Ease of doing business is the key to reviving the languishing hydropower sector, believes K.M. Singh, chairman and managing director, NHPC Limited. Excerpts from a recent interview with Power Line…
What is your perspective on the sector’s growth in the past two decades and NHPC’s growth during this period?
India has witnessed tremendous growth in the past two decades and the power sector has played a major part in this. The sector has grown from an installed capacity of around 85,000 MW in 1996 to 300,000 MW in 2016. With rapid economic development, the per capita power demand has grown from around 464 units to 1,075 units during the same period. At the advent of the millennia, NHPC was a 2,115 MW company; however, over the past 15 years, we have added 3,032 MW of capacity (on a stand-alone basis) and another 1,520 MW of capacity was added by our subsidiary company, NHDC Limited. Overall, the past two decades have been exceptionally good for us. Although we have witnessed setbacks in terms of delays in project implementation inherent to hydropower development, damage caused by flash floods to one of our power stations, substantial receivables outstanding from discoms, etc., NHPC as an organisation has come out stronger due to these challenges.
What is the stance of investors on the hydropower sector?
Hydropower is a capital-intensive sector and hydroelectric plants (HEPs) have a long gestation period. Project delays due to a wide range of uncontrollable externalities further increase the project cost, thereby increasing tariffs. The constrained financial situation of the distribution sector (the end-user) is another risk for developers and financiers. Moreover, the demand for electricity is subdued, as is evident from the falling spot prices, which is further driving down revenues in the absence of long-term power purchase agreements (PPAs) in the case of some newly commissioned projects. With an overall installed capacity of 305 GW, the average daily demand is only about 181 GW. All such factors, combined with technical challenges and the geological uncertainties associated with hydropower do not make it the preferred choice of investors. This sentiment is manifested in the lower share of private investments in the sector. Only about 3,120 MW (or 7 per cent) out of the total 42,888 MW of hydro capacity is in the private sector. However, NHPC, with its internal resources and backed by the efficient operation of its power stations, has not faced any difficulty in funding its projects.
What kind of policies and strategies are needed to revive the hydro sector?
We have to appreciate that the development of the hydro sector is not about electricity generation only; it is also about developing assets of strategic importance and gaining from the inherent virtues of a clean and green source of energy to meet the needs of our country. The sector has its own set of issues that are hindering growth – be it technical challenges or geological uncertainties, civil society issues, non-availability of low-cost finance, delays in obtaining statutory clearances, etc. Hydro development has generally focused on individual projects instead of the whole river basin. It is necessary to conduct comprehensive river basin studies in advance to enable integrated and sustainable development of hydropower schemes. The sector is highly capital intensive and striking an optimum balance between bankability and affordability is a big challenge. Extending tax benefits and exemptions at par with renewables like solar and wind, offering cheaper long-term debt and providing direct benefit transfer to project affected families are some suggestions to accelerate sector development. To expedite hydro development, it is important to focus on the ease-of-doing-business factor with regard to clearances. It takes five to eight years for a project to obtain clearances, before construction begins. The pre-construction costs are very high and deter private participation.
What is the way forward for addressing the environmental and resettlement and rehabilitation (R&R) issues in the hydropower sector?
It is ironic that although hydropower is environmentally the most benign source of power generation, it faces a lot of opposition from environmentalists and civil society. These projects come under public and judicial scrutiny even after obtaining the requisite clearances. This causes hindrances in implementation and increases project costs, which ultimately results in higher tariffs. These factors have resulted in a negative public perception about hydropower. We have been able to deal with environmental and R&R issues by taking all stakeholders into confidence. Every situation needs to be tackled differently, sometimes with out-of-the-box solutions. Village-wise consultations under the Forest Rights Act (FRA) have not been smooth for our new projects owing to resistance from civil society. We are working closely with the concerned state governments and civil society to resolve the issues to expedite FRA compliance. The sustainability of livelihoods and ecology in and around future HEPs will be the key factor to address the environmental and R&R concerns associated with project-affected people.
What have been NHPC’s major business highlights in the past year?
The past year was good for the company. We crossed a major milestone of 5,000 MW of installed capacity (on a stand-alone basis). It was the company’s best year in terms of power generation and our profit showed a robust growth of 15 per cent. We recently commissioned the 160 MW Teesta Low Dam IV project. Besides, we have restarted the tunnel boring machine at the 800 MW Parbati II HEP in Himachal Pradesh, which had been stuck at the tunnel face around 4.2 km inside a mountain due to a fractured zone with substantial water seepage since December 2011.
What are your capacity addition targets for the next two to three years?
In the next three years we will be in a position to add 1,130 MW of capacity in the hydro sector with the commissioning of the 800 MW Parbati II HEP and the 330 MW Kishanganga HEP. In addition, a 50 MW wind power project has been completed in Jaisalmer and will start production once the PPA is signed with Rajasthan’s discoms for which approval has been given by the state government. Another 172 MW of capacity has been lined up across wind and solar projects in Kerala, Tamil Nadu and Uttar Pradesh.
What progress has been made on the 2,000 MW Lower Subansiri project?
Since December 2011, there has not been any progress at the 2,000 MW Lower Subansiri project, our most ambitious venture. This has been owing to agitation by various groups citing dam safety and downstream issues. We have taken proactive steps to address the concerns of people. After several rounds of consultations with experts from premier design and academic agencies, including a dam design review panel constituted by the Government of India, design modifications have been carried out at the project site to dispel apprehensions about the safety of the dam with regard to seismic and foundation considerations. Further, a comprehensive plan to undertake protection work up to 30 km downstream of the dam to prevent bank erosion is under implementation. We have been constantly engaging with the stakeholders to arrive at a mutually agreed solution and to clear apprehensions. With all these measures in place, we hope to resolve the issue in the near future, which would help resume works at the project site.
How are NHPC’s diversification plans in thermal and solar power shaping up?
We have completed a 50 MW wind power project at Jaisalmer in Rajasthan, which will be commissioned shortly. Further, a 50 MW solar project in Tamil Nadu is at the tendering stage. Meanwhile, in Kerala, we have firmed up the project report for a 72 MW wind farm and tendering is under way to finalise the vendor. In the thermal segment, we are in the process of forming a joint venture (JV) company for developing the 1,320 MW Pirpainti plant in Bihar.
What is the company’s outlook for the power sector in the next few years?
As we enter an era of sustained growth, power consumption will definitely go up and capacity additions have to be made. A holistic approach for the development of the power sector and optimal utilisation of the available resources across all sectors – thermal, hydro, renewables and nuclear – will enable us to serve the people in a better way. Hydropower development will certainly look up in the near future, considering India’s Intended Nationally Determined Contribution for climate change under COP21. In line with this, the targeted hydro capacity by the year 2030 is likely to be 75,000 MW as against around 42,703 MW at present. Thus, this gap of around 32,000 MW presents adequate opportunities for the growth of the hydropower sector.
At present, hydro projects aggregating 13,582 MW are under construction while projects with a capacity of about 26,000 MW have obtained the concurrence of the Central Electricity Authority. NHPC has hydro projects aggregating 4,995 MW of capacity at various stages of clearance including the 2,880 MW Dibang HEP, the 600 MW Tawang I and the 800 MW Tawang II in Arunachal Pradesh, and the 195 MW Kotli Bhel Stage IA project in Uttarakhand. Another 1,130 MW of capacity is under survey and investigation for the preparation of detailed project reports, including the 800 MW Bursar HEP in Jammu & Kashmir and the 120 MW Goriganga IIIA HEP and the 210 MW Dhauliganga Intermediate HEP in Uttarakhand. Besides, 2,000 MW is planned through JVs in Jammu & Kashmir, Manipur and Bhutan. As such, we are looking forward to working on 8,125 MW of capacity in the near future. The Ministry of Power has come up with innovative solutions like the Ujwal Discom Assurance Yojana for a financial turnaround and revival of discoms, which will pave the way for regularising the revenue stream for gencos. This will go a long way in improving the overall health of the power sector.