Centre asks states to exempt small hydro developers from cess, free power

The Centre has urged state governments to exempt developers of small hydropower projects from cess and the obligation to provide free power.

While the central government is providing financial assistance to the small hydropower projects, the states impose several taxes and cess, negating the assistance of the Centre. The Ministry of New & Renewable Energy (MNRE) has suggested to states to waive off cess and taxes to the small hydropower developers for six years from the commencement of commercial operations. Such developers may also be exempted from the provision of free power demanded by some state governments.

Hydropower plants with capacity up to 25 Mw are categorized as small hydropower projects. From a capacity of 63 Mw in 1989, the hydropower sector has been adding nearly 200 Mw capacity each year to reach an installed capacity of 4493.2 Mw from 1102 projects (as on May 2018). Total potential for hydropower stands at 21133 Mw from 7134 sites. 

However, fresh capacity addition in hydro power has been sluggish. Though work on 129 projects with a capacity totaling 749.96 Mw is ongoing, no new project has taken off. Creation of fresh capacity in hydropower is hamstrung by lack of power purchase agreements (PPAs). The state electricity distribution companies (discoms) are loath to sign PPAs due to steep costs of hydropower. Viability of small hydropower projects is further hit by levy of water cess, interstate transmission charges and the provision for free power. 

Building capacity in small  hydro is critical to achieving the envisaged capacity of  175 Gw in renewable energy by 2022. Of this proposed capacity, 100 Gw would be made up by solar power, 60 Gw from wind, 10 Gw from small hydro and five Gw from biomass power.

Small hydropower programme is one of the thrust areas of power generation from renewable sources in the MNRE.  It has been recognized that small hydropower projects can play a critical role in improving the overall energy scenario of the country and in particular for remote and inaccessible areas. The ministry is encouraging development of small hydro projects both in the public as well as private sector.