Hydropower is at the forefront of India’s path towards sustainable energy, playing a crucial role in balancing the integration of intermittent renewable sources such as solar and wind. As these sources grow, hydropower becomes increasingly indispensable for peak load management, system regulation and energy storage, ensuring grid stability. Recent modifications to the hydroelectric projects (HEP) scheme by the union cabinet further demonstrate the government’s renewed support, which could reshape the sector’s future.
India’s energy transition is at a critical juncture, where rapid sustainable economic growth must be balanced with the need for decarbonisation. To this end, hydropower will play a key role in a renewable-dominated grid. Its ability to provide essential services such as peak load management, system regulation, energy storage, grid stabilisation, voltage control and frequency regulation is crucial as intermittent wind and solar generation become more prominent. The sector is evolving with a focus on modernisation, digital integration and asset management, enhancing its relevance in India’s clean energy mix.
Among hydropower’s greatest strengths is its ability to store energy, particularly through pumped storage hydro (PSH) projects. PSH offers long-duration storage, which is critical for managing the daily and seasonal fluctuations in renewable energy output. This technology prevents the curtailment of excess wind and solar power, enhancing grid flexibility and resilience. With its rapid ramping capabilities – moving from idle to full output in minutes – PSH ensures grid stability during periods of low renewable generation, making it a crucial element in India’s goal of achieving 500 GW of non-fossil fuel capacity by 2030. PSH is set to be a game changer in reducing reliance on fossil fuel-based peaking plants and ensuring the resilience of a low-carbon grid. It offers a cost-effective solution for long-duration storage and is poised to surpass battery storage in terms of scale and cost efficiency.
The transformation within the hydropower sector opens significant opportunities for stakeholders, including technology providers, contractors, developers and investors. The renewed government focus on hydropower, along with the growing importance of PSH, provides a robust platform for investors and stakeholders to drive India’s decarbonisation efforts while addressing the demand for energy security and grid stability. Hydropower’s unique flexibility and storage potential make it the backbone of a future-proof, low-carbon energy system capable of managing the variability of renewables.
Well-designed hydropower projects present a significant opportunity for sustainable energy generation, but their success depends on an informed approach by planners, investors and stakeholders. The effectiveness of a hydropower project depends largely on site-specific factors and the overall design of the power scheme, with key considerations including head and flow rates. Key classifications include run-of-the-river projects, reservoir (storage) schemes and pumped storage schemes, each serving unique roles in energy generation and grid stability.
Current landscape
India’s hydropower sector is a key pillar in the country’s path towards a clean energy transition, driven by a renewed focus on asset management, modernisation, digitalisation and pumped storage projects (PSPs). This focus presents substantial opportunities for technology providers, contractors, operators, developers and investors. The Indian renewable energy sector is uniquely placed to drive low-cost, rapid decarbonisation across the economy.
According to the Central Electricity Authority, India’s exploitable large hydropower potential stands at 133,410 MW, while its identified pumped storage plant (PSP) capacity stands at 176,280 MW. Despite the significant potential, only 35 per cent of large hydropower capacity has been utilised, with the current installed capacity at 46,928 MW, accounting for approximately 11 per cent of the country’s total power generation capacity. Over the past decade, 24 HEPs, including PSPs with a combined capacity of 15,569 MW, have been approved. Additionally, 17 HEPs totalling 11,376 MW and 44 PSPs with an aggregate capacity of 60,050 MW are under survey and investigation for detailed project reports.
Hydropower additions have been relatively modest in recent years, with only 1,229 MW added between 2019 and 2024. In 2023-24, erratic rainfall and natural disasters led to a 17.76 per cent drop in hydropower generation, reducing its contribution to the energy mix from 11 per cent to 9 per cent. The impact was particularly severe in regions like Himachal Pradesh, north India and the Northeast, where flash floods disrupted construction and operations severely.
Small-hydro projects (SHPs), projects with capacities below 25 MW, present another area of untapped potential. Despite an identified potential of 21,133 MW, less than 23 per cent has been utilised, with the installed SHP capacity at 5,070 MW as of August 2024. Operational challenges have also contributed to a 15 per cent reduction in SHP output.
The variability of river basin hydrology, coupled with natural disasters, exacerbates the challenges faced by the hydropower sector. Nonetheless, hydropower remains a crucial component of India’s strategy to meet peak electricity demand, with plans to add 10,462 MW of large-hydro, 352 MW of small-hydro and 5,120 MW of PSP capacity by 2026-27. By 2031-32, an additional 9,732 MW of large- hydro, 250 MW of small-hydro and 45,640 MW of PSP capacity has been planned.
These developments are crucial to meet peak demand and bolster grid stability, with PSPs poised to improve resilience against intermittent renewables.
Policy developments
The Indian government has introduced a series of policy initiatives to accelerate hydropower development, addressing challenges that have hindered its progress. In March 2019, the union cabinet approved key measures, including classifying large hydropower projects (over 25 MW) as renewable energy sources, introducing hydropower purchase obligations (HPOs), and implementing tariff rationalisation. Additionally, budgetary support was provided for flood moderation in storage hydropower projects and enabling infrastructure like roads and bridges, critical for projects in remote hilly regions.
In April 2023, the Ministry of Power (MoP) further bolstered the sector by issuing guidelines to promote PSPs for grid stability, offering peak demand support and ancillary services. A significant policy shift occurred in May 2023 with the extension of the interstate transmission system (ISTS) charge waiver to PSPs, incentivising projects with construction awarded until June 2028. This policy encourages rapid PSP development.
Historically, the government has undertaken measures such as the National Electricity Policy, 2005, the National Tariff Policy, 2016, and the Right to Fair Compensation and Transparency in Land Acquisition Act, 2013, to enhance hydropower viability. In January 2021, the HPO trajectory was introduced, outlining targets for hydropower purchases from 2021-22 to 2029-30.
Recognising hydropower’s strategic role in India’s renewable energy transition, the union cabinet in August 2024 approved the revision of the HEP scheme. The revised scheme includes a budgetary allocation of Rs 124.61 billion to support additional infrastructure such as transmission lines, railway sidings and communication systems, aiming to expedite project execution, particularly in remote areas. Additionally, it approved central financial assistance for the north-eastern state governments to participate in hydropower projects through joint ventures, with a budget of Rs 41.36 billion to support up to 15,000 MW of capacity. This assistance, set to be implemented from FY 2025 to FY 2032, is expected to boost investments and employment in the sector while supporting the country’s clean energy goals.
Economic and social impact
Beyond its technical advantages, hydropower, including PSH, brings significant economic and social benefits, particularly to regional and rural areas. These projects create substantial employment opportunities during construction and operation, stimulate local economies and enhance infrastructure. They also provide essential ancillary services such as flood control, irrigation and water supply, which are crucial for agricultural productivity and climate resilience. PSH projects further enhance the energy system by storing excess renewable energy, reducing wastage and offering reliable backup power during peak demand and extreme weather. Beyond electricity generation, hydropower plays a critical role in water resource management, supporting flood control, irrigation and drinking water supply. As climate change impacts water reliability, the role of hydropower in managing these resources becomes increasingly vital.
Modern hydropower projects are increasingly incorporating environmental safeguards, such as advanced turbine technologies, river ecosystem restoration and sediment management, to mitigate ecological impacts. These innovations aim to maximise hydropower benefits while minimising disruptions to ecosystems and communities.
Key challenges
The hydropower sector faces significant challenges despite its potential benefits. Hydropower projects are capital-intensive and have lengthy development timelines. Many of India’s existing hydropower assets require modernisation to meet the evolving demands of a renewable-rich energy grid. The integration of digital technologies and modernisation of ageing infrastructure are critical to improving operational efficiency and ensuring long-term sustainability.
Issues related to environmental and water rights continue to delay projects, with large-scale developments often raising concerns about their impact on biodiversity and local ecosystems. Social challenges, such as resettlement and rehabilitation, further complicate project execution, particularly in regions where large hydropower projects displace local communities. Geological uncertainties, leading to cost overruns and delays, also persist as significant risks.
PSPs are not always treated distinctly from conventional hydro projects, resulting in slower clearances and implementation. The sector lacks harmonised policies tailored to its unique needs and project allotment processes are often opaque and inconsistent. States’ control over water resources and inconsistencies in project approvals exacerbate delays, while issues such as varied charges and concession periods add to the complexity.
Commercial and market mechanisms need refinement as well. They currently lack adequate compensation and face a need for more robust market mechanisms, including the development of ancillary services markets and flexible pricing. Extending ISTS transmission charge waivers and addressing economic competitiveness through tax concessions and long-term financing will further support the sector.
Solving the technical challenges to establish a reliable hydropower scheme may seem complex, but engineering issues are only one part of the equation and may even be relatively straightforward compared to some of the broader issues and risks affecting a project’s success or failure.
Risk and mitigation
Every infrastructure development inherently involves uncertainties and risks, arising both from the nature of the development and its execution and financing. Effective risk management requires proactive measures and meticulous planning.
In build, own, operate, transfer projects, decision-making is complex. Developers must evaluate feasibility against critical success factors, define risk-sharing scenarios, integrate risks into cash
flow analyses and devise robust risk mitigation strategies.
Hydropower and PSH projects, being site-specific and involving significant investments and long timelines, face diverse risks including economic, environmental, social, geological, regulatory, political, technological, financial, climate-related, natural and safety challenges. Proactive risk management is crucial to prevent delays, cost overruns and project failures.
Inadequate site investigations or poor design decisions can result in significant complications. The construction phase, marked by high costs and uncertainties, requires incorporating risk analysis into cost estimation and reserving additional financial resources for unforeseen issues. Effective risk management is vital for investors and policymakers, aiding in the achievement of project goals through careful planning, execution and evaluation. Performance guarantees and rigorous monitoring during construction can help mitigate this risk.
The reliability and performance of turbines, generators and other critical equipment are crucial for the efficient operations of HEPs/PSPs. Employing reputable suppliers, conducting thorough equipment testing and quality control, and implementing maintenance programmes can mitigate equipment reliability risks.
HEPs/PSPs rely on digital control systems, making them vulnerable to cyber threats. Implementing robust cybersecurity measures, including network segmentation, access controls and regular vulnerability assessments, can help mitigate cyber risks.
Collaboration among developers, experts, agencies, investors and stakeholders is key. Each project must undergo a tailored risk assessment to ensure sustainability and alignment with clean energy objectives.
The way forward
To ensure the success of hydropower projects in both the short and long term, it is crucial to integrate climate resilience into their design. This involves employing advanced hydrological modelling that combines historical data with future projections to address potential climate impacts on rainfall, inflows and water availability. Projects must be adaptable to variations in climate, including both reduced and increased water resources.
The modernisation and digitalisation of existing plants are also essential for improving efficiency and flexibility. Despite recent policy advancements, further steps are needed to provide regulatory clarity and financial support. Streamlining project approvals, implementing clear policy frameworks, securing long-term power purchase agreements and introducing financial incentives are critical for attracting private investment and ensuring the successful development of hydropower projects.
The projects should receive expedited clearances, and government efforts to streamline legal and regulatory processes must be effectively implemented. This includes adhering to standardised checklists, addressing staff shortages and setting up institutional mechanisms to prevent bottlenecks. Clear delineation of responsibilities among clearance agencies and the establishment of investment boards can facilitate private sector involvement and enhance project execution.
India must address existing challenges with sustained government support and strategic planning. To fully harness hydropower potential, a comprehensive approach is necessary. This includes enhancing policy support by simplifying regulatory processes and offering incentives, improving water management through sustainable strategies and state coordination, and fostering public-private partnerships to accelerate development. Additionally, focusing on small-hydro and pumped storage projects, along with investing in technical expertise and innovative technologies, will further optimise project outcomes and support economic growth while advancing clean
energy goals.
With significant untapped potential, the sector can play a crucial role in achieving the country’s energy security and renewable energy targets. The recent policy changes and project developments offer a positive outlook, but the sector’s growth will depend on addressing the existing challenges and ensuring sustained government support. By focusing on strategic expansion, innovative solutions and effective water resource management, India can fully harness the power of its rivers to fuel a sustainable and resilient energy future.
By Abhishek Swarnkar, Head (BD) – Hydro and PSP, EDF India
