While India’s small hydropower sector is showing signs of revival, especially in the Himalayas, it is threatened by too many policymakers from different central and state governments
See the first report in the series: Small hydro starting to gush along
India’s small hydropower (SHP) sector has picked up pace in 2015, but only for projects of up to 25 MW per station. The reason is that the central government’s Ministry of New and Renewable Energy (MNRE) does not have the mandate to push larger projects.
Under the Indian Constitution, electricity – including electricity generated from hydro projects – is a concurrent subject. This means it falls under the aegis of both central and state governments. Water, on the other hand, is a state subject, where the central government has little say.
The result is that MNRE has to push small hydro, but the decision to set up these projects, the decision on where they will be located, the decision to invite proposals and bids, the decision on how the power that is generated will be connected to the grid and techno-economic clearances and approvals are all in the hands of state governments. And even within a state government, various parts of this process are the responsibility of different ministries and departments.
Bhuwanesh Kumar Bhatt, Director/Scientist-F, MNRE, told indiaclimatedialogue.net that the ministry’s role was to assess the eligibility of an SHP project for central financial assistance, and then to provide this money to eligible projects.
MNRE has prepared a draft plan for a national mission on small hydro. While industry experts are positive that the mission will encourage them to increase their hydro capacity by at least 100 MW in the next three years, they also feel the draft needs improvement.
- Chandrasekhar, Managing Director, Bhoruka Power, said that the generation based incentive being given to the wind power sector should be extended to small hydro projects.
Since the projects take a long time to complete, financial institutions need to look at ways to increase the loan tenure to 20 years after commissioning, he added.
All firms engaged in generating electricity enter into a Power Purchase Agreement (PPA) by which the electricity board of the state government guarantees a rate at which they will buy the electricity for a fixed number of years. Chandrasekhar said every PPA should include a clause to increase the rate if the water available to SHP falls below 70% of what was promised by the government at the start of the project. He wanted this to be reviewed every five years.
“Project funding is based on 70% loan and 30% equity. The developer should be able to service the loan, even if he foregoes his equity return.”
Thanks to all these hurdles, installation of new SHP projects slowed down in the last two years. According to Bhatt of MNRE, 236 MW was added in 2012-13, and 171 MW in 2013-14. This year has started better. But experts worry that it may not end better.
Private entrepreneurs are shying away from SHP because costs of projects have gone up but the tariff that is fixed by the state electricity board has not. Though around 70% of new SHP projects that came up in the last three years are in private hands, the returns are not good enough to attract sizeable investment.
Bhatt felt this trend needs to be addressed. “The last 15 years have shown that faster growth in the SHP sector is possible only with active participation of the private sector,” he said. Technological innovation, new construction methods, standard designs and automation can help curb the increase in cost of projects, he added.
Chandrasekhar also complained about the time taken by environment ministries to clear projects. “While growth was consistent from 1993 to 2008, the delay in environmental approvals stalled a couple of projects which could have added another 35 MW to the SHP portfolio,” he said of his firm’s projects.
Many SHP projects are in remote locations, and their connection to the grid is weak.
Entrepreneurs point to two more problems. First, governments in hydro-rich states tend to fix low rates at which they buy hydropower. Second, entrepreneurs are now unable to sell their Renewable Energy Certificates because carbon prices have crashed all over the world. Some of that problem would have been solved if the electricity boards obeyed the law that obliges them to buy renewable energy, but many boards do not obey.
With the cost of SHP projects now ranging between Rs 8.5-10 crore ($1.3-1.5 million) per megawatt, many would-be entrepreneurs feel the sector is simply not attractive enough.
New technology, new promise
The potential output of SHP projects is high, especially of projects that range between 500 watts and 100 kilowatts. But the potential is often unrealised due to poor water flow and small height differential. Many opportunities have been missed because conventional hydro does not operate efficiently with a fall of water of less than three metres.
However, now there is a new turbine that can operate with a minimum fall height of 0.6metres while being very efficient under low loads. It is called Kouris Centri Turbine (KCT) and it takes advantage of the earth’s rotation to improve efficiency. KCT is built by a Greek firm called KapaLamda. Spyros Lyssoudis, its managing director, said the firm has been approached by large infrastructure organizations keen on getting this technology to India.
Now small hydro plans that had earlier been written off as unfeasible can turn out to be productive.