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

narsi@clixoo.comMob: + 91-98413-48117