A release by rating agency ICRA says that hydropower capacity addition in India has remained sluggish historically, with significant execution challenges as also seen in the incremental capacity addition of about 22 GW between 2000 and 2021.
Hydropower generation capacity has therefore grown at a CAGR of just 3 per cent, the release said.
Further, share of hydro in the overall power generation capacity has declined considerably over the period, with a significant rise in thermal capacity addition seen in CY2005 till CY2015 and thereafter in the renewable energy segment.
With improved tariff competitiveness of solar & wind energy and strong policy focus by Government of India (GoI), share of renewables (solar & wind segment) is estimated to grow considerably in the energy generation mix, going forward.
However, hydro energy segment also remains systemically important from the grid perspective so as to meet the flexibility requirements / peaking power supply. In this context and to further the growth of hydro energy segment, the GoI has outlined policy measures over the last two-year period to promote the investments in hydro segment through notification of hydro power purchase obligation (HPO) norms, long term trajectory for HPO as well as tariff rationalization measures. Hydro power purchase obligation is set at 0.18% for FY2022 which in turn is set to increase up to 2.82 per cent by FY30 at national level, as notified by Ministry of Power, Government of India.
HPO norms
According to Girishkumar Kadam, Senior Vice President& Co-Group Head- Corporate ratings, ICRA, “Based on the notified hydro purchase obligation norms & trajectory available till 2030, incremental hydro power capacity requirement is estimated to remain significant i.e. at about 18 GW, which corresponds to about 39 per cent increase over the existing installed hydro power capacity in the country. It is however observed that HPO norms have been subsequently notified by SERCs in few states only, in line with policy targets as of now. Hence, timeliness as well as consistency in the notification of HPO norms by SERCs in other states as well as subsequent implementation of the same by the obligated entities too remain a key monitorable”.
Also read: ICRA Estimates 16 GW Of Renewable Energy Capacity In FY23
Challenges ahead
The hydro energy segment faces many other challenges like elongated construction schedule, significant resettlement & rehabilitation and land acquisition issues, delays in clearances and geological/ topological risks which have led to significant time & cost over-run for hydro projects. This is also reflected from the fact that average project cost for the commissioned hydro project capacity by CPSUs during FY 2017-2021 remained at about Rs. 13-14 Cr./MW.
Given the high level of capital intensity for hydro projects, tariff competitiveness of hydro energy too remains modest from the ultimate off-takers’ perspective. On the contrary, tariff competitiveness for solar and wind energy has significantly improved with the bid tariffs remaining well below Rs. 3/unit for last 3 to 4-year period as against the average power purchase cost for majority of the state discoms remaining in the range of Rs.4 to-5/unit, depending on the mix of sources in power purchased.
Source: ICRA Release
(Featured photograph for representation only)
