#Agenda2014 Hydro Power
With a pressing need to address the issue of energy security, India has tried various options. History is evident of the success rate of India’s attempts to attain a self-reliable state in energy, especially the power sector. Though the long lull in the power sector was broken by the reforms during early 2000s which included among many path breaking measures, the 2003 Electricity Act, it has clearly slipped to another slumber over the last few years, losing all the momentum it had gained then. A nuclear treaty that is yet to result in a big scale, a coal linkage system that has failed the thermal power sector and a hydro sector paralyzed-by-policy have ensured the targets of power addition slip each day.
Of the above three major sources of power generation, it is only in hydropower that the nation can achieve a sustained self-reliability. Also, a healthy power sector would ideally have the thermal to hydro generation ratio as 60:40 while it is as bad as 80:20, on date. Despite being recognized widely as the most economical source of power, hydro has only slipped year after year in its contribution to overall power generation.The historical setback in the hydro power sector for India after being a pioneer in generation in the region has many reasons. Specifically, the continual attention to revive the sector over the next eight to ten years must be focused in these directions:
2] Finance and regulatory issues
3] Technical issues
1] Policy issues
The saga of hydropower allocation in the last ten years is very similar to that of 2G spectrum allocation – random. Thousands of megawatts have been allocated to players newly born or totally inexperienced. Most of these projects have been snatched away from the expert developers like NHPC, NEEPCO etc. and handed over to certain private players at throw-away prices who are sitting on them without an effort to develop.
Differences between the power ministry and the ministry of environment and forests have ensured the clearance of projects are long delayed and in many cases, cancelled or not provided at all. There is also multiplicity of examination of same issues at different levels across the ministries, panels, tribunals and committees. These hurdles put the project’s prospects in dim light, even before it is started.
- Procedural reforms: Transparent bidding and awarding procedures at both centre and state level – expertiseand prior experience must be mandatory to get a project awarded. Single window redressal and clearance of projects must be followed with a clear mandate to speedy clearances and completely eliminating the duplicity of clearances. Specific timeline to award all statutory and non-statutory clearancesto a project at both central and state-levels – say 150-180 days – mustbe fixed.Specific timeline for the concessionaire to initiate, execute and commission the project must also be decided; Participation of local authorities till the public issues are addressed, relief and rehabilitation ensured and stronger monitoring mechanism during the entire development stage must be mandatory.Small and micro hydropower projects are rightly classified under renewable sources while medium and large projects are excluded from the umbrella which is illogical. It is highly pertinent to bring all hydropower projects under the ambit of renewable source of energy generation.
- Agency reforms: Public sector undertakings and commercial statutory bodies need to be restructured. NTPC which forayed into hydropower eight years ago is yet to generate a single unit of power out of the four major projects it is developing. While NHPC was exclusively mandated to develop hydropower, deviation in the focus by entering into thermal power to compete NTPC has affected the company’s prospects. Additionally, its chairman’s position is vacant since two years – the organisation lacks any direction. It is only an immediate requirement for both the developers to stick to their original mandate and build capacities within that. NHPC projects generally suffer from extra-ordinary long gestation periods – many stretching over a decade or two to get commissioned resulting in delayed generation, huge cost overruns and late profit realisation. The delayed preparatory phase prior to starting the execution of a project is the hallmark of NHPC which needs to be addressed. Also, NHPC, THDC, SJVNL and many such public companies are rich in expertise on the techno-management of hydropower projects. The same can be shared with private players even on a contractual basis. These companies must also be provided with the mandate of studying and creating repositories of potential hydropower projects, the geological and hydrological mappings and share it with the nodal authorities. BHEL currently sits on an unusually high order-book which will take more than five years to deliver. With this situation, most of the hydropower projects where it is responsible for supply and installation of machines are delayed. Disciplining BHEL with a categorical expansion plan is a possible long term solution along with easing of duties on imported machines by foreign companies to facilitate a healthy competition in the segment and allowing them to set up service centres at key locations as servicing and repair of machines is a big challenge that India is yet to address.
- Dispute resolution: Resolution of disputes both within the country and with the neighbours is a pressing issue. While disputes with China over Brahmaputra and Pakistan over several rivers are sure to remain unresolved for many years to come, even the hydro potential rich but timid neighbours Nepal and Bhutan have been repelled by certain response of India. The Chinese influence in Nepal and Nepal’s own internal turmoil has discouraged any investment on hydropower projects envisaged to benefit India in the Himalayan nation. The only success story of hydropower development in the South Asian region – Bhutan – has new challenges. A proposal by India to modify the business model for developing the projects in Bhutan has irked the neighbour affecting progress of even the on-going projects. An inter-governmental agreement model was being followed till date while India has proposed to shift to a joint-venture model partly supported by equity. Bhutan has genuine concerns of even being able to fund 15% cost of a project. At the same time India wants to check any diversion of funds by the Bhutan government. An estimated 10000 MW worth projects are at stake while the disputed issue is yet to be addressed by India. It is better to keep the issue low and allow Bhutan to have its choice of model continued in the larger interest of both power security and geopolitics for India.
Inter-state disputes present themselves as a separate challenge to the development of hydropower. These disputes have marred from the smallest project to the biggest project of Subansiri Lower – which is rattled by disputes between Assam and Arunachal. A couple of key projects are held up for more than two decades over the dispute on Kaveri between Karnataka and Tamizh Nadu. It is pertinent that these long pending issues are addressed. Most of these disputes are actually over the control of waters rather than over power generation itself. The government must pitch in the public sector units to develop the project and maintain it too, with an amicable power sharing agreement between the disputed parties.
2] Finance and regulatory issues
The power sector in India, especially hydro, is still largely public. Biggest barrier for the participation of private players in the sector is the sheer nature of the business involved – longer gestation periods, highly capital-intensive with little or no committed funds, hassles with clearances and local public issues. Also, different regulations in different parts of the country make it unattractive for the players. The two nodal agencies planning the development of the power sector in India – Central Electricity Authority and the Ministry of Power – are both central while the subject power itself is concurrent. While the Centre guides on the overall direction for development, states are still authorised to determine the distribution part completely and generation, partly. Yet most of the state electricity boards are in the poorest of their health owing to serious apprehensions in the mind of developers.
- The mandatory 12% provision of free power to the respective states where the project is implemented is applicable to hydro while the thermal sector is exempted from the same. The government has to re-look at this. As a step forward to end the freebie regime, the 12% power can be obtained at a subsidized rate to start with. Apart from 12% free power, the developer must also provide 1% of the generation to the local area along with 100 units of free power to every household of the project affected families over a period of ten years. Ultimately, the developer is left with only 40% of the merchandise power which he can dispense off at his condition. Again, this proportion needs to be raised to 60% to encourage better private sector participation.
- Inclusion of infrastructure costs – development of roads, bridges in the area – in the project development cost will invariably increase the cost of power developed. It is also a burden on the developer as he has to apportion the cost into the partly available merchandise share itself. Also, since the infrastructure development spurs a lot of economic activities in the area, the government must at least partially bear the costs – at 60:40 ratio.
- The states must decentralize the authority of state electricity boards, split them into regional entities and/or privatise them. The model already implemented in certain states has shown encouraging results.
- Currently the tariffs for both peak and off-peak loads are the same. The regulatory bodies must differentiate between them and set differential tariffs. This will also help in managing peak load demand in a better way.
- The private sector participation is discouraged by the turbulent financing in the market. The high capital intensive development of hydropower also involves high risks for the investment. Long term debt financing is still a challenge to avail for the private developers. A result oriented focus on policy reforms will address this issue.
- A peculiar tax regime in the sector has been discouraging the participation of the developers. While the dam and the channel components of a hydropower project do not attract the service tax, the generation unit component of the project does. This regulation has been in place since the colonial rule and needs immediate scarping of service tax on any component of the project as such.
3] Technical issues
Hydropower development involves high level, complex technical risks. Be it damming a river, diverting the waters or channeling the water back to the river – involves challenging and voluminous tasks. Coupled with geological, seismic and hydrological surprises, hydropower development is the most challenging form of power development.
- Provision of construction power for the projects in execution stage is a big part of the cost by itself as mostly the construction power is diesel generated. A project of the scale of 100 MW could easily need 2-3 MW of power during the construction phase. Stress must be laid on developing micro and small hydropower projects to augment for construction power for already earmarked large capacity projects.
- Power evacuation has been an issue of late, due to poor development on the transmission networks and more often than not, poor planning of evacuation. Key solution for the issue is to either have micro-grids and operate multiple regions or fix the infrastructural issues with a single national grid. Although the southern grid has been integrated with the rest of India recently, the effectiveness is still doubtful.
- Comprehensive database repository of potential hydropower development involving public companies, Central Water Commission, Central Electricity Authority must be developed. Detailed geological and seismic mapping of specific potential areas involving Geological Survey of India and states to be developed; reliable hydrological data mapping involving National Hydrological Institute. Any identified developer must also be included in the data collation work. This exercise will help in a thorough investigation of project sites and help in reducing surprises during the construction stage.
- Sediment load of Himalayan rivers is enormous, perhaps the highest in the world. Developers need to invest big in sediment control – the situation is so bad that one of the biggest operating projects of South Asia, Nathpa Jhakri is unable to function even at its half the design capacity owing to a disastrous management of sediment. Given the Himalayas is the youngest mountain range on the planet, the area is tectonically very active and the geology not very stable. Underground works in these circumstances have resulted in a slow paced progress of projects due to lack of competency in negotiating the same. Generally the construction sector is marred by lack of skilled workforce and hydropower is furthermore affected. India has not invested to the required scale on the research and skill development to find solutions to these unique challenges that hydropower development offer. An exclusive university to focus comprehensively on hydropower and underground works which would integrate the existing research centres on hydrology and geology is much needed.
The above measures if implemented over the next 5-6 years are sufficient to provide the necessary traction to set the sector rolling. However, India must be cautious of any mad rush of the kind China is witnessing over hydropower development. We must limit building single large capacity plants to the extent possible – there is no need for a second Tehri in Uttarakhand. Although there is absolutely no correlation between the recent cloudburst, flash floods and hydropower development in Uttarakhand, the general misconception in the larger mass is very much contrary. Efforts must be made to set the record straight on the alleged devastating effects of hydropower development and arrest the negative campaigning of the NGO industry through public awareness.
Existing regulations are sufficient to check any ill effect on the environment given they are implemented effectively. It is because of the failure of agencies in stringent implementing and monitoring of a project that hydropower is not being seen as an environment-friendly option and not because of the sheer nature of hydropower itself. We must appreciate the nation’s potential in hydropower, the energy crisis we are in and the most economical solution to fix the same while choosing hydropower. Quick development of hydropower is also the only solution to strategically secure India’s share of waters from the hostile neighbourhood.