HYDROELECTRIC PROJECTS DEVELOPMENT:

CHALLENGES AND RESPONSE *

RV SHAHI, SECRETARY
MINISTRY OF POWER, GOVT. OF INDIA

Enhancing the level of energy consumption, particularly in less

developed and developing countries, is a global challenge. 20% of
world population living in industrialised countries consume 60% of
energy and remaining 80% of population have to manage within 40%
of total energy.

This has obviously resulted in wide disparities

between the standard of living and quality of life of high energy

consuming countries on the one hand and those who do not have the
opportunities of adequate access to energy on the other.

It is

precisely for this reason that development of different sources of

energy and increase in its consumption has become a priority agenda
of all the developing countries.
2.

Various countries have adopted their own strategies to provide energy

to their people. In the context of electric power, as an important form
of energy, the thermal and hydroelectric power on a global basis, have
occupied the largest proportion. Within the thermal group, coal based
power stations occupy dominant position. However, this varies from
country to country. The Gas based combined cycle power stations in
number of countries occupy a significant proportion.

Similarly,

nuclear power stations have also increased and have been adding
large amount of capacity to the thermal group. During last 30 years,
Hydroelectric power generation has, as a matter of fact, reduced from
21% in 1973 to less than 17% in 2000. During the same period, coal
based generation marginally increased from 38% to 39%, gas
increased substantially from 12% to 17.4% and nuclear witnessed a
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very steep rise from 3.3% to 16.9%. Obviously concerted efforts are
required to develop Hydroelectric capacities
*PAPER FOR VALEDICTORY SESSION IN INTERNATIONAL CONFERENCE ON LARGE DAMS (ICOLD) AT
MONTREAL, 17-20, JUNE, 2003

3.

Low Exploitation of Hydro Potential

Inspite of hydroelectric power requiring a clean energy generation
process, exploitation of Hydroelectric potential in various countries
has been rather on a lower side. While the countries like Canada &
Norway have exploited their hydro potentials to the extent of 48% and
58% respectively, Brazil has developed it to the extent of 31%, China
and India both only to the extent of 18%.
COUNTRY
Norway
Canada
Brazil
China
India

4.

(MW)
POTENTIAL
INSTALLED
47,000
27,360
160,000
65,378
170,000
52,427
310,000
56,000
150,000
27,000

PERCENTAGE
58
48
31
18
18

Power Shortage in India

In India, though over 100,000 MW of capacity has been added in last
50 years, there is a huge gap between the demand and supply of
power.

While in the last few years it has marginally reduced, the

peaking shortage continues to be over 12% to 13% and the average

energy shortage at about 8.8%. Indian power system has an installed
capacity of 108,207 MW in May 2003, with hydroelectric accounting
for 25%.
Installed Capacity in MW (05/2003)
Sector
State
Private
Central
Total

Hydro
23,085
876
3049
27,010

Thermal
40,141
9,419
27,047
76,607

Wind
65
1805
0
1,870

Nuclear
0
0
2720
2720

Total
63,291
12,100
32,816
1,08,207

5.

Declining proportion of Hydro Capacity

In the last 30 years, the proportion of hydroelectric capacity in the
Indian power system has considerably reduced. It has dropped from
about 46% in 1970 to 40% in 1980, 29% in 1990 and now 25% in
2003. In spite of the Hydroelectric potential, which is now estimated
to be of the order of 150,000 MW, the exploitation has been of the
order of 27,000 MW. Some of the important reasons for decline in the
Hydroelectric proportion in the total capacity over the last 30 years
are as follows:

a)

Indian power supply industry has always experienced the situation of

shortages both in energy and peaking requirements. To tide over the
shortage in shortest possible time, more dependence was placed on
sources of power generation with shorter gestation period. Obviously
this short-term approach rather than a long-term perspective led to
this problem.

b)

With abundant coal reserves in the country, large capacity additions

through coal based pithead power stations during the eighties and
nineties increased the thermal proportion.

c)

Emergence of gas based combined cycle power stations based on

indigenous natural

gas with gestation period of 2-2 years also

received priority in response to the anxiety to create capacity addition

in shortest possible time.
d)

Nuclear power stations have also emerged as reliable modes of thermal

generation.

e)

In spite of best efforts at the stage of planning and formulating

projects in the hydro segment, a number of large projects got into long
gestation period of construction on account of various reasons,
namely environmental issues, rehabilitation & resettlement (R&R)
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problems, gap between investigations and field realities, etc. We do

have a number of successful stories on the hydroelectric projects but
we also have large projects which have taken several years to get
completed.
6.

Thrust on Hydro Power

In the recent years, the Govt. of India has committed quantum jump,
in the financial allocation and also by way of other supports so that
Hydroelectric projects not only get right priorities but also contribute
in an increased way to the future capacity addition programmes of the
country. Accordingly, in the 10 th Five-Year Plan (year 2002-2007), the
target for hydroelectric capacity has been placed 14,393 MW, which is
more than the total installed capacity (13,666 MW) created in the last
20 years. The thrust on hydroelectric development is based on the
following considerations:

a)

Hydroelectric involves a clean process of power generation.

Once the

projects are constructed, there is no pollution ramification unlike

many other power generation technologies and processes.
b)

Since it does not suffer from the limitation of inflation on account of

fuel consumption, in the long run, it is the most cost-effective option
for power supply. In Indian context, where more than 45% of Indian
population has yet to have access to electricity at an affordable price,
this is an important consideration.

c)

Indian power supply system has a peculiar limitation of huge variation

between peak and off peak requirements. Management of peak load in
an

effective

manner

could

be

conveniently

handled

through

availability of hydroelectric support. The system at present does suffer

from large frequency variations. Better hydro support could address
this problem better.
d)

Locations of Hydroelectric projects in India are also in areas which

need substantial support for their economic development.
5

These

areas are North-east, Uttaranchal, Himachal Pradesh

& Jammu &

Kashmir where more than 80% of potential exists. Developing projects

in these areas will spur economic activities and will lead to overall
economic development.
e)

In an integrated Hydroelectric project there are many such projects

the schemes involve not only supply of electricity but also provision of
drinking water and irrigation. These are important issues in many
parts of India. Hydroelectric projects, in many cases, do have the
ability to mitigate these problems.

f)

Flood control is also an issue and quite often a challenge. Integrated

hydroelectric projects could adequately address this concern.

7.

Govt. of India Initiative on Hydro Power Development:

The main features of the Government of India policy on hydro power

development are as follows:

Additional budgetary financial support for ongoing and new

hydro projects under Central Public Sector Undertakings.

Basin-wise development of hydro potential comprehensive

Ranking studies for 399 schemes.

Advance action for capacity addition 10 year ahead of

execution

Emphasis on quality of survey & investigations

Resolution of inter-state issues on sharing of water and power.

Renovation, Modernization & Uprating of existing hydro stations

Promoting small and mini hydel projects 25 MW and below

now fall into category of non conventional qualifying for
benefits.

Simplified procedures for clearances by Central Electricity

Authority; Electricity Act 2003 further liberalises this.
6

Rationalization of hydro tariff by allowing premium on sale rate

during peak period

Realistic

estimates

of

completion

cost

considering

new

development on geological front during execution.

Promoting hydel projects in joint venture

Selection of developer through MOU/Bidding route

Govt.

support

for

land

acquisition,

resettlement

and

rehabilitation, catchment area development, etc.

Some of the measures announced by; Govt. of India have

already been introduced which include simplified procedures for
transfer

of

techno-economic

clearances,

streamlining

of

clearance process and introduction of three-stage clearance

approach

for

development

of

hydro

projects

in

Central

Sector/Joint Ventures, etc.

The Central Electricity Regulatory Commission has approved

5% hydro development surcharge on annual fixed charges for
central hydro power generation.

8.

50,000 MW Hydroelectric Initiative

Apart from over 14,000 MW capacity addition which has been planned
to be operational during the period 2002-2007, a

50,000 MW

Hydroelectric Initiative has been launched by the Prime Minister of

India in May, 2003. This initiative has started with the preparation of
feasibility report and detailed project report. 162 hydroelectric
schemes have been identified with an aggregate installed capacity of
50,560 MW.

They are located in sixteen States of the country.

Of

these, 106 schemes aggregating to about 39,000 MW are located in

only four States namely Arunachal Pradesh, Uttaranchal, Himachal
Pradesh and Jammu & Kashmir. These projects under this Initiative
are proposed to be taken up for execution during 11 th & 12th Plans i.e.
7

between 2007-2017. All the preparatory works from Feasibility Report

to Detailed Project Report and also in many cases infrastructural
development should have been done before that.

9.

Major challenges and responses:

Development of Hydroelectric projects has thrown up a number

of important challenges, the world over and particularly in
Indian context.

Over a period of time, experiences have been

acquired and India is responding to these challenges in the

following manner.
a)

Impact on Environment: Hydroelectric projects do create

environmental issues emanating from sub-mergence of large
areas also involving forest.

The Govt. of India has a

comprehensive legislation on environmental issues and based

on this legislation, there are well laid down principles and
guidelines.

Environment Impact Assessment studies when

properly carried out throw up the tasks to be undertaken by the

project development agencies. Over a period of time, both the
processes of a) studies and preparation of the plans to mitigate
environmental impact and b) procedure of clearances from the
authorities, have been streamlined. Process of improvement on
these areas continues to see as to how best the adverse
environmental impacts are mitigated and also the procedure
does not lead to delays. It needs to be ensured that if the forest
area is affected, sufficient amount of forest is created. Ministry
of Environment & Forest is working on a plan to create Forest
Bank which would entail creation of huge afforestation with
funding from project development agencies in advance so that
this issue could be adequately responded.
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The mechanism of

compensatory afforestation through the Forest Bank will enable

quicker clearances of projects.
b)

Rehabilitation & Resettlement (R&R) of Project Affected People

(PAP) is another major issue affecting the smooth execution of
Hydroelectric projects particularly where in submergence areas,
the number of project affected people are large. Experience of
last several years has brought about sufficient amount of
understanding on the subject. The expectations of people, local
authorities

and

project

development

agencies

are

being

synthesised so that there is greater degree of acceptability of the

system of R&R. Govt. of India is contemplating a national policy
on R&R for Project Affected People. In the meantime, Ministry
of Power of Govt. of India and its public sector undertakings are
coordinating their efforts with the State Govts. so that R&R
issues are adequately addressed and project implementation is
smooth.

In cases, where large projects are involved, specific

monitoring mechanism has been put in place at senior most

level in the Govt. so that proper implementation of R&R plans
by project agencies is done in letter and spirit.
With the above experiences now, it appears that in future, the
concerned project development agencies would evolve proper
plans and programmes well in advance so that the mitigatory
measures are adequate and project implementation is smooth.

c)

Another issue of concern is in relation to safety of dams. Here

again, experiences from some of the very large projects of the
country have led to considerable amount of knowledge base and
it is expected that in future projects, studies and findings on
dam safety could provide much higher degree of confidence.
Some of the Indian institutions have equipped themselves both
9

with hardware and software to properly address these concerns.

Where required, project development agencies do depend on
expertise available anywhere in the world for in depth studies
and guidance.
d)

In view of complexity in development of Hydroelectric projects,

particularly

large

ones,

emanating

from

dam

height,

submergence, ramification of submergence, dam safety, drinking

water schemes, irrigation, infrastructure etc., the process of
clearances obviously gets linked with multiple agencies and
authorities. Short cuts could create problems. Inordinate delays
could entail huge cost and therefore unaffordable tariff.
Harmonious balance has, therefore, to be struck. Here again,
experience

of

last

many

decades

has

brought

about

reasonable consensus on how to address this situation.

process

of

improvement

on

this

front

also

The

continues.

Procedures have been streamlined, and they would continue to

be streamlined, to see that project development process, prior to
commencement

of

main

plant

construction,

permission and clearances is made faster.

Environment

and

Forest,

Ministry

of

Power

authorities continue to search for better solutions.

10

by

way

of

Ministry of
and

other

e)

Reliability of detailed project report needs to be enhanced.

There are a number of examples in Indian Hydro project
development context of large variations from estimated costs
primarily on account of differences between the outcomes of
investigations and ground realities. Both in respect of hydrology
and geology, the quality of studies, investigations, analysis and
findings need substantial improvement. The silver line is that
there are recent examples of project development where
variations are within limits. Experience gained here again must
lead to qualitatively better DPRs and estimates and project
could be completed without cost over runs, at least

with

avoidance of such cost increases which are on account of

variation

in

estimates

germane

to

inadequacies

in

investigations.
f)

Construction time is another area of concern, which needs to be

compressed. Large projects have taken inordinately long time.
There are two major aspects which could make a difference
one is relating to construction management techniques starting
from planning to monitoring and another relates to construction
technology.

Here again, there are recent examples of making

substantial improvement on both the fronts. Some of the

projects which have been sanctioned in the recent months are
being targetted to be completed within 4-5 years.
Based on the benchmarks which have been established, the
techniques and technologies would be further improved. Choice
of technology will have to be given serious consideration. For
the next few years, project development agencies are being
advised to target 4 years for completion of small projects, 4
years for medium size projects and 5 years for large projects.
These schedules are significant improvement over the past
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performance.

After these results are achieved, the

norms

would be further improved.

g)

Communication with press, media and people at large to reduce

the communication gaps on merits of hydro-projects and on
mitigatory measures is another area of challenge which is being
addressed.

This also needs to be taken up appropriately at

global level.

11.

Opportunities in Indian hydroelectric sector

About 14,000 MW of additional capacity in the period 2002-2007 and

50,000 MW of additional capacity during the period 2002-2017 throw
open enormous opportunities for national and international agencies.
The opportunities fall in the following categories.
a)

Preparation of DPR for the 162 schemes with over 50,000

MW capacity

12.

b)

EPC contracts for development of many of these projects

c)

Package wise contracts in a large number of projects.

d)

Investment as equity holder and project developer

e)

J.V. with Indian Companies for developing projects

f)

Providing finance - opportunities for the funding agencies.

Viability of Investments
The main reason for somewhat lukewarm response for investments in
Indian power sector in last ten years has been the poor financial
health and creditworthiness of the sector

With the reform and restructuring of Indian power sector, post

Electricity Act 2003, which has been notified on June 10, 2003,
12

during the next 3-5 years Indian power sector, even on distribution
segment, could present itself to be stronger both technically and
commercially. Implementation of the recently launched Accelerated
Power Development & Reform Programme (APDRP) of the Government
of India is expected to lead to financial viability of distribution
business.

Based on these, investments in the sector, and more particularly in

hydroelectric projects, which could provide comparatively inexpensive
power in the long run, would be fully viable. The electricity market
where competitive environment is being created, with multiple options
of production and sale of power and where power trading is emerging
as a distinct activity, power sector offers enormous opportunities.

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