The need to increase the share of hydro power in the country’s energy mix is being driven by the ambitious climate targets set by the government. Apart from being classified as a renewable and clean energy source, hydro power has the potential to be used as peaking capacity to facilitate the integration of more intermittent sources of renewable energy and provide effective means of energy storage. In fact, discussion on the greater uptake of pumped storage projects (PSPs) has taken centre stage as the technology helps in load levelling, peak load sharing and managing the stability of the electricity grid in times of erratic demand and supply. With India committed to meet 50 per cent of its energy requirements through renewable energy by 2030 at the COP26 summit at Glasgow, hydro power could see a greater push from the government and developers. However, the segment growth has been tardy owing to factors such as the long gestation period of hydroelectric projects (HEPs), geological issues, rehabilitation and resettlement issues, local resistance, delays in obtaining environmental clearances, limited offtakers, and time and cost overruns. The government has, however, been working on addressing these hurdles and ensuring that the competitiveness and economic viability of hydropower projects is maintained.
Current status
As per the Central Electricity Authority’s (CEA) National Electricity Plan 2023 (Volume 1, Generation), the total hydroelectric power potential in the country has been assessed as 84,044 MW (at 60 per cent load factor) from a total of 845 identified HEPs. The total energy potential is 600 billion units (BUs) per year. However, the full development of India’s hydroelectric potential, while technically feasible, faces various issues such as water rights, resettlement of project-affected people, and environmental concerns. As of May 31, 2023, the installed capacity of HEPs (above 25 MW) in the country stood at 42,104.55 MW. Meanwhile, hydro plants with an installed capacity of up to 25 MW are categorised as small hydro. Small-hydro plants have a power generation potential of around 20 GW. As of June 30, 2023, the total installed capacity of small hydro was 4,959.05 MW. According to the NEP, hydro imports from neighbouring countries till 2021-22 stood at 2,136 MW, and are likely to reach 3,720 MW during 2022-27.
PSPs are expected to play an important role in providing peaking power and maintaining system stability in the power system. It is a long-term technically proven, highly efficient, environment friendly and flexible way of energy storage. The key benefits of PSPs are availability of spinning reserve at a negligible cost to the system and regulating grid frequency to meet sudden load changes. Furthermore, it can provide ancillary benefits such as flexible capacity, voltage support and black start facility. The concept of off-river PSP is gaining traction due to its lower capital cost. Currently, India is exploring off-river storage systems which can be executed with lesser cost and at a faster pace. As on May 31, 2023, the PSP-based installed capacity in the country was 4,745.6 MW with eight projects in operation.
Recent policy impetus
A key recent policy impetus came in December 2022, when the Ministry of Power (MoP) issued an order for the waiver of interstate transmission system (ISTS) charges on transmission of electricity generated from new hydropower projects for which construction work has been awarded and a power purchase agreement (PPA) has been signed on or before June 30, 2025. The waiver is applicable for 18 years from the date of commissioning of the hydropower plants. The waiver will be allowed for ISTS charges only and not for losses.
Later, in April 2023, the MoP released the guidelines for promoting PSPs. This policy is in line with the finance minister’s budget speech in February 2023, which mentioned the creation of a separate framework for developing PSPs in the country and the issuance of guidelines for executing these projects. The proposed guidelines include suggestions such as market reforms to incentivise ancillary services provided by PSPs, exemption of PSPs from free power obligations and rationalisation of environmental clearances for PSPs. As per the guidelines, the state government may award PSP project sites to developers through a competitive bidding process and on a nomination basis to central and state PSUs.
Issues and challenges
While hydro power remains an attractive source of clean energy, its development entails a number of challenges. Several under development HEPs are struggling with time and cost overruns. These include delay in environmental and forest clearances, infrastructural constraints at site due to difficult project terrain, geological surprises resulting in change in design, stoppage of work, damage, and remobilisation of resources.
As HEPs are site specific and their tariffs depend on location/design parameters and high initial investment, the tariff for new HEPs is relatively higher, which makes the despatch of power from new projects through long-term PPAs difficult. Specific to PSPs, a major drawback of the current pricing mechanism is that it does not take into account the grid flexibility aspects of such projects and because of the generic pricing mechanism, PSPs are not utilised to full capacity. Some of the other issues are restriction on the entry of CPSEs by a few states, and the dependence on a few contractors.
The benchmark capital cost of HEPs has been rising on the back of the rising cost of inputs such as steel, aluminium and cement. The capital cost has increased gradually over the years. During 2021-22, the capex cost and O&M fixed cost per MW for hydro and PSP was assumed to be Rs 60 million-Rs 200 million per MW; 2.5 per cent of capex and Rs 30 million-Rs 80 million per MW; 5 per cent of capex, respectively. Going forward, according to the NEP 2023, the capital cost for small hydro and PSP will increase from Rs 66.7 million per MW and Rs 51.3 million per MW, respectively, in 2022-23 to Rs 84.4 million per MW and Rs 64.9 million per MW, respectively, in 2031-32.
Future outlook
As per the CEA, at present, 13,867.5 MW of HEP capacity is under construction. However, 1,156 MW of under-construction capacity has been held up, and capacity yet to be taken up for construction is 76,282 MW. Meanwhile, HEPs at the survey and investigation (S&I) stage are of 21,208 MW capacity. Although, 6,944 MW of capacity has been allotted for development, S&I has been held up or is yet to be taken up. Projects getting held up and subsequently delayed is a key issue and needs to be resolved.
As per the NEP 2023, it is projected that the installed hydro power (excluding 5,856 MW of imports from Bhutan and Nepal), PSP and small-hydro capacity will reach 62,178 MW, 26,686 MW and 5,450 MW by the end of 2031-32, contributing to nearly 6.9 per cent, 3 per cent and 0.6 per cent, respectively, of the total installed power capacity. In addition, the likely gross generation from hydro power (including generation from hydro imports) in 2031-32 is likely to be 246.2 BUs, contributing to 9.2 per cent of the total generation. Going forward, the total fund requirement during 2027-32 for hydro, PSP and small hydro will be Rs 1,297.77 billion, Rs 752.4 billion and Rs 16.69 billion, respectively.
In order to accelerate the development of HEPs, the segment needs to overcome the various challenges. Financial incentives, along with policy and regulatory support from the central and state governments, need to be developed to enhance investor confidence. It is also important to develop a pricing mechanism for each service that pumped storage offers.
In the backdrop of India’s ambitious emission targets and the recent net zero commitment by 2070, hydro power is likely to be an active segment in the country’s renewable energy sector. Further, the Covid-19 pandemic has demonstrated the significant role that hydro power can play with respect to pumped storage through better load management during periods of fluctuating demand. Therefore, a revival in impetus to hydropower can be expected, with a special focus on pumped storage hydropower in the coming years. If developed sustainably, hydro power can not only maintain its competitiveness but also simultaneously complement solar and wind energy as a reliable source of energy storage. The competitiveness, however, will depend on the level of mitigation of the financial, environmental and social risks involved.
By Sarthak Takyar
