New Delhi: The Union power ministry is considering lowering tariffs for new hydro-electric power projects to help them compete against cheaper forms of electricity, according to people with knowledge of the matter.

The ministry has proposed excluding the costs of building infrastructure such as roads and bridges from tariffs to make new hydropower projects viable, the people said asking not to be named as the discussions are not public yet. Those costs might be borne by the central government and the states where the projects are located, the people said, adding that the details haven’t been finalized.

Power ministry spokesman Rajesh Malhotra declined to comment.

Nearly 100 gigawatts of electricity potential in India’s rivers is lying untapped because of high tariffs. Hydropower projects, often located in remote regions, are crucial to stabilize the grid as the government looks to add 175 gigawatts of renewable capacity. These plants can be swiftly turned on and off, helping the grid withstand fluctuations caused by intermittent supplies from solar and wind.

“The cost of building roads and bridges to ferry construction equipment can be quite large, because most of the projects are located in hills," said K.M. Singh, who in July retired as chairman of NHPC Ltd, the country’s largest hydropower producer. “They have a high utility value for states where the projects are located and they should consider bearing these costs."

The proposals also include making it mandatory for power retailers to include a share of hydro-electricity in their purchases and providing longer-term loans for such projects to even out tariffs over time, the people said. The proposals have been sent to other ministries for consultation.

State electricity discoms, under pressure to shore up their finances so that they can invest in new infrastructure and buy more electricity, have been unwilling to buy high-cost supplies. The tariff of new hydro projects will work out to about Rs6 a kilowatt-hour (kWh) or more, while most power retailers are looking at a cost of below Rs5/kWh, according to Sambitosh Mohapatra, a partner at PwC India. Discoms have cheaper electricity available from thermal and renewable sources, he said.Bloomberg

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