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Feature | May 2015

Hydro power yet to take off

Major reasons behind the slow pace of development include varied factors like inaccessible remote sites, poor infrastructural facilities for power evacuation, land acquisition problems, environment and forest issues.

With increasing demand for electricity and rising gap between the demand and supply situation in India, there is an urgent need to tap all possible energy resources. Hydropower leads the list for various reasons. India is endowed with rich hydropower potential, ranking fifth in terms of usable potential in the world. We have 36 GW of installed hydro¡power capacity and an additional 13 GW is under development. In other words there is a huge capacity that is yet to be tapped. In addition, hydropower plants have the ability to respond quickly to demand fluctuations, can start up and shut down quickly and economically, and also have long and productive lives, which significantly help reduce the capital costs over time. It is also a renewable and eco-friendly source as compared to other sources as they do not emit carbon dioxide or sulfur dioxide given off by fossil fuel fired power plants, nor is there any risk of radioactive contamination associated with nuclear power plants. These factors have reportedly led to renewed interest in hydropower development in the country, which in fact accounted for 44 per cent of India´s power generation in 1970, compared to today´s 20 per cent.

Even this meager target was possible only because the projects which were easier to execute were targeted in the early phase of development, points out VK Kanjlia, Secretary, Central Board of Irrigation and Power, ´Hydro electric projects which were easily accessible with better communication facility, infrastructure and less geological and environmental problems and multiple benefits like comparatively less cost involvement and completion time etc., were tapped in the early phase, which constitutes the 20 per cent development achieved so far.´

Government Initiatives
The Indian government has over the years taken several initiatives to prioritise hydropower development like the New Hydro Policy of 2008, which provides for transparent bidding, extension of cost plus tariff regime, earmarking of one per cent free power from every hydro-power projects for Local Area Development Fund, etc. Besides, Foreign Direct Investment (FDI) up to 100 per cent is permitted in the power sector (including hydro), under the automatic route for generation, transmission, distribution and trading. In addition, several committees were constituted, like the Power Project Monitoring Panel - to independently monitor the progress of hydro projects, the Task Force on Hydro Power Development - to resolve issues like rehabilitation and resettlement (R&R) of project affected persons (PAPs), the Inter-Ministerial Group (IMG) - to evolve a suitable framework to guide and accelerate the development of hydropower in the North-East region etc.

However, despite all these efforts, hydro power development has been on the slow track. In the 11th Five Year Plan, though the target for hydropower addition was set at 16.5 GW, only 5,400 MW was added. In the earlier plan periods too, the set targets were not achieved. To accelerate the growth of hydro power, it was opened to private participation in 1991. However, this too failed to have much impact, with private sector contributing only about 11.5 per cent of the total capacity addition between 1991 and 2012.

Hindering Impediments
Various factors like inaccessible remote sites, poor enabling infrastructural facilities for power evacuation, land acquisition problems, environment and forest issues, R&R issues, law and order situation, geological and hydrological difficulties, delayed government approvals and inter-state disputes etc., are often cited as the major reasons behind the slow pace of development.

´Some of the typical challenges a private developer faces in setting up a hydroelectric plant are long gestation period of construction on account of various reasons. We do have a number of successful hydroelectric projects, but we also have large projects which have taken several years to complete,´ states Anil Sardana, Managing Director and Chief Executive Officer, Tata Power.

Yogesh Daruka, Director - Energy & Utilites, PWC India seconded this view, ´Some of the key issues include delay in getting clearances and approvals, R&R issues, land acquisition problems, challenges in financing, implementation capability of developers etc. According to CEA (Central Electricity Authority of India), as of September 2014, 49 hydropower projects (above 25 MW) are stalled due to various reasons. Furthermore, water in India is a state specific subject and each government has adopted varying policies (upfront premium, royalty power, land acquisition policy) which has also had an impact on hydropower development.´ A large number of hydropower projects with common river systems between adjoining states are also held up due to a lack of inter-state agreements and disputes on water-sharing. The Sutlej-Beas dispute (Punjab and Haryana) and the Mullaperiyar dam conflict (Kerala and Tamil Nadu) are some typical examples.

Even so, small hydro projects (SHPs) which do not have repercussions of larger ones can still play a critical role in improving the overall energy are also facing similar problems, says BK Bhatt, Director, Ministry of New & Renewable Energy (MNRE). ´The projects involve time consuming process for allotment of sites by the states and statutory clearances including land acquisition, forest clearance, irrigation clearance etc. The SHPs have relatively longer gestation period in completing due to difficult terrain and limited working season. In addition, the location of the projects are in remote areas and the evacuation facilities for power generated from projects are very weak,´ he said.

MNRE is responsible for development of SHPs upto 25 MW station capacity and provides Central Financial Assistance (CFA) to facilitate setting up SHP projects in the states. However, it has no say in the allotment or setting up of these projects. ´The decision of setting up SHP projects or its allotment is taken by the state governments. The expression of interests/proposals/bids from private developers are invited by them and techno-economic clearances, approvals etc. are also provided by them. We have no role in this,´ avers Bhatt.

Some of the projects stalled currently due to land acquisition, R&R, environmental issues and local agitations are the 2,000 MW Subansiri Lower (Arunachal Pradesh), the 130 MW Kashang II & III (Himachal Pradesh), the 60 MW Pallivasal (Kerala) and the 400 MW Maheshwar Project (Madhya Pradesh). In the past too, several projects like the Sardar Sarovar, Indira Sagar and Tehri Dam were delayed for the same reasons. Environmental Impact Hydro-electric power plants too have many environmental impacts. For example, large dams across rivers apart from altering the character of the river, can affect fish and wildlife populations, and also cause floods leading to displacement of PAPs.

´A hydro project can have a greater environmental impact and is more sustainable to generate the same megawatt of energy through efficient thermal power generation. However, hydro projects can also be unreliable during prolonged droughts and dry seasons,´ maintains Sardana. Tata Power has an installed hydro capacity of 576 MW in Maharashtra. In addition, Tata Power and Norway-based SN Power entered into an exclusive partnership to develop hydro power projects in India and Nepal. The consortium bagged the ´240 MW Dugar Hydro Electric Project´ in Chenab Valley in Himachal Pradesh and is also developing hydro projects in other countries.

Evidently the traditional approaches of setting up hydro projects have disadvantages due to environmental impacts. But there are alternative solutions. States Kanjlia, ´Under ground structures of tunnels, surge shaft, penstocks, power houses etc. can be provided by designing them suitably in place of open channels, surface power houses and surface penstocks etc. Many problems like forest/ environmental clearances, land acquisition, disturbance to environment etc., can be thus either avoided or minimized. EIA as well as EMS problems will also be reduced. Moreover technology for designing such structures as well as manpower, material and machinery are available in India.´

Funding Funda
Due to all these natural and manmade impediments, the risks involved in these projects have been high. As a result, many financial institutions have been reluctant to fund them. Additionally, hydropower development needs long tenure debt (20 years or more) availability, which is limited in Indian capital markets. The constrained financial situation of the distribution sector which is the end user of the power generated also often pose counterparty risks for developers and lenders. Industry professionals opine that the government should take additional initiatives like creating special hydropower financing schemes, provide loans to power utilities at a subsidised rate of interest, provide attractive incentives and tax benefits etc.Daruka lists out some of them, ´Hydropower projects are capital intensive with long gestation period which increases risk for investors/financial institutions. This issue can be addressed by providing policy and regulatory measures for enhancing hydropower attractiveness, streamlining clearances and land acquisition, differential tariff, promotion of hydropower purchase obligations, adequate incentives like tax holiday especially at the early stage of project etc. To meet the capital requirements of these projects, measures like creation of hydropower funds (with funding from tax exempt bonds, multilaterals etc), funding from green funds, partial risk guarantee mechanism by multilaterals, mezzanine and takeout financing could be explored.´

Private Participation
Due to these risks, response from private players has been lukewarm. Since private sector involvement is critical to the progress of hydro power development, several measures have been suggested by industry pundits.´Streamlining of all clearances and acquisition procedure, adequate transmission infrastructure for evacuation of power generated from the project, appropriate policy and regulatory mechanisms to ensure attractiveness, proper benefit sharing mechanism with PAPs, provision for innovative financial options like tax exempt bonds, green funds to facilitate developers in funding of the projects, adequate incentive mechanism (tax holiday, custom duty exemption etc.) to improve the bankability of the project etc. are required to attract the private sector,´ adds Daruka.

Even the SHP sector is not attracting many private players since project costs have gone up and tariff given to the power generated from SHP projects is no longer attractive reveals Bhatt.

´The cost of constructing SHPs are continuously increasing and the tariffs offered by states is not sufficient to justify fresh investments in the sector. The present cost per megawatt (MW) of SHPs now range between Rs 8.50 crore and Rs 10 crore per MW. A number of small hydro developers were dependent on sale of Renewable Energy Certificates (RECs) generated from SHP projects in the open market. However, non-compliance of RPOs by the distributing companies has truncated the REC market. These issues have to be addressed systematically as a faster growth in the SHP sector is possible only with active participation of the private sector,´ he noted.So far, there are 1,032 SHPs aggregating to 4,055.36 MW and the 12th five-year plan target is to add another 1,600 MW. During the first three years of the 12th Plan, a capacity addition of 775.68 MW has been added and about 70 per cent of this came from private sector projects.

´Our aim is to double the current rate, increase it to 500 MW per year and achieve a total installed capacity of 5,000 MW by the end of 12th Plan. It is also proposed to harness about 50 per cent of the SHP potential in next 10 years,´ reveals Bhatt. Challenging Future No doubt the hydro power segment has a challenging future ahead with several road blocks to surmount. But the barriers are not unbeatable and can be mitigated with right measures aver industry professionals. Streamlining clearance processes, land acquisition modalities, favourable tax treatments, proper coordination between Central and state government agencies, proper inter-state agreements for water sharing to avoid disputes, developing enabling infrastructure, transparent methods of allocation of hydro sites to developers, involvement of and benefit-sharing with PAPs, are some of the measures suggested. ´It is advisable to engage in detail with stakeholder communities during advance stages of setting up a project in order to resolve R&R issues. The government should also look into the R&R directly and inform developers in advance of what is required of them for the project. This might help in reducing delays while successfully,´ opines Sardana.

Adds Daruka, ´A concentrated national level effort is the need of the hour to address safeguard issues, financing requirements, development models and promoting appropriate commercial/regulatory mechanisms to ensure adequate returns for investors for promoting hydropower growth.´ The future for hydro power be it small or big is evidently bright if the right measures are taken at the right time.

´Environmental concerns are mainly about the impact of dam construction´
What are the barriers to setting up Small Hydro Projects (SHP) in remote areas and hilly states? How can they be resolved?

The major barrier is the difficulty faced during survey and investigations, which are carried out to estimate the hydro potential at the selected site. This process includes head measurement, discharge estimation and geology investigations of the site and the remote location coupled with poor accessibility is a major hurdle in conducting proper investigations leading to difficulty in estimating the potential plant capacity.

Due to non-availability of accurate discharge data the techno-economical evaluation also often becomes inaccurate. Geological surprises, especially in the Himalayan region, is another major issue causing project delays and cost overrun. Furthermore, inadequacies in tunneling methods, delay in land acquisition, law and order issues, lack of power evacuation infrastructure and non-availability of transport and storage materials and tariff related issues are some of the other barriers in setting up of SHP.

These issues can be resolved through conclusive policies made by respective state governments, appointment of good professional organizations for survey, and investigations, proper coordination between the developer, technical organization and local peoples´ organization . State governments should also speed up the process of allotment to the developer and introduce faster clearance mechanisms.

What are the environmental concerns with regard to SHPs ?
The environmental concern are mainly about the impact of dam construction on the surrounding ecosystems and marine life, the effects of diverting the water on its existing utilization, on irrigation and on the lives of the people living there. These issues can be addressed suitably if the available guidelines are strictly adhered to by the developer on various issues including water flow/release, muck disposal etc.

What measures should be taken by the government to attract more private players to develop SHPs?
Firstly, the State governments should have fast mechanism for site allotment, monitoring and appraisal. They should set up institutional mechanism so that project developers can get technical and statutory support for speedy implementation of the project. There is a need to discuss the difficulties faced by the developers in the past and ways to alleviate them.

State governments should also initiate action to lay transmission line in areas where there are none, so that power evacuation is not a problem once the plant is ready to generate electricity.

What has been AHEC´s contribution?
AHEC was set up by the Ministry of New and Renewable Energy (MNRE) in 1982 to focus and boost the development of SHPs in India. It is an exclusive academic center of IIT Roorkee and is recognized as the National Resource Centre for Small Hydropower. AHEC offers technical support to the public and private sector for their SHP projects and plans (over 500 MW) and has prepared the National Standards/Code of Practices for SHP development. AHEC imparts knowledge and training at all levels and on all aspects of SHP development and also offers M.Tech and Ph.D. programmes in SHP, specialized for multi-disciplinary areas.

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