JSW Energy: Harnessing hydropower

The company is betting big on India’s rivers as experts see hydropower as a key contributor to the country’s renewable energy target.

Amid meticulously pruned maple trees on one side and rows of red and yellow roses on the other, the constant clanking of turbines shatters the silence of the hills. The turbines on the basin of the Sutlej flowing from China are part of India’s largest private sector hydropower producer JSW Energy’s Baspa and Wangtoo plants in Himachal Pradesh’s Kinnaur district.

Private sector companies are generally wary of investing in hydropower because it is considered a highly capital-intensive resource. Many projects suffer cost overruns, delays due to geological and clearance problems, and land acquisition issues. But JSW Energy believes there is significant growth opportunity in the sector in light of India’s push for renewable energy.

The company entered the hydel sector in 2015 by acquiring the Baspa (300 MW) and Karcham Wangtoo (1,080 MW) projects from debt-ridden Jaiprakash Power Ventures, a Jaypee Group subsidiary, for ₹9,700 crore. JSW Energy had tried to enter the space eight years ago by building a 240 MW plant at Kuther in Himachal Pradesh, but the project could not take off over policy issues and for want of a long-term power purchase agreement (PPA). It is looking at reviving this project besides looking at other stressed hydro assets.

“Hydro is something we are looking at in the longer run,” says Sharad Mahendra, chief operating officer, energy business, JSW Energy. “Average production has gone up after the takeover. We did luck out in terms of the takeover as these are good assets. The HP (Himachal Pradesh) government has come out with a hydro policy which makes the project viable as it’s favouring us.”

The challenge is that the banking sector is not looking towards the power sector positively in terms of lending.
Sharad Mahendra, COO, energy business, JSW Energy
Today, JSW Energy has a total power generation capacity of 4,531 MW—including thermal, hydel, and solar. It supplies power to Haryana, Rajasthan, Uttar Pradesh, and Punjab at an average tariff of ₹4.39 per unit; and gives 12% of its total operational hydel capacity to the Himachal Pradesh government for free. Hydropower generation has been stagnant for years in India because of high costs, concerns about viability, and environmental issues. It accounts for less than 15% of the total power generation in the country, but its potential is big. India has a total installed hydropower capacity of 45,000 MW, and public sector units such as National Hydroelectric Power Corporation and NTPC (hydro) dominate the space with over 90% contribution to India’s total production.

Only 3,200 MW has been commissioned through the private route, according to a joint study by global consultancy firm PwC and industry body Assocham. JSW’s Baspa and Karcham Wangtoo plants together account for nearly 40% of the country’s total private hydropower capacity. Tata Power, Greenko, and Lanco are the other major private hydropower producers.

Hydropower’s share is expected to rise with the government’s growing focus on renewable energy. India aims to generate 40% of its power from renewable sources by 2030, according to the Paris Agreement on climate change. This would roughly translate to 350 gigawatts (GW), and experts see hydropower as a “key contributor” to this number. According to industry estimates, India has large hydropower reserves, capable of meeting demand of around 85 GW at a 60% load factor, making it the fifth in the world in terms of usable hydropower potential.

Of the 37 hydropower projects in the country, work at 16 with a combined capacity of 5,190 MW is stalled, mainly due to fund constraints.
“The increase in share of renewable energy will come at a greater cost, and the 2030 target will be very hard to reach without corresponding growth in hydropower. It will not just help, I would say it’s key to it. Without that, you will not achieve it,” says Kameshwar Rao, partner, PwC.

One of the big problems facing the power sector is that banks are reluctant to lend without PPAs because of high risks. JSW Energy is still awaiting a PPA for its Kuther plant. “The challenge is that the banking sector is not looking towards the power sector positively in terms of lending. Anyone who goes with a lending option, without a PPA, will not find it easy to get funding,” says Mahendra. Of the 37 hydropower projects in the country, work at 16 with a combined capacity of 5,190 MW is stalled, mainly due to fund constraints.

Despite the massive untapped potential of India’s rivers, hydropower generation is a particularly highrisk proposition. Preparatory geological surveys are expensive and throw up some surprises. For example, in a young mountain range like the Himalayas, the rock crumbles quicker, leading to big delays in projects. “Private people find the gestation period of a hydro project a little longer,” says power secretary A.K. Bhalla. There are also environmental concerns arising from construction and operation of projects that companies have to contend with. “There is a very big misconception for hydro that it disturbs the environment,” says Mahendra. For its part, JSW Energy says it is taking care that “the greenery” at a project site is not affected. “There were challenges initially and there was discontentment among the locals. But now we haven’t got the feel that locals are not happy,” says Mahendra.

At the moment, hydropower is more expensive than traditional fossil fuel-based power. Bhalla says the cost goes up because these are remote projects that need big infrastructure investment for roads and bridges for carrying heavy equipment. To lower costs and make hydropower more affordable, the ministry of power has initiated policy measures through which the cost of construction of roads, bridges, and flood moderation infrastructure will be excluded while calculating tariffs for such plants. The NITI Aayog’s draft national energy policy also proposes a rehabilitation package for reviving stalled hydro projects. This will allow access to longterm financing and encourage private players like discoms, which will receive funds from the Centre to sign hydro PPAs for at least five years. “Whatever government support is required will be given as a part of the policy package,” says Bhalla.

Water resources and hydel projects come under the jurisdiction of states. Delays in completion of projects by private players have made states wary of sanctioning fresh ones. With changes in policy atmosphere, “states can look at a PPP [public-private partnership] kind of model, to encourage private players”, says Bhalla, pointing out that “leaving everything on the private player is also basically putting all the risk in his basket”. For hydel producers it looks like there’s scope for hope yet.

Source: fortuneindia