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Interaction | November 2017

Hydro will help balance inherent variability in renewable

<span style="font-weight: bold;">Yogesh Daruka, Partner- Hydropower, PwC India</span> <p></p> <p> <span style="font-weight: bold;">What are the advantages of Hydro power vis-a-vis other sources of energy? In terms of tariffs how is it stacked up against renewable sources of power?</span><br /> The Indian power sector is undergoing a major transformation with the large scale introduction of renewables in the power mix and the ever increasing peak loads. The sector thus needs requisite capacity additions to meet the peak load demands, and also provide flexible generation sources to firmly support the variability and intermittency of renewable generation through provisioning of ancillary services. </p> <p> Hydropower, by design, is ideally suited to cater to these specific demands. In addition to being a clean energy source, responsible hydropower development provides several additional benefits in terms of irrigation and flood control, water security, catchment area development, development of social infrastructure such as roads, healthcare facilities, schools, etc. </p> <p>Off-take prices of hydro have been observed to be relatively higher when compared with solar and wind power, which recently breached the INR 3 per unit mark from above. However, a large part of this difference is due to some unique costs borne by hydro developers. For instance, solar developers do not need to provide free energy to the state in the form of royalty payments. On the other hand, hydro projects are mandated to provide 12 per cent free energy, and an additional 1 per cent free energy towards local area development. Similarly preferential GST rating for hydro equipment is at 18 per cent as compared to 5 per cent of solar equipment. Solar and wind generation projects are also exempted from inter-state transmission charges which affects the competitiveness of hydro tariffs.</p> <p> <span style="font-weight: bold;">About 6 GW of hydel capacity is said to be stranded. What are the main reasons for this and what are the available solutions?</span><br /> The identified projects, estimated to having already cost over Rs.30,000 crore, are stranded due to financial, technical, inter-state and legal issues. Our assessment of 89th Quarterly Review report of CEA, has shown that while geology, hydrology and topography issues, along with funding and cash flow problems are some of the leading reasons for slippage of development of hydro projects, local issues have also resulted in significant delays in project commissioning. The recent initiatives proposed by the government for the hydropower sector like interest subsidy, hydropower purchase obligations, classification of all hydropower as renewables (irrespective of its capacity), will help revive many of these stranded hydro assets. Further, market developments such as differential tariffs for meeting peak load requirements and expansion of existing ancillary services market can help improve the attractiveness of the hydropower sector as a whole and benefit many of these stranded assets.</p> <p> <span style="font-weight: bold;">Technology of course, plays a huge role. What are the latest technologies that can be leveraged in hydro power generation?</span><br /> Technology is a very important enabler in ensuring optimum development of the sector. Embracing technological innovation both in terms of turbine design, such as use of adjustable variable speed turbines which provide greater ancillary support, as well as in project development is required. For instance, while run-of-river hydro plants are primarily used to contribute to base load generation, recent innovations in project design has made it possible to use such plants as flexible generation sources, by combining several power plants of a cascade into one virtual generation unit. Technological innovations have also made it possible to convert existing storage and run-of-river hydro schemes into pumped storage schemes through planned upstream and downstream retrofitting.</p> <p>Similarly, it is now possible to manage storage capacities of existing reservoirs by raising dam levels, and also provide greater interconnection between reservoirs to overcome regional inflow variabilities. </p> <p> <span style="font-weight: bold;">What are the support systems that may be necessary for exploitation of hydro to its full potential? Are cheaper loans enough to revive stalled small hydro projects?</span><br /> A robust governance framework with the key enablers being inter-governmental coordination between the various state and central agencies, integrated planning and supportive institutional structures, is necessary for streamlining project development. While water is a state subject, and the electricity sector a concurrent subject, the Ministry of Power along with various state governments and departments, need to ensure sustainable hydropower development in an efficient and coordinated manner. Establishing a 'Hydropower Commission' as a nodal agency to coordinate the actions of various entities involved in the entire hydropower chain and facilitate investments in the sector may be explored.</p> <p>While cheaper loans will aid revival of both small and large hydro projects, introduction of tiered interest rate structures, restoration of exemption of tax on the interest income earned by financial institutions under section 10(23)g of Income-Tax Act, 1961 in addition to existing financial incentives can substantially help overcome project financing issues faced by hydro developers. </p> <p> <span style="font-weight: bold;">What is the hydro power potential in the country and how quickly can we exploit the full potential of this source?</span><br /> India has large hydropower reserves, with the cumulative technical and economically viable hydropower capacity estimated to be 148 GW. This makes India fifth in the world in terms of exploitable potential, after China, USA, Brazil and Canada. </p> <p>However in-spite of the large potential, as of Sep¦17, India has harnessed only 49 GW, which is only 33 per cent of its total potential. Apart from the lower penetration of hydropower, the overall pace of capacity addition has also been slow in the past decade. At present, about 12 GW of large hydro and 1 GW of small hydro capacity is under construction. Therefore, there is a vast potential for the sector. </p> <p>Keeping this in mind, the policy makers have been planning to revive the hydropower sector and guide the next phase of development, with the introduction of a 'New Hydropower Policy'. The policy will replace the Hydropower Policy of 2008. It is imperative that the emerging policy addresses the current impediments faced by the hydropower sector and align it with global trends with the introduction of measures such as greater emphasis on innovative financing, sustainability, renewable integration, etc. to enable development of India's untapped hydropower reserves.</p> <p> <span style="font-weight: bold;">According to the latest Power Ministry report, hydro power accounts for only 13.60 per cent of India's energy mix. What is the reason behind the source losing its share over the last couple of decades?</span><br /> Over the years the share of hydropower in India's overall energy mix has been steadily declining. As of Sep'17, hydropower constitutes only 15 per cent of the India's energy mix which is significantly lower from the historically highest proportion of about 46 per cent during the early 1960s. </p> <p>Multiple factors such as complex clearance and approval procedures, land acquisition issues, insufficient market depth and scope, limited availability of long term financing, safeguard issues, existing models for sharing of hydro benefits etc. have contributed to the slow pace of its development and thereby reducing the share of hydropower in India's energy mix. </p> <p>While diversification of India¦s energy mix is advisable from the perspective of energy security, the fast reducing share of hydropower is a worrisome sign for the country, considering that planned large scale renewable capacity additions would require significant hydropower/ storage capacity additions to balance renewable's inherent variability and intermittency. Hydropower is the only clean energy source capable of addressing these requirements.</p>
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