Uncharted waters for hydropower's renewable energy status

Govt proposal aimed at meeting climate change targets; industry apprehensive on implications

The government’s proposal to classify all hydropower projects under the category of renewable energy (RE) would help the country meet its targets under the Paris Climate Change Summit. However, it poses other questions for the sector.

At present, hydropower projects below 25 megawatt (Mw) are considered as RE and come under administrative purview of the ministry of new and renewable energy. Large hydro is with the Ministry of Power and so is the largest hydropower company, NHPC.

With the move, the government intends to meet its Intended Nationally Determined Contributions (INDC) targets, as committed in the Paris Climate Change Summit-2016, said officials. The Indian government had committed to 40% of its total energy generation from renewable sources. Solar and wind power cumulatively contribute 15% to the energy mix. Adding hydro would take the total close to 30%. The current generation capacity of hydro is 44,189 Mw out of the total installed capacity of 314,000 Mw.

“Globally, all developed countries and developing economies such as China certify hydropower as RE. Historically, India has never indicated hydro as renewable and so the regulations have been different. The whole gamut of awarding the project, tariff (rate) fixation and regulatory environment would have to be modified,” said a senior member of the Central Electricity Regulatory Commission.

Piyush Gopal, minister for power, coal, mines and RE, had recently informed the Lok Sabha about the government thinking of declaring all hydropower projects as RE. "This would ensure coverage under RPO and qualify for dispatch priority," he said.

Recognising hydropower as renewable might, however, not mean that its purchase will be included in the renewable purchase obligation (RPO) of distribution companies. Currently, the government guidelines for the long-term RPO trajectory keep hydropower out of the calculation of total energy consumption. 

The government would discuss with stakeholders, including the segment regulators, on how to about the change, he’d said.

Small hydro currently enjoys a slew of concessions such as tax benefits and easier environment and water clearance. To promote it as a RE source, the Centre also offers subsidy support of Rs 5 crore per Mw and/or Rs 20 crore per project.

“To replicate these subsidies for a large project would be very heavy on government finances. Also, this move to make large hydro as renewable only benefits the country, not the sector. The sector would have to wait for the new GST (goods and services tax) regime to kick in, to know what concessions are in store for them,” Vikram Aggarwal, managing director, Virtuaal Infra Power, told Business Standard.

The earlier 10-year tax holiday for power projects has ceased to exist. Excise, Customs and like duties would be decided after the GST is notified for the sector. 

“The government could be looking at removing the whole subsidy mechanism for the sector, like it did in solar and wind power. So, the first target (of its proposed move) is obviously to meet the INDC and the other could be to reform the sector by linking it to market forces,” said Amit Kumar, partner at consultancy PwC India.

Aggarwal said the subsidy in hydro is for loan repayment and that can only happen when a project is operational. “Hydro faces operational issues, regulatory hurdles and local issues. These need to be addressed. A speedy approval mechanism would entail growth of the sector,” he said.

The installed capacity of hydropower projects has not changed in three years, while that of the RE sector has risen by a fifth in this period. In the past decade, RE (solar and wind power) has grown by 89%; hydro by 28%. In the 2004-14 government, hydropower got a spurt with large-scale allocation of projects to the private sector. Arunachal Pradesh alone awarded close to 60,000 Mw of hydro projects to about 130 companies. However, almost none of these have been commissioned, due to regulatory and legal issues.