Yogesh Daruka, Partner- Hydropower, PwC India talks about India's evolving power generation landscape and the opportunity for hydropower.
The planned renewable capacity target of 175 GW by 2022 to enable our COP21 commitment and 'Power for All' program poses significant challenges of balancing variability and intermittency in the grid. Solar generates power for some 8-10 hours of daylight time. On a cloudy day, peak generation in a solar plant can be as low as 15 per cent of its peak capacity. This results in significant grid imbalance which needs to be addressed to maintain grid stability.
By design, hydropower is best suited to address these concerns and cater to the specific demands of Indian power system due to its inherent characteristics:
Despite the innate benefits of hydropower, only about 30 per cent of its potential has been explored with installed capacity being ~45 GW. The proportion of large hydropower projects in relation to the total installed capacity in India has also declined to only 14 per cent of total installed capacity as on May 2017, down from 46 per cent in 1966.
Furthermore, as per the Central Electricity Authority (CEA), hydropower projects with a cumulative capacity of about 13,363 MW are stranded at various stages of project development, resulting in significant time and cost overruns (refer graphs).
Hydropower developers face multiple issues and challenges (see table: Major reasons for slippage in hydro capacity additions) which affect their ability to ensure on-time/scheduled commissioning.
The significant cost and time overruns, costs of associated social infrastructure (community development, hospitals, schools, etc.,) and enabling infrastructure (access roads, etc) shoot up hydropower energy tariffs as compared to other sources of energy. This leads to non-off-take/partial off-take of hydropower impacting viability of the projects.
Hence, there is a need to address the issues to promote responsible and accelerated hydropower development. Sustainability of the projects and the socio economic concerns should also be addressed by appropriate policy interventions.
Policy Proposal Boom
A proposal for revival of the hydropower sector through a new hydropower policy is on the horizon. Acknowledging the difficulties faced by the hydropower developers and to pave the way for hydro capacity augmentation, the Ministry of Power has recommended some initiatives to Expenditure Finance Committee (EFC) of the Cabinet which should be included in the revised hydropower policy. These recommendations, if and when implemented, can substantially spur it's development.
The scheme recommends that all hydropower projects, irrespective of it's size, should be declared as renewable energy. This practice, prevalent in many other countries e.g. UK, Australia, will make hydro projects eligible for all benefits currently available to renewable energy projects ('must-run' status, exemption of interstate transmission charges, lower cost of funds on account of priority sector lending).
A hydropower purchase obligation (HPO) under the current mandated non-solar renewable purchase obligations (RPO) has also been suggested in the scheme. However, as the non-solar category includes other sources of energy like wind, biogas etc, this may not promote significant off-take from hydropower. Rather a separate HPO in line with solar RPO is needed to promote off-take from hydro.
In order to commission stalled projects, the scheme proposes an interest subvention of 4 per cent during construction (maximum of seven years) and three years post commercial operation date (COD) for projects to be commissioned within the next five years. The funding requirement of Rs 16,709 crore is expected to be sourced from a separate Hydropower Development Fund (HPDF). This is a welcome step as it will help reduce financial burden on projects (both public and private), make tariff more competitive and enhance attractiveness for off-takers. One will hope to see concerted action to form and operationalise the HPDF.
The capital requirement and relatively longer gestation period of hydro projects necessitates specialised financing mechanisms. The Government proposes to engage with various lenders and financial institutions to modify lending terms and make it more suitable to hydropower characteristics. This again is a welcome measure but one will hope to see concerted action on it.
The Scheme also suggests reimbursement of cost of various enabling infrastructure from appropriate funds of Central and/or state governments and exclude the cost of enabling infrastructure for purpose of tariff determination. Further, necessary engagement with the Central Electricity Regulatory Commission (CERC) is proposed for rationalising other tariff parameters like depreciation, O&M expenses, etc., to help lower hydropower tariffs as well as ensure returns for investors. A lot of the provisions of the Scheme have been suggested to be applicable only for projects to be commissioned within five years of notification of the policy. However, currently there are several commissioned projects for which PPAs have not been signed with distribution licensees due to higher tariff levels. In order to avoid these assets being categorised as non-performing assets (NPAs), the government may also explore the possibility of extending the ambit of the EFC proposal to some of these projects. Other options like deferment of free power/royalty power for the initial years of loan repayment on a case to case basis can help promote many of the projects.
The EFC proposal is a good beginning to revive the categorised stranded projects. However, promoting Indian hydropower requires further policy, regulatory and market initiatives such as:
Finalisation of the long pending hydropower policy and inclusion of the key elements suggested in the EFC scheme (RE status for hydropower, HPO, HPDF, interest subsidy, etc.) will be important to promote hydropower sector in the country which has been consistently underachieving despite it being a potent source of clean energy.
I wish to start pvc / pp electric wire unit in Delhi. What kind of information I can get if I subscribe for your magazine
Pls invite me all auction in gujarat
we are doing business developing for solar power ,thermal power , customer supporting and we have 45 mw splar power on hand needs investors.....
pls call +910842559230