Is hydropower back in play in India's energy mix?

With the scrapping of the Article 370 and Article 35A in Jammu and Kashmir by the National Democratic Alliance (NDA) government, industry captains believe that hydropower is back in play in India’s energy mix. Also, Arunachal Pradesh that had awarded a raft of projects to private companies has now approached state run NHPC Ltd to execute them.

Hydropower projects, often located in remote regions, are crucial to stabilize the grid as India looks to add 175 gigawatts (GW) of renewable capacity. However, given the issues regarding resettlement of the affected population and infrastructure development, many projects have been stuck and delayed leading to a decreasing share of hydropower in the country’s energy mix.

“A great activity time for hydropower is foreseen by us," said Balraj Joshi, chairman and managing director of state run NHPC Ltd, India’s largest hydropower generation firm and added, “Coal fire projects are on their way out slowly. The government of India has recognized the need for boosting hydro power."

With nearly 100 GW of electricity potential in India’s rivers lying untapped because of high tariffs, the NDA government has approved a slew of measures under the hydro policy to make it competitive. Apart from J&K, some of the new hydropower projects in India on which the work is expected to start in full swing include; 2,880 MW Dibang and 2,000 MW Lower Subansiri hydropower projects in Arunachal Pradesh and 500 MW Teesta-VI project in Sikkim.

Hydropower projects are ideal to meet peak load compared to thermal power plants. These plants can be swiftly turned on and off, compared to thermal power plants, helping the grid withstand fluctuations caused by intermittent supplies from solar and wind.

At present, India has an installed power-generation capacity of 357,875 megawatts (MW), of which around 13% or 45,399.22 MW is generated through hydroelectric power projects. Executing a hydropower project is time-consuming and tedious and involves a thorough survey and investigation and detailed project reports.

As part of the new hydro policy, large hydropower projects have been declared as renewable energy sources, making them a part of the renewable purchase obligation, which requires power discoms to buy a fixed amount of renewable energy to cut reliance on fossil fuels.

Jammu and Kashmir: a new hydropower playbook

In what may expedite strategically important hydropower projects in Jammu and Kashmir following the proposed reorganization of the terror-hit state, India plans to fully utilize its share of water under the Indus Waters Treaty of 1960. According to the Indus Waters Treaty, whoever builds the project first will have the first rights on the river waters.

Mint reported on 7 August about India looking to speed up NHPC Ltd’s hydropower projects in Jammu and Kashmir following reorganization of the state that has been hit by an unprecedented cycle of violence in recent years. The task is seen as strategically vital in the context of China developing the controversial China-Pakistan Economic Corridor (CPEC), part of its showpiece One Belt One Road (OBOR) infrastructure initiative.

NHPC Ltd is the main supplier of electricity to J&K and the largest investor in the state. It has 2339 MW under operation in the state and plans to develop projects totaling 3,814 MW on its own and through joint ventures (JVs). These projects include the 800MW Bursar project and the 850MW Ratle project. NHPC is also implementing the Pakal Dul (1,000MW), Kiru (624MW) and Kwar (540MW) hydropower projects in a joint venture in the state. Apart from raising objections on the 330MW project on the river Kishanganga, a tributary of Jhelum, Pakistan had also raised objections on the 1,000 MW Pakal Dul and 48 MW Lower Kalnai hydroelectric projects on River Chenab.

Some of the projects were also delayed due to issues raised by the J&K state government. A case in point being the 624 MW Kiru hydro project. While the union government has approved investment sanction of Rs4,287.59 crore for construction of the project ; the earlier state government had been asking for the Government of India to front its share of equity in the project. In addition, it was asking the union government to finance subordinate loans for the project.

“With the changed political situation, let’s see how the central government goes about it," said NHPC’s Joshi.

The reorganization of the state into two Union territories will give the government direct control over J&K’s affairs, which in turn is expected to speed up the process of granting approvals for infrastructure projects.

In a televised address on Thursday, Prime Minister Modi said that the scrapping of Article 370 and Article 35A and the integration with the rest of the country had created an enabling system to make a big push for development, providing good governance and a step-up in Union government spending.

Arunachal Pradesh: back to the state run firms' fold

The other promised front for hydropower is states such as Himachal Pradesh and Arunachal Pradesh. The total hydropower generation potential of India’s North-Eastern states, and Bhutan, is about 58,000MW. Of this Arunachal Pradesh alone accounts for 50,328MW, the highest in India.

“Doors are open for projects in India’s North East, particularly in states such as Arunachal Pradesh that have a hydropower potential of around 50,000 MW. Hydropower is slated to play a very important role in the development and integration of the North Eastern states with the mainland India," said NHPC’s Joshi.

This comes against the backdrop of China’s ambitious $62 billion south-north water diversion scheme of the rivers that feed downstream into the Brahmaputra, known in China as the Yarlung Tsangpo. Of the 2,880km of the Brahmaputra’s length, 1,625km is in Tibet, 918km in India, and 337km in Bangladesh. Of the eight river basins in Arunachal Pradesh, Subansiri, Lohit and Siang are of strategic importance, as they are closer to the border with China.

“With the projects given to private firms not getting constructed, the state government of Arunachal Pradesh wants NHPC to take up these projects. We are interested if there are no legacy burdens," added Joshi.

Mint had earlier reported about construction work on a number of hydropower projects awarded to private companies by the Arunachal Pradesh government yet to start, according to the Central Electricity Authority, India’s apex power sector planning body. Also, the Comptroller and Auditor General of India (CAG) in its earlier report, Performance Audit on Capacity Expansion in Hydro Power Sector by CPSEs (central public sector enterprises), tabled in Parliament, said the power ministry needs to instruct state governments that the allocation of such projects above 100 MW needs to be “fair, transparent and competitive".

"There is no other way to put it. The private sector has terribly failed in constructing hydropower projects in India and particularly Arunachal Pradesh. Everyone jumped in, thinking that it was a gold rush," said a former chief executive of a private hydropower firm requesting anonymity.

Making hydropower affordable

The NDA government has also approved a slew of measures under the hydro policy including providing renewable energy status for large hydel projects and new funding provisions. Earlier, hydro projects up to 25 MW capacity were considered as renewables and were eligible for various incentives like financial assistance and cheaper credit. With the government's decision, hydro projects above 25 MW can also avail the benefits.

“Hydropower has been reclassified as renewable power. This will help in green financing," said NHPC’s Joshi.

The government’s plan is to add hydro capacities of about 45 GW to the renewable energy basket of existing 80 GW which includes solar, wind and small hydro. India is aiming 175 GW of renewable energy by 2022. With addition of large hydro to clean energy segment, India is poised to have 225 GW of renewable energy by 2022.

At present, hydro power tariff is expensive than other sources. Discoms are reluctant to sign Power Purchase Agreements (PPAs) for hydro power due to higher tariff, particularly, in the initial years. With the new measures, large hydro projects (LHPs) would be allowed back loading (reducing) of tariff after increasing project life to 40 years, increasing debt repayment period to 18 years and introducing escalating tariff of 2%. These measure would help rationalise the tariff by hydro power projects.

The average tariff from NHPC’s hydropower projects in Rs3.34 per kilowatt-hour (kWh). In comparison, wind and solar power tariffs plunged to record lows of Rs2.64 per unit and Rs2.44 per unit respectively. However, given the new uncertainties hitting the green energy economy, these tariffs have now firmed up.

“So hydropower is not costly at all. It is very much comparable with solar despite giving 12% free power to the state where the project is located and 1% free power towards local area development fund," said Joshi.

This comes at a time when India has brought 26.4 million new electricity consumers to its old which according to Paris-based International Energy Agency (IEA) is the largest expansion of electricity access in the mankind’s history. In an indication of growing appetite for electricity in India, the country’s per capita electricity consumption has reached 1189 kilowatt-hour (kWh) as compared to a global average of 3600 kWh. According to the government, the electricity demand in the country grew by 6.9% in the last quarter.