While pouring the first bucket of concrete into the foundations of the Bhakra Dam on November 18, 1955, Pandit Jawaharlal Nehru described the project as the "New Temple Of Resurgent India". His thoughts were matched with action. In the second and third five-year plans, as the accompanying table shows, the share of hydro power peaked at 46 per cent. Regrettably, it is now at 20 per cent, and likely to fall to 17 per cent if no remedial steps are taken. And remedial steps have to be taken now, as hydro has a long development cycle often stretching up to 10 years.
Current discussions on hydro evoke passionate responses. The recent floods and havoc in Uttarakhand have generated negative publicly on their purported contribution to the calamity. Protagonists argue that it was the holding capacity of many of the dams that prevented a larger calamity. Simultaneously, the announcement on increase in gas prices has strengthened the case for cheap, reliable hydro power of which India has a huge potential, both within its boundaries and in the neighboring regions (see accompanying table).
Like gas, hydro power is a good source for peaking requirements. It improves energy security, diversifies our energy mix, and is sustainable, safe, clean and reliable. Further, it provides multi-purpose benefits for irrigation and flood control, and over a 50-year life-cycle, provides cheap power.
However, India has exploited only 24 per cent of its hydro potential at an installed capacity of around 35,000 Mw against an "identified potential" of 148,701 Mw. In the 11th Plan period, like ports (that saw only 40 per cent achievement), hydro was another "challenged" sector with only 52 per cent achievement. The failure was uniform across both public and private sectors.
A realistic target would be to try and restore hydro to at least an overall share of 20 per cent in India's energy basket by the end of the 14th Plan period.
This would require an addition of 62,000 Mw of hydro capacity over the next 14 years. How do we do that?
Here is a 10-point agenda:
One, immediate focus on implementing 38,000 Mw: 38,000 Mw of projects are either (i) under construction (ii) detailed project report (DPR) approved, or (iii) DPR under approval. Shorn of jargon, all this means is that these projects are quite set to be fully implemented. So, all necessary steps need to be taken to see that hurdles along their path are removed, just like the Competition Commission of India is doing for other infra projects.
Two, Arunachal Pradesh should get special attention as a hydro hub: It has the highest unexploited potential at 41,000 Mw. A '"task force" approach for Arunachal is needed to build evacuation transmission corridors and access (roads, airports, helipads) under public expenditure. Even ready-to-go projects are held up on these counts.
Three, economic diplomacy for leveraging regional potential: Nepal and Bhutan are natural candidates for hydro power sharing with India and economic diplomacy needs to make this happen. The recent removal of import restrictions is a welcome step. They should be treated at par with Indian projects with permission to participate in Case-I bids as well as be financed by Indian institutions.
Four, hydro procurement to be only on cost-plus: Hydro projects are permitted "cost-plus tariff determination" till December 31, 2015. This needs to be extended generally since this is the only plausible basis of pricing hydro power as each hydro project is unique in its own distinctive way and cannot be compared to cookie-cutter costs of, say, thermal. In recent times, there has been no procurement by utilities as there is lack of clarity on evaluation of bids. A clear framework is required for procurement of hydro power. It is suggested that price be based on the approved DPR with the final tariff payable as per Central Electricity Regulatory Commission (CERC) approved costs.
Five, introducing hydro power obligation (HPO): Hydro capacity is not a natural choice for developers considering the bundle of hydrological, geological and environmental uncertainties, higher capital cost, longer gestation period and overall higher implementation risks including local protests and rescue & recovery snafus. It would help to create a HPO, much like renewable power obligation. Analysis reveals that an 18 per cent HPO obligation with a ± 7 per cent swing for different states on account of existing installed hydro capacity and peaking requirements would be appropriate.
Six, establish a sliding grade for return on equity (RoE) calculation: The CERC Tariff Regulations 2009-14 allow fixed ROE, irrespective of the commissioning schedule for all generation projects. The applicable RoE for all types of projects (coal/gas based projects, thermal, hydro, transmission) is 15.5 per cent. So, longer gestation hydro projects suffer from a lower internal rate of return since no return on equity is allowed during construction period compared to relatively shorter gestation thermal projects. There is a need to evaluate construction period linked returns to bring all projects at par for returns.
Seven, evict hydro squatters: Similar to coal, the hydro sector has its own set of "squatters" with no genuine interest to develop projects but reap the benefits of arbitrage opportunities. From the large quantum of capacity awarded of about 62,000 Mw, only 20 per cent are under construction. A carefully constructed legal and administrative action-plan needs to be drawn up to evict squatters and deal only with genuine investors.
Eight, transmission corridors and roads by public expenditure: Absence of state-developed infrastructure support is the bane of hydro development. Project economics allow a developer to undertake limited amounts of external development such as minor roadworks or last-mile grid linkages. The basic building of roads in remote hilly terrain to allow transport of heavy equipment, and the availability of mainline transmission corridors is the responsibility of the state. Power Grid Corporation of India Ltd (PGCIL) should undertake corridor planning and implementation as a part of an overall regional grid. Project-specific lines can be permitted as joint ventures between PGCIL and the concerned developer.
Nine, remove requirement of forest clearance at DPR stage: Currently, the Terms of Reference approval for environmental clearance - which is essential for investigations for DPR - require that the proposal for forest clearance also needs to be submitted. The removal of forest clearance requirement at this stage will speed up matters considerably.
Ten, streamline control administration and claims processing: As in National Highway Authority of India, a huge backlog of claims, at estimated levels of Rs 10,000 - Rs 15,000 crore, are lying with the hydro public sector undertakings. Private contractors are demoralised about doing more work till these are sorted out. These should be dealt with forthwith and procedures streamlined for the future.
It is abundantly clear that with ever-increasing fossil fuel prices, strains on the transportation systems, requirement of a reliable solution to peaking power, mitigating current account deficit concerns on account of energy imports, and a solid answer to climate change, hydro power development has to make a forceful comeback on India's energy agenda.
The author is the Chairman of Feedback Infra "vinayak.chatterjee@feedbackinfra.com"; Twitter: @Infra_VinayakCh
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
