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Renew | January 2014

Small is the new big

In the recent past, hydro power projects have been kept on the backburner due to various issues such as environmental and social issues, policy hurdles and financial constraints. However, small hydro projects (up to 25 MW capacity) do not face such issues and can be a viable source of electricity in remote hilly regions.

Small hydro projects (SHPs) have the potential to meet power requirements of remote rural areas, where the transmission of an electrical transmission grid system is uneconomical. Realising this fact, Indian government is encouraging development of SHPs in the country. According to a latest report released by Ernst and Young (E and Y), nearly 50 per cent of the potential lies in hilly states like Himachal Pradesh, Uttarakhand, Jammu and Kashmir and Arunachal Pradesh. There is sizable potential in Maharashtra, Chhattisgarh, Karnataka and Kerala. The central government has created a database of potential sites for SHPs, and has identified 6,474 such sites with an aggregate capacity of 19,749 MW.

The SHP programme in India is essentially driven by private investment. The government has attracted private sectors to participate in SHPs by focusing attention on states with higher potential, interacting more closely with them, monitoring all projects and reviewing the policy environment. In line with the government's efforts, 24 states have called upon private players to set up SHPs and have announced buyback rate for the purchase of power from renewable energy projects. In cumulative terms, 967 SHPs, aggregating to 3,632 MW (as on 31 March 2013), have been set up in various parts of the country. Of these, 329 private SHPs with an aggregate capacity of 1.748 MW have been set up. In addition, 327 projects of about 1,250 MW are in various stages of implementation.

Electrifying remote areas
SHPs are typically not faced with challenges such as deforestation and resettlement associated with large hydel projects. More importantly, SHPs have the potential to meet the power requirements of remote and isolated areas with very low load densities. The Ministry of New and Renewable Energy (MNRE) is implementing the project Ladakh Renewable Energy Initiative to minimise dependence on diesel in the Ladakh region and meet power requirement through local renewable resources. The project envisages setting up of 30 small/mini hydel projects in Ladakh with an aggregate capacity of 23.8 MW at a total cost of Rs 266 crore.

The ministry is also implementing an electrification project worth Rs 550 crore in Arunachal Pradesh through the completion of ongoing and installation of new SHPs and solar photovoltaic systems. Till date, 252 villages have been illuminated under this project by SHP.

Government incentives
MNRE has decided that out of the total grid interactive power generation capacity that is being installed, about two per cent should come from small hydro. This translates into about 2,100 MW capacity addition during 2012-2017. Therefore, the SHP programme is currently focused on lowering the cost of equipment, increasing its reliability and setting up projects in areas that give the maximum advantage in terms of capacity utilisation.

MNRE is also laying special emphasis on promoting the use of new designs of water mills for mechanical and electricity generation and on setting up of micro hydel projects. Special programmes are being developed in collaboration with states to adopt an area-based approach and involve local organisations such as water mills associations, cooperative societies, registered NGOs, local bodies and state nodal agencies. MNRE is also providing Central Financial Assistance (CFA) to set up small/micro hydro projects both in the public and private sectors.

Low private investment
Private investment in the segment is low, as interest rates are high (this makes debt financing expensive). Moreover, though the market does have high growth potential, it is currently undeveloped and riskier than its counterparts.

Execution and evacuation challenges
SHP has still not been tapped to its full potential. Water is a state subject, therefore, the implementation of the SHPs is governed by state policies, and potential sites are allotted by state governments to private developers. The process of allotment and getting a number of statutory clearances is often time consuming. SHP has a longer gestation period than other renewable sources, due to a difficult terrain and a limited working season. It also faces the challenge of lack of reliable hydrological data. Lack of adequate inter grid connectivity also poses an obstacle for the evacuation of power.

Key takeaways

  • SHPs present a clean and affordable solution for the electrification of remote areas of India.
  • Private sector investments are likely to increase, driven by government incentives.

Key challenges
  • Remote or difficult terrain and small project size impact project economies adversely.
  • The pace of implementation of SHPs is slow because of delays in acquiring land and obtaining clearances and approvals.
  • Inadequate grid connectivity also poses a challenge.

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