Issues in hydro power development

Issues in hydro
power
development
IPPAI Regulators’ and Policy Makers’
Retreat, Goa, August 2012

BENEFITS OF HYDRO POWER
• Renewable: energy security, no fuel shortage
• Clean: no CO2 emissions
• Yet predictable (as against wind)
• Peaking support (as against other renewables): even RoR
schemes provide peaking support
Very cheap in the long run
• Development of remote areas.
• Source of revenue for States without other natural
resources, and with locational disadvantages
• IN INDIA, THERMAL:HYDRO RATION OF 60:40 CONSIDERED
IDEAL

Copyright © 2010 Jindal Steel & Power Ltd.

HYDRO POWER DEVELOPMENT
OVER THE YEARS
Plan Period Hydro Installed Capacity % of Total IC
1st Plan (1951-56) 1061 36.78
2nd Plan (1956-61) 1916 41.19
3rd Plan (1961-66) 4123 45.68
3 annual Plans 1966-69 5906 45.58
4th Plan (1969-74) 6965 41.80
5th Plan (1974-79) 10833 40.60
Annual Plan (1979-80) 11383 40.01
6th Plan (1980-85) 14460 33.96
7th Plan (1985-90) 18307 28.77
2 Annual Plans (1990-92) 19194 27.79
8th Plan (1992-97) 21644 25.46
9th Plan (1997-02) 26261 25.40
10th Plan (2002-07) 33485 26.19
11th Plan (2007-12) 38748 20


11TH FIVE YEAR PLAN
Central State Private Total
Hydro Target 8654 3482 3491 15627
Mid Term 2922 2854 2461 8237
Appraisal
Hydro 6111
Achievement

Thermal 24840 23301 11552 59693
Target
Thermal Mid 14920 18501 17336 50756
term
Appraisal
Thermal 43073
Achievement


12TH AND 13TH PLANS
12th Plan 13th Plan
Hydro 9204 12000
Nuclear 2800 18000
Thermal 67686 49200
Total 79690 79200
Wind 11000 11000
Solar 4000 16000
Other RES 3500 3500
Total RES 18500 30500

Hydro plan less than what is technically feasible “due to issues of water rights,
resettlement and environmental concerns” as well as due to “natural
calamities, geological surprises etc. “(CEA)


.

• PERCENTAGE OF HYDRO HAS COME DOWN FROM 45% IN
1970 TO 20% IN 2012.
• A number of hydro players have announced withdrawal
• 11th Five Year Plan achievement 6111 MW against target of
15,627 MW
• UTILISATION OF POTENTIAL IS ONLY 44,859 MW OUT OF
1,57,000 (28%) (China: almost 50%)
• IN ADDITION, 90,000 MW OF PUMPED STORAGE YET TO BE
TAPPED
WHAT IS WORSE, WE ARE NOT EVEN PLANNING FOR
CORRECTING THIS


PEAKING BENEFITS OF HYDRO
Haryana Energy Requirement

120
Energy Requirment (MU/day)

100
80
60
40
20
0
Jun-10 Jul-10
Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11
Aug- Sep- Nov- Dec- Feb- Mar- May-
Jun-10 Jul-10 Oct-10 Jan-11 Apr-11
10 10 10 10 11 11 11
Energy demand 101.58 108.09 112.82 95.31 98.93 84.5 90.09 99.61 83.8 89.9 75.81 91.25
Etalin Energy 45.1 50.3 57.2 42.9 26.7 22.3 19.3 16.7 14.4 15.4 30.1 25.9
Shortage 4.5 5.61 5.57 3.57 3.69 5.26 5.31 6.81 2.21 2.66 2.21 2.17


PEAKING BENEFITS OF HYDRO
Punjab Energy Requirement
180

160
Energy Requirment (MU/day)

140

120

100

80

60

40

20

0
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11
Energy Demand 153.19 159.99 168.47 143.11 116.19 91.67 94.99 96.17 91.99 104.21 97.97 128.73
Etalin Energy 45.1 50.3 57.2 42.9 26.7 22.3 19.3 16.7 14.4 15.4 30.1 25.9
Shortage 8.35 9.09 10.47 4.21 3.91 6.75 3.79 5.22 4.98 3.64 2.41 1.96


Peaking – a neglected area
• Recent Grid disturbances have shown importance
of peaking power, both seasonal as well as di-
urnal
• Gas:
Dependent on imorts
Wild fluctuations in availability, tariff
Already a large capacity is stranded
• Oil:
Most expensive, but today most prevalent:
generators

9 Copyright © 2010 Jindal Steel & Power Ltd.

KNOWN UNKNOWNS
• Geological surprises
• Land acquisition
• Rehabilitation & Resettlement
• Forest clearance
• Environment clearance
• Agitations
• Poor road infrastructure
• Lack of access to data e.g. hydrological data

ALL THESE DIFFICULTIES MAKE HYDRO A RISKY PROPOSITION


LARGE HYDRO – AN ORPHAN

• Renewable, but yet not counted as renewable
• No RPO/REC
• No Feed-in Tariff
• No excise/customs duty benefit (except for mega projects)
• No accelerated depreciation
• Why is small hydro ‘new and renewable’, but not large
hydro? Because it is off-grid/de-centralised?
Then why is ‘large solar’ or ‘large wind’ new and
renewable?

LARGE HYDRO AN ORPHAN:
POWER PROCUREMENT
• Peaking power does not figure in long term power
purchase plans of utilities. Nor do regulators insist on it
• And why should they, when they can over-draw at will?
• No utility ties up power years in advance. Long gestation
projects such as hydro suffer
• Consequently, hydro has to compete with thermal in
power procurement. May suffer if tariff, particularly first
year tariff, is higher than thermal
• Invariably, fuel costs rise faster than the indices for
comparison


LARGE HYDRO – AN ORPHAN:
MEGA POWER PROJECT BENEFITS

• Excise/customs duty exemption only for equipment, but
not for civil part
• 75% of hydro project costs are for civil, whereas only 10-
15%% project costs of thermal projects are for civil
• Tariff impact of this difference – 10 to 15 p


LARGE HYDRO – AN ORPHAN:
TARIFF SETTING
• Construction period 4 years for thermal, but 6 to 8 years
for hydro. ROE not allowed during construction: Low IRR
• Many projects have to pay upfront charges to States,
which carry no return
• Project preparation longer and more expensive than in
thermal (DPR, Land acquisition, R & R etc)
• Approach road construction also a heavy initial burden
• Tariffs do not reflect peaking benefits


FINANCE
• A large part of tariff of a thermal plant is fuel, whereas
most of the tariff of a hydro plant is accounted for by
capital cost
• Longer gestation period adds to the IDC burden
• Hydro projects are therefore more sensitive to terms of
finance
• Lack of long-term finance makes tariff front-loaded,
comparing unfavourably with initial tariffs of thermal
plants
The very long life of hydro projects does not get due
recognition

ATTITUDE OF STATE GOVT.
• Allotment of projects done haphazardly
• After getting upfront payment no real support from state
Govt.
Project developers are expected to provide many basic
amenities such as schools as CSR
• Next benefit to state accrues only after commercial
operation starts and free power is received
• There may be more than a couple of elections in between
• This, in spite of the huge long-term benefit to the State


WHAT STATES COULD DO
• Be more proactive in matters of clearances
• Be a more proactive interface between project developers
and people
• Follow a basin-wise approach
• Invest in road and evacuation infrastructure planning and
development
• Backload tax burden


POSITIVE DEVELOPMENTS
• Point of connection transmission
• 1% extra ROE proposed for reservoir schemes and pumped
storage schemes (however, needs to be extended to RoR
schemes too)
• Discussion has started on encouraging peaking power
through tariff: Committee under Chairmanship of CEA
Chairman
• Time of Day tariff introduced in some States
• These two measures will give hydro its due


Issues in hydro power development

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