India requires 18 GW capacity addition to meet hydro purchase obligation norms by 2030: Icra – EQ Mag Pro

To further the growth of hydro energy segment, the Centre has outlined policy measures over the last two-year period to promote the investments in the segment through notification of HPO norms, long term trajectory for HPOs as well as tariff rationalization measures.

Around 18 GW hydro capacity addition is required to meet the hydro purchase obligation (HPO) norms by 2030 in the country, according to rating agency Icra.

To further the growth of hydro energy segment, the Centre has outlined policy measures over the last two-year period to promote the investments in the segment through notification of HPO norms, long term trajectory for HPOs as well as tariff rationalization measures.

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,” said Girishkumar Kadam, Senior Vice President & Co-Group Head – Corporate ratings, Icra.

The HPO norms have been subsequently notified by SERCs (state The HPO norms have been subsequently notified by SERCs (stateelectricity regulatory commission) in few states only, in line withpolicy targets as of now, he noted.policy targets as of now, he noted.

Hence, he stated that timeliness as well as consistency in thenotification of HPO norms by SERCs in other states as well asnotification of HPO norms by SERCs in other states as well assubsequent implementation of the same by the obligated entities tooremain a key monitorable remain a key monitorable.

According to an Icra statement, 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 and 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 ( central public sector undertakings) during FY 2017-2021 remained at about Rs 13-14 crore /MW.

Given the high level of capital intensity for hydro projects, tariffcompetitiveness of hydro energy too remains modest from the ultimate off-takers’ perspective. 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 years as against the average power purchase cost for majority of the state discoms remaining Rs 4-5/unit, depending on the mix of sources in power purchased, it noted.

Icra says hydro capacity addition in India has remained sluggish Icra says hydro capacity addition in India has remained sluggishhistorically, with the significant execution challenges as also seenin the incremental capacity addition of about 22 GW between 2000 and 2021, representing CAGR (compounded annual growth rate) of mere 3 per cent in the hydro segment.

Further, it says that 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 2005 till 2015 and thereafter in the renewable energy segment.

With improved tariff competitiveness of solar & wind energy and strong policy focus by the Centre, share of renewables (solar With improved tariff competitiveness of solar & wind energy and strong policy focus by the Centre, share of renewables (solar& wind segment) is estimated to grow considerably in the energygeneration mix, going forward, it pointed out.generation mix, going forward, it pointed out.

However, it stated that the hydro energy segment also remains systemically important from the grid perspective so as to meet the 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 Centre has outlined policy measures over the last two-year period to promote the investments in hydro segment through notification of HPO norms, long term trajectory for HPO as well as tariff rationalization measures, it noted.

The HPO is set at 0.18 per cent for FY2022 which in turn is set to increase up to 2.82 per cent by FY2030 at national level, as notified by Ministry of Power, it stated.

Tariff rationalization measures such as backloading of tariff with 2 per cent escalation and provision for budgetary support at Rs 1 crore /MW for hydro projects of > 200 MW capacity, is expected to alleviate the concern on tariff competitiveness considerably, in the initial years,” Siddhartha Kaushik, Assistant Vice President – Corporate Ratings, Icra, said.

While tariff rationalisation measures were outlined by Ministry of Power in March 2019, the same are yet to be incorporated by Central Electricity Regulatory Commission (CERC) in its tariff regulations applicable for hydro projects.

Further, the policy clarity in terms of support measures especially for pumped hydro storage capacity remains a key monitorable too, it stated.

Source : PTI