India’s hydropower projects with 13,363 MW capacity register cost overruns.

Several hydropower projects with a cumulative capacity of about 13,363 megawatt (MW) are stranded at various stages of project development, resulting in significant time and cost overruns worth Rs 52,697 crore as of December 2016; noted a just-concluded ASSOCHAM-PwC study.

“Despite significant hydro-power potential, till now, only 30 per cent of India’s total economically feasible hydro-power potential has been harnessed,” noted the ASSOCHAM-PwC joint study titled ‘Accelerating hydro-power development in India for sustainable energy security.’

“The government should explore possibility of establishing a ‘hydro-power commission,’ as a nodal agency to coordinate with actions of various entities involved in hydro-power sector value chain and facilitate investments and clearances,” it suggested.

It also said that a dedicated transmission corridor for hydro-power would help in overcoming the power evacuation issues faced by hydro-power developers, especially in the remote North-east regions of India.

Almost 1/4th (24%) central hydro schemes are facing delays owing to local issues, law and order problems followed by geology, hydrology and topography related issues (21%), noted ASSOCHAM-PwC study.

In terms of state hydro schemes, contractual disputes account for lion’s share of 35% while geology, hydrology and topography (35%) related issues are major reasons for slippage in hydro capacity additions in private sector.

Considering that by design, hydro-power is ideally suited to cater to the specific demands of the Indian power system, thus the study stressed upon the need to focus on responsible and accelerated hydro-power development, which will address the collective concerns of hydro-power developers while ensuring sustainability and addressing socio-economic concerns around developing projects.

The study recommended that hydro-power development in India needs to be channelised through an efficient governance framework by adopting a suitable policy framework coupled with uniform and transparent processes.

“The existing processes, structures and institutional frameworks must be re-aligned to the development goals and hydro-power capacity addition targets while adequately recognising the role of the private sector,” it said.

The joint ASSOCHAM-PwC report noted that with regard to the development of enabling infrastructure for hydro-power projects, an optimum balance needs to be established between the role of the developer and the role of the state.

On the issues of streamlining land acquisition and clearance processes, it said that to overcome the existing issues and delays concerning land acquisition, the public private people participation model may henceforth be adopted for hydro-power projects.

As part of incentives for increasing financial viability of hydro-power projects, the study said suggested to reintroduce the mega power benefits for hydro projects, which were withdrawn in 2012. “With this, the benefits of custom duty exemption on import of capital equipment and deemed export benefits accorded as per the EXIM Policy would again be available to hydro projects.”

Similarly, waiver/reduction in ad valorem charges/tax (LADF, entry tax, labour cess, excise duty, work charge tax, etc.) in respect of project equipment and on inputs such as steel and cement, together with exemption from GST (goods and services tax) for services used in relation to hydro-power projects, shall significantly reduce project cost and consequently help in reduction of tariffs.

Highlighting the need for specialised financing solutions owing to large capital requirements and relatively longer gestation period of hydro projects the study suggested for exploring the possibility of setting a minimum exposure of lenders/financial institutions to hydro projects, to the tune of 30-40% of their total funding to the power sector.

It also said that creation of a specialised hydro fund/special hydro-power financing scheme (for all future projects) will help in financing hydro projects by ensuring a dedicated, long-term stream of funds.
Since the overall benefits associated with hydro-power development are often unevenly distributed, benefit sharing mechanisms and mitigation measures are critical for ensuring responsible and sustainable hydro-power development.
As such the study suggested that developers need to broaden their existing performance evaluation criterion as hydro-power generating utility by adopting a ‘triple bottom line’ approach—accounting for social and environmental performance in addition to measuring the financial value created by them.

“The existing mechanisms for benefit sharing, which currently seem to concentrate more on royalty benefits, need to be revised and strengthened to find an optimum balance for distribution amongst all stakeholders,” said the ASSOCHAM-PwC study.

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