Centre proposes incentivising hydel projects facing time, cost overruns
The Centre has proposed bringing all hydropower projects across the central, state and private sectors, irrespective of capacity, under the renewable category. The proposal is in the wake of hydropower projects with a cumulative capacity of over 13,000 MW facing time and cost overruns. The Centre wants to extend interest subsidy and hydro power purchase obligation to accelerate growth of hydropower, according to a power ministry report. The decision comes at a time when private-sector power majors like CESC are trying to exit from hydro projects. According to RP Sanjiv Goenka Group chairman Sanjiv Goenka, hydropower projects face immense delay for obtaining environmental clearances, land acquisition for dam construction, studying the course of the river and other allied factors. CESC was trying to get an exit route from its projects in Arunachal Pradesh with an aggregated capacity of 146 MW, which it acquired from India Bulls in 2012. Yogesh Daruka, partner-hydropower and resources, PwC India, said hydropower was ideally suited to support the variability and intermittency of solar and wind generation, through provision of peaking support and ancillary services.
Accelerated hydropower development would play a critical role in supporting the government’s renewable energy capacity target of 175 GW by 2022. For India to meet its Intended Nationally Determined Contribution (INDC), an additional 20 GW of hydropower capacity was required to be developed by 2030, Daruka said. While the Centre has proposed incentivising the hydropower sector, private thermal projects are staring at muted power demand, which is due to non-remunerative tariff, partly due to aggressive bids and partly due to falling renewable prices.
The large target by the government for renewable-capacity addition and the focus on renewable purchase obligation, along with falling tariffs in a competitive bidding regime, have led to an increase in demand for renewable energy. Besides, counterparties for solar companies including Solar Energy Corporation of India and NTPC are providing comfort to developers on payment security. Although the country is out of the deficit scenario and distribution utilities are in excess energy tie-ups, the demand growth is high enough for creating additional capacity, power ministry officials say.
CESC adviser and former Coal India chairman Partha S Bhattacharyya felt the additional electricity demand could be addressed with a 6 percentage point increase in the plant load factor of the existing thermal plants. In some states, particularly Uttar Pradesh and Bihar, which house a significant proportion of the population, the average per capita supply of electricity is lower than the national average. Also, a reliable and continuous supply is yet to be ensured in most states. Electricity demand is likely to grow across the country, driven by industrialisation. In FY16, 44% of electricity demand nationally was attributed to industrial demand, while around 23% was domestic demand. Per capita supply was 1,075 kWh in FY16, a CEA report said.
While short-term power trading is on the rise, as the difference between the landed cost of power from third-party sources and the tariff charged by distribution utilities are considerable, the pressure on price of solar panels will continue as there is a significant oversupply. The median gross margins were 8% and the median operating margin was negative 2% in Q4 of 2016 for solar manufacturers, which shipped about 30 GW in 2016, according to a National Renewable Energy Laboratory report. The rise of new technologies in solar modules may also lead to a further price reduction.
For wind projects, grid curtailment remains a major risk since distribution utilities are trying to manage the grid with increasing intermittent power. Keeping all these factors in mind, stranded hydro projects can be revived by extending the scope of the existing ancillary market, introducing hydropower purchase obligation, higher peak tariffs and bundling hydro with cheaper sources of power, Daruka said. India has the fifth largest hydropower reserve in the world, with untapped potential of over 100 GW. Till date, only 3.2 GW hydro capacity, which constitutes only 7% of the total hydropower installed capacity today, has been commissioned by private players, a joint report of Assocham and PwC says.