By Anish De & Debmalya SenTheenergy transitionof the Indian energy sector has over the last decade brought about a significant change in the positioning of the various actors and fuel sources in the energy value chain. With the impending target to make the sector green, a lot of focus has been given to wind and solar, the benefits of which are visible today. Amidst all these, the prominence of hydro as a fuel source has witnessed a muted response over time. Between 2000 to 2010, India had installed a total of 13 GW [1] of hydro capacity, the same fell to 9.8 GW in between 2010 to 2022. With the exponential increase in wind and solar capacities, the percentage of hydro in the capacity mix also reduced by 10% between 2010 to 2022. The question thus arises, is hydro as a sector losing its relevance in the Indian energy sector? The answer of course is a resounding “No”. With India aiming towards 50% capacity from non-fossil fuel sources by 2030, the requirement of flexible resources in the grid becomes of paramount importance (ramping requirement in the Indian grid is projected to increase by 5 times from its present requirement by 2030). As per theNational Electricity Plan 2022, India will require additional 17 GW [2] of hydro capacity addition between 2022 to 2031 to sustain 500 GW of renewables in the grid.Hydro as a resource brings in a lot of benefits, including its flexibility, long project life, technical maturity, cleanpowersource, benefits it brings to irrigation, flood control and water security. Its high ramping capability makes hydro a critical resource in the Indian power grid. But even with these benefits in offer, hydro has faced a lot of challenges, these include geographic constraints, long construction times, delays on account of environmental clearances, difficulties in land acquisition along with difficulties from difficult terrains leading to project over-runs and thus increasing project costs. On an average the projects have been witness to a time overrun of 3 to 5 years. This has led to lack of clarity of final project costs limiting visibility of final tariff.
Majority of the hydro plant installations in India has been on account of the CPSUs, private sector participation in the sector has been low, In the last 6 years only 811 MW of installations of the total 2.1 GW capacity addition came from private sector. Overall, in the total installed capacity, the private sector accounts for only 8% share. This has further made the progress of the sector slow and decreased its cost competitiveness. Average tariff of hydro projects commissioned in the last 6 years has been around INR 5.42/kWh which is higher than maximum of the fuel resources present in the Indian grid.
The Government has over time brought upon some enablers to help the sector revive. These include, declaring hydro as a renewable energy resource, segregatingHydro PowerObligation (HPO) as a separate entity with a target of 2.82% by FY2030. To increase the tariff discovery of hydro, recently CERC brought upon certain amendments including increasing project tenor period to 40 years, increasing loan tenor period to 18 years, and decreasing the annual escalation rates. These enablers can help in decreasing the tariff to INR 4.6/kWh [3] . India would be requiring a total addition of 17.7 GW of hydro to meet the HPO target of 2030, which is a 38% addition from the present deployed capacity.
In the present scheme of things, CPSUs are best positioned to develop hydro projects due to their storage parentage, ability to absorb risks due to cost over runs, high bargaining power with state DISCOMs and the ability to raise cheap capital. This explains why maximum of the installations comes from the CPSU sector. As on date, India has utilised a decent 31% of its total hydro potential which mainly comes from the hill states of Himachal Pradesh, Uttarakhand, and Arunachal Pradesh, with Arunachal Pradesh being the most unexplored state till recently. All the above-mentioned states are sensitive areas which increases deployment risks, and the recent climatic surprises have also made such installations and plans at higher risks. Thus, a deep thought is required to make this sector grow while addressing the sustainability challenges as Hydro will play a critical role in ensuring grid balance, the same was displayed during the April 05, 2020, event (9-minute light off). This is exactly where pumped hydro has proved to be an inflection point in the sector’s growth story.
Many of the challenges that large hydro plants have been witnessed to are addressed to by pumped hydro. This is less prone to geographic constraints and can be more spread out throughout India. PSP as a technology requires much lesser gestation period and capital while offering similar benefits as large hydro plants. This sector however has been almost untapped to its vast potential in India. As per estimates, India has a total potential of 103 GW, of which only 4.7 GW has been installed (3% of potential). As per NEP 2022, 14.5 GW of PSP capacity is required by 2031-32. At present of the 4.7 GW, 1.2 GW 4 is nonoperational, with another 2.8 GW under active construction and 24 GW under survey/ study stages. This entails an investment requirement of 43,000 crores into the sector between 2022-2027 and another 36,000 crores between 2027-2032. The Government has also appreciated the role that PSP can play in India’s grid and have been proactively working to support the sector. Various measures are being proposed including classifying PSP under a separate category for environmental clearances, prioritizing off stream/ river PSP for faster implementation. Allowing degraded forestlands for compensatory afforestation and encouraging large captive users to go for PSPs. A separate policy on pumped hydro is in works along with bringing about a differential tariff arrangement to further make PSP attractive.
A welcome transformation has been seen from the active interest from private players in the PSP sector which had been missing till late. In 2022 alone, multiple large developers have committed to a total capacity of 5 GW across 3 states, Maharashtra, Uttar Pradesh, and Madhya Pradesh. PSP is being looked upon as a competitive alternative to batteries which has been subject to raw material challenges to address India’s RE-RTC requirement. In 2022, PSP emerged winner against batteries for 2 tenders which required round the clock power requirement. This is a welcome news for the Indian power sector. While the focus has been reinstated, a lot of work is still to be done for reviving India’s hydro sector. The role that hydro will play in India’s journey towards net zero is huge, it all depends on how to make the sector maintain its momentum through interventions at policy and regulatory levels and look into how to further promote and accelerate pumped hydro, which displays the promise to proliferate at a faster pace to address India’s decarbonisation needs.
[This article was written esxclusively for ETEnergyworld by Anish De, Global Head – Energy and Natural Resources, KPMG & Debmalya Sen, Manager, KPMG in India]References:1 CEA Monthly Reports2 Draft National Electricity Plan 20223 CERC Monthly Reports
