Hydropower plays an imp role in all mature power markets. For eg, hydro is the cheapest power source in the Nordic market. A low level in hydro reservoirs will mean producers use more expensive sources which will result in higher production costs. In the same manner, production costs will fall with more water in the reservoirs. Hence, Nordic power prices are highly dependent on both rainfall levels & access to nuclear power & the price of other sources, establishing the critical role of hydropower in power markets. Propelled by sustained economic growth & rise in income levels, India is poised to face sig. increase in energy demand in the next few decades which also translates into higher demand for electricity. Gap in the electricity demand-supply situation is highlighted by the fact that the country experiences peak deficits, with the surplus western & eastern regions unable to compensate for the severely deficit northern, southern & north-eastern regions. Considering an energy elasticity of 0.8, India is projected to require around 7% annual growth in electricity supply to sustain a GDP growth of around 8.5% p.a. over the next few years. This requires tapping all potential sources to address the deficit & meet the demand growth for accelerating economic development while taking into account considerations of long-term sustainability, environmental & social aspects. Climate change & other negative effects of using fossil fuels for power generation along with growing concerns over energy security are driving the expansion of hydropower around world. Though reservoir based hydropower projects have come under criticism due to CO2 & methane emissions beyond acceptable limits, most hydro-rich countries have followed an integrated full life-cycle approach for the assessment of the benefits & impacts to ensure sustainability. Current development profile & trends in generation capacity addition in India have resulted in skewed development pattern between different generation tech’s; inadequate peaking & quick response capability; sustainable low carbon development. These factors necessitate renewed emphasis on responsible hydropower development to promote economic growth. Hydro’s critical role in sustainable development & energy security for the country is based on the elements of sustainability, availability & affordability.
A draft hydro power policy is being finalised in a bid to revive languishing sector in India. A sector which has failed to add even 2,500 MW of capacity in the last 5 years is in urgent need of revival given that only hydro power can help balance the grid in absorbing the much higher levels of renewable energy planned to be progressively introduced by govt.. 175 GW capacity target from renewable sources is a given & is part of our international obligations (on climate change). To balance the grid, it needs balancing power & for that hydro fits the bill. Hydroelectric power does not have to be imported, unlike gas, which could also perform the grid balancing function.A policy is in the works for hydro power development which will be place shortly before the cabinet for approval. States are interested in its development & it is necessary for our future. Renewables go with hydro for grid purposes also because the costs of solar & wind power have become quite cheap. Multipurpose projects, which were at the centre of India’s development strategy post-Independence, have become unviable because of revenue issues & the sector is saddled with a large share of stalled projects & stressed assets. Our country has been graced with abundant hydroelectric potential. India has economically exploitable & viable hydropower potential of 1,45,320 MW (above 25 MW capacity). However, we have not been able to exploit the same for benefit of our people. The total installed capacity in hydro sector, including pump storage, is around 43112 MW. As of now total installed capacity of the country is around 333549.82 MW & the share of Hydropower in country's generation capacity is only 13.48%.Thus you see there is a lot of hydro potential to be tapped. We have to appreciate that development of Hydro Power Sector is not about electricity generation only but it is also about developing assets of strategic importance & gaining from the inherent virtues of a clean & green source of energy, to meet the needs of our country. We are living in times where concerns about impact of human activities on environment have become a part of our conscience. Hence, hydropower, which has negligible environment impact, negligible generation of GHG & rapidly ramping characteristic, shall have an imp role to play. Despite the fact that hydropower is environmentally the most benign source of power it has faced most hurdles from environmentalists & civil society. Issues raised need to be tackled & accepted with a scientific approach & should not be held ransom to perceptions. Progress of many projects has been delayed on account of environmental issues. The projects come under public & judicial scrutiny even after having obtained all the requisite clearances. This causes hindrance in the implementation & increase in the project costs, which ultimately results in higher tariff to the consumers.We have had our own share of environmental & R&R issues at NHPC. However by engaging & taking into confidence all the stakeholders, we have been able to get over most of them to the satisfaction of all stakeholders. But every situation is different & you need to tackle it differently & it may require out of the box solutions. There can be no tailor made solution for every project. Communities residing in & around the project areas should be made a key stakeholder in the future projects. This will go a long way in addressing the environmental & R&R concerns of the project affected communities.
Hydropower planning: Planning for hydropower development in India has generally been oriented toward individual projects. However, this approach has several limitations for sustainable development of an entire river basin. Inter-state disputes are another aspect which hinders integrated river basin development for hydropower projects. A large number of hydropower projectswith common river systems between adjoining states are held up due to a lack of inter-state agreements & disputes on water-sharing. Sutlej-Beas dispute between Punjab & Haryana & the Mullaperiyar dam conflict between Kerala & Tamil Nadu are well-reported examples of water-sharing disputes between states. The conflicts in Assam & Arunachal Pradesh on division & utilisation patterns of the Brahmaputra are also emerging. Developing multiple projects on the same river often compromises the capacity of a project to meet peak demand due to other peak load projects subsequently developed. Unexpected costs may emerge due to the development of new projects on the same river, e.g. by increasing or reducing the level of silt in the water. Impacts of social & environmental assessment may emerge in a more severe form when development of multiple projects in a basin is considered. Impacts of social & environmental assessment may emerge in a more severe form when development of multiple projects in a basin is considered. Land acquisition: Land availability & acquisition are among the core structural issues that impact almost all infra. sectors. Problems arising in the acquisition of land for hydropower projects are causing suspension & delay in construction activities. Till recently, under the 120-year-old prevailing Act, land acquisition for public purpose had been beset by several issues surrounding processes, procedures & compensation, as the term ’public purpose’ was never clearly defined. The new law, which came into effect from Jan’14, attempts to address the social inequities in the existing framework of land acquisition. However, there are still serious issues which need to be addressed to remove constraints in infra. development. Govt. had already identified the following issues & is working towards finding an optimum sol. between addressing land-loser’s concerns & developer’s perspectives: Consent of 50% landowners in PPP projects even if the ownership vests with govt.. Compensation amount for acquisition in rural areas & urban regions. Social Impact Assessment processes which, instead of addressing issues related to responsible development & benefit sharing, cause delays. Legal definitions which increase complexity & cost for developers without adequately benefitting the affected population. Safeguard issues: Construction & operation of hydropower dams can sig.ly affect natural river systems as well as fish & wildlife populations. Also, hydropower projects involve submergence causing the displacement of project area people. The rehabilitation of project affected people is also a major issue which is more pronounced in the case of storage-based hydropower projects, as was evident during the development of the Tehri dam. The project met with mass protests & public outcry on the issue of safety, environment & rehabilitation, resulting in unusual delays. Hydropower projects often require forest areas for their implementation & compensatory afforestation on non-forest lands. Progress of many projects has been affected on account of delay & non-clearance on environment & forest aspects. These factors have resulted in negative public perception about hydropower projects resulting in sustained opposition to project construction in many cases often resulting in time & cost over-runs. Rehabilitation of Project Affected People. Protection of flora, fauna, forests, & wildlife. Deforestation Disaster potential in the event of earthquakes, reservoir induced seismicity, surplusing of reservoirs, etc. Market development: Power market development in India is still at a nascent stage. Though section 63 of the Electricity Act makes competitive bidding mandatory for all power procurement, hydropower projects are exempted under a sunset clause which expires by end 2015 (as per the Jun’11 amendment to the Tariff Policy 2006). The deferment for hydro power is based on the recommendation of a Power Ministry taskforce, which cited high risks & uncertainties inherent to these projects as among the reasons why it is difficult for hydro projects to compete with thermal generation on long-term basis. Rehabilitation of Project Affected People, Protection of flora, fauna, forests, & wildlife Deforestation Disaster potential in the event of earthquakes, reservoir induced seismicity, surplusing of reservoirs, etc. Furthermore, the current market structure does not allow hydropower developers to realise the potential benefit of meeting peak demand as the tariffs for both peak load & off-peak load are undifferentiated. Though the Enquiry Committee constituted after the two major grid failures in the country on 30 & 31 Jul’12 opined that “a review of UI mechanism should be carried out in view of its impact on recent grid disturbances. Frequency control through UI may be phased out in a timebound manner & generation reserves & ancillary services may be used for frequency control”, an appropriate regulatory mechanism for implementation is yet to be set in place. Financing: Hydropower projects are capital-intensive & financing them, by finding an optimum balance between bankability & affordability, is often a challenge. Although the operating cost of hydro projects are minimal & the project life longer than thermal, there are multiple other factors that make hydropower difficult to finance. Capital cost of hydro projects ranges between 60 mn to 80 mn INR/ MW compared to 30 mn to 50 mn INR/ MW for thermal plants. Hydro projects require higher upfront costs to address greater complexities in design, engineering, environmental & social impact mitigation, etc. Most hydroprojects takes at least five to six years to construct which increases the interest during construction. Delay in cash inflows increase uncertainty & risks, resulting in higher risk premium on financing charges. Additionally, hydropower development needs long tenure debt (20 years or more) availability which is limited in Indian capital markets. Constrained financial situation of the distribution sector which is the end user of the power generated also often poses counterparty risks for developers & lenders. Also, technical challenges in hydropower development often results in time & cost overrun, posing additional risks for financiers. Technical challenges: Techno economic viability of hydropower projects depends on geology, topography, hydrology & accessibility of the project site. Even if extensive investigations using state-ofthe-art investigation & construction techniques are adopted, an element of uncertainty remains in the sub-surface geology. Geological surprises during actual construction cannot be ruled out. This unpredictable geology is more pronounced in the young fold Himalayas where most of the Indian hydropower potential resides. Such technical challenges add to construction risks. Enabling infra.: A no of hydropower projects are located in remote sites in states which do not have adequate demand for electricity. This creates the requirement for developing enabling infra. for power evacuation. The ’chicken neck’ presents geographical constraints in developing requisite transmission infra. for hydropower evacuation from the north east. There are certain other challenges for coordinated development of transmission network, e.g. identifying beneficiaries well in advance, developing excess evacuation capacity keeping in mind the future development of projects (especially where there are RoW issues). Also, the PLF for hydropower projects is typically less than 50%, as a result of which sig. transmission capacity is under-utilised. All these result in higher transmission costs. Hydropower projects also require the development of associated infra. such as roads & bridges in the area. Inclusion of the cost of development of such associated infra. increases cost of power generated affecting project viability & sustainability. Lack of infra. such as schools, hospitals & difficult access to sites often become blocks to moving skilled manpower to difficult project sites.
Efficient coordination for implementation of policy goals & targets: Ministries, departments & state govts need to work together collaboratively & efficiently, in a coordinated manner, to achieve policy goals & capacity addition targets. Alignment of processes, structures & institutional framework is necessary to achieve this. Planning for integrated river basin development: GoI needs to ensure that inter-state agreements for water sharing must be in place to avoid disputes. A National River Authority of India may be constituted to improve river management, address inter-state disputes & for integrated river basin development. A basin wide hydrological simulation model needs to be developed under the guidance of CEA/ CWC to understand the effects of one project on another in a cascade. This will reduce project risks, encourage planning & operation on a broader scale, & allow planners & developers to understand how changes to one project might affect others in the system. An appropriate planning forum needs to be constituted to bring all stakeholders (developers, state govts, etc.) together to discuss infra. needs & reach a consensus on how to proceed. Greater coordination in developing infra. such as access roads, transmission lines, etc. can help lower overall costs by allowing developers to pool costs. It will also reduce environmental impact. Project allocation procedures: Allocation of hydro sites to developers needs to be done in a fair & transparent manner, keeping in mind the optimal development of the river basin. Specifically, the state govt needs to ensure project allocation on inter-state rivers in line with the CEA’s/CWC’s optimal development plan of the river basin. A comprehensive cost-benefit analysis between different project allocation models (e.g. MoU vs competitive bidding) needs to be carried out on a case-to-case basis based on project specific issues. Further, the project allocation model needs to give due weightage to the financial capacity, technical capacity as well as credibility of developers. Institutional framework: Current institutional framework & organisation of concerned institutions for hydropower development at the state level needs to be reviewed. Objective will be to ensure that govt. plays a key role in planning, procuring & regulating the assets created. Also, whenever necessary, based on project-specific circumstances, govt. needs to fully or partially own the asset & play a role in project development. Private players, however, should also be provided requisite freedom to develop, finance, build & operate the assets. Benefit-sharing framework Focus on responsible development: Social & environmental impact assessments need to be given due importance, instead of treating them as mere legal formalities. Process needs to be participatory & transparent. Public private people participation: Involvement of project affected persons, & joint consultation processes between developer, govt & PAPs need to be carried out to smoothen out differences & get legal & social consent. Such involvement & joint consultation processes are necessary to address immediate problems & legitimise decisions. Project developers need to be mandated to open technical training centres in the neighbourhood of the project. This will help developers gain public acceptance & get skilled labour while local residents get employment opportunities. Similarly, developers can open clinics & health centres, schools, etc. for local residents with minor impact on project cost. Benefit-sharing with project affected people: A structured mechanism needs to be developed for balancing benefits from hydropower projects & transferring economic rents from projects to govt. which should ultimately be passed on to affected stakeholders. Mechanism should find an optimal balance, to the consensus & benefit of all stakeholder, between modalities: Revenue sharing; Local development funds; Ownership structure; Taxation levels; Preferential electricity rates, etc. Facilitating investments & financing Streamlining clearance processes: Appropriate institutional mechanisms need to be set up by each state with a clear mandate to speed up clearances & eliminate duplicity of clearances. Specific timelines to award all statutory & non-statutory clearances to a project at both central & state levels need to be fixed, along with accountability for delays. Specific timelines for the concessionaire to initiate, execute & commission the project must also be decided. State govts may set up investment boards to facilitate private investments across multiple infra. sectors including hydropower. These boards will be expected to address issues related to inter-departmental coordination & avoidable delays in according approvals & clearances. Streamlining land acquisition process & modalities: Consultation between central & state govts needs to be taken up to bring in required changes in the new land acquisition law in order to enable speedier project implementation by addressing the issues & concerns of developers while ensuring that the rights & interests of the land-losers are protected. Evacuation infra.: Dedicated transmission infra. may be created for evacuation of power from the north east. For example, Green Energy corridor for the evacuation of renewable energy projects from states such as Rajasthan & Tamil Nadu is being constructed. Building pooling sub-stations in locations having large concentration of hydro resources is an efficient option which help developers reduce the project cost on account of last mile connectivity; For evacuation of energy from the plant bus-bar to the CTU/ STU interface, multiple options can be evaluated, based on the specific circumstances of the project: Cost entirely borne by the developer but recovered through generation revenue; Developer & concerned utility shares the cost in a specified ratio; Cost entirely borne by utility but recovered through revenue; Financing through a ’hydropower development fund. Other associated infra.: Other associated infra. needs to be developed to facilitate project implementation in a costeffective manner. Since development of such associated infra. spurs economic activities, the state govt must partially bear the costs of development. State govts must effectively channelise local development funds, upfront premium, etc., received from developers to invest in such associated infra.. Fiscal incentives: Favourable tax treatment, especially at the early stage of projects, reduces project cost & helps projects secure cheaper financing. This is also imp for projects that have predominant local supply, as cascading taxes only lead to higher tariffs. In addition, govt. may offer tax credits (as in the US) or tax holiday (as in Laos) to facilitate investments. Thus GoI needs to continue with tax holidays & the exemption of import tariffs for projects greater than 500 MW capacity. Innovative financial products: Capital markets need to be deepened to help provide long-term debt financing for the capital-intensive nature & high gestation periods of hydropower projects. Initiatives such as IIFCL for infra. lending have been taken. GoI needs to also encourage suitable innovative products. E.g. tax-exempt bonds focussed on the hydropower sector. Given the large-scale requirements of infra. & hydropower development, many more initiatives are required to channelise long tenure funding (from pension funds, banks, etc.) to these sectors. GoI may create a special hydropower financing scheme (e.g. the Accelerated Generation & Supply Program to state utilities) providing loans to power utilities at a subsidised rate of interest. Multi-lateral institutions & green funds have, in recent times, shown some appetite to fund both public & pvt. sector hydropower investments & can be a good source for investors if a sound business case & risk mitigation mechanism can be demonstrated. Facilitate market development Development models & ownership structures: A unified framework needs to be adopted with instruments standardising the fiscal & revenue-sharing policies for the selection of technically & financially qualified private developers with sound corporate governance practices. Hydropower purchase obligations: Govt. needs to consider making it mandatory for power distribution utilities to purchase a fixed amount of hydropower. Such hydropower purchase obligations or HPOs provide assurance to developers by guaranteeing the purchase of electricity & make projects much more bankable. Differential tariff structure: Tariff comparison needs to be done on the basis of the quality of energy supplied, reflected by the position hydropower occupies in the load duration curve. Currently tariffs for both peak & off-peak loads are same. Regulators need to differentiate between them & set differential tariffs which benefit hydropower developers. Developing market for ancillary services: A robust commercial mechanism based on an enabling regulatory framework need to be developed to encourage ancillary services support across national grid – helps to maintain power quality, reliability & security of the grid. Hydropower operators will play a key role in providing such ancillary services given their black start characteristics. Technical capacity development State-of-the-art investigation & construction techniques: Detailed geological & seismic mapping of specific potential areas needs to be carried out involving the Geological Survey of India. Similarly reliable hydrological data mapping needs to be done involving the National Hydrological Institute. Hydrological yield estimation can be vastly improved through the coordinated collection of hydrological & meteorological data & dissemination of that data to developers. Similarly, centrally conducted studies can estimate the effects of climate change, an imp aspect that individual developers are likely to ignore. An upstream storage facility in each river basin can, by regulating overall flow, reduce silt loads downstream as well as lead to greater energy output. Flood forecasting & warning system will be useful to ensure that all downstream power projects & local towns & villages receive adequate warning in the event of a flood or upstream dam break. Developing such a system is beyond the capacity of any individual developer & needs to be coordinated by state & central agencies.
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