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Hydel sector needs full policy overhaul: Experts

Mumbai | Updated on October 22, 2018

Both public and private hydel projects in the country have been suffering from poor planning and implementation issues   -  NISSAR AHMAD

New hydel policy may be unveiled before elections

With the Centre set to announce the new hydro power policy before 2019 general elections, industry experts believe that the proposals being currently discussed may not be enough to revive the sector.

According to Kameswara Rao, leader (energy, utilities and mining), PwC India, the proposed policy amendments may not work. “Instead, a complete policy overhaul that recognises hydro’s long-term economic and technical benefits, and socialises the development risk, is necessary,” he said.

‘Inadequate proposals’

While the policy is addressing issues of cost and time overrun, making the per unit tariffs for hydel project non-competitive and preventing further investments in the sector, experts believe the suggested measures may not be enough.

Both public and private hydel projects in the country have been suffering from poor planning and implementation issues, delays in clearance, local activism and law and order problems. Lack of infrastructure, including roads and power evacuation facilities, have also resulted in significant delays in project commissioning.

All these lead to hydro-power projects requiring higher upfront costs. According to PwC, the capital cost of hydel projects ranges between ₹6-8 crore per MW, compared with ₹3-5 crore for thermal plants.

Free power to States

The new hydel policy, according to industry experts, could address these issues by extending the life of the projects from 35 years to 50 years and by postponing free power supply to host States towards the later life of the project after the loan is repaid.

Existing policies mandate delivery of free power to States which further affect projects’ viability. The States with the most hydel potential such as Himachal Pradesh, Uttarakhand and Sikkim, for example, mandate power producers to deliver 12 per cent of total generated power for free. “The new proposal is to avoid mandatory power sharing with home States for the first 12 years, which is a great relief for power producers. The question now is whether the States will implement this or continue going by their own policies,” an industry player told BusinessLine.

The new hydel policy is also expected to provide interest subvention during construction and operational phase, lowering the capital cost of the project, which too will eventually reduce the hydro power tariff to competitive levels.

Future challenges

“Overall the policy is looking at the right steps. The key challenges will come during the implementation phase,” Nitin Bansal, Senior Analyst, Corporate Ratings, India Ratings and Research (Ind-Ra) said.

He added, however, that for the life of the projects to be increased, the banking system should also be willing to extend the maturity profile of the loans, otherwise there will be cash flow mismatches for the developer.

India with its 45 GW of hydro power capacity currently uses only 30 per cent its total hydel potential. The country’s vast hydro power reserves could help it meet a demand of around 85 GW at a 60 per cent load factor.

Published on October 22, 2018

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