Hydro Power Scenario - Reasons for Slow Progress

1. Reasons for Slow
Realization &
Improvements in Existing
Policies
Priyank Jain (92)

2. India chronology of Policy / Regulation
• Early and late 90s Negotiations for small and medium size
HEPs, Bidding route initiated in early 2000s.Pre 2003
• Gave a framework for development of new capacity on
competitive basis, puts statutory responsibility on
Regulators for market development, also includes concept
of Statutory policy (mainly Electricity and Tariff Policies
Electricity Act
2003
• Hydro power development through private participation,
stresses on the need successful models for Public Private
Partnership.
National
Electricity
Policy 2005

3. India chronology of Policy / Regulation
• Made competitive bidding mandatory
National
Tariff
Policy 2006
• Stated objective of overcoming the
problems experienced with respect to
tariff based bidding for HEPs
New Hydro
Policy 2008

4. Agencies Involved in Hydropower
Develpoment
CENTRAL ELECTRICITY AUTHORITY &
CENTRAL WATER COMMISSION
STATE POWER DEPARTMENTS &
ELECTRICITY BOARDS
MNES - MINISTRY OF NON-
CONVENTIONAL ENERGY SOURCES
SEVERAL NGO ORGANIZATIONS (e.g.
TERI)
INTERNATIONAL FUNDING AGENCIES

5. Slow realization
• Afforestation and rehabilitation are the main
problems
• Environment impact assessment studies
Environmental
Issues
• Land-owners often demand employment and
heavy compensation in some of the power
stations
Land Acquisition
• Major Indian rivers are generally interstateInterstate
Disputes
• The law and order problem areas affected by
insurgency and militant problems.
• Difficulties in arranging manpower deployment.
Insurgency

6. Environmental Issues…
• Geotechnical investigations avoid
time and cost over-runs.Geological
Surprises
• Land slides, hill slope collapses,
road blocks etc.
• Heavy rains and unprecedented
floods cause severe setbacks in
construction
Natural
Calamities

7. Policies & Regulations
• Policies and according Status of
Implementation ƒƒCompetitive BiddingƒƒHydel Policy &
Mega Power Policy
• Issues Impacting Delay Hydro Power Project
• Harmonizing Inter-Ministerial Policy
Measures/Initiatives
Environmental and
Forest Regulations
• Time to converge on a Mutual Beneficial Path
Central & State
Hydro Policies

8. Issues and Challenges
• Integrated Management of Hydro Projects
Power Evacuation
and Transmission
EPC & Construction
Risks
Macro-Economic
Perspective and
Investment
Bottlenecks
environmental
sustainability

9. Reasons for Slow Development
Long gestation period
Time consuming process for project clearances
Until recently, the national focus has been on
thermal generation
Highly capital intensive and absence of committed
funds
Poor financial health of State Electricity Boards
(SEBs)
Technical constraints due to complex geological
nature of the projects

10. Absence of long tenure loans makes it
difficult for private investors
Advance against depreciation is
disallowed
Return on equity (ROE) is not attractive
enough for investors
Dearth of competent contracting agencies
to construct the project site
Inter-state disputes as Water is a state
subject

11. Private sector participation
Bureaucratic delays,
Uncertainty in power payments,
Lack of sanctity regarding contracts,
Insufficient infrastructure,
Unknown hydrology and geology.
Regulatory barriers
High financing costs,
Land acquisition problems,
Rehabilitation and resettlement
Slow legal system,
Availability & reliability of data from the Gov
Interstate matters

12. Regulatory-related suggestions
• Timely clearances :
– Techno-economic clearance by the Central Electricity
Authority (CEA) and an environmental clearance by the
Ministry of Environment and Forests.
– With regard to the environmental clearance.
– The MoEF give proper guidelines for adverse effect
control.
– Examples include: Effect on the Land, effect on water
quality, effect on flora and fauna.

13. Regulatory-related suggestions
• The two biggest effects of hydro project development in India
are the cutting of trees & displacement of people living in the
area.
– Recommend the to provide compensatory aforestation –
equivalent to the forest cover lost as a result of the
project.
– Due to law and order problems and judicial interventions.
– The resettlement process should be handled by the
government, as it is very difficult for private project
developer to handle such sensitive issues, and should be
treated as a welfare scheme, with the government bearing
the cost of implementation.

14. Finance-related suggestions
• Penalize delays in project implementation
– Each developer should be required to submit a bank guarantee of 3 to
5 percent of the cost of the project as a performance guarantee. If
project development is delayed by more than one year due to reasons
attributable to the developer, the contract to develop the project
should be cancelled.
• Offer payment security
– Lack of payment security is a primary reason the private sector shies
away from developing power projects in India.
– Recommend the central government pursue reform more rigorously,
particularly in distribution. This will help ensure that state government
utilities are self-reliant and are able to pay for the power they
purchase.

15. • Provide funding for report preparation
– Recommend the government create a fund of for use in paying
for preparation of bankable detailed project reports. This
special-purpose funding vehicle is known as a corpus fund.
Funds would be made available through a central hydro
authority to the agencies involved in preparation of the reports.
The cost of report preparation would be recovered from the
developer to whom the project is allotted. Thus, the fund
becomes “revolving.”
– In addition, financial institutions could join together to form a
“hydro bank” specifically to provide loans at attractive rates to
project developers. The hydro bank could offer loans with
interest less than the PLR. In addition, the hydro bank should be
allowed to increase loan repayment periods beyond the typical
ten years. Doubling this repayment period – to 20 years – could
significantly improve the project’s financial position.

16. • Make purchase of green power compulsory for utilities
• Require ‘time-of-day’ metering
– A significant advantage of a hydroelectric project is the
ability to provide peaking power in the mornings and
evenings when electrical demand is highest.
– Owing to the high demand, the rate paid for this peaking
power is substantially higher than for electricity produced
at non-peak hours. However, to compensate a hydro
project owner, arrangements for “time-of-day” metering –
in which electricity consumed at different times of the day
is recorded – is required.

17. Development-related suggestions
• The central government can play an important role in
facilitating efficient, effective, and timely project completion
by building access roads to project sites, acquiring land
needed to develop the project, providing telecommunication
facilities, and developing a master plan for transmission.
• Some project sites are not approachable by roads that are
suitable for motorized vehicles. Access roads benefit not only
the project but also adjoining villages. Therefore, access roads
should be constructed by the government, and these costs
should not be loaded on the project.
• Land required for development should be acquired by the
government and made available to the developer at nominal
lease charges.

18. • The land acquisition process is time-consuming and can meet
roadblocks and judicial intervention, resulting in delays the private
developer cannot absorb.
• Telecommunication facilities on the way to and at each project site
will provide the ability to communicate quickly and effectively.
• Reducing the amount of import duty that hydro project developers
are required to pay for importing construction and generation
equipment will help reduce overall costs for developers.
• A master plan for transmission of electricity generation should be
prepared by the central government for the national grid and by
each state government for the state grids. The master plan should
include transmission schemes for every generating plant in the
state, both existing and future.

19. Way forward
• Consistent policies and regulations should be made through
the States.
• Large scale hydro projects which involve greater risks due
to geological uncertainties etc should be implemented by
the state nodal agencies, while the relatively safer projects
with reduced risks and smaller capital investments should
be offered to the private entrepreneurs.
• A single window clearance setup for hydro projects will
solve most problems related to the clearances etc
• Renovation and Modernization of existing /old hydro power
plants should be promoted and planned for, instead of
complete focus on setting up of green field power projects

20. • Financial issue like Long term debt financing / long tenure loans,
differential tariff for pea and off-peak hours need serious thinking
and early implementation
• The private sector participation in the large scale development of
hydropower should be promoted. This can be achieved either
through public-private partnerships or through independent private
projects (IPP way). The Government of India has already recognized
the need to increased private involvement and has referred to it in
the national policy document.
• The hydro sector needs to develop a set of competent civil
engineers / contracting agencies that have the technical and the
management expertise to conceptualize and develop a project of
the required scale. The contract management practices with a
transparent system of selection of contractors and resolve any
disputes that may arise need to be reviewed.