hydro­power capacity expansion between 2021 and 2030, compared to other countries. As re­ported by the Central Electricity Au­tho­rity (CEA), a total of 70 HEPs with over 25 MW of capacity each and a total capa­city of 29,337 MW are planned to be built bet­ween 2020 and 2030.

At 66,065 MW, the Brahmaputra basin carries the highest possible capacity out of the total HEP potential. This is followed by the Indus basin and the Ganga basin at 33,832 MW and 20,711 MW respecti­vely. The aggregate hydropower generated in India for the year 2021 was estimated to be around 57,222 MUs.

Hydropower plays a significant role in India’s green energy transition. Compa­r­ed to other power generating sources su­­ch as coal and natural gas, many HEPs can rapidly ramp their electricity generation up and down. HEPs can also be shut down and restarted with relative ease. Be­cause of their high degree of adaptability and flexibility, they can respond quickly to changes in demand and compensate for fluctuations in supply from renewable energy sources. Thus, hydropower is very important for India’s energy transition, as it can help in balancing the intermittency of renewable power sources.

Slowdown in growth

As per the Central Water Commission’s (CWC) Guidelines for Preparation of Detail­ed Project Reports of Irrigation and Multi­purpose Projects, published in 2017, the effects of the climate crisis on flow variations, extreme events, erosion and sedime­ntation must be examined in de­ta­il wh­ile determining the hydrological paramete­rs of a project. In India, any co­m­pany plan­ning on building a hydropower generation station must prepare and submit a proposal to the CEA for approval. In addition, such projects must obtain the necessary clearances from the CWC in accordance with current guidelines. Propo­sals for hydro­power projects are submitted to the Minis­try of Environment, Forest and Cli­mate Change for environmental clearances only after receiving CEA approval.

As per CEA reports, the total installed ca­pacity of HEPs as of May 2018 was 45,403 MW. However, as per the latest da­ta, from May 2022, the updated capacity was 46,722 MW. In a period of five yea­rs, a me­a­gre growth of just 2.9 per cent has been observed. There are many reasons behind this slow growth.

Financial constraints: The Standing Com­m­i­ttee on Energy (2020-2021) observ­ed that, usually, a hydropower plant is fin­an­ced at a debt-equity ratio of 70:30. How­ever, despite the long-term viability of hy­dropower projects, only short-term loa­ns are being sanctioned for them. Since these loans must be settled within a period of 10 to 12 years, this leads to an inc­re­a­se in tariffs in the first few years. More­over, given the volatility involved in the development of hy­dropower projects, only a handful of ba­nks and institutions are willing to finance these projects. The higher interest rate ch­arged on these loans ag­gravates the pro­blem. The committee no­ted that, as­suming a 10 per cent interest rate for a typical hydro project with a capital cost – in­cluding interest during con­struction (IDC) – of Rs 100 million per MW, the first-year tariff and levellised tariff will be approximately Rs 6.60 per kWh and Rs 6 per kWh respectively. A dec­rease in interest rate by 4 per cent can br­ing down the capital cost of the project to Rs 92 million per MW because of the de­cline in the IDC component. This would lead to reduced levellised tariffs of around Rs 5.35 per kWh and Rs 5.15 per kWh respectively.

Water cess: Many Indian states levy a water cess for every cubic metre of water used by an HEP. However, there is no justification for levying such a tax, because the water used by the plants is recirculated into the rivers. It only adds to the load on the already stressed sector, creating challenges in the operation of plants.

Land acquisition and social resistance: Land acquisition for hydropower projects is becoming increasingly difficult, resulting in delays. The Government of India has outlined various benefits under resettlement and rehabilitation (R&R) schemes for all families that are affected and displaced by land acquisition. It has been ob­served that the core issue is the dep­loy­ment of land acquisition and R&R sc­­he­mes, for which the district administration is fully accountable. Thus, land ac­quisition often provokes social unrest am­ong native populations in the area where a project is being set up.

Geological and environmental concerns: Geological concerns on account of transboundary river management act as a barrier in the development of HEPs. Many of the rivers that are used for hydropower flow th­ro­ugh more than one country. With­out adequate evaluation and proper discussion, the­se projects can potentially ca­use hy­dro-diplomatic difficulties for countries. En­­­vi­ron­mental impact assessment is a cri­tical component in developing HEPs. Ill-planned hydropower development can se­verely impact river flows and disturb the fragile ecology of the surrounding region. Thus, it is important to carefully examine all the pros and cons and carry out de­tailed studies before moving ahead with a hydropower project.

Policy interventions

The Indian government has been trying to address some of these challenges and pro­mote the uptake of large hydro projects owing to their importance in India’s green energy transition. In March 2019, the Government of India released an or­der outlining numerous policy initiatives to enhance the country’s hydropower sector. This was accomplished by designating ma­jor hydropower projects, including pu­­m­ped storage projects, with capacities of over 25 MW as renewable energy sour­c­es. Formerly, only HEPs with capacities of less than 25 MW were considered rene­wable sources.

Further, the government introduced a hy­dropower purchase obligation to compel discoms and power companies to add hydropower to their energy mix. Moreover, the government plans to put a strong fiscal focus on attracting additional investments from the private sector towards uplifting the hydropower sector. The government plans to devise a streamlined mechanism to facilitate ease in attaining technological clearances for setting up HEPs. Budgetary support has been devis­ed for flood moderation and storage hy­dro­power projects as well. Fiscal support has been granted for enabling infrastructure such as roads and bridges. For HEP projects up to 200 MW, Rs 15 million per MW has been provided and Rs 10 million per MW for projects above 200 MW.

Recent developments

The policy initiatives and intent of the industry are slowly bearing positive resul­ts, and investor and consumer interest in the hydro space has been renewed. Re­ce­n­tly, GE Renewable Energy’s hydro­po­wer business commissioned the 180 MW Bajoli Holi project in Himachal Pradesh. Mean­while, Delhi’s Indira Gandhi Interna­tional Airport (IGIA) has signed a long-term po­wer purchase agreement with a Hi­machal Pradesh-based hydropower producing company for the supply of hydroelectricity till 2036. With this development, IGIA has become the first airport in India to run en­tirely on hydro and solar power. Fur­ther, Ta­mil Nadu Generation and Dis­tri­bution Company Limited is un­der­ta­king a feasibility study for three HEPs with a combined capacity of 2,500 MW.

In another development, JSW Neo Energy Limited, an arm of JSW Energy Limited, has signed a memorandum of understan­ding with the Chhattisgarh government for setting up a 1,000 MW hydro pumped storage project (PSP) – the Hasdev Bango PSP. Prior to this, JSW Energy Limited’s Ku­tehr project had signed a power pur­­ch­ase agreement with the Haryana Power Pu­r­chase Centre for the supply of 240 MW of hydropower. The agreement is valid for 35 years and was signed at a levellised cei­ling tariff of Rs 4.50 per kWh.

Outlook

Hydropower’s potential to not only provide clean power to the country but also add­ress the issues of renewable energy intermittency and clean balancing reserv­es sh­ould not be ignored. To accelerate the gro­wth of the hydropower industry, it is very important to facilitate low-cost financing for these projects. Efforts should be made to permanently remove the water cess for all hydro projects in order to lower the tariffs. Further, large hydropower projects should be deployed only after undertaking a comprehensive ecological and economic impact assessment. To co­un­teract the distress amongst displaced populations, it is critical for district administrations to ac­tively participate in and accelerate the land acquisition and R&R process.

Going forward, the government and the private sector must collaborate to add­re­ss concerns surrounding financing, bu­re­a­u­cratic hurdles, and social and environmental concerns to ensure the streamlined growth of hydropower in India.

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