New hydropower policy aims to boost project viability

Policy will provide for viability gap funding, which will help meet shortfall in project costs and reduce tariffs


Photo: Indranil Bhoumik/Mint
Photo: Indranil Bhoumik/Mint

A comprehensive policy to promote hydropower generation is set to be announced by September—with viability gap funding for projects, compulsory hydropower purchase obligations for distribution companies and a set of good practices that states have to follow.

The idea is to address factors that currently drive hydropower costs up way above those of other sources of power and give policy support in its market development, according to a government official, who asked not to be named.

The policy being prepared by the power ministry will have provisions for viability gap funding, which will help in meeting the shortfall in project costs and reducing hydroelectricity tariffs for consumers, said the official. Hydropower is expensive and in some cases more than double the cost of power from coal-based thermal plants, which is available at Rs.3-5 per unit.

The ministry will also expand the scope of power distribution companies’ renewable power purchase obligations to include hydropower from projects with a capacity greater than 25 megawatts (MW). At the moment only power from those with less than 25MW is considered renewable power.

Compulsory hydropower purchase from large projects will either be made part of the existing renewable power purchase obligation of distribution companies or a separate requirement, so that its inclusion does not affect the market for other renewable sources of energy like wind, solar or biomass, said the official cited earlier.

Power minister Piyush Goyal said on 18 June that the new hydropower policy will be comprehensive. “It will explore the possibility of providing to hydroelectric projects beyond 25MW the benefits that are at present available to renewable energy,” Goyal said. The power tariff policy announced by the ministry on 20 January included steps to promote clean energy, which at present is not available to large hydropower projects. It specified that 8% of total electricity consumption will be from solar power by March 2022 and exempted renewable energy from interstate transmission charges.

Since state governments have rule-making powers in the electricity sector, the central government has been offering incentives for the adoption of a uniform policy framework and signing binding agreements with states to implement reform measures. One example is the debt restructuring and efficiency improvement measures taken under the Ujwal Discom Assurance Yojana (UDAY). That helps in addressing state-level implementation hurdles when a national policy in the sector is framed. One of the factors that contribute to higher tariff for hydropower is the upfront project-acquisition charges that some states levy. Hydropower tariffs, determined through a “cost plus generating company’s margin” formula, are a disincentive for achieving efficiency in the sector, say industry players.

“The fact is that consumer is not prepared to buy electricity at any price. Therefore distribution companies are not able to sell hydropower. This needs to change,” said Awadh B. Giri, chief executive officer, hydropower, Hindustan Powerprojects Pvt. Ltd.

India’s unmet requirement for electricity offers a huge market for hydropower, which, unlike coal-based thermal power projects, does not require expensive fuel, said Giri, adding that the cost of hydropower generation declines over a period of time. What is needed is a price for hydropower for 25 years discovered through competitive bidding, its recognition as renewable energy and similar policies across states in awarding projects, said Giri.

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