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Renewable Energy Hydrosector India


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A very comprehensive presentation outlining the overview of hydroelectric power in india, key sectorial issues affecting growth, elaborating solutions to problems and the way forward for sustaining growth in future.

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Renewable Energy Hydrosector India

  1. 1. Renewable Energy Hydro Sector India
  2. 2. Presentation Flow… <ul><li>Overview of Indian Hydro Sector </li></ul><ul><li>Way forward for growth of hydro power </li></ul>Overview Issues Solution Way forward <ul><li>Elaboration of the issues and proposed solutions </li></ul><ul><li>Key issues affecting hydro power growth </li></ul>
  3. 3. Presentation Flow… <ul><li>Overview of Indian Hydro Sector </li></ul>Overview
  4. 4. Hydro Power Projects ...Pros <ul><li>Environment friendly and clean power </li></ul><ul><li>Effective tool for load variation management-peak loads </li></ul><ul><li>Socio-economic development of remote areas </li></ul><ul><li>Lowest lifetime cost of power generation </li></ul><ul><li>Negligible Operational Cost: No fuel linked inflationary pressures/input price risks </li></ul><ul><li>Energy security </li></ul>
  5. 5. Overview of Indian Power Sector <ul><li>Total Installed capacity in India – 132,330 MW </li></ul><ul><li>Total Hydro capacity- 34653 MW </li></ul><ul><li>Total hydro power potential in India- 150000 MW </li></ul><ul><li>Current Thermal:Hydro Ratio-64:28 </li></ul><ul><li>Ideal Ratio - 60:40 </li></ul>Hydro power share in the total installed capacity continuously declining over last four decades
  6. 6. Comparison with China: India stands nowhere <ul><li>Total Installed capacity : 510,350 MW </li></ul><ul><li>Total Hydro capacity- </li></ul><ul><li>117 ,380MW </li></ul>China has increased its hydro capacity by 243 % during last fifteen years. Immense learnings for Indian policy makers
  7. 7. Structure of the presentation Key issues <ul><li>Key issues affecting hydro power growth </li></ul>
  8. 8. Why India is lagging in hydro capacity… <ul><li>Long gestation period/Geological surprises </li></ul><ul><li>Opaque mechanism for allocating hydro projects </li></ul><ul><li>Teething R&R problems </li></ul><ul><li>Long delays in obtaining Environment and Forest clearances </li></ul><ul><li>Inter-state disputes on water sharing </li></ul><ul><li>Inadequate Transmission capacity </li></ul><ul><li>Non-availability of appropriate financing instruments </li></ul>
  9. 9. Structure of the presentation Solution <ul><li>Elaboration of the issues and proposed solutions </li></ul>
  10. 10. Issue-1 : Award of Hydro Projects <ul><li>Award of the hydro projects prerogative of state government </li></ul><ul><li>No standard policy for award. Every state following its own policy for award: </li></ul><ul><ul><li>Upfront premium </li></ul></ul><ul><ul><li>Share of free power </li></ul></ul><ul><ul><li>Equity allocation to state govt. </li></ul></ul><ul><ul><li>Memorandum of Understanding (MoU) </li></ul></ul><ul><ul><li>Competitive bidding </li></ul></ul><ul><ul><li>Combination of above </li></ul></ul><ul><li>Opaqueness and uncertainties in policy framework resulting in slow development of hydro power and increase in ultimate tariff </li></ul>Clear and transparent policy for award of hydro projects at national level is need of the hour
  11. 11. Issue-2 : Resettlement and Rehabilitation <ul><li>National R&R Policy 2003: </li></ul><ul><ul><li>The Policy sets minimum benchmarks for the compensation to the PAFs </li></ul></ul><ul><ul><li>The compensation amount specified in the Policy is neither attractive nor linked to any inflation </li></ul></ul><ul><li>Politicization of the R&R, especially in regard to large hydro projects </li></ul><ul><li>Slow pace in disposing of irritating PILs by the Judiciary </li></ul><ul><li>Increasing demand for land-for-land, employment to PAF </li></ul><ul><li>Poor implementation of the R&R package by state govt. </li></ul><ul><li>States not enthusiastic on spending earnings from 12% free power on the local area development </li></ul><ul><li>Revision in the minimum compensation specified in National R&R Policy and linkage to the inflation to make it more attractive for the PAFs </li></ul><ul><li>Timely, fair and transparent implementation of R&R package </li></ul><ul><li>Provision of some equity allocation to the PAF in line with SEZs </li></ul>
  12. 12. Issue-3 : Environment and Forest Clearances <ul><li>Cumbersome and time consuming process: </li></ul><ul><ul><li>Clearance from State Forest department </li></ul></ul><ul><ul><li>Clearance from State Pollution Control Board </li></ul></ul><ul><ul><li>Public Hearing by the District Magistrate </li></ul></ul><ul><ul><li>Clearance from central MoEF for large hydro projects </li></ul></ul><ul><li>Takes normally1.0-1.5 years to secure the Environment and Forest clearances </li></ul><ul><li>Primary delay at the state government level </li></ul><ul><li>NPV/leasing rental charged for forest area apart from charge for afforestation and catchment area treatment </li></ul><ul><li>Simplification and Streamlining of the procedure with clear time limit for each milestone </li></ul><ul><li>Rationalization of NPV and forest area leasing costs </li></ul><ul><li>Support from the state and central governments </li></ul>
  13. 13. Issue-4 : Inter-state water disputes <ul><li>Disputes arise among the states on hydro projects on : </li></ul><ul><ul><li>Disagreement on sharing of benefits and costs </li></ul></ul><ul><ul><li>Disagreement on sharing of water </li></ul></ul><ul><ul><li>Disagreement on the submergence area </li></ul></ul><ul><ul><li>Political considerations </li></ul></ul><ul><li>Around 34 projects with aggregate capacity of around 6800 MW stuck-up due to inter-state water disputes </li></ul><ul><li>Consensus among state governments on sharing of water resources </li></ul><ul><li>Mediation and persuasion by the Central Government </li></ul>
  14. 14. Issue-5 : Long gestation period <ul><li>In India, hydro power plants have construction period of 4-6 years while in the countries like China the construction period has been drastically reduced to 3-4 years </li></ul><ul><li>Long gestation period of affects the project viability due to: </li></ul><ul><ul><li>Increases Project cost due to higher Interest During Construction (IDC) </li></ul></ul><ul><ul><li>Discourages private investment due to late returns </li></ul></ul><ul><ul><li>Increases risk perception due to possible change in purchaser’s credit profile, demand-supply scenario, supply from more economical alternative sources </li></ul></ul><ul><ul><li>Use new construction materials like roller compacted concrete, special concrete additives, bulk production of crushed aggregates, sand from blasted rock etc. </li></ul></ul><ul><ul><li>Use advanced construction technologies like high pressure chemical grouting in rock and concrete, controlled rock mass drilling and blasting, heavy and long anchor tendons constructions etc. </li></ul></ul><ul><ul><li>Increase Equipment Manufacturing capacity, especially Turbines </li></ul></ul><ul><ul><li>Prepare systematic database of different soil and rock classifications, strength and strain parameters of different regions to facilitate geological investigations </li></ul></ul>
  15. 15. Issue-6 : Transmission Constraints <ul><li>Hydro projects are mostly located in the Himalayan mountains with difficult access </li></ul><ul><li>Construction of transmission lines is expensive and time consuming </li></ul><ul><li>A large part of the hydro potential is concentrated in North-eastern states, where demand is not significant, and transmission of power has to be carried out through very narrow land mass available between India and Bangladesh (Chicken neck region) </li></ul><ul><li>Development of Integrated Transmission network considering futuristic planning for evacuating the hydro power from any region </li></ul><ul><li>Construction of UHV ( > 500 kV) transmission lines for evacuating power from large hydro projects, especially from the North East region </li></ul>
  16. 16. Issue-7 : Financing Issues <ul><li>Currently, predominantly plain vanilla term loans with tenure of about 10 -15years are available in Indian Market, which is very short compared to typical life of a hydro project (35 years) </li></ul><ul><li>Banks are not able to lend long term due to asset-liability mismatch issue </li></ul><ul><li>Corporate Bond market is still not developed </li></ul><ul><li>Usage of Structured Financial Instruments like Securitization, Bond insurance, Risk guarantees is minimal </li></ul><ul><li>Enabling regulations by Central Government, RBI and SEBI for development of corporate bond market and market for structured financial products for long term infrastructure projects </li></ul><ul><li>Tax sops by the Government to Financial Institutions extending long term finance to hydro projects </li></ul>
  17. 17. Issue-8 : National Tariff Policy (NTF) <ul><li>NTF states that: </li></ul><ul><li>“ All future requirement of power should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a State controlled/owned company as an identified developer and where regulators will need to resort to tariff determination based on norms provided that expansion of generating capacity by private developers for this purpose would be restricted to one time addition of not more than 50% of the existing capacity” </li></ul><ul><li>However, most of the hydro potential exists in northern Himalayan and north-eastern region, where demand of power is not very significant </li></ul><ul><li>Therefore, Hydro IPPs willing to sell power on long term will have to sell power through competitive bidding in other states </li></ul><ul><li>With higher capital cost, short duration loans, and additional transmission charges, the tariff of hydro projects may not be as competitive as coal based projects </li></ul>Need to amend NTF by the Central Government to allow procurement of power from hydro projects by distribution licensees under section 62 of the Electricity Act, which has provision of tariff determination by the Appropriate Regulatory Commission
  18. 18. Issue-9 : Geological Surprises <ul><li>A large part of the hydro potential lies in Himalayan range, which are relatively young mountains and are full of geological surprises </li></ul><ul><li>Improper geological investigations also leads to geological surprises </li></ul><ul><li>No adequate provisions in the EPC/Civil contracts towards Geological surprises. Wherever the risk is clearly allocated to the contractor , the premium charged by them is very hefty. </li></ul><ul><li>Some sort of geological surprises are normally expected, especially in large Storage based Hydro projects </li></ul><ul><li>Development of national repository on primary geological data on potential hydro sites, especially Himalayan range </li></ul><ul><li>Proper provision in the capital cost for escalation due to geological surprises and willingness of the FIs/Banks in funding for the same </li></ul>
  19. 19. Issue-10 : Merchant Power Plant <ul><li>Merchant power plants are typically peaking power plants that do not have firm long term PPAs and sell power on short to medium term to take benefit of market dynamics </li></ul><ul><li>Hydro power plants with short run-up time are the ideal ones for peaking capacity </li></ul><ul><li>Current CERC regulations allow short term inter-sate sale with booking of transmission corridor on short term ( upto 1 year) or long term (25 years) </li></ul><ul><li>No provision for booking of transmission corridor on medium term </li></ul><ul><li>Short term capacity has to be booked every three months, which exposes the Seller to “Availability Risk” </li></ul><ul><li>Not adequate inter-state transmission capacity to encourage merchant plants </li></ul><ul><li>Booking of transmission corridor on long term for short term sale is unviable </li></ul><ul><li>Development of national grid with adequate surplus capacity for short term trading </li></ul><ul><li>Development of Power Exchange to provide a secured platform for short term sale of power </li></ul>
  20. 20. Other Issues <ul><li>Impact of global warming on the hydrology of the project: </li></ul><ul><ul><li>Short duration and high intensity of Monsoon </li></ul></ul><ul><ul><li>Frequent floods during Monsoons period </li></ul></ul><ul><ul><li>Reduction in non-Monsoon period inflows </li></ul></ul><ul><li>Acts of neighboring countries </li></ul><ul><ul><li>Diversion of Brahmputra river water by China </li></ul></ul><ul><ul><li>Dispute by Pakistan on construction of Baglihar project in J&K </li></ul></ul><ul><li>Sharing of infrastructure cost among the developers in the same region/zone </li></ul><ul><li>Firm and assertive dealing with neighboring countries on violation of water treaties </li></ul><ul><li>Proactive role in reducing global emissions </li></ul><ul><li>Notification of clear policy on sharing on common infrastructure cost by the developers </li></ul>
  21. 21. Structure of the presentation <ul><li>Way forward for growth of hydro power </li></ul>Way forward
  22. 22. Way forward for growth of hydro capacity <ul><li>Enabling regulations from the central government on allocation of hydro projects, R&R and Environment clearances </li></ul><ul><li>Permission to hydro projects to sell power through regulated tariff </li></ul><ul><li>Development of national transmission grid with adequate surplus capacity </li></ul><ul><li>Development of advanced construction and material technology to reduce construction period </li></ul><ul><li>Enabling policy framework for developing long term debt market </li></ul><ul><li>Development of rich repository of geological data of the potential hydro sites </li></ul><ul><li>Development of Power Exchange for enabling short term sale of power </li></ul>
  23. 23. Policy directions are progressively ushering competitive power sector market .. <ul><li>Electricity Act 2003 </li></ul><ul><ul><li>Immediate non-discriminatory open access to transmission </li></ul></ul><ul><ul><li>Open access to distribution network in phased by Jan 2009 </li></ul></ul><ul><ul><li>Recognition of Trading as separate activity </li></ul></ul><ul><ul><li>Acceptance of the tariff by ERCs determined through competitive bidding </li></ul></ul><ul><ul><li>Controlling abuse of market power through ERCs </li></ul></ul>
  24. 24. Policy directions are progressively ushering competitive power sector market <ul><li>Competitive Bidding Guidelines </li></ul><ul><ul><li>Competitive acquisition of new generation and transmission capacity </li></ul></ul><ul><li>National Tariff Policy </li></ul><ul><ul><li>Promoting retail competition </li></ul></ul><ul><ul><li>Supporting competitive acquisition of generation capacity </li></ul></ul><ul><ul><li>Enabling choice </li></ul></ul><ul><ul><li>Supporting distribution reforms </li></ul></ul>
  25. 25. Thank You