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Renew | May 2018

Hydropower: In Need of Recalibration

The share of hydroelectric segment in the energy basket is a matter of concern. <br /> Hydropower stakeholders demand concentrated efforts from the government in terms of policy and incentives to enhance capacity addition.<br /> <br /> India's dependency on hydroelectric projects dates long back. Though the country's share of hydroelectricity in the energy basket is on a decline, the share of renewable energy in the total installed capacity is on a rise. India added 11.78 GW of power from renewable sources between January and November 2017. The focus of the government has shifted to clean energy after it ratified the Paris Agreement. As India looks to meet its energy demand on its own, which is expected to reach 15,820 TWh by 2040, renewable energy is set to play an important role.<br /> <br /> Electricity generated from hydro resources is considered as the cleanest form and the first in the renewable energy sector. India stands among the top 10 hydroelectric producing countries in the world. States like Himachal Pradesh and Kerala are purely dependent on hydropower to meet their energy needs. A high hydro potential state, Jammu and Kashmir (J&amp;K), has started harnessing hydro power in the recent past. In December 2017, IL&amp;FS Financial Services partnered with Jammu and Kashmir Bank to finance nine hydropower projects in J&amp;K with a total capacity of 2,000 MW, which require financing of around Rs 200 billion.<br /> <br /> As of 31 March 2018, hydropower (including SHP) constitutes 14.5 per cent of India's energy mix, which is significantly lower than the historically high per cent during the early 1960s. The total installed renewable energy capacity (including large hydro projects) in India touched 107.81 GW as of February 2018, which is around 32.26 per cent of the total energy capacity of the country (334.15 GW).<br /> <br /> While diversification of India's energy mix is advisable from the perspective of energy security, the fast reducing share of hydropower is a challenge to be addressed, considering that our planned large-scale renewable capacity additions would require significant hydropower or storage capacity additions to balance the inherent variability and intermittency of solar and wind.<br /> <br /> Though India has many hydro high potential states, only a few have developed hydroelectric projects. According to the mapping done by government bodies, the country's hydroelectric potential is more than 150,000 MW. As of January 2018, India's hydropower installed capacity stood at 44,963.42 MW, which is a mere 30 per cent of the potential. <br /> <br /> That means, India has a large hydro potential that remains untapped. Hydro is the only power project that guarantees a life of close to 100 years or more. According to sector experts, the hydro segment requires more attention from the government. While sectors like wind and solar enjoy benefits in terms of incentives from the government, the hydro segment stakeholders raise their concern in a firm voice. <br /> <br /> &quot;The government has to extend the benefit given to other segments of electricity to hydro as well,&quot; points out <span style="font-weight: bold;">MM Madan, Chairman (Hydro &amp; Tunnelling Group), National Council on Power, The Associated Chambers of Commerce of India (Assocham).</span> He adds, &quot;The cost of the produced electricity should be comparable. Whether the base load is thermal or nuclear, peaking power is with hydro only. So hydro should be given the right kind of boost by the government.&quot; <br /> <br /> <span style="font-weight: bold;">Impediments</span><br /> In India, the hydro sector has been marred by great challenges. The sector has been at a standstill for quite some time now. Some of the projects were commissioned after a delay of 20 year. Land acquisitions, and getting environmental and forest clearances are the major challenges the projects face. <br /> <br /> <span style="font-weight: bold;">Yogesh Daruka, Partner, Power &amp; Utilities, Mining, PwC</span>, says, &quot;The key issues include delays in procuring clearances and approvals, R&amp;R issues, land acquisition issues, challenges in financing and implementation capability of developers.&quot;<br /> <br /> Further, he adds, &quot;Water in India is a state-specific subject and state governments have adopted varying policies for allocating hydropower projects (e.g., upfront premium, royalty power, land acquisition policy, etc.) which have impacted hydropower development.&quot; <br /> <br /> Daruka believes a concerted effort from policymakers is required to address issues, safeguard financing requirements, develop models and promote appropriate commercial and regulatory mechanisms to ensure adequate returns for investors.<br /> On this note, Madan adds, &quot;Delays in projects happen because of external issues. There are times when they get delayed because of technical issues as well. But that is non-comparable to the permission hurdles the developers face.&quot;<br /> <br /> He explained, &quot;People stop projects for various reasons; environmental clearances are major hurdles. Delays can be avoided if the government decides not to stop the projects once they start. They can be stringent with the process before granting permissions.&quot; <br /> <br /> He continued, &quot;Another significant challenge is PPAs and finding funding for the project. If hydropower is produced at say Rs 4, the states and the SEBs are looking at signing PPAs at Rs 2 or Rs 2.50.&quot; He points out that solar power is available at the said rate. &quot;Because of lack of PPA, the developers are not getting funding. And that leads to delays in starting the project.&quot; <br /> <br /> That is not all, land acquisition, lack of coordination between the departments, law and order issues also pose fair amount of hurdles to the developers.&nbsp; <br /> &nbsp;<br /> Transmission line and charges are also heavy issues. Blanket transmission charges are levied across the year. There are months when the plant load factors (PLF) of hydropower units have gone down, but the developers have ended up paying the same transmission charges. <br /> <br /> The list of grievances is no different from that of thermal, wind or solar segments. That leads us to the perennial question of what can bring a change to the situation. Madan explains the need for government interventions in the segment. <br /> <br /> <span style="font-weight: bold;">Recommendations to the government</span><br /> To tide over the current situation, the industry body Assocham and the sector stakeholders have recommended the government to look into three major points that can enhance hydroelectricity production in India. They are: (a) to come out with a new hydro policy, (b) to remove free power clause for hydro and (c) to extend the loan term to 40 or 45 years. They have also recommended the government to take a favourable approach to developing infrastructure in the upcoming hydro project areas, like constructing roads and establishing other connectivity.&nbsp; <br /> <br /> <span style="font-weight: bold;">...then why invest in Bhutan</span><br /> While India is fighting large issues in developing hydro projects in the country. Interestingly, it is investing heavily in Bhutan in developing hydro projects. This <br /> leaves one wondering, what is it in Bhutan that makes India invest there. The first thought that crosses one's mind is the diplomatic relations between the country and its commitment.<br /> <br /> Hydropower cooperation between India and Bhutan is governed by the Inter-governmental Agreement signed in 2006. In line with the agreement, development of three mega projects -Punatsangchhu I, Punatsangchhu II and Mangdechhu- with a total capacity of 2,940 MW were taken up by the twogovernments with target commissioning dates in 2016/17. However, with the commissioning of these projects, there have been delays leading to cost overruns and the efforts of both governments are directed towards expediting the commissioning of these projects. <br /> But Madan painted a different story. He said, &quot;There are not as many issues in Bhutan as what we face in India. There, a project can be completed within five years. In India, one cannot control the politicians or the agitating people. So it is easy to invest in Bhutan and get power here.&quot; <br /> <br /> Daruka added, &quot;With India and Bhutan celebrating five decades of friendship this year, India continues to remain actively engaged in the hydropower sector of Bhutan. Import of hydropower from Bhutan can help India meet the challenge of balancing variability and intermittency in the Indian grid at lower costs compared to developing new hydropower projects.&quot;<br /> <br /> &quot;Further, both nations plan to enhance their cooperation on hydropower development including development of the mega Dorjilung HPP (with likely participation of Bangladesh) and the giant Sunkosh project, thereby enhancing the energy security of the entire region and development of a vibrant regional power market.&quot;<br /> <br /> <span style="font-weight: bold;">Hydro till 2025</span><br /> With the rise in prices and import quantity of fossil fuel over the last few years, there have been increased efforts to harness power from all non-conventional sources of energy (including hydro) for ensuring energy security and sustainable development. <br /> Hydro is the only clean and green primary source with 100 per cent &quot;Make in India&quot; label. The hydro sector is expected to get a boost with various new initiatives planned by the government, such as a new hydro policy and the ongoing nationwide basin study to assess hydropower potential and feasibility of select projects. Further, development of pumped storage projects is expected to be prioritised in the medium term with PSPs currently enjoying the lowest lifecycle costs among various energy storage solutions.<br /> <br /> &quot;In addition to the above,&quot; signs off Daruka, &quot;hydropower will likely see an introduction of innovative and advanced construction technologies to meet the challenging construction requirements. Also, the evolution of our power market framework with incentives for peaking power and ancillary support will open a host of opportunities for developers and players who could innovatively participate in the power market.&quot; <br /> <br /> As hydropower is reliable and is used to meet the peaking power demand, Madan believes that the government should look at hybrid forms to meet the country's energy targets. As of now, hybrid is not there and it needs to be developed. The country is likely to see hybrid becoming a popular form of energy in the coming years. It is expected that by the year 2040, around 49 per cent of the total electricity generated will be from renewable sources, including hydropower.<br /> <br /> <span style="font-weight: bold;">- Renjini Liza Varghese </span><br />
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