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With peaking power demands, Hydropower is the most reliable energy source

By Newsd
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With peaking power demands, Hydropower is the most reliable energy source

The long awaited and well-deserved revival of ailing hydroelectric power sector seems to be around the corner now due to the forward looking policy initiative of the Ministry of Power, Government of India under the visionary leadership of Minister Piyush Goyal. A scheme for revival of Hydro Power Sector has been appraised by Expenditure Finance Committee. The proposed scheme envisages, inter alia,  financial supporting  to 40 hydro power projects totaling 11,639 MW to the tune of Rs. 16,709 cr by the way of interest subvention. The selected 40 projects are under-construction projects to be commissioned by 2021-22 including the projects which are stalled / stranded / stressed for one reason or another. The provisions of the scheme, if implemented, would provide a much desired thrust to the hydro power sector in our country.

Hydropower is the only reliable source for peaking power supply in our country.  It is also a clean, green, and renewable energy source. With the advantages of pondage/ storage facility and instantaneous start and stop options at any time during the day, hydropower is one of the most reliable and grid-supportive energy sources. A healthy share of hydro power is necessary in the electricity generation mix. It is a matter of grave concern that the share of hydro power in total installed power generation capacity has declined to an alarming level of around 14% compared to almost 50% in early 1960s. The generation from hydro stations during the year 2015-16 accounts for 10.96% of the total energy generation in the country. During 2005-2008 when the nation was facing significant power deficit, the power sector became a viable business opportunity and many private sector companies ventured into the sector around that time. However the euphoria died soon due to challenges around Environment Clearance, Forest Clearance; Land acquisition, lack of infrastructure, agitations etc. During the last decade, we have seen almost no new investment in the sector.

It is disheartening to see abysmal state of a sector which has tremendous potential and can provide clean power for decades and also usher socio-economic upliftment to the people in the remote region. The importance of the sector gets lost into oblivion amid the glamour and clamour of solar and wind which are quick and easy. Developing a hydro power project requires a lot of determination and persistence and strong and sustainable partnership among developers, contractors, Central Government, State Government, lenders and local community.

The hydropower industry is finally seeing some ray of hope with Ministry of Power (MoP) proposing some effective measures to revive the sector and make it viable. The proposals are encouraging for the sector; however, they are limited to just 40 under-construction projects which shall achieve CoD within next 5 years i.e. by 2021-22. Since development and construction of hydro projects take 8 to 10 years, policy should be for a longer period of 10 years rather than just 5 years and all proposed measures under the scheme should also cover the projects which are in the pipeline; not just the 40 projects which are under construction. Limiting the benefits to only 40 under-construction projects totaling 11,639 MW with the conditions of commissioning of the projects within 5 years is dispiriting.

Key suggestions

Declaring all hydropower (irrespective of size) as renewable energy – So far, hydropower projects upto 25 MW capacity are classified as renewable, without any rationale. Irrespective of size, Hydro is a renewable source of power generation and finally it has been proposed to be classified appropriately. The incentives provided to renewable energy projects need to be extended to hydropower projects of all sizes.

Provide Hydropower purchase obligation (HPO) within currently mandated Non-Solar RPOs to qualify for dispatch priority, however such HPO/RPO benefit would be admissible to such >25MW HEPs which attain COD within 05 years after notification of this policy – The draft proposal has mentioned a list of 40 under-construction projects which are likely to get the benefit. The 5-year limit is impractical. It would have been a more practical move if projects which can attain COD in 10 years are considered with a longer term view.

Providing 4% interest subvention during construction period (maximum 7 years) and 3 years post COD to all hydropower projects (both public and private sector) above 25 MW, attaining COD within 05 years after notification of this policy with funding from coal Cess/NCEF/DONER or any source of fund – A big positive step. However the condition of attaining COD within next 5 year period is limiting.

Excluding cost of enabling infrastructure from project cost for tariff calculations and reimbursement of the same from appropriate funds of the concerned department/entities of the GoI/State Govts – Most under-development hydro projects are located in remote, inaccessible areas and require significant expenditure in road and infrastructure development. The projects can’t absorb such costs. Exclusion of cost of enabling infrastructure, shill rightly provide a big thrust to the sector and encourage more investments into it.

Create a Hydropower Development Fund (HPDF) by ear-marking funds from the Coal Cess / NCEF/DoNER or any other source of fund. This fund would be located within a suitable entity under the administrative control of MoP – Even the enabling infrastructure funds (as mentioned above) should be provided from HPDF.

Engage with Bankers/Financial institutions for modifying lending terms and conditions for Hydropower projects namely long term lending at affordable interest rate by Banks and FIs including PFC/REC, maximum period of construction admissible for the purpose of loan repayment/penal interest be revised based upon capacities of the projects (capacity up to 1000 MW- 5 years, between 1001-1500 MW-6 years and above 1500 MW- 7 years): This will make some unviable projects viable and also result in reduced tariff for end consumer. However limiting construction period based on size is an unnecessary and undesired standardisation. Schedules as approved by CEA may be considered to avoid any discrimination against difficult projects which may take longer period.

Engage with CERC to work out modalities to bring down tariff to competitive level (For O&M: exclude IDC, R&R and Land Cost, for depreciation – exclude R&R and land cost, increase depreciation period to 28/35 years from existing 12/35 years).

Few more things are required to be done to make the above initiatives successful in reviving the Hydro sector. The policy should not be restricted to fixed set of projects. Instead it should be available to all the projects approved by Central Electricity Authority. In addition, the term of these benefits should be increased to any projects which achieved COD in next 10 years since developing a large hydro project generally take 8 to 10 years.

Time of Day Metering: Most Hydro power plants have ability to provide balancing power to manage variability associated with variable Renewable Energy (Solar and Wind). However, their participation in the above has been lukewarm as no financial incentive exists today on this account. There is no distinction between peak and off-peak tariff of a hydro plant. Therefore, suitable price signal needs to be generated to induce voluntary participation of the hydro plants in balancing requirement of the grid.

Some hydropower projects having provision of flood moderation have been allotted to private sector. As per CERC regulations, the cost of flood moderation component cannot be passed through the tariff. The entire cost of flood moderation component should be reimbursed to the private developer by Government.

Earnestly hope that the implementation of the above policy initiatives will provide much-needed fillip to hydropower development in India which, in turn, will help in achieving the Government’s  goal of  ‘24 X 7 Power For All’.


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