issues in hydro power development

Issues in hydro power development

IPPAI Regulators’ and Policy Makers’

Retreat, Goa, August 2012

Copyright © 2010 Jindal Steel & Power Ltd.

BENEFITS OF HYDRO POWER • Renewable: energy security, no fuel shortage • Clean: no CO2 emissions • Yet predictable (as against wind) • Peaking support (as against other renewables): even RoR schemes provide peaking support Very cheap in the long run • Development of remote areas. • Source of revenue for States without other natural resources, and with locational disadvantages • IN INDIA, THERMAL:HYDRO RATION OF 60:40 CONSIDERED IDEAL


HYDRO POWER DEVELOPMENT OVER THE YEARS

Plan Period Hydro Installed Capacity % of Total IC

1st Plan (1951-56) 1061 36.78

2nd Plan (1956-61) 1916 41.19

3rd Plan (1961-66) 4123 45.68

3 annual Plans 1966-69 5906 45.58

4th Plan (1969-74) 6965 41.80

5th Plan (1974-79) 10833 40.60

Annual Plan (1979-80) 11383 40.01

6th Plan (1980-85) 14460 33.96

7th Plan (1985-90) 18307 28.77

2 Annual Plans (1990-92) 19194 27.79

8th Plan (1992-97) 21644 25.46

9th Plan (1997-02) 26261 25.40

10th Plan (2002-07) 33485 26.19

11th Plan (2007-12) 38748 20


11TH FIVE YEAR PLAN Central State Private Total

Hydro Target 8654 3482 3491 15627

Mid Term

Appraisal

2922 2854 2461 8237

Hydro

Achievement

6111

Thermal

Target

24840 23301 11552 59693

Thermal Mid

term

Appraisal

14920 18501 17336 50756

Thermal

Achievement

43073


12TH AND 13TH PLANS

12th Plan 13th Plan

Hydro 9204 12000

Nuclear 2800 18000

Thermal 67686 49200

Total 79690 79200

Wind 11000 11000

Solar 4000 16000

Other RES 3500 3500

Total RES 18500 30500

Hydro plan less than what is technically feasible “due to issues of water rights,

resettlement and environmental concerns” as well as due to “natural

calamities, geological surprises etc. “(CEA)


.

• PERCENTAGE OF HYDRO HAS COME DOWN FROM 45% IN

1970 TO 20% IN 2012.

• A number of hydro players have announced withdrawal

• 11th Five Year Plan achievement 6111 MW against target of

15,627 MW

• UTILISATION OF POTENTIAL IS ONLY 44,859 MW OUT OF

1,57,000 (28%) (China: almost 50%)

• IN ADDITION, 90,000 MW OF PUMPED STORAGE YET TO BE

TAPPED

WHAT IS WORSE, WE ARE NOT EVEN PLANNING FOR CORRECTING THIS


PEAKING BENEFITS OF HYDRO Haryana Energy Requirement

0

20

40

60

80

100

120

Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11

Energ

y R

equir

ment

(MU

/day)

Jun-10 Jul-10Aug-10

Sep-10

Oct-10Nov-10

Dec-10

Jan-11Feb-11

Mar-11

Apr-11May-11

Energy demand 101.58 108.09 112.82 95.31 98.93 84.5 90.09 99.61 83.8 89.9 75.81 91.25

Etalin Energy 45.1 50.3 57.2 42.9 26.7 22.3 19.3 16.7 14.4 15.4 30.1 25.9

Shortage 4.5 5.61 5.57 3.57 3.69 5.26 5.31 6.81 2.21 2.66 2.21 2.17


PEAKING BENEFITS OF HYDRO Punjab Energy Requirement

0

20

40

60

80

100

120

140

160

180


Energ

y R

equir

ment

(MU

/day)


Energy Demand 153.19 159.99 168.47 143.11 116.19 91.67 94.99 96.17 91.99 104.21 97.97 128.73

Etalin Energy 45.1 50.3 57.2 42.9 26.7 22.3 19.3 16.7 14.4 15.4 30.1 25.9

Shortage 8.35 9.09 10.47 4.21 3.91 6.75 3.79 5.22 4.98 3.64 2.41 1.96


Peaking – a neglected area

• Recent Grid disturbances have shown importance of peaking power, both seasonal as well as di-urnal

• Gas: Dependent on imorts Wild fluctuations in availability, tariff Already a large capacity is stranded

• Oil: Most expensive, but today most prevalent: generators

9


KNOWN UNKNOWNS • Geological surprises

• Land acquisition

• Rehabilitation & Resettlement

• Forest clearance

• Environment clearance

• Agitations

• Poor road infrastructure

• Lack of access to data e.g. hydrological data

ALL THESE DIFFICULTIES MAKE HYDRO A RISKY PROPOSITION


LARGE HYDRO – AN ORPHAN

• Renewable, but yet not counted as renewable

• No RPO/REC

• No Feed-in Tariff

• No excise/customs duty benefit (except for mega projects)

• No accelerated depreciation

• Why is small hydro ‘new and renewable’, but not large

hydro? Because it is off-grid/de-centralised? Then why is ‘large solar’ or ‘large wind’ new and

renewable?


LARGE HYDRO AN ORPHAN: POWER PROCUREMENT

• Peaking power does not figure in long term power purchase plans of utilities. Nor do regulators insist on it

• And why should they, when they can over-draw at will?

• No utility ties up power years in advance. Long gestation projects such as hydro suffer

• Consequently, hydro has to compete with thermal in power procurement. May suffer if tariff, particularly first year tariff, is higher than thermal

• Invariably, fuel costs rise faster than the indices for comparison


LARGE HYDRO – AN ORPHAN: MEGA POWER PROJECT BENEFITS

• Excise/customs duty exemption only for equipment, but

not for civil part

• 75% of hydro project costs are for civil, whereas only 10-

15%% project costs of thermal projects are for civil

• Tariff impact of this difference – 10 to 15 p


LARGE HYDRO – AN ORPHAN: TARIFF SETTING

• Construction period 4 years for thermal, but 6 to 8 years

for hydro. ROE not allowed during construction: Low IRR

• Many projects have to pay upfront charges to States, which carry no return

• Project preparation longer and more expensive than in thermal (DPR, Land acquisition, R & R etc)

• Approach road construction also a heavy initial burden

• Tariffs do not reflect peaking benefits


FINANCE • A large part of tariff of a thermal plant is fuel, whereas

most of the tariff of a hydro plant is accounted for by

capital cost

• Longer gestation period adds to the IDC burden

• Hydro projects are therefore more sensitive to terms of

finance

• Lack of long-term finance makes tariff front-loaded,

comparing unfavourably with initial tariffs of thermal

plants

The very long life of hydro projects does not get due recognition


ATTITUDE OF STATE GOVT.

• Allotment of projects done haphazardly

• After getting upfront payment no real support from state

Govt.

Project developers are expected to provide many basic amenities such as schools as CSR

• Next benefit to state accrues only after commercial

operation starts and free power is received

• There may be more than a couple of elections in between

• This, in spite of the huge long-term benefit to the State


WHAT STATES COULD DO

• Be more proactive in matters of clearances • Be a more proactive interface between project developers and people • Follow a basin-wise approach • Invest in road and evacuation infrastructure planning and development • Backload tax burden


POSITIVE DEVELOPMENTS

• Point of connection transmission

• 1% extra ROE proposed for reservoir schemes and pumped

storage schemes (however, needs to be extended to RoR

schemes too)

• Discussion has started on encouraging peaking power

through tariff: Committee under Chairmanship of CEA

Chairman

• Time of Day tariff introduced in some States

• These two measures will give hydro its due


THANK YOU!

19

issues in hydro power development

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