Introduction

Hydro power in one form or other is one of the oldest energy sources servicing the human civilization. The new environmental laws affected by the danger of global warming have made energy from hydro more relevant than ever. Depletion of fossil fuel and their rising prices have compelled the planners to have a fresh look on power from hydro. For a developing economy like ours, where major energy needs are met by importing petroleum products, resulting in outgo of precious foreign exchange, the role of hydropower assumes much greater importance. 
The hydropower projects have some specific advantages, which make them attractive for the balanced development of the power sector. Flexibility in operations (quick start and stopping, load acceptance and rejection) and suitability for meeting the peak demand thereby enhancing the system reliability has made hydropower a preferred mode of energy generation.

Hydro Development- Present Status

Our country is endowed with enormous potential of hydropower generation. However, the actual pace of development has been below the desired level. As per the studies carried out by CEA the economically exploitable hydro potential from major/medium schemes in the country has been assessed as 84,044 MW at 60% load factor, corresponding to an approximate installed capacity of 1,50,000 MW. As on 31.3.2002, only 14,176 MW of hydro potential has been developed and nearly 5169 MW is under development. Thus, a large amount of hydro potential (nearly 77%) is yet to be tapped.

Adverse Hydro-Thermal mix - A cause for concern

The slow pace of hydropower development has resulted in a poor hydrothermal mix. In the absence of adequate hydropower capacity, thermal power plants are forced to perform the role of peaking power plants. This results in poor utilization of thermal power plants leading to increase in the cost of generation. In an ideal condition, for economic and stable operation it is desirable to have thermal (including nuclear) power plants to meet the base load and hydro power plants to meet the peak power demand. A minimum hydrothermal mix of 40:60 has been indicated for Indian conditions to meet the electricity demand in the most optimal manner. However, in our system the share of hydro power which was 37% in 1947 and rose to 50% in 1962-63, now stands at a poor 24%.

Accelerating Development of hydro power-Policy Measures

Alarmed over the declining ratio of hydro share in the power system, GoI was forced to tackle problem on a war footing. A policy on hydropower development was formulated in 1998 to accelerate the development of hydro potential. The policy among other aspects accepted the fact of poor response of private sector and the need to strengthen the CPSUs & SEBs for taking up new hydro projects. Accordingly, GoI has taken several steps to accelerate capacity addition from hydro power plants, which include the following:

• Higher budgetary allocation for hydro sector.
• Investment approval of new hydroelectric projects.
• Identification of new projects in the central sector for advanced action.
• Promoting state sector projects in which were languishing or could not progress due to inter state disputes.
• Simplification of proceedings for transfer of clearance.
• Developing basin wise policy for accelerating hydropower development.
• Initiating basin wise ranking study by CEA, with a view to identify those projects, which could be taken up first so that hydropower is developed in an appropriate sequence.
• Advance preparation of DPRs for having shelf of potential projects ready to be taken up when the need so rises.
• Charging of cess on electricity for creating a fund for development of hydropower.

Keeping in view the imperative need for development of hydropower potential, Govt. of India has included the development of hydropower as a thrust area in the Electricity Bill 2001, which is likely to be introduced shortly.

Hydro Power-Investment Needs

CEA’s vision paper (Mar’2001) for development of hydro electric potential have envisaged the following additional capacity programme in the hydro sector to meet the growing power needs of the country economically and to improve upon the hydro thermal mix.
 

Additional Capacity Programme in the Hydro Sector

Plan Period	Hydro Capacity Envisaged to be added (MW)	Likely Requirements  of Funds* (Rs. Cr.)
2002-07 (Xth) 2007-12 (XIth) 2012-17 (XIIth)	10,432 21,288 23,000	46,944 95,796 1,03,500

The funds requirement at a conservative estimate for the X Plan period (2002-07) for putting up of nearly 10,432 MW of hydro power to the grid comes out to nearly Rs.47000 crores @ Rs. 4.5 crores per MW i.e. approximately Rs.10000 crores per year of the plan period. This is a huge investment from any yardstick, more so as huge investment would also be required for setting up thermal power plants and matching transmission and distribution network.

Issues involved in hydro power development

Major issues involved in the development of hydropower projects are: 
Long gestation period: The gestation period of hydro power project normally comes to 6-8 years, on an average. However, major hydropower projects can take as long as 12-15 years to complete.
Inadequate infrastructure: Hydropower projects are generally located at remote areas. It takes considerable time and money in providing infrastructure facilities like roads, bridges, colony etc. Projects located in hilly areas and North - Eastern region generally fall in this category. The time consumed in providing the infrastructure facility may go up to many and may load the cost estimate to as much as 10 to 15%. However, the gestation period after development of infrastructure may be 4 to 5 years only.
Land acquisition problems: Land acquisition is the first step towards project implementation and also an indication of the seriousness of the executing agency. The problems arising in acquisition of land may delay the starting of construction work and in extensive cases delay the project implementation by many years.
Environment and forest issues: Environment and forest has become one of the major issues, which have come in the way of speedy development of hydropower projects. The implementation of hydropower project is getting delayed for want of environment and forest clearance. There is a need to strike a balance between the development and the environment.
Rehabilitation & Resettlement issues: Connected with the issue of environment is the issue of Rehabilitation & Resettlement (R&R) of the ousters. There are number of projects where the progress of works has been severally hampered due to R&R issues. Moreover, the compensation and the facilities to be provided for R&R of outers is increasing the capital cost to a great extent.
Inter-state issues: Water is a state issue and thus a project on a river flows through more than one state invariably involves resolving of inter-state issues. These issues are best resolved by political will, off course, assisted by awards from Tribunals on water sharing. However, a lot of time is taken in resolving these issues, due to which the implementation of the project suffers.
Geological surprises: Himalayas, where India’s major share of hydro potential is located are the youngest of all the geological formations and therefore are also having one of the most fragile ecology in the world. Although, detailed investigation regarding geological conditions of the strata is carried out before the project implementation, which takes lot of time, the probability of occurrence of geological surprises cannot be completely eliminated. Depending upon the gravity of the geological surprise like collapsing of tunnel, fault zones, cavity formation and emission of dangerous gases, the implementation of the project can get delayed to a large extent, besides increasing the capital cost of the project.
Law & order problem: Poor law and order, is also one of the reasons contributing to the delay in the implementation of the hydro project, as these are located in remote areas where it is difficult to provide adequate security. In the North-Eastern region many of the 
Power projects get delayed due to law & order problem.
Funds constraints: Some of the projects are delayed due to paucity of funds as they are initiated without proper financial closure. Shortage of funds results in slow progress leading to time overrun, which leads to cost overrun due to inflationary pressure, aggravating the funds problem further. The projects get caught in a vicious circle of time & cost overrun.

PFC’s contribution in Hydro Power Development

PFC realizes the importance of developing hydropower and has therefore placed it as one of the thrust area of its operation. PFC also sanctions grant for Renovation & up rating studies of existing hydro power plants and concessional loans for project preparation for new hydro projects. As on Mar’ 02 PFC have sanctioned Rs. 7249 crores for hydro generation (81nos.) and R&U (64nos.) schemes which is nearly 21.22% of the total sanction of Rs. 34,154 crores.
PFC offer financial support for hydro power projects at a very attractive terms & conditions which are as follows:

• Moratorium on capital repayment up to commissioning. 
• Long tenure of up to 10 years for capital repayment after commissioning of the units.
• Loan up to 70% of the completion cost. Further assistance of 15% can also be availed for non-fund based activities like Deferred Payment Guarantee. Thus, the fund based and non-fund based financing can go up to 85% of the completion cost. In case of reforming states the fund based funding can go up to 80% of the project cost.
• For some state sector projects PEC’s interest rate for hydropower project is less by 0.5% than the interest rate charged for thermal power projects.

PFC’s financial support has been extremely helpful in expediting the commissioning of many hydropower projects, which were at the advance stage of the project, however the utility was not able to expedite it due to constraints of funds.

Conclusion

Despite India being endowed with large hydro potential, hydro share in the installed capacity has fallen down to 25% as against the desired ideal hydrothermal mix of 40:60 for economical operation of the power system. Drastic efforts by GoI for development of hydropower are yet to show positive result. Efforts by GoI to rope in private sector has also not fruitified, in view of the inherent risk involved in the hydro power projects like long gestation period, R&R problem, geological surprises, problems in land acquisition etc.

Keeping in view the large investment requirement to the tune of around Rs. 10,000 to 15,000 crores per year for addition of new hydro capacity in the X plan, increased participation from Central and State Govt. would be required. Infrastructure development and survey & investigation for large hydro power project should be carried out by govt. agencies and only when the project is ready to take off, the private sector should be invited to participate either as a purely private company or through a joint sector venture with state sector.

Experience in PFC indicates that fund constraint is not the only factor coming in the way of development of hydropower. Complexities involved in construction of hydropower project play a far greater role in delaying the development of hydropower. The recent policy measures adopted by GoI with regard to speedy development of hydropower is a step towards accelerating capacity addition of hydro power plant. Power Finance Corporation on its part has kept the development of hydropower as one of its thrust area by providing preferential treatment to help speedy development of hydropower. However, more still need to be done. Debt of longer tenure for hydropower project is one amongst them. Hydro power project being capital intensive require specialized debts of longer tenure say of 15-20 years, to avoid loading the tariff upfront. Thus, there is a need to look into hydropower development as a basic infrastructure development requiring special attention.