Yogesh Daruka, Partner, Power & Utilities, Mining, PwC
Hydro power is considered as one of the cleanest forms of energy. What is preventing India from looking at making hydropower as the base power and move out of coal?
Although India's current power generation landscape is largely dominated by coal-based generation, the government recognises the need to reduce high dependency on coal, given the impact on the environment and our INDC commitments. With rapid increase of renewable penetration in our overall energy mix, hydropower is ideally suited to meet the requirements of the Indian power system. It has the unique ability to meet our increasing peak load requirements and provide flexible generation to ensure grid stabilisation and ancillary services. These unique advantages of hydropower need to be recognised and concerted policy measures taken to promote it.
Hydropower development faces some unique challenges, such as R&R issues, water sharing disputes among states, delays in procuring various clearances, geological surprises, which have led to significant time or cost overruns in a number of projects resulting in the slow pace of capacity additions. These factors also lead to higher tariffs to ensure viability of the projects.
While wind and solar are making strides, hydro seems to be on a decline. Your comment.
The development of wind and solar power is driven by rapid technological advances, fiscal initiatives (in the form of accelerated depreciation, tax waivers, waiver from interstate transmission charges, etc.) and competition. These measures have led to sharp reduction in solar and wind tariffs, which have recently breached the Rs 2.5/kWh level. Off-take prices for hydropower are comparatively higher due to unique costs borne by hydro developers such as provision of 13 per cent free energy as royalty payments, cost of associated transmission infrastructure as well as lower fiscal incentives to hydropower.
In order to revive the hydropower sector and bring it on a level playing field with other sources, the government has a "new hydropower policy" on the anvil that is likely to classify hydropower as a renewable source, irrespective of its size; provide interest subvention to stalled projects and mandate hydropower purchase obligations for the distribution companies (discoms).
What are the major challenges in Indian hydro sector?
The key issues include delays in procuring clearances and approvals, R&R issues, land acquisition issues, challenges in financing and implementation capability of developers. Further, water in India is a state-specific subject and state governments have adopted varying policies for allocating hydropower projects (e.g., upfront premium, royalty power, land acquisition policy, etc.) which have impacted hydropower development.
Concerted effort from our policy makers are needed to address issues, safeguard financing requirements, develop models and promote appropriate commercial and regulatory mechanisms to ensure adequate returns for investors for promoting hydropower growth.
Though big players like NHPC and SJVN have a healthy pipeline, there are delays, which escalate the cost. Your comment.
Our assessment of the Quarterly Review report of CEA shows that while geology, hydrology and connectivity issues are some of the leading reasons for slippage of development of hydro projects, local issues have also resulted in significant delays in project commissioning leading to cost escalations. However, the proposed initiatives envisaged in the new hydropower policy will help revive many of these projects.
Further, creation of a functioning ancillary market or appropriate market mechanisms, such as differential tariffs for meeting peak load requirements, can help improve the attractiveness of the hydropower sector as a whole and benefit many of these stranded assets.