By Anish De
Hydropower is one of the most economic and non-polluting sources of energy. Due to its flexible nature, it can also serve as a critical balancing resource, besides being suitable during peaking power requirements. Despite the potential benefits, hydropower development has lacked concerted focus, both at the central and state level, apart from being plagued with a variety of issues. As a consequence, the country has not been able to harness its hydropower potential effectively, leading to not just a slowdown in growth, but also deceleration.
Declining contribution in the supply mix
Currently, only 28 per cent of the total hydropower potential in the country has been harnessed. The year-on-year hydropower addition has so far shown a declining trend. Of the planned targets, the average materialisation in the last few five-year plan periods (eighth to 11th Plan) has only been 46 per cent.
In the ongoing 12th Plan period (2012-17), the trend is likely to continue, since only 24 per cent of the capacity addition target has been met so far (refer to the figure).
Even if we assume 100 per cent materialisation of the 12th Plan targets, the overall contribution will fall to approximately 18 per cent from 40 per cent in the 1980s. There are innumerable issues hampering the development of the hydropower sector, along with several risks associated with project planning, construction, and operation, which have collectively resulted in this trend.
Development plagued with myriad issues
Hydropower growth is characterised by high uncertainty and concerns at various stages of development. Issues such as lack of planning, nonavailability of hydrological data, delays in obtaining clearances, lack of centralised coordination, etc. have restrained large investments in the sector from getting realised. Many of these issues have been known since years, however, limited progress has been made to plug these gaps.
Among the hydro-rich states, Arunachal Pradesh, Uttarakhand and Himachal Pradesh are the top three in terms of exploitable potential (refer to the figure on the next page). While the pace of development of hydropower in Himachal Pradesh has been reasonable (owing to adequate development support by the state government), performance in Arunachal Pradesh and Uttarakhand has been slow. Both these states have significant unharnessed potential i.e. 72 per cent of the capacity in Uttarakhand and 93 per cent in Arunachal Pradesh is yet to be utilised for construction. Lack of adequate support from the host state and skewed risk sharing framework creates an unfavourable climate for investments and actual development. Of the projects that have been allotted, there is very limited movement on ground, with the pre-construction stage consuming disproportionate amount of time. The issues mainly include delays in land acquisition, consent and clearance, site investigation and geological risks, resettlement and rehabilitation, evacuation planning, non-availability of data, etc. Some of the key issues associated with hydropower projects in different states are indicated in the table on the next page.
This decline in contribution has had severe repercussions from a system operations perspective considering an increased contribution of renewable energy into the supply mix.
Meeting national renewable energy targets
Despite roadblocks, renewable energy in India has grown at a tremendous pace in the past few years, led by wind and solar. The government has laid strong emphasis on the development of renewables, and has set a target of adding 160 GW of energy from solar and wind by 2022.
Generation of energy from wind and solar sources has introduced a high level of variability into the system, which affects the grid frequency instantaneously and needs to be balanced through well-composed resources and ancillary services.
Under such circumstances, the avenues available with system operators are limited and also expensive. For instance, gas-based projects also have the ability to respond to varying loads quickly, however, they are not only expensive, but also exposed to fuel vagaries and foreign exchange depletion.
Globally, hydropower is increasingly being recognised as a resource to support such system imbalances. Its use as a controllable resource in power systems is being successfully done in the Nordic region. The integrated systems of Nordic countries efficiently utilise hydropower generated in Norway and Sweden, for balancing wind power variation in Denmark.
The combination of renewable energy with pumped hydro energy storage is another process that can be applied to achieve synergy. System operators across the globe have supported the use of pumped hydro energy storage to complement the growing deployment of renewable energy, particularly wind generation and its gridrelated constraints. Pumped hydro energy system is akin to a gigantic battery that helps store surplus wind and solar energy in highgeneration periods and release the energy back to the grid in low-generation periods.
Catering to peaking power requirement is another area where hydropower can strategically contribute, especially for India, which has a significant demand-supply gap. During the peak period, hydropower can be ramped up/down almost instantaneously, thus providing frequency control and system stability.
Need for renewed focus
Hydropower projects in India lack the strong processes and institutional structure that generally aid development. It is crucial to bring a radical change in the way such projects are announced, planned and implemented. Serious efforts are required at the policy, regulatory and process level to determine that various barriers to their development are mitigated and the sector is set for a revival. Some of the key actions that are essential to help ensure adequate development of hydropower projects are as follows:
♥ Prudent planning: Central and state sector entities need to collaborate closely in setting-up the capacity additional targets in a more practical manner, which further need to be backed with strong implementable plans to achieve actual development. Planning of projects also needs to realistically reflect the gestation time of past projects, and address gaps that occur in every subsequent project in order to meet the set timelines.
♥ Government intervention: Strong sponsorship of the central and the state government is crucial to the project pipeline, availability of data, coordination during development, approvals and clearances, resolution of disputes, etc. Common provision for such information and basin-wide planning goes a long way in streamlining the development process. Institutional support: Establishment of institutional structures that support development through private sector participation helps ensure interministerial coordination, assisting in clearance and approval processes, establishing a centralised data repository, etc.
♥ Robust project allotment process: Basin plan should be the basis of project identification, review and allotment. Also, the process in place for time bound implementation of a project, until commercial operation is achieved, is critical; so is state support.
♥ Regulatory certainty: Tariff setting for hydropower plants needs to be more of a reflection of its usage. For example, peaking power should be priced differently than the base load power. Similarly, aspects such as hydropower purchase obligation, hydropower as designated resources for ancillary services, etc. need to be explored further. Conviction in reference to these aspects is likely to provide requisite investment signals.
♥ Transmission development framework: An adequately planned transmission system, both at the state and central level, should be in line with the planned generation. Dedicated infrastructure in key corridors, such as those in Arunachal Pradesh, and a basin-wide evacuation plan should be crucially considered.
♥ Balanced risk sharing: Structure for sharing risks and responsibilities between the developer and the host entity needs to be adequately balanced. Flexible structures to deal with resource risk, local development issues, delay in execution, treatment of geological risks, etc. are other aspects that need to be examined as well.
In conclusion, hydropower is important for India from multiple perspectives – to address seasonal and peaking power trends, balancing reserves and a provision of base load power in several cases. Today, we are at a stage when a large number of projects have been assigned, however, we are yet to see actual progress. Without a change in focus, several of these are likely to fail or face enormous time and cost overruns. It is important that hydropower, through various measures, is brought back on the priority agenda.
The author is Partner, Infrastructure and Government Services, KPMG in India.
With contributions from Sarim Siddiqui, Senior Consultant, and Vikas Gaba,
Associate Director, KPMG in India. Views expressed are personal.