Energy & Power

ANALYSIS

India's New Hydropower Policy

Kushal Jeena

India says it is formulating a new hydropower policy to allow the private sector to engage in more trade and reap higher margins.

The government has diverted its attention towards augmenting the role of the private sector in hydropower generation. A new policy framework is being formulated for this purpose, said R V Shahi, India ' s federal power secretary who has recently finalized the draft of the policy framework. The draft would be placed before the federal cabinet shortly for its approval.

He said the draft allows private power producers to earn higher margins because they would be allowed to trade beyond 15 percent of the total power generated under the power purchase agreement.

The government has decided to give parity to both private power producers and the state-controlled power companies. State companies have had the monopoly in India's power generation sector.

The government said it's opening the sector for private participation to help the country realize its energy security and much-desired dream of power for all by 2012.

India's private power majors like Tata Power, Reliance, Lanco and Essar responded positively and actively participated in the bidding process for seven ultra mega power projects of a capacity of more than 1,000 megawatts each, which were awarded recently.

After making significant breakthroughs in the coal-based power projects, the government turned its attention towards the hydropower sector that has a large potential in the country's Himalayan terrain from north to northeast.

According to the draft of the new policy the current system of allocating hydropower projects by the provincial governments to state run power companies would now also be extended to private power companies.

The provinces sharing hydropower potential will now award the projects to the private power firms on the basis of their financial and infrastructure strength.

Although hydropower has been recognized as the most economic and preferred source of energy, hydropower production has declined in India due to a lack of government attention and policies.

Once established, hydropower plants have long and productive lives. For instance, India's more than 40 years old Bhakra Nangal plant has operating costs of only $ 0.002 per unit.

Hydropower plants are generally cheaper in the long run than natural gas-based plants, which are constantly at risk from fuel price increases.

Meanwhile the cost to import fossil fuels is high and causing serious disturbances to economic growth.

Following the directives from the energy coordination committee of Prime Minister Manmohan Singh, Power Minister Sushil Kumar Shinde asked Secretary Shahi to prepare a draft policy framework for the hydropower sector.

The sharp decline in the share of hydropower in the country's total power generation was the basic reason for the government to address this sector to improve its efficiency by introducing new technology and opening it up for private participation, said hydropower analyst Himanshu Thakkar. The share of hydropower in the total power output of the country has come down from 50 percent in 1962 to about 26 percent currently.

Once the new hydropower policy is implemented, the private power producers would have to prepare the detailed project report on the same lines as by the government-owned power companies, get the approval from the central electricity authority and investment concurrence from the central electricity regulatory authority commission, Shahi said. As per the provisions of the draft policy framework, the buyers and producers of power would have to sign a long-term power purchase agreement to ensure availability of power.

The developer also must adopt an international competitive bidding process to contract for the supply of equipment and construction of the project.

The regulatory commission would decide the tariff of the project and the electricity tariff policy of January 2006 will be modified to accommodate the suggestions of the private developers.

The provisions of the new hydropower policy framework sound positive and may revive the already dying hydropower sector. But the government should allow a maximum of 15 percent capacity to be kept outside the long-term power purchase agreement to promote power trading, said D S Rawat, a senior energy analyst at the Associated Chambers of Commerce and Industry, a key Indian trade body. While hydropower holds an important role in the energy and development strategies of India, such natural resource projects are inherently challenging. Environmental and social impacts -- potentially both positive and negative -- are inevitable.

India has set a target of optimum power system mix at 40 percent from hydropower and 60 percent from thermal/nuclear power. The country plans to increase hydropower's share in power generation to 28 percent by this year's end and to reach the target of 40 percent over the longer term.

In the past decade, the development of hydropower in India has not improved as the successive federal and provincial governments underestimated the potentiality of this source of power.

The power ministry asked power agencies to improve the methodology used by them to select sites.

It also wants a more public process and better monitoring of the environmental and social impacts of hydropower projects.

Source: Earth Times