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India will have to add 18 gigawatts (GW) of hydro power by 2030 to meet its hydro power purchase obligations (HPOs). However, the segment faces significant challenges such as long construction schedule, land acquisition issues, environmental clearances, among others, ratings agency ICRA said on Monday.
Hydro power capacity
“Based on the notified HPO norms and trajectory available till 2030, incremental hydro power capacity requirement is estimated to remain significant — at about 18 GW, which corresponds to about 39 per cent increase over the existing installed hydro power capacity in the country,” ICRA Senior VP & Co-Group Head, Girishkumar Kadam, projected.
However, it has been observed that HPO norms have been notified by State electricity regulatory commissions (SERCs) in only a few States, in line with policy targets as of now. Hence, timeliness as well as consistency in the notification of HPO norms by SERCs in other States and their implementation by the obligated entities remains a key monitorable, he added.
Slow growth of hydro power
India’s hydro power capacity addition has been slow in the past two decades largely on account of significant execution challenges. Between 2000 and 2021, hydro power capacity grew at a CAGR of 3 per cent adding a capacity of 22 GW, ICRA pointed out.
The country’s hydro power generation stood at 1,18,046.85 gigawatt hour (GWH) during the April-November period this fiscal, ending March 2022, as against 1,18,486 GWH in the year-ago period. As of March 2020, India’s total hydro power installed capacity stood at 45,699.22 megawatt (MW).
Besides, the share of hydro in the overall power generation capacity has declined considerably over the period, with a significant rise in thermal capacity addition during calendar year (CY) 2005 to 2015 and thereafter in the renewable energy (RE) segment. With improved tariff competitiveness of solar and wind energy as well as the government’s strong policy focus, their share is likely to grow considerably in the energy generation mix, the agency said.
Challenges
The hydro energy segment faces challenges like elongated construction schedule, significant resettlement & rehabilitation and land acquisition issues, delays in clearances and geological or topological risks which have led to significant time and cost over-run for hydro projects. For instance, the average project cost for the commissioned hydro project capacity by CPSUs during FY17-FY21 remained at about ₹13-14 crore per MW.
Tariff competitiveness
Given the high level of capital intensity for hydro projects, tariff competitiveness of hydro power too remains modest from the ultimate off-takers’ perspective. On the contrary, tariff competitiveness for solar and wind energy has significantly improved with the bid tariffs remaining well below ₹3 per unit for last 3-4 years against the average power purchase cost for majority of State discoms remaining in the range of ₹4-5 per unit, depending on the mix of sources in power purchased.
ICRA’s Assistant VP (Corporate Ratings) Siddhartha Kaushik said, “Tariff rationalisation measures like backloading of tariff with 2 per cent escalation and provision for budgetary support at ₹1 crore per MW for hydro projects of less than 200 MW capacity, is expected to alleviate the concern on tariff competitiveness considerably, in the initial years (5 years post commercial operation date wherein the tariff is expected to remain below ₹4 a unit, for a project with a capital cost ₹10 crore per MW”.
The levellised tariff however is estimated at ₹4.6 per unit over the 40-year useful economic life,” he added.
Importance of hydro power
However, hydro power also remains systemically important from the grid perspective so as to meet the flexibility requirements and peaking power supply. To promote hydro power, the government has outlined policy measures over the last two years to promote investments in the segment by notifying HPO norms, long term trajectory for HPO as well as tariff rationalisation measures.
“HPO is set at 0.18 per cent for FY22 which in turn is set to increase upto 2.82 per cent by FY30 at national level, as notified by Ministry of Power,” ICRA added.
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