Hydel Outlook 2018

Hydropower projects, often located in remote regions, are essential to alleviate the grid as India looks to add 175 GW of renewable capacity

India has enormous potential for hydro-power development. A major part of the untapped potential subsists in Himalayan and North Eastern regions. The hydro sector innately poses few challenges largely on account of risk linked with implementation that can be mitigated with judicious involvement of government agencies to be made responsible for. The private developers will employ themselves only if they find compatible risk adjusted returns in the hydro sector. Thus, government has now two-fold work of eliminating the barriers and restoring the investor’s interest in the sector and to create a facilitating environment.

In the past year and a half, a total of 1,795 MW hydro power capacities have been commissioned. Out of this, 1,659 MW was commissioned in 2016-17 and the rest in 2017-18 until July 2017.

The Ministry of Power is in the course of finalising a new hydro power policy that could lead to its acknowledgment as a renewable source of energy. The proposed policy seeks to blur the difference between large and small hydro power plants. Given the awful condition of the hydro power sector with virtually all under construction projects postponed and/or stalled, the policies is intended at stimulating the projects and accelerate their construction. To this end, the government has also proposed Rs 160 billion hydro power development fund that will assist resurrect stalled projects.

Taking into account the cost overruns of delayed and stalled projects, investments required for concurred projects as well for those under survey and investigation stage, a total investment of Rs 1,737 billion will be essential for the realisation of the total hydro power capacity. The magnitude of this investment is expected to increase with added interruption in the implementation of these projects.

Taking into consideration the natural unpredictability of solar and wind power and the country’s need to go green, the grid-balancing act will have to be increasingly taken over from coal by hydro power, making its development crucial for the Indian power system. Hydro power plants have the ability to be quickly ramped-up, particularly in the case of pumped storage hydro power plants. Unfortunately, India has only nine of these plants developed so far.

The financing outlook in the hydro power sector has been quite damp in the past two years with no major financial closure being reported. Stressed projects and assets have led to mergers and acquisitions in the sector as companies are looking to sell assets to ease the burden of debt.
India is considering tariff-cut for new hydro-electric power projects to help them compete against cheaper forms of electricity. The central power ministry has proposed excluding the costs of building infrastructure such as roads and bridges from tariffs to make new hydropower projects feasible,

Practically 100 GW of electricity potential in India’s rivers is lying unexploited because of high tariffs. Hydropower projects, often located in remote regions, are essential to alleviate the grid as India looks to add 175 GW of renewable capacity. These plants can be promptly turned on and off, helping the grid endure fluctuations caused by alternating supplies from solar and wind.

Hydel: The Way Ahead!
Dr. Rajib K Mishra, Director, PTC India Ltd says, “Hydro power is important energy source for balancing the grid and to meet the peaking requirement. However it is continuously decreasing in the total energy mix. The current energy mix has come down to less than 14 per cent for the financial year 2017-18. The new Hydro Power Policy is being contemplated which would bring necessary changes to encourage investment in the hydro projects and to make investment in hydro sector more attractive for the Developers and Investors. It may also ease loan repayment norms to a period of 25 years and may have provisions to mandate states to buy at least 2.25 per cent of the demand through hydro power resources. The other major changes in the policy which is expected would be changes in the depreciation of the plant which will be further allowed for a tenure of 25 years bringing down the per unit cost of the power generation and making it more affordable.”

Most of the new projects in hydro are suffering from time and cost overrun leading to higher tariff. This is more worrisome as the renewable supply from both solar and wind is continuously on declining trend and has reached to the level of 2.44 per unit in the recent bids. We should not ignore the fundamental that hydro power is not to substitute the cheaper other renewable resources (solar and wind) but to supplement them. The solar & wind sources are dependent on time of the day. Government is also planning to introduce the separate HPO (Hydro Power Purchase Obligation) considering the falling capacity addition in the hydro sector. There can be a subsidy from Central Government and may also get 4 per cent interest subvention under the new hydro power policy.

As per the proposed new hydro power policy the subsidy may be sourced from National Clean Energy Fund (NCEF) and National Investment and Infrastructure Fund (NIIF). We are all aware of the fact that the mandate of new capacity of 175 GW of power from renewable source by 20-22 per cent which consist of 5GW of small hydro power capacity up to 25 MW. However, the most important aspect in the proposed policy would be to consider all hydroelectric capacity as renewable which is only up to the extent of 25 MW as on date. This would enable lower taxes and several other project benefits which might encourage investment in the sector, he adds.

At present hydro is not on priority for capacity addition but this is essential for stability of the grid and balancing power. The new hydro policy may be cleared on priority so that all the pending projects can be expedited. In other developed economy considering the renewable nature of Hydro, this clean energy source is preferred choice. But for developing economy the energy source which can be established in shorter period are given priority. In Indian context, we need Hydro for balancing and better energy mix. We must identify good Hydro projects and develop them on war footing basis, examines Mishra.

Neelav Samrat De, General Manager – Market Management, Andritz Hydro Pvt. Ltd says “The year 2017 was an average year for the country’s hydro sector. The focus was primarily on stressed assets and how these projects could be revived. The government earmarked Rs 16,000 Crores to bailout these projects, totalling 40 in number. The proposal has also been sent to the Cabinet Committee for approval. This is yet to be cleared and approved.”

There were steps taken by industry to push the government for reforms through the proposed amended hydro policy. This calls for inclusion of all hydropower projects under renewable energy. However, there are talks in the power corridors to include only projects of less than 100 MW to renewables. Even if this passed through as law, we could see a major chunk of hydro projects taking off. This proposal has also remained on tables without any concrete steps ahead.

With GST coming into force, we saw a change in the taxation regime in the sector. For most capital goods and services, we now have a flat 18 per cent GST with exceptions for a few items which comes in as ancillaries or bought outs.

One major movement witnessed in 2017, was mainly attributable to the current geo-political in the region. The Indus-Water Treaty in existence between India and Pakistan came in as a counter move to China’s One Belt One Road with Pakistan. Various large and mega sized hydro projects which were in planning stage, were expedited by the Government of India. We saw the approvals of various hydro projects like Sawalkote (1850 MW), Pakal Dul (1000 MW), Kwar (528 MW) and Kiru (624 MW). Barring Kwar, most of the projects on the Chenab river and flowing in to Pakistan, have been tendered for civil, hydro-mechanical and electro-mechanical works.

On the smaller scaled renewables, small hydro projects (SHPs) did not gather steam and we are yet to notice considerable movement in this niche market. India’s renewables target of 175 GW which includes solar, wind and bio-gas is allocated a target capacity addition of only 5 GW from SHP. IN the last two and half years, as per MNRE estimates, only 59 GW was added to the grid from SHP sources. During 2016-17, small hydro power contributed 106 MW to the power generation capacity.
Another important aspect in terms of visible changes expected is the development of pumped storage schemes (PSPs). This storage scheme is particularly being discussed for its grid stabilising factors mainly due to the large scale capacity addition expected from energy sources such as solar and wind. Even though there is no clear mandate from the government in terms of PSP development, their requirement will become inevitable once the conventional versus renewable ratio reaches upwards of 75:25.

Multi-lateral funding agencies like the IFC, EIB, ADB, JICA and others have built and expanded their funding exposure portfolios for India’s energy and infrastructure sectors. EIB has allocated a Euro 800 million to develop small sized green projects while Asia Infrastructure Development Bank has earmarked an amount of Euro 1.20 billion for development of energy and development projects. The green corridor initiative between Germany and India has Euro 1 billion allocated for the development of infrastructure and Pump Storage Schemes. JICA is in the final stages of signing a loan agreement for a particular PSP project in the country while they are scouting for further exposure in the domain.

While Uttarakhand and Arunachal Pradesh are states of vast hydro potential, various factors including R&R, land, clearances and fresh funding continue to create stumbling blocks. Litigations in Uttarakhand in the aftermath of flash floods years ago, still keep the 24 projects in dilemma.

Another interesting development that we witnessed until a year ago was the focus on the rehabilitation and modernisation of existing old hydro projects in Uttarakhand and Southern states of Kerala, Tamil Nadu and Karnataka. PFC and REC have been the major funding agencies for these rehab projects mainly owned by state utilities. Easily available funds for the highly indebted SEBs have made it possible to revamp these ailing projects whose Plant Load Factors (PLF) had been in the range of 20-30 per cent .

The government’s initiative on river linking is also bring out more opportunities for hydro projects. A huge scaled study is currently being conducted to enhance water-way transportation, lift irrigation schemes and hydro projects.

Between 2012 and 2017, India’s hydropower capacity addition target was 10,897 MW while only 5,479 MW was achieved in the 5-year plan, showing only a 50 per cent target achieved. While India made a sluggish Cross Border Transmission Trade (CBTT) policy for power purchase from Nepal and Bhutan, hydropower projects planned for finalisation in 2018 may take a hit as the CBTT has riders which have not gone well with our neighbouring countries. While looking at the past, we can now only hope that India’s hydropower sector can move ahead, maybe because the worst is over, Neelav further adds.

At present hydro is not on priority for capacity addition but this is essential for stability of the grid and balancing power.
Dr. Rajib K Mishra, Director, PTC India Ltd

The government’s initiative on river linking is also bring out more opportunities for hydro projects. A huge scaled study is currently being conducted to enhance water-way transportation, lift irrigation schemes and hydro projects.
Neelav Samrat De, General Manager – Market Management, Andritz Hydro Pvt Ltd.