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Potential and Investment Challenges in Small Hydro in India
N arasimhan Santhanam
EAI – www.eai.in
About EAI
• Leading Indian renewable energy business intelligence, market strategy consulting firm
• Work on all primary renewable energy sectors – solar, wind, bio-fuels / biomass, waste-to-energy and small hydro
• Work on market research, entry and diversification strategy, economic and financial modeling and pre-feasibility analysis
• Team comprises professionals from IITs and IIMs, with renewable energy, industry research and economics backgrounds
• Based out of Chennai, India• More at www.eai.in
Will be Speaking On…
Small Hydro in India – Intro and Potential Investment Trends in Small Hydro in India Costs Tariffs and RoI Key Challenges Looking Forward Take-aways for Investors
Small Hydro in India – Intro and Potential
Scale Classification
<100 kW Micro hydro
101-2000 kW Mini hydro
2001-25000 kW Small hydro
Small Hydro in India – Intro and Potential
Estimated potential - 15,000 MW. Potential sites of small hydro and 5,415
potential sites with an aggregate capacity of 14,305.47 identified.
MW Total installed capacity = approx 2500 MW (15% of total)
Target capacity addition 11th plan (07-12): 2000 MW
Small Hydro in India – Intro and Potential
RE Source % of installed RE capacity
Wind 76
Small Hydro 16
Cogeneration – Bagasse
4
Biopower 3
Others 3
The second largest RE contributor to electricity
Small Hydro in India – Intro and Potential
RE Source Capacity factor
Wind 25-30%
Solar 17%
Small Hydro 35-45%
High capacity factors
Small Hydro in India – Intro and Potential
Advantages
Renewable Proven technology Indigenously available. More enviro friendly than large hydro. Low scales of investment make them affordable to
small and medium entrepreneurs. Shorter gestation periods than large hydro Relevant for off-grid, rural, remote area applications. Clean Development Mechanism (CDM) applicable
Small Hydro in India – Intro and Potential
Disadvantages
Remoteness – Many small hydro projects located in remote places. Therefore, transmission of the surplus power to other places is costly.
High operation and maintenance cost - Inaccessibility of small hydro plants could result in high O&M costs.
Statutory clearances – Getting the various clearances required take considerable amount of time in some cases.
Transmission lines - Non-availability of high voltage transmission lines, resulting in heavy line losses.
Small Hydro in India – Intro and Potential
Y ear Capacity Added
Total Installed Cap
2002-03 80 1519
2003-04 84
2004-05 102
2005-06 121
2006-07 149
2007-08 205
2008-09 249 2429
SHP Capacity Addition (M W )
Small Hydro in India – Intro and Potential
State Installed Capacity Potential
Andhra Pradesh 180 552
HP 231 22 68
J & K 111 1411
Karnataka 563 6 43
Kerala 133 708
Maharashtra 211 762
Punjab 123 390
U ttaranchal 127 16 0 9
SHP High Potential States (M W )
Small Hydro in India – Intro and Potential
SHP Implementation Timeline
Total period from concept to commissioning – 30-36 months
Pre-construction period – 15-18 months– Surveys and investigations– Feasibility studies– Detailed project report– Clearances– Detailed designs and drawings– Financial closure– Finalization of contracts
Construction period (including commissioning): 15-20 months
Small Hydro - Investment Trends
• Small hydro investment in India grew by 300% 2007-08– $543 million in 2008 (15% of total RE
investments)– $140 million in 2007
Small Hydro - Investment Trends
Year Total installed capacity (MW)
2005 1693
2006 1748
2007 1905
2008 2046
2009 2430
Installed capacity grew from 1693 MW in 2005 to 2403 in 2009. (CAGR of 9.2%).
CAGR expected to be higher for the 2010-2015 period – approx 13%
Costs
Element Contribution %
Hydrotechnical constructions
55
Turbines 30
Buildings 5
Electrical equipments
10
Capital Costs Rs. 5.5-6 crores per MW Significant variation in capex based on scales (10-
15%), locations (15-20%). Capital cost break-up
Private Sector Participation
SHP projects installed in Private Sector (as on 31.03.2009)
Sl. No.
State TotalNumber
Total capacity (MW)
1 Andhra Pradesh 41 96.93
2 Assam 1 0.10
3 Himachal Pradesh 33 134.45
4 Karnataka 66 520.80
5 Kerala 2 33.00
6 Madhya Pradesh 1 2.20
7 Maharashtra 4 21.00
8. Orissa 1 12.00
8 Punjab 10 16.65
9 Tamil Nadu 1 0.35
9 Uttaranchal 9 43.30
10 West Bengal 5 6.45
174 887.23
State Policies For Private Sector Small Hydro Power Projects
State Co-ordinating Agency
Wheeling Banking TP Sale Buy-back by SEB
Annual Escalation
Water Royalty
Remarks
Andhra Pradesh
NEDCAP 2% of energy generated
2%; 8 -12 Months
Allowed but not< HTT
Rs. 2.69/Unit
(2004-05)
- As fixed upto 35% PLF.
25p/unit >35%
Arunachal Pradesh
Dept. of Power
Allowed charges to be determined by SERC
With prior permission of State Govt.
Allowed To be decided by SERC / State Govt.
Assam Power Dept.
As decided by AERC for TP; no charges for sale to ASEB
6 months Allowed At mutually agreed rate
- No royalty up to 5 MW if power is sold within state >5 MW Rs. 0.25 per unit
l allotment for 35 years
l Water cess on canal projects Rs. 0.05 per unit per year
Bihar Dept. of Energy
Allowed, terms to be decided by BSEB
Allowed As decided by BERC
- -
Chhattisgarh
CREDA To be decided by CSEB
Allowed Rs. 2.25 per unit
- To be decided by WRD
Gujarat GPCL 4% of energy generated
6 months As decided by GERC
- - Exempted from electricity duty for 10 years
Haryana
HAREDA 2% of energy generated
Allowed Allowed Rs. 2.25/unit (94-95)
5% Rate as announced
Capital Subsidy as extended to other industries
Sales tax benefit for project owner
Himachal Pradesh
HIMURJA 2% of energy generated
Allowed with additional charges
Not Allowed
Rs. 2.64/unit - Exempted for 15 years up to 3 MW
Jammu & Kashmir
J&K PDC 10% now, to be decided by SCRC. No charges for sale to PDD or local grid
Allowed for 2 months
Allowed HT consumers
Negotiable - 10% first 15 years, 15% after that
l No sales tax on equipment
l SHP as industryl No Income tax
Costs
Levelized Cost of Electricity (LCOE)Total levelized cost for electricity generation: Rs. 2.0-2.5 per kWh O & M cost (including insurance): Rs. 0.5-0.7
per kWh Amortized costs and other interest costs
(taking 30 years amortization period): Rs. 1.75 per kWh
Costs
Future Cost Reduction Possibilities
“ SHP is a mature technology” – Not entirely true Significant advances are being made in
hydroelectric equipment. Developments focused on low-head installation,
turbines (Eg. “ fish friendly” turbines), improving environmental integration.
Significant cost reductions in near/medium term expected especially in turbines - improved turbine designs, better pump turbines
Small Hydro – Revenue Components
The primary revenue components are:
– Revenue from selling electricity– Revenue from carbon credits
Tariffs(2009)
State SHP Tarif f (Rs/ k W h )
AP 2.6
Himachal Pradesh 2.87
Karnataka 3.4*
Kerala 2.44
Maharashtra 2.84
U P 3.34-3.83 (based on the year)
Uttarakhand 2.65-2.8 (based on scale)
CDM Benefits
SHP qualified for CDM benefits Approx 0.5 Rs per kWh as carbon credits
RoEProjected RoE for the Industry
PLF = 35% Lifetime = 30 years Project capex = 5.5 crores/MW D/E = 70:30 Interest on loan = 12% O& M = 17 lacs / MW / year (5.7% escalation annual) Depreciation = 3% SLM Residual value = 10% of capex Tariff + carbon credits = Rs 3.35 per kWh RoE = 1 9. 8 % pre-tax
Payback Period
The payback period for small hydro systems is in the range of 5-7 years.
Owing to its ease of installation and operation, the payback period for small hydro systems is better than that for large hydro sources.
Key Challenges
Delays & Long Timelines Poor Transmission and Distribution Geological and Social Uncertainties Regulatory Challenges
Key Challenges
Delays and Long Timelines
Delays O wing to Clearances Required for Land Acquisition
Examples of statutory clearances– Gram Panchayat– Pollution Control Board/Environment– Irrigation & Public Health– Fisheries– Wild Life (Forest)– Essentiality Certificate
Key Challenges
Delays and Long Timelines
Long Implementation Phase Owing to Relative Inaccessibility– Resource mobilisation– Installing safety measures– Delays owing to transportation issues– Testing procedures– Overcoming geological surprises– Grid connectivity– Commissioning
Key Challenges
Poor Transmission and Distribution Infra
Lack of understanding of control processes to synchronize with grid
More acute owing to the relative remoteness and inaccessibility of SHP sites
Results in power evacuation Transmission line inspection and maintenance
difficult owing to terrain
Key Challenges
Geological and Social Uncertainties– Geological surprises– Inaccessibility of the area– Law and order problems
Key Challenges
Regulatory Challenges– Tariff fixing still contentious– Regulators need to curb tendency to change
rules and targets on which investment decisions are made
– Regulatory commitment need to be sustained through long term contract
Looking Forward
To take care of many clearance and implementation delays, it will be good idea to have a active single window system for clearances.
State utilities more proactive in improving the grid infrastructure and connectivity with SHP projects
Regulators sticking by contracts and more “generous” on incentives
More investment in R & D
Take-aways for Investors Over 85 % of total SHP potential is unexploited SHP can provide economically sustainable power
production SHP could be favored by states owing to its ability
to provide power to remote areas Has fewer environmental bottlenecks than large
HP Key challenges involve implementation delays &
long timelines, poor T & D infrastructure, lack of commitment from regulators and geological & social uncertainties.
Thanks!
Narasimhan SanthanamEnergy Alternatives India - EAI – www.eai.in
[email protected]: + 91-98413-48117