Centre may offer grants to NE states for hydropower projects

States in India’s north-east holding rich hydropower potential may get central grants to pick equity stakes in hydropower projects under a new policy, two people familiar with the Centre’s plans said.

The Union power ministry has proposed a new hydropower policy that will facilitate such grants, and the Union cabinet may take up the proposal soon, the people said on condition of anonymity.

“The Centre may provide grants worth ₹4,000 crore to states in the north-eastern region so that the state governments can infuse equity in hydropower projects there,” said one of the people cited above. “The proposal has been moved, and it should come up in the cabinet soon.”

Queries sent to the power ministry remained unanswered till press time.

The hydropower push comes in the backdrop of India’s ambitious energy transition plans and the need to protect its lower riparian rights as China works to dam the upper reaches of the Brahmaputra.

India has installed a hydropower capacity of 52 gigawatts (GW) and another 18GW is in the implementation stage or has been bid out. Out of the ambitious target of 500GW installed renewable energy capacity, hydropower is expected to make up 78GW. Several hydropower projects are under construction or in the conceptual stage in the border state of Arunachal Pradesh.

Late last year, state-run NHPC Ltd submitted a pre-feasibility report to the Central Electricity Authority for the 11GW Upper Siang Multipurpose Storage project at a capital expenditure of ₹1.13 trillion to build the largest hydropower project in the country.

This, along with other hydro projects on the Brahmaputra, known as Siang in Arunachal Pradesh, is part of India’s attempt to counter China’s water diversion. The northern neighbour that has often sparred with India, more so since its incursions into Indian territory in 2020, has been building a number of dams upstream of the Brahmaputra.

Hydropower is key for India’s energy transition as solar and wind power are intermittent, while hydropower and pumped storage projects are expected to provide the required power supply at night or any other time period.

The development on the policy front also comes at a time when the government is contemplating merging the major public sector hydropower projects in the country. NHPC has already submitted a proposal to merge public sector hydro companies THDC India Ltd and North Eastern Electric Power Corp. Ltd (Neepco) with itself, the second person said. The merged entity is expected to have a market capitalization of around ₹70,000 crore.

The policy is also expected to give a major push to pumped storage projects. Recently, the power ministry announced guidelines to encourage such projects on the monetization of ancillary services, exemption from double taxation, state goods and services tax (GST) reimbursement, and rationalization of environment clearance.

On pumped storage guidelines, Girishkumar Kadam, senior vice president and co-group head of corporate ratings at Icra Ltd, said: “With the growing share of renewable energy, the hydro energy especially pumped storage hydro, remains systemically important from the grid stability perspective. As a result, policy focus to incentivize the storage capacity continues to remain strong. The levelized tariff for pumped storage hydro projects in the base case, assuming a capital cost of ₹6.5 crore per MW, is estimated at about ₹5 per unit, and the landed tariff, including the cost of energy required for pumping, is estimated at ₹9 per unit.”