Buying fixed amount of hydro power may become mandatory3 min read . Updated: 08 Oct 2013, 01:12 AM IST
Proposal aims to provide incentives like those given to renewable energy, which require signing of renewable purchase obligation
New Delhi: The government is considering making it mandatory for power distribution utilities to purchase a fixed amount of hydro power to reduce dependence on coal-fuelled electricity plants and improve the country’s energy security.
The proposal to introduce hydropower purchase obligations or HPOs aims to provide incentives similar to those extended to renewable energy, which require the signing of renewable purchase obligation, or RPOs. It would also provide a safety net for hydro power developers by guaranteeing the purchase of electricity—making these projects much more bankable.
The government is seeking to leverage the advantages of hydro power defined by low life-cycle tariffs, reduce carbon emissions and lower dependence on thermal power in the face of an acute coal shortage that’s being met by expensive imports of the fuel.
A concept note on the proposal reviewed by Mint has already been circulated for consultation. Such a move would require amendments in the Electricity Act 2003 and subsequent changes in the national tariff policy
A senior power ministry official requesting anonymity said the proposal is under discussion. Another power ministry official who also didn’t wished to be identified confirmed the development and said that the proposal is on the lines of RPOs.
The Central Electricity Regulatory Commission, India’s apex power sector regulator, operationalized the RPO mechanism with the move being supplemented by tradable renewable energy certificates (RECs). In the event of a state being unable to match its RPOs, it buys RECs from a power exchange.
The government has been working to revive interest in the beleaguered hydro power sector and is also working to soften the stiff penalties levied on the developers on account of delays. With hydro power holding the key to meeting the country’s peak shortage, the government is worried about the shrinking share of hydro power in the country’s energy basket. Hydro power capacity comprises only 17.55%, or 39,623 megawatts (MW), of India’s installed power generation capacity of 225,794MW.
“Private developers are finding it difficult to enter into PPAs (power purchase agreements) with states due to the uncertainties in the project. Developers do not have full control over the project cycle and face time and cost overruns on account of factors usually beyond their control. The factors cited above are largely responsible for cost increases and in the result it becomes difficult to estimate the cost of completion of the project till the project is close to completion," the concept note says.
“This makes it difficult for projects to participate in any kind of tariff based bidding as developers do not have any way of assessing final cost of the project till they reach a fairly a advanced stage of construction of the project. They however, would not be able to take up construction as they cannot achieve financial closure in the absence of signed PPAs," the note says.
While the government has been trying to attract investments to the country, there have been concerns that faltering hydro power generation could hit India’s energy security. Some of the major problems faced by the sector include delays in land acquisition, environment and forest issues, rehabilitation and resettlement, law and order problem, geological surprises and a lack of infrastructure, among others.
“HPOs are side mechanisms to encourage hydro power. Unlike renewable energy, that needs support as the costs are still high; hydro power can be quite competitive compared to other conventional sources. While HPOs may provide some support to hydro power, it’s no substitute to the addressing core issues plaguing the sector viz. environmental clearances, R&R and transmission availability. HPOs will also need to be accompanied with retail reforms including demand side management, flexible pricing for discoms to better manage complexities arising from different kinds of power. The real value will come not from policy promulgation but on the ground execution and penalizing noncompliance," said Abhishek Poddar, partner at A.T. Kearney Ltd. While PPAs hold the key to the completion of hydro power projects, there are no PPAs as tariffs of these projects can’t be determined till they are completed. “HPOs will be a huge booster to the sector and provide it with a fillip as PPAs are not happening. No one will take risks and bid documents are geared for thermal. Once HPOs gets initiated, the utilities will be in the market for hydro power. HPOs will lead to PPAs; PPAs in turn will lead to financial closure; and financial closure will then result in completion of the projects," said Jayant Shriniwas Kawale, managing director, hydro and renewables, Jindal Power Ltd.