New Delhi: The government plans to provide relief to the beleaguered hydropower projects in the country by softening the stiff penalties levied on the developers on account of delays.

For every six months’ delay in construction, merchant power sales earmarked from a project are reduced by 5%. In an acknowledgement that projects often overshoot their timelines because of contractual hassles, land acquisition problems, and delays in securing government clearances, the penalty may be levied only if the developer is found to be responsible.

India’s power ministry plans to put forward a cabinet note to effect necessary changes in the national hydro policy and tariff policy.

Merchant power is electricity that’s sold not to pre-identified customers under long-term agreements, but as a commodity at market price. With merchant power prices higher than long-term power purchase agreements (PPAs), such a move will benefit private sector developers.

The proposed move to soften penalties will benefit private sector firms such as Jindal Power Ltd, Lanco Infratech Ltd, Reliance Power Ltd and the Jaypee Group, among others, and not the public sector firms as they enter long-term PPAs.

The move comes at a time when a total of 41,601.5 megawatts (MW) of hydropower capacity at 137 projects allotted by various states to private companies were either yet to be taken up for construction or are still under the award stage as of 31 December, shows a list prepared by the Central Electricity Authority (CEA), India’s top power sector planning body.

“Since such a move requires an amendment in the country’s hydro and tariff policy, the power ministry plans to move a cabinet note for the same. This will help private sector project developers," said a senior government official who requested anonymity.

Under the so-called cost-plus tariff regime that promises assured returns over the investment made and is currently applicable till 2015, up to 40% of electricity generated from a project can be sold as merchant power. Mint reported on 10 September about the cost-plus tariff regime being extended until 2022.

“This will not benefit the private sector developers as the state-owned developers such as NHPC Ltd, North Eastern Electric Power Corp. Ltd, Satluj Jal Vidyut Nigam Ltd (SJVN Ltd) and Tehri Hydroelectric Development Corp. Ltd (THDC India Ltd) have long-term PPAs," said a senior executive at a state-owned firm requesting anonymity.

While spokespersons for Reliance Power and the Jaypee Group didn’t respond to queries by Mint on Monday, a Lanco Infratech spokesperson declined to comment.

“This is certainly a positive development," said Jayant Shriniwas Kawale, managing director, hydro and renewables, Jindal Power. “This condition was totally unnecessary as no project developer on his own would delay projects. It was a double whammy as a developer would suffer more capital costs due to increase in interest during construction and would also get his merchant sales shaved off."

This follows earlier bailout plans for coal- and gas-fuelled projects in the country.

“It’s only logical that the developer is not penalized for events beyond their control. Given the long gestation, high capital investment and complex nature of project development involved, not many developers are keen to take up hydro projects," said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consultancy firm.

In a related development, to accelerate the decision-making process for hydropower development in the country, state governments may be able to approve detailed project reports of up to 1, 000 crore from the current limit of 500 crore that was set in 2006.

With hydropower holding the key to meeting the country’s peak shortage, the government is worried about the shrinking share of hydropower in the country’s energy basket. Hydropower capacity comprises only 17.55%, or 39,623MW, of India’s installed power generation capacity of 225,794MW. Some 641 hydropower units are operational at 184 power stations across the country.

Hydroelectric projects with a capacity to generate 16,754MW of power—enough to meet the demands of states such as Uttar Pradesh and Punjab—are awaiting environmental clearances, even though they have been cleared by CEA.