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Cover Story | November 2017

Hydro watered down

Hydropower segment has been facing numerous impediments to its growth. However, it has come into the government focus exudes hope that it will pick up pace going ahead. <p></p> <p> India is endowed with hydropower potential of around 1,45,000 MW and at 60 per cent load factor, it can meet the demand of around 85,000 MW. This makes India fifth in the world in terms of exploitable potential, after China, USA, Brazil and Canada. However, it could exploit only around 30 per cent of the potential, having built only about 45 GW (gigawatt, is equal to 1000 megawatts) of capacity. </p> <p>Mega hydropower projects (HPPs), with plant capacity of more than 25 MW each, have a total installed capacity of 44,765 MW by end-September 2017, accounting for just 13.59 per cent of the total installed power capacity in the country, down from 46 per cent in 1966. Some protagonists of present growth pace may argue that this comparison is not sustainable because several renewable sources of power have entered the fray. Even comparing the growth of Hydropower with that of Thermal could be better - by that ratio also hydropower's share has come down to 20.40 per cent of thermal by end-September 2017 from 45 per cent in 1970. Thus, it has gained the dubious distinction of becoming the sunset segment in the power sector, consistently losing its share in overall capacity in the recent decades. </p> <p><span style="font-weight: bold;">Is this the result of the government turning the blind eye to hydropower segment? </span>That is not true. By all means, hydropower is ideally suited to cater to the needs of economies like India and that the government has recognised. It is planning to fast track construction of HPPs by facilitating more funding options for even stranded projects and introduction of a brand new policy. </p> <p>Besides having high potential in the country, hydropower operations are environment-friendly and most suitable for balancing grid in the wake of rise in generation from renewables. Hydropower's peak load factor is at 50 per cent against half of that in the case of solar and wind power. Hydropower is also called a renewable source of energy because it uses and does not consume water for generation of electricity. But that particular status is given only to HPPs below 25-MW capacity in India.</p> <p>According to a Ministry of Power (MoP) presentation recently, 18 HPPs, adding up to 6.2-GW capacity, are currently 'stalled midway'. While 592 hydro projects of total 145.3 GW capacity have been allotted across the country on the whole, only 30.7 per cent of the projects have been completed as yet. This apart, HPP developers are facing some specific issues at various stages of implementing the projects.</p> <p>'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 are under construction. Therefore, there is a vast potential for the sector,' says Yogesh Daruka, Partner- Hydropower, PwC India in an interview to Power Today. </p> <p> <span style="font-weight: bold;">Private participation</span><br /> In line with the economic liberalisation policy of the Centre, the power sector, including hydropower segment, was opened to private sector participation in 1991. </p> <p>Subsequently, over the years, to facilitate projects through the public private participation (PPP)/joint venture (JV) mode, several states have nominated a state nodal agency with the option of equity investment by state governments.</p> <p>The New Hydro Power Policy introduced by the Centre in 2008, which focuses on large hydro capacity additions, also provided a number of liberal provisions for inducing large-scale private investments in the hydropower sector. Subsequent five year plans of the Centre had allocated an increased share of target hydro capacity additions to the private sector. Beyond the 12th Five Year Plan (FYP) as well, out of the total planned capacity additions of 6,500 MW, approximately 28 per cent is expected to be developed by the private sector, PwC said in its report.</p> <p>Although these measures have resulted in increased participation of private developers in the hydropower sector, till date, only 3.2 GW has been commissioned through the private sector. This constitutes only 7 per cent of the total installed hydropower capacity as of May 2017.</p> <p> <span style="font-weight: bold;">Cost overruns</span><br /> Only 30 per cent of the hydropower potential is being harnessed in India today. Besides, several 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. And their cost overruns are estimated at about Rs.52,697 crore, said leading consultants, PwC, in a recent report prepared for ASSOCHAM titled 'Accelerating hydropower development in India for sustainable energy security'. In the MoP presentation, huge time and cost overruns were highlighted as a huge problem, citing Teesta L/D/ III, Nathpa Jhakri, Tehri and Koldam HPPs. It said that HPPs are taking double the sanctioned time and incurring more than two times the sanctioned cost in many cases.</p> <p> Recently, Rampur hydro power project implemented by SJVN Ltd has sought approval of the Cabinet Committee on Economic Affairs (CCEA) for revising the cost of its 412-MW hydropower project to Rs.4,233.21 crore from Rs.2,047.06 crore estimated based on the March 2006 price levels at the detailed project report (DPR) stage. The costliest HPP so far was commissioned in Mizoram in October 2017 after 19 years of approval in 1998. The cost of power per unit of the 60-MW Tuirial hydro electric project is at Rs.8.44, the highest in India, according to reports. This project comes on stream at a time when the state was purchasing power at the rate of `4.25 per unit from outside the State.</p> <p> <span style="font-weight: bold;">Host of challenges</span><br /> While listing the difficulties faced by HPPs, MoP highlighted that besides huge time and cost overruns, high upfront cost to establish projects, long-drawn process to get green clearances, additional cess imposed by various state governments, high tariff and reluctance of states to sign power purchase agreements (PPAs) as the issues that are currently impeding the hydroelectric power development in the country.</p> <p>High upfront cost is another bugbear and development costs of several projects have been revised upwards. For Kishanganga, Rangit IV, Teesta VI and Kameng HPPs the cost revision was in the range of 50 to140 per cent of the initial estimates. These higher development costs are resulting in higher tariffs for the power distribution companies (discoms) in the long term.</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 and existing models for sharing of hydro benefits have contributed to the slow pace of its development and thereby reducing the share of hydropower in India's energy mix, says Daruka.</p> <p> PwC in its assessment has found geology, hydrology and topography; critical electrical and mechanical works; delays in clearances; local issues, law and order problems; contractual disputes; enabling infrastructure and land acquisition as the major reasons for slippages in HPP implementation. (See table) </p> <p> <span style="font-weight: bold;">Cost-efficiency</span><br /> State distribution companies (discoms), on the other hand, are extremely reluctant to purchase hydropower because of its high tariff. With the HPPs have to start repaying their loans from the time they commence their operations, the initial repayment burden leads to higher tariff during the initial years. For example, when the Prime Minister inaugurated Chutak and Nimoo Bazgo projects in Jammu and Kashmir it was said that their tariffs will be Rs.6.33 per unit and Rs.6.26 per unit, respectively. In a recent presentation in MoP it was said that their current tariffs were at Rs.8.76 per unit and Rs.6.83 per unit, respectively. Cheaper power is available on power exchanges, highlighting the reason for the reluctance of discoms to opt for costlier hydropower. So, off-take prices of hydro have been observed to be relatively higher when compared with solar and wind power, which have recently breached the Rs.3/kWh mark from above.'However, a large part of this difference is due to some unique costs borne by hydro developers,' says Daruka. For instance, solar developers do not need to provide free energy to the state in the form of royalty payments. Hydro projects are mandated to provide 12 per cent free energy, and an additional one per cent free energy towards local area development. Similarly preferential GST rating for hydro equipment is at 18 per cent compared to 5 per cent for solar equipment. Solar and wind generation projects are also exempted from inter-state transmission charges which affects the competitiveness of hydro tariffs.</p> <p>Even as HPPs are facing all these problems, many state governments are imposing additional cess on them. According to MoP, Uttarakhand and Sikkim charge Green Cess and Environment Cess, respectively; Jammu and Kashmir and Uttarakhand charge Water Cess, accentuating the burden on these projects. The Centre is planning to take up these issues with the state government expeditiously. </p> <p>Thus, hydropower costs over Rs.10 crore to produce one megawatt of hydropower against Rs.7 crore per MW for coal-based plants. That makes it almost unviable. Already hydropower projects of over 11,000 MW are stuck due to lack of finances and questions over viability. </p> <p>With introduction of renewable sources in the power mix in the country, peak load demands may call for setting up of new capacities in flexible generation sources to firmly support the variability and intermittency of renewable generation through provisioning of ancillary services. This is where the importance of hydropower comes in again. ôHydropower, 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.,' says Daruka. </p> <p> <span style="font-weight: bold;">Capacity additions</span><br /> India is planning to add around 1,305 MW of additional hydropower generation capacity in 2017-18, over 20 per cent down compared to 1,659 MW of power added last fiscal. Of which, 1,000 MW of addition is expected from public sector, while the rest is expected to come from the private sector.</p> <p>As many as 20 under construction hydro power projects totalling 6,329 MW are either stalled or stressed and `30,147.08 crore has been spent on them, said former minister of Power and new and renewable energy Piyush Goyal in Lok Sabha, a few months back.</p> <p>Work on the Rs.4,640.88-crore Kiru hydroelectric project on the Chenab river, which flows into Pakistan, is expected to start within two months. The project proposed on the Chenab river, a tributary of the Indus, envisages construction of a 123-metre high dam with an underground powerhouse consisting four units of 156-MW each. The project has already received environment ministry clearances.</p> <p>With the view to help India's flood-ravaged north-east, the Centre has set up a high-level committee to evolve a strategy for management of the region's water resources. The committee headed by Niti Aayog vice-chairman Rajiv Kumar, is expected to facilitate optimising benefits of appropriate water management in the form of hydro-electric power, agriculture, bio-diversity conservation, reduced flood damage erosion, inland water transport, forestry, fishery and eco-tourism.</p> <p> <span style="font-weight: bold;">Technology </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,' says Daruka of PwC. For instance, while run-of-river hydro plants are primarily used to contribute to base load generation, recent innovations in project design have made it possible to use such plants as flexible generation sources, by combining several power plants of a cascade into one virtual generation unit. </p> <p>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. 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;">Action plan </span><br /> Realising the need for the immediate revival of the hydropower sector in India, MoP has recently forwarded a proposal to the Expenditure Finance Committee (EFC) of the Cabinet for approval. This proposal, apart from highlighting the importance of the hydro sector in ensuring long-term sustainable energy security, recommends strategies to accelerate hydropower development. Key highlights of the proposal are given in Table-2.</p> <p>Time-bound implementation of these recommendations will help revive the stalled hydropower projects and also ensure time-bound operationalisation of hydropower projects in the next five years.</p> <p>Besides, the government is planning to bring large hydro-electricity projects under the ambit of renewable energy, which will make it easier for achieving the target of 175 GW of green power capacity by 2022. As of now only hydropower capacities of below 25-MW capacity each are brought under renewable sources. Though large hydro-electric projects are clean, they were kept out of the definition of renewables considering that they are part of the erstwhile definition of conventional power generation systems.</p> <p>The government has recently proposed initiatives 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,' says Danuka.</p> <p> <span style="font-weight: bold;">Looking ahead</span><br /> India's power sector is in a transformational mode with introduction of renewable sources like solar and wind power in a big way. Considering that these renewable sources are known for their inherent variability in generation, that calls for upgradation of grid systems, the importance of hydropower as a base power has come into focus again, particularly as a balancing factor for renewables' inherent variability and intermittency. To have a balance in base load and peaking load even MoP suggests a desirable Hydro: Thermal ratio of 40:60. Thus, even if the costs of hydropower are on a higher side, it cannot be ignored.</p> <p>In the latter part of 2015, India has committed curb CO2 emissions through its Intended Nationally Determined Contributions (INDC) at the Paris Summit on Climate Change. In that context, a recent committee report on 'Policy Interventions for Hydropower Development', Ministry of Power estimates that hydro capacity to the tune of 65 GW would have to be developed by 2030. This would mean an addition of approximately 20 GW in the next 12û13 years. </p> <p>Bringing mega hydropower projects under the ambit of 'renewable sources' will increase the chances of India achieving the target of CO2 curbing commitments well in advance. </p> <p>While water is a state subject, and the electricity sector a concurrent subject, so the Ministry of Power along with various state governments and departments, need to ensure sustainable hydropower development in an efficient and coordinated manner. In this context, Daruka of PwC suggests that a 'Hydropower Commission' be set up as a nodal agency to coordinate with various entities involved in the entire hydropower chain and facilitate investments in the sector.</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, believes Daruka. </p> <p>While the Centre is planning to replace the Hydropower Policy of 2008 with a new policy, it is important that the new policy addresses all the impediments in the growth of hydropower segment and introduce measures like innovative financing, sustainability, renewable integration, among others, for ensuring that the full potential of Hydropower is tapped. However, one should note that further delays could prove costly for the already beleaguered industry.</p> <p> <span style="font-weight: bold;">- BS Srinivasalu Reddy</span></p>
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