Why this policy bias against hydro power?

The Centre has been laying stress on the development of the hydro sector. The hydro capacity of our country has risen from a meagre 508 MW at the time of Independence to about 41,650 MW today. While this leap is laudable, it needs to be realised that the share of hydro plants in the total portfolio has remained low. According to the Central Electricity Authority, the share rose in the initial Five Year Plan but has reduced gradually over the years. It is expected to be a mere 15 per cent by 2020.

Hydro plants can be put in service for many more years compared to any conventional plant which can run efficiently for 50 years at the most; they fare better in comparison even with with the life of a wind or solar project. Tata Power’s hydro plant, which was commissioned in 1915, bears this out. Additionally, if conceived appropriately, it could be operated as a pumped storage scheme to provide peaking power at an economical cost. Hydro plants also entail minimum maintenance and provide stable power tariffs.

While the inadequate growth of the hydro sector is attributed to a host of challenges unique to this sector, the same is now compounded by the recent market condition of low tariffs. However, these tariffs are not based on any economic principles. They are due to the poor fiscal condition of the buying discoms, further compelled by lack of choice of buyers due to lack of amenable open access conditions.

Power purchase planning cannot be based on the current power tariffs alone; the future scenario needs to be considered by the discoms. All stakeholders need to consider an appropriate mix of hydro in the portfolio of purchase of bulk power by a discom for better security. At present, the government is stressing on enforcement of renewable purchase obligation (RPO) with a view to encouraging the renewable sources that are at present restricted to small hydro projects of less than 25 MW. Wind and solar sources have responded positively to the RPO. As large hydro plants are not considered part of these renewable sources, they are not a preferred source for meeting RPO. But hydro plants have distinct advantages and a hydro purchase obligation should be implemented.

The present policy allows for hydro power plant tariff to be determined by the regulatory commission under section 62 of the Electricity Act. At the same time several investors have shown interest in setting up merchant hydro plants and have been awarded contracts through competitive bidding. However, in view of the present low merchant prices and the fact that projects have got delayed due to factors beyond their control, many such projects have become unviable and have not yet started construction.

It is, therefore, necessary that power from these projects is sold on a regulated basis: the tariff should also be determined by the regulatory commission under Section 62 of the Electricity Act.

Also, lack of basic infrastructure hinders the progress of all hydro projects and prevents them from getting completed within the time and costs envisaged at the outset. Hence, it is imperative that the infrastructure is built on time and is satisfactorily monitored.

There are several hydro projects in Himachal Pradesh, Uttarakhand, Arunachal Pradesh, Sikkim and other States where developers have been holding implementation agreements or MoUs for years, without any progress being made. A central team of experts should come together to take this forward. Generally, the lending institutions are comfortable with the tenure of loan being less than 10-12 years. However, keeping in mind the long life of the hydro project, and also with the aim of reducing tariff from the hydro power plant, a long tenure and a soft loan would have to be extended to hydro projects.

Sardana is the MD and CEO of Tata Power, Wagle is manager

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