Reasons for Slow
Improvements in Existing
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 on
Electricity 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
India chronology of Policy / Regulation
Tariff • Made competitive bidding mandatory
New Hydro • Stated objective of overcoming the
problems experienced with respect to
Policy 2008 tariff based bidding for HEPs
Agencies Involved in Hydropower
CENTRAL ELECTRICITY AUTHORITY &
CENTRAL WATER COMMISSION
STATE POWER DEPARTMENTS &
MNES - MINISTRY OF NON-
CONVENTIONAL ENERGY SOURCES
SEVERAL NGO ORGANIZATIONS (e.g.
INTERNATIONAL FUNDING AGENCIES
Private sector participation
Uncertainty in power payments,
Lack of sanctity regarding contracts,
Unknown hydrology and geology.
High financing costs,
Land acquisition problems,
Rehabilitation and resettlement
Slow legal system,
Availability & reliability of data from the Gov
Environmental • Afforestation and rehabilitation are the main
Issues • Environment impact assessment studies
• Land-owners often demand employment and
Land Acquisition heavy compensation in some of the power
Interstate • Major Indian rivers are generally interstate
• The law and order problem areas affected by
Insurgency insurgency and militant problems.
• Difficulties in arranging manpower deployment.
Geological • Geotechnical investigations avoid time and cost
Funds • Tie up of resources from concept to
Natural • Land slides, hill slope collapses, road blocks etc.
• Heavy rains and unprecedented floods cause
severe setbacks in construction
Policies & Regulations
• Policies and according Status of
ƒƒHydel Policy & Implementation ƒƒCompetitive Bidding
Mega Power Policy
• Issues Impacting Delay Hydro Power Project
Environmental and • Harmonizing Inter-Ministerial Policy
Forest Regulations Measures/Initiatives
• Time to converge on a Mutual Beneficial Path
Central & State
Issues and Challenges
• Integrated Management of Hydro Projects
Power Evacuation EPC & Construction
and Transmission Risks
Perspective and environmental
Reasons for Slow Development
Long gestation period
Time consuming process for project clearances
Until recently, the national focus has been on
Highly capital intensive and absence of committed
Poor financial health of State Electricity Boards
Technical constraints due to complex geological
nature of the projects
Absence of long tenure loans makes it
difficult for private investors
Advance against depreciation is
ROE was not attractive enough for
Dearth of competent contracting agencies
to construct the project site
Inter-state disputes as Water is a state
• 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
– Examples include: Effect on the Land, effect on water
quality, effect on flora and fauna.
• The two biggest effects of hydro project development in India
are the cutting of trees & displacement of people living in the
– Recommend the to provide compensatory aforestation –
equivalent to the forest cover lost as a result of the
– 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.
• 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
• 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
– 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.
• 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
• 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.
• Consistent policies and regulations should be made through
• 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.
INTERNATIONAL FUNDING AGENCIES – WORLD BANK, UNDP, GLOBAL ENVIRONMENT FACILITY, THE ASIA ALTERNATIVE ENERGY PROGRAM (ASTAE), ASIAN DEVELOPEMENT BANK,INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY (IREDA)
Private sector participation in overall power development in India has been about 11 percent.