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Reasons for Slow Realization &Improvements in Existing Policies Priyank Jain (92)
India chronology of Policy / Regulation Pre 2003 • Early and late 90s Negotiations for small and medium size HEPs, Bidding route initiated in early 2000s. • Gave a framework for development of new capacity onElectricity Act competitive basis, puts statutory responsibility on Regulators for market development, also includes concept 2003 of Statutory policy (mainly Electricity and Tariff Policies National • Hydro power development through private participation, Electricity stresses on the need successful models for Public Private Partnership. Policy 2005
India chronology of Policy / Regulation National Tariff • Made competitive bidding mandatoryPolicy 2006New Hydro • Stated objective of overcoming the problems experienced with respect toPolicy 2008 tariff based bidding for HEPs
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
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
Slow realizationEnvironmental • Afforestation and rehabilitation are the main problems Issues • Environment impact assessment studies • Land-owners often demand employment andLand Acquisition heavy compensation in some of the power stations Interstate • Major Indian rivers are generally interstate Disputes • The law and order problem areas affected by Insurgency insurgency and militant problems. • Difficulties in arranging manpower deployment.
Environmental Issues…Geological • Geotechnical investigations avoid time and cost over-runs.Surprises Funds • Tie up of resources from concept to commissioning sufferConstraints Natural • Land slides, hill slope collapses, road blocks etc. • Heavy rains and unprecedented floods cause severe setbacks in constructionCalamities
Policies & Regulations • Policies and according Status ofƒƒHydel Policy & Implementation ƒƒCompetitive BiddingMega Power Policy • Issues Impacting Delay Hydro Power ProjectEnvironmental and • Harmonizing Inter-Ministerial PolicyForest Regulations Measures/Initiatives • Time to converge on a Mutual Beneficial Path Central & State Hydro Policies
Issues and Challenges• Integrated Management of Hydro Projects Power Evacuation EPC & Construction and Transmission Risks Macro-Economic Perspective and environmental Investment sustainability Bottlenecks
Reasons for Slow DevelopmentLong gestation periodTime consuming process for project clearancesUntil recently, the national focus has been onthermal generationHighly capital intensive and absence of committedfundsPoor financial health of State Electricity Boards(SEBs)Technical constraints due to complex geologicalnature of the projects
Absence of long tenure loans makes itdifficult for private investorsAdvance against depreciation isdisallowedROE was not attractive enough forinvestorsDearth of competent contracting agenciesto construct the project siteInter-state disputes as Water is a statesubject
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.
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.
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.
• 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.
• 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.
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.
• 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.
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
• 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.