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.
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.
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.
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.