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POLICY ON HYDRO POWER DEVELOPMENT
1. NEED FOR A HYDEL POLICY
Hydro power is a renewable economic non polluting and
environmentally benign source of energy. Hydro Power stations
have inherent ability for instantaneous starting, stopping, load
variations etc. and help in improving reliability of power
system. Hydro stations are the best choice for meeting the peak
demand. The generation cost is not only inflation free but
reduces with time Hydroelectric projects have long useful life
extending over 50 years and help in conserving scarce fossil
fuels. They also help in opening of avenues for development of
remote and backward areas.
Our country is endowed with enormous economically
exploitable and viable hydro potential assessed to be about
84,000 MW at 60% load factor (1,48,700 MW installed capacity).
In addition, 6781.81 MW in terms of installed capacity from
small, mini and micro hydel schemes have been assessed. Also,
56, sites for pumped storage schemes with an aggregate installed
capacity of 94,000 MW have been indentified. However, only 15%
of the hydroelectric potential has been harnessed so far and 7%
is under various stages of development. Thus, 78% of the
potential remains without any plan for exploitation.
Despite hydroelectric projects being recognised as the most
economic and preferred source of electricity, share of hydro
power has been declining steadily scine 1963. The share of hydro
power has been continuously declining during the last three
decades. The hydro share has declined from 44 per cent in 1970
to 25 per cent in 1998. The ideal hydro thermal mix should be
in the ratio of 40:60. Because of an imbalance in the hydel
thermal mix especially in the Eastern and Western regions, many
thermal power stations are required to back down during off peak
hours. The capacity of the thermal plants cannot be fully
utilised resulting in a loss of about 4 to 5 per cent in the
plant load factor. Even if the share of hydro power is to be
maintained at the existing level of 25 per cent, the capacity
addition during the 9th and 10th Plan would work out to 23,000
MW. If the share were to be enhanced to 30 per cent, it would
require a further addition of 10,000 MW of hydro capacity.
The constraints which have affected hydro development are
technical (difficult investigation, inadequacies in tunnelling
methods), financial (deficiencies in providing long term
financing), tariff related issues and managerial weaknesses (poor
contract management). The hydro projects are also affected by
geological surprises (especially in the Himalayan region where
underground tunnelling is required), inaccessibility of the area,
problems due to delay in land acquisition, and resettlement of
project affected familities, law and order problem in militant
infested areas.
2. OBJECTIVES
The programmed capacity addition from hydel projects during
the 9th Plan is 9815 MW, of which Central Sector and State Sector
will contribute 3455 MW and 5810 MW respectively and the balance
550 MW will be contributed by the Private Sector. Sanctioned
and ongoing schemes under implementation will enable a capacity
addition of 6537 MW during the 10th Plan, of which 990 MW, 4498
MW and 1050 MW will be the contribution of Central, State and
Private Sectors respectively. In addition, 12 projects (5615 MW)
have been identified for advance action in the 9th Plan for
benefits in the 10th Plan.
The Government of India has set the following objectives for
acelerating the pace of hydro power development:-
(i) Ensuring targeted capacity addition during 9th Plan
The 9th Plan programme envisages capacity addition of 9815
MW from hydel projects in the total capacity addition of
40245 MW. The Central Sector hydel projects would
contribute 3455 MW, State Sector would add 5810 MW and
Private Sector 550 MW. Keeping in view that the achievement
in 8th Plan had been dismal, the Government is determined to
ensure that no slippage is allowed to occur and the targeted
capacity addition in the 9th Plan is achieved in full.
(ii) Expoloitation of vast hydroelectric potential at a faster
pace:
The Government would initiate advance action for taking up
new hydro projects since the ongoing projects will
contribute a very small percentage of the desired capacity
addition envisioned for 10th plan and beyond. Towards this
end, Government would take up for execution all the CEA
cleared projects, and take steps to update and obtain
clearances for pending DPRs. Measures for vigorously
starting survey and investigations for new green field sites
would also be implemented shortly. In addition, Government
is keen to restart and activate the hydro projects which are
either languishing for want of funds or are remaining
dormant due to unresolved inter-State issues.
(iii)Promoting small and mini hydel projects
Small and mini hydel potential can provide a solution for
the energy problems in remote and hilly areas where
extension of grid system is comparatively uneconomical and
also along the canal systems having sufficient drops.The
small hydro potential could be developed economically by
simple design of turbines, generators and the civil works.
Small and mini hydel capacity aggregating to about 340 MW is
in opeation, and Government is determined to provide thrust
for developing the assessed small hydel potential at a
faster pace henceforth.
(iv) Strengthening the role of PSUs/SEBs for taking up new hydel
projects:
In view of the poor response of the private sector so far
in hydro development which may persist for some more years,
the involvement of public sector in hydel projects would not
only have to continue but will also have to be enlarged.
There are categories of projects such as multi-
purpose,projects involving inter-State issues, projects for
peaking power and those involving rehabilitation and
resettlement which may be taken up and implemented more
easily in public sector. Similiarly, mega hydro projects
in North and North Eastern region would also have to be
executed by CPSUs in case the State or the private sector is
not in position to implement these projects.
(v) Increasing private investment
Even though public sector orgations would play a greater
role in the development of new schemes, this alone would not
be adequate to develop the vast remaining hydro potental
since it will require huge investments which are difficult
to be supported from the budget/plan assistance in view of
competing demands from the various sectors. A greater
private investment through IPs and joint ventures would be
encouraged in the coming years and required atmosphere,
incentives and reliefs would be provided to stimulate and
maintain a trend in this direction.
3. Policy Instruments
To achieve the above stated objectives for faster
development of hydro potential, the Government proposes to take
the following steps and measures:-
3.1 Funding
All the ongoing Central Sector hydroelectric projects namely
Nathpa Jhakri (1500 MW), Tehri State 1 (1000 MW), Ranganadi
State 1 (405MW), Dulhasti (390 MW), Dhauliganga (280 MW),
Doyang(75MW) and Rangit (60 MW) would be provided with full
budgetary support till completion. Government of India will also
provide budgetary support for the new projects to be taken up by
the CPSUs during the 9th Plan. The actual utilisation of the
funds on the ongoing Central Sector hydel projects has been
Rs.1616.87 crores in 1997-98 and the budget provision for 1998-99
has been increased to Rs.2070 crores. Therefore, the remaining
three years of the 9th plan would require about Rs.5896 crores on
the ongoing Central Sector projects (excluding NEC Projects).
Having regard to the large capacity addition envisaged in the
State Sector (510MW) it is necessary to (a) provide a mechanism
for funding hydro projects by earmarking funds in the plan
allocation of the State Governments by the Planning Commission;
and (b) organisation supplementary funding funding of hydel
projects where more than 50 per cent of the expenditure has
already been incurred.
The monitoring of all the ongoing projects will be
intensified and a task force would be constituted for this
purpose. The progress of important projects in the State and
Central Sector would be reviewed at the level of
Minister/Secretary(Power) and all measures will be taken so that
there is no slippage in the schedule for completion of the
ongoing projects.
3.2 Power Development Fund
The survey and investigation of hydro projects have been
discontinued since long in the State due to paucity of funds. As
a result, there are not enough projects right now that could be
taken up in the next 2 to 3 years and get completed in the 10th
Plan or early 11th Plan. It is necessary to carry out survey and
investigations continuously and prepare a shelf of projects for
execution over a decade and more.
In case fully investigated projects with Detailed Project
Reports are offered to proviate developers, their response could
be more favourable. If pre-construction activities and enabling
works could be completed and these sites eoffeed to IPPs the
chances of IPPs opting to invet in these projects would further
improve. Further this would reduce the gestation period which
would make investment in hydro projects more attractive.
The above approach is possible and successful only if a
dedicated fund is available for this purpose.
It is proposed to levy a Power Development Cess at 10 paise
per kwh of electricity consumed in the country. The levy of cess
was recommended by the Sub Committee of the NDC Committee on
Power which gave its report in January, 1994. The cess would be
levied on the electricity billed by SEBs/Electricity
Departments/Bulk licensees/Distribution licensees. The State/UT
Governments would be responsible for the collection of the cess.
The amount would thereafter be credited to a "National Power
Development Fund. It is expected that about Rs.3000 crores per
annum can be realised by levying a cess of 10 paise per kwh.
It would be necessary to establish a legal and
organisational frame work for levy of a cess. Electricity being
a Concurrent Subject, the Central Government is empowered to
legislate on all aspects of electricity including the levy of
cess, the proceeds of which is to be utilised for power
development. In order to levy a Power Development Cess, it would
be necessary for Parliament to enact a legislation on the
subject. The cess will be imposed on the consumption of
electricity throughout the country. The State Electricity Boards
will be the responsible agencies for the collection of cess. The
proceeds of the cess will be shared with State/UT Governments and
the Central Government. Two-thirdsof the amount realised from
the State/UT Government will be allocated to the respective
government to be utilised for power development. This amount
would be released from the National Power Development Fund for
financing schemes/projects recommends by the State Government.
The remaining one-third will be utilised by the Central
Government for promoting hydel projects in the Central Sector and
for investment in transmission lines for evacuation of power from
mega hydel projects which will benefit more than one State.
3.3 Basin-wise Development of Hydro Potential
The assessment of hydro potential in 845 identified
conventional hydro projects and 56 pumped storage projects is on
the basis of desk studies using toposheets and discharge data.
Further, detailed studies to firm up the parameters of the
projects as identified by CEA would be taken up on the basis of
development of hydro potential in a basin as a whole for
maximising benefits and prioritising execution of projects.
These studies will be done in close co-ordination with CWC and in
harmony with Planning Commission and development for other uses
of water like irrigation, drinking water etc. While CEA would
carry out these studies, DCPSUs/other Central Government
Organisations and State authorities would do the investigations
and prepare the detailed project reports, by adopting an
integrated approach towards planning and development of the
various projects, evacuation arrangement and environmental impact
assessment. This would enable an optimal harnessing of hydro
potential in each river basin.
3.4 Advance Action for Capacity Addition in the 10th plan and
beyond
Government will take immediate steps to tie up funding,
execution agencies and convey investment decision for schemes
already accorded techno economic clearance of CEA. As far as
Central Sector is concerned, NHPC would take up Chamera Stage II
(300 MW), Parbati Stage-II (800 MW), HP and Kol Dam (800MW) in
HP; Teesta Stage V(510 MW) in Sikkim, Loktak Downstream (90 MW)
in Manipur and NEEPCO will take up Tuivai (210 MW) in Mizoram,
Lower Kopili (150MW) in Assam, Kameng (600 MW) and Ranganadi
Stage II (160 MW) in Arunachal Pradesh (after the consent of the
State Govt. has been obtained). In addition THDC would take
action to start activities on Tehri Stage II (1000 MW) and
Koteshwar (400 MW) in UP. Similarly NJPC would also take up
Rampur Project (535 MW) in HP. These projects would require
budgetary support of about Rs. 2000 crores in the 9th Plan.
As a long term strategy efforts will be made to ensure that
DPRs which are under various stages of processing for accord of
TEC by CEA are finalised and cleared so that a start could be
made on these projects in the next one or two years. Survey and
investigation of the potential hydro sites on an advanced
scientific basis would be essential requirement for the future.
The progress on this front has been dismal given the funds
constraint and outdated technology. The funding agencies like
World Bank and ADB have shown their interest towards funding the
survey and investigation activities for hydroelectric projects.
Concerted efforts would be made towards availing he funds
quickly. This would not only help in preparatin of the bankable
DPRs for large hydroelectric projects but would also being in
advanced technology by involving reputed international
consultants. The Central organisations like CWC, Brahamputra
Board, NEEPCO and NHPC, besides SEBs would be provided with
funding support from the proposed Power Development Fund for the
purpose of carrying out survey and investigations and preparation
of bankable DPRs.
Since the private sector has so far been hesitant and
cautious to invest in hydro projects, it is proposed that new
projects will initially be taken up by CPSUs/SEBs for
investigations, updatation of DPRs, obtaining the necessary
clearances and pre-construction activities. After these stages,
the projects could be offered to the private sector for execution
either on 'stand alone' basis or for joint venture participation
with the CPSU/SEB. The expenditure incurred by CPSUs/SEBs on
these activities would be adjusted in the project cost to be
recovered from the executing agency to be decided at a later
stage. The Government expects that more private investment would
be possible with this approach. In case for a particular project
no such private investment is forthcoming, it will be executed
entirely by the concerned CPSU/SEB which initiated its
development.
3.6 Inter-State Projects
A substantial hydel power potential has remained locked up
and many mega hydel projects could not be taken up for
implementation, even though these projects are well recognised as
attractive and viable, because of unresolved Inter-State issues.
Govt. of India recognises the need for evolving an approach to
ensure that the available hydro-electric potential is fully
utilised without prejudice to the rights of the riparian States
as determined, by the Awards of the Tribunals/Agreements arrived
at among the party States for a given river basin with regard to
water sharing. The selection and design of project would be
based on integrated basin wise studies, so as to arrive at an
optimal decision and care will be taken that such projects do not
in any way prejudice the claims of basin states or affect
benefits from the existing projects. A consensus would be
evolved amongst the basis states regarding the location of such
project. basic parameters involved and mechanism through which
each project would be constructed and operated. As far as
possible, there would be preference to take up simple run-of-the-
river schemes that do not involve any major storage or
consumptive uses.
3.7 Renovation, Moderanisation & Uprating
Renovation, Moderanisation & Uprating of old hydro power
plants is being accorded priority as it is a faster and cheaper
way of capacity addition than installing new capacity. As per
recommendations of National Committee set up in 1987 and based on
the subsequent reviews, 55 hydro schemes with an aggregate
capacity of 9653 MW were identified for RM&U. Out of these, 20
hydro schemes have ben completed providing a benefit of 971.5 MW
and work on 27 schemes is in progress. In order to provide a
greater thrust for RM&U, Government would set up a Standing
Committee, to identify the new schemes and for tying up
technology, funding and executing agencies.
3.8 Promoting Small and Mini Hydel Projects
The Ministry of Non-Conventional Energy Sources(MNES) deals
with all matters related to Small Hydel Projects (up to 3 MW
capacity). These projects are being provided with the following
incentives.
(i) Incentives for detailed survey & investigation and
preparation of DPR.
(ii) Incentives during the execution of the project in
the form of capital/interest subsidy.
(iii) Special incentives for execution of small hydro
projects in the North Eastern Region by the
Government departmentss/SEBs/State agencies.
(iv) Financial support for renovation, modernisation
and uprating of old small hydro power stations.
The Small Hydel Projects are site specific and depending on
the hydrology, typically the plant load factor varies from 40 to
60%. The Small Hydel Projects upto 25 MW will also be
transferred to MNES in order to provide greater thrust for its
development. Government of India proposes to provide soft loans
to these projects (up to 25 MW) through IREDA/PFC/REC and other
financial institutions and Ministry of Non-conventional Energy
Sources would announce a suitable package of financial incentives
for the accelerated development of Small Hydel Projects upto 25
MW station capacity. The State Government and Central and State
Hydro Corporations like NHPC/NEEPCO etc. would be encouraged to
take up a cluster of small/mini hydel schemes on Build, Operate
and Transfer basis and other suitable arrangements.
3.9 Simplified Procedures for Transfer of Clearances
As stated in the foregoing, the CPSUs and the private sector
would need to play a greater role in hydro development. The
immediate requirement would be to transfer the clearances already
accorded to non-starting hydro projects in the State Sector in
favour of CPSU/IPP/Joint Venture of IPP and CPSU. Government
would evolve a simple procedure so that the transfer of CEA's
techno economic clearance would be facile as only updatation of
project estimate wuld be examined by CEA. In the case of
Environment and Forest clearances these could be transferred to
CPSU/IPP etc. within a prescribed time limit on acceptance of
conditionalities stipulated in the MOEF clearances accorded for
execution in the State Sector by the above executing agencies.
Another inhibiting factor discouraging IPPs is the need for
notification of the scheme as per Section 29 of ES Act in the
newspaper and Gazette afresh even if this was done earlier for
execution by SEBS. Government intends to do away with this
requirement. The simplified procedure as proposed would be an
encouraging factor for IPP to evince greater interest in hydro
development. Government would initiate action right away towards
this end.
3.10 Rationalisation of Hydro Tariff
The tariff formulation and norms for hydro projects as per
existing Government notification are viewed by CPSUs and IPPs as
unfavourable compared to those for thermal projects and the IPPs
tend to prefer thermal projects for investment. There is a need
to reformulate the principles on the basis of which tariff is
determined for hydel generation. The objective is to fix a rate
which will be reasonable to the consumer, to ensure adequate
internal resources to repay the loan and also to provide a
reasonable rate of return on investment. Recognising the
difficulties in execution of hydro projects, the Government has
decided to rationalise the existing hydro tariff norms, improve
the incentives for better operation and evolve a solution to the
contentious issue of computing the completion cost in the face of
geological uncertainties and surprises and natural incidents of
rock slide etc.
In January 1995, the Government issued a notification
providing for a two part tariff for hydel generation stations.
The first part of the tariff, denominated as capacity charges
covers (a) interest on loan capital; and (b) depreciation
reckoned at an annual amount not exceeding 1/12 of the loan
amount and limited to the actual loan liability of the year as
per approved financial package. The second part of the tariff
denominated as energy charges covers (a) return on equity
calculated at 16% (b) O&M charges ; (c) tax on income; and (d)
any other variable charge.
Hydro projects provide valuable peak power andhave inherent
capability for instaneous starting and stoppage based on
variation of load. The peaking power stations generally operate
at a very low load level. Recognising the value of peak power to
the system and resultant improvement in operation of thermal
stations. It is proposed to allow a premium on the sale rate for
hydro generation during peak period. The formulation of peak
tariff and the premium to be allowed would be decided by the
Central Electricity Regulatory Commission and the State
Electricity Regulatory Commissions. Under the present
notification, the rate for incentive for secondary energy has to
be fixed at a rate mutually agreed between the State Electricity
Board and the generating company. However, the maximum payment
on this account is restricted to an amount not exceeding 10%
return on equity. In order to provide an additional incentive
for attracting investment in hydel projects, it is proposed to
allow the sale rate for secondary energy at the same rate which
is applicable for a primary energy.
Recognising the problems in operation of hydro power
stations in the initial years especially in project with silt
laden water, the normative availability factor is proposed to be
reduced from 90% to 85%.
3.11 Estimates on Completion Cost (Geological Risks)
During the implementation of hydro power projects specially
underground power stations, there is a likelihood of coming
across geological surprises which are not anticipated at the time
of preparation of Detailed Project Report. This results in
increase in capital cost. The developer would need to be
compensated for this kind of eventualities.
In the existing tariff notification for hydro projects,
there is no provision for increase in project cost arising due to
geological risks. A realistic estimate of completion cost has to
take into account the geological and hydrological risks, cost
escalation and natural occurrences of land slides, rock falls
etc. In such cases, the developer will be allowed to submit his
proposal for the enhanced cost to the Government. Expert
Committee would be constituted at the State and Central level who
would evaluate the recommend the cost increases for acceptance by
the Government. The expert committee at the State Government
level would recommend the cost increase proposal upto certain
percentage and beyond that the cost increase would be recommended
by the expert committee at the Central Government level.
3.12 Promoting Hydel Projects with Joint Ventures
With a view to bring in additional private investment in the
hydel sector there would be a greater emphasis to take up schemes
through the joint ventures between the PSUs/SEBs and the domestic
and foreign private enterprises. The joint venture company will
be an independent legal entity to be registered under the
Companies Act and would act as an independent developer. The
joint venture agreement between the two partners will bring
clearly the extent of participation by each partner and sharing
of risks relating to implementation and operation of the project.
It will also provide for arrangement in such cases where the
joint venture partner would not be associated with the operation
and maintenance of the project. While the selection of a joint
venture partner would be in accordance with the policy of the
Government, there would be an option for the PSU to either select
the joint venture partner together with their financial and
equipment package or to select a joint venture partner wherein
the EPC contract is decided by both the partners after they have
formed the joint venture company. The associated transmission
line connected with the scheme will be constructed by the
Powergrid Corporation of India. The power from joint venture
hydel projects will be purchased by the Power Trading Corporation
(PTC) proposed to be formed with equity participation from
Government/CPSUs/Financial Institutions. The security for
payment of power purchased from the joint venture projects would
be through a LC to be provided by the SEBS and recourse to the
State's share of Central Plan Allocation and other devolution.
This security package would enable to raise finances for these
projects. As far as the new schemes to be developed under the
joint venture route are concerned, the power sharing formula as
applicable to the Centre Sector Projects shall not apply and
joint venture company would be totally guided by the commercial
interest. The State Government (home State/States) will be
compensated by way of 12% free power as per the present policy
applicable for Central Sector hydel projects.
3.13 Selection of Developer and Techno Economic Clearance of CEA
As per Government notification of September, 1996, all the
schemes estimated to involve a capital expenditure above Rs.100
crores are to be submitted to CEA for techno economic clearance
and in respect of schemes prepared by a generating company and
selected through a process of competitive bidding by the
competent Government or Governments, the exemption from CEA's
techno-economic clearance is applicable if the capital cost is
Rs.1000 crores or less.
Considering the capital intensive nature of hydel projects
especially those of medium size being executed in the State
Sector, it is proposed to increase the limit for exemption of CEA
clearance from the present Rs.100 crores to Rs.250 crores if the
projects are taken in the MOU route. In case of projects through
competitive bidding the existing limit of Rs.1000 crores for CEA
techno economic clearance will continue. However, irrespective
of the capital cost or capacity, all hydel projects having inter-
State aspect will require a mandatory clearance from the CEA.
Keeping in view the need for transparency and cost assessment by
an accepted mechanism as well as the uncertainties that are
inevitable in the development and execution of hydel projects,
the Government proposes to allow the selection of developer
through MOU route for the hydel projects upto 100 MW instead of
the existing limit of Rs.100 crores. However, these projects
would require CEA techno economic clearance if their cost exceeds
Rs.250 crores. This would enable more developers to evince
interest in medium size hydro projects due to ease of execution
and resource raising and due to exemption in obtaining
clearances.
3.14 Govt. Support for Land Acquisition, Resettlement and
Rehabilitation, Catchment Area Development
The acquisition of requisite Government, forest and private
land involves cumbersome procedure and difficult negotiations
with land owners to part with the land. Demands for employment
in lieu of the land cost, land for land at places of land owners
choice etc. has resulted in contractual problems for several
projects. There is, therefore, a need that project authorities
are insulated from the problems arising out of land acquisition
and R&R. It will be the responsibility of the State Govt. to
acquire the land (Government/Private/Forest) for the project and
also negotiate at its own terms with land owners as per the
policy adopted by respective State Governments. Similarly, all
the issues of resettlement and rehabilitation associated with
projects have to be addressed by the State Govt. The State
Governments may consider to form Authorities to address the
problems of land acquisition and R&R for all infrastructure
projects. In case of mega projects the project specific
Authorities may be created not only for land acquisition and RR
but for comprehensive development of the area including catchment
area. The project developer may not be involved in execution and
implementation of works by these Authorities, but will be
required to contribute for funding their plans. All such costs
incurred by the developer shall be considered as cost to the
project and allowed to be passed through tariff.
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