IEEE Power & Energy Magazine - September/October 2020 - 25

In the new hydropower policy, it is recommended that all
hydropower projects, irrespective of size, be classified
under the category of renewable energy projects.
and engineering. Putting a hydro plant into service, therefore, costs around US$1-1.5 million per megawatt, which is
almost one and a half to two times the unit cost of a thermal
plant and two to three times the unit cost for a solar plant.
A hydro project's construction schedule is also significantly
longer compared to a thermal or wind/solar project. The risk
of cost and time overrun and uncertainty of cash inflows
resulting from complexities and technical challenges lead
to higher-risk premiums on financing charges.
Given the current policy, under which one of hydro's main
advantages-peaking capability-is not valued, hydro tariffs (particularly in the initial years) end up being higher
compared to those of other power sources, and power purchase agreements (PPAs) become more difficult to conclude.
In cases where a project is delayed and incurs a cost overrun, the developer attempts to pass the project's increased
cost through to the offtaker using the existing cost-plus-tariff regime. Such PPAs become even more unattractive for the
offtaker and may jeopardize the entire investment.

An Action Plan for Hydropower
Development in India
In recent years, policy makers have recognized these hurdles. With the objectives of completing the several stalled
though partially completed hydro projects and facilitating
the implementation of future schemes, India's Ministry of
Power has participated in various rounds of interactions with
industry, state representatives, and experts. In 2017, the Ministry came out with a new policy to revive the hydropower
sector, and, in 2019, several other measures were brought
out to give further impetus to the sector. The objective of the
new policy is to prevent further decline of hydro's share in
the energy mix and to undertake measures for the exploitation of the country's vast hydroelectric potential, especially
in the Northern and Northeastern regions.

the category of renewable energy projects. It is anticipated
that this classification will help provide a significant impetus
to the industry and will also help the country meet its target of having 30% renewable power generation by 2030 and
satisfy the commitments made under the Paris Agreement
within the United Nations Convention on Climate Change to
mitigate global warming.

Reduced Cost of Generation and
Less Financial Burden
Many of the ready-to-be-implemented hydropower projects
lack an adequate power evacuation infrastructure, as they are
located in remote areas. They also lack enabling infrastructure, such as access roads and bridges of adequate capacity.
The development of this infrastructure to improve accessibility to the project site and extract power from the project
increases the cost, affecting the project's financial viability.
As part of another initiative in the draft policy, infrastructure elements not directly related to power generation are not
to be included in calculating electricity tariffs; the cost of
such works is to be compensated for out of a fund from the
appropriate departments of federal and state governments
and utilities. This change will certainly help improve hydro's
affordability and make it competitive.

The Mandated Purchase of Hydropower by
Power Distribution Companies
The government is proposing to make it mandatory for power
distribution companies to buy a portion of electricity from hydro
projects, a move that would put them on par with renewable
power projects. The idea is to attract investments into the hydro
sector and raise the falling share of hydroelectricity in the country's power mix. To this end, the policy provides for a Hydro
Purchase Obligation for hydro projects above 25-MW capacity.

Hydropower Declared as Renewable Power

Reduced Financial Burden on Hydropower
Developers

Before this policy was instituted, only those hydropower projects with capacity below 25 MW were considered renewable
energy projects. These projects came under the administrative
purview of the Ministry of New and Renewable Energy and
were offered tax and other benefits on par with other renewable
energy projects, such as wind and solar. Large hydro projects
(capacity greater than 25 MW) came under the purview of the
Ministry of Power and were excluded from such benefits.
In the new hydropower policy, it is recommended that all
hydropower projects, irrespective of size, be classified under

Under the policy, the government will provide to all hydropower projects above 25 MW an interest subvention of 4% during construction for up to seven years and for three years after
the start of commercial operation. It is proposed that funding
for this policy will come from the coal tax (carbon tax equivalent), national clean energy fund, or nonlapsable central pool of
resources for the Northeastern states until 2024-2025.
Another Ministry of Power suggestion is to increase the
loan repayment period. This initiative will definitely help
reduce the capital costs of hydropower projects.

september/october 2020

ieee power & energy magazine

IEEE Power & Energy Magazine - September/October 2020

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2020