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Opinion

`Hydel power needs incentivesí
ET INTERACTIVE/Soma Banerjee

Hydel power has been a neglected area, despite several government initiatives and policy measures. Private investment for hydel power generation has been a non-starter. The main reasons cited include long gestation periods, heavy costs and royalty issues. A B Giri, executive director of Malana Power Company spoke to Soma Banerjee on unresolved issues and how industry and government can increase hydel capacity.

What are the main problems in the hydel sector?
The hydel sector has always been an area where investments take a long time to come in. n the initial areas after independence some mega hydel power projects were taken up at the instance of the then prime minister. But later on investments in this sector kept falling primarily due to the nature of these projects. Most of the hydel projects were developed on grants from multilateral agencies. Since the money was not repayable and did not carry an interest, the power companies were in no hurry to either complete the project or keep the costs under control. This led to hydel projects being labelled as uneconomic and long-gestation projects.

Do you think that hydel projects are actually do-able in a shorter span of time?
Itís all a matter of perception. The perception of hydel projects being difficult is more because of social and political factors rather than technical. The thermal lobby has always pushed for thermal power projects as opposed to hydel projects as they are developed faster and do not have to deal with social issues like relief and rehabilitation. In some cases, the developer fails to execute the project in time if there is a problem at the designing stage. That is where expertise comes in and if the geological and designing aspects are taken care of, implementing hydel projects can be carried out on time.

Why has the hydel policy failed to attract private investments?
Amongst the main problems that the hydel sector has faced is credible buyers for the power generated. Since the entire power has to be sold to the state electricity board, developers have a problem finding lenders for the project. Added to this is the problem of R&R which slows down most projects. Moreover, hydel projects have to pay a royalty to the host state which increases the cost of the project in the initial years.

Why do you think hydel projects need to be developed faster than other projects?
Apart from the fact that hydel projects are more eco-friendly, it is an accepted fact that the inflationary trend of non-hydro energy can be offset by greater promotion of hydel power. It would also ensure more regular supplies for peak requirements and enhance grid stability. But this canít be done without significant policy changes. The high cost of hydel power is the most discouraging factor and the government will have to allow certain incentives if hydel power is to be promoted.

What are these incentives?
These power projects carry a high rate of interest and need to repay debt over a shorter period of time comparable with other sectors of business economy. The government could work towards providing a special rate of interest for such developmental projects. Royalty is yet another issue where the power developer is forced to pay subsidised power to the home state even if the state uses the same to earn extra revenue by selling it to other states. Our suggestion has been that royalty should be payable in the later years after the power developer has paid off the debts.
The level of royalty even though lower in the first twelve years at 12 per cent and 18 per cent in the later 28 years of the project life are such that it pushes up the cost of energy in the early years of generation. The royalty should start with 0 per cent during the first couple of years and thereafter rising in arithmetic progression over the remaining years until it reaches the weighted average of 16 per cent per annum.
The government could also consider a proposal to provide cross subsidy for transmission of hydro-power energy at the expense of thermal energy from large mega plants so as to limit the cost of hydro-power energy.
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