CIVIL SERVICES CLUB

Current Affairs Primers

June - 2022
Growth of Hydropower in India: Role of the
Private Sector

Relevance- Prelims- Not much; Mains- GS III-Energy,

Environment

Context
The executive director of the IEA (International Energy
Agency) remarked in 2021 that hydropower was
the forgotten giant of clean electricity and that it needs to
be put squarely back on the energy and climate agenda if
countries are serious about meeting their net-zero goals.

Share of Hydropower capacity in India

 The share of hydropower capacity and its share in a
total generation is in terminal decline.
 In 1947, hydropower capacity was about 37 percent of
the total power generating capacity and over 53
percent of power generation.

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 In 2021-22, the share of hydropower generation

capacity (not including small hydropower and pumped
storage) was just over 11 percent and its share in
power generation was also just over 11 percent of the
total.
 The share of the private sector in hydropower
generation capacity is less than 10 percent today,
the lowest compared to over 96 percent in the
renewable energy sector and 36 percent in the
thermal power generation segment.

Phases of Hydropower Development

 From 1947-67, hydropower capacity development grew
by over 13 percent and power generation from
hydropower stations grew by 11 percent. This was a
period of state-led growth in constructing large
multipurpose storage dams.
 In the two following decades (1967-87) hydropower
capacity development grew by 18 percent but
generation grew by just over 5 percent. In this period,
rapid scaling up of coal-based power generation
started displacing hydropower generation and most of

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the large dams built were used for canal-based

irrigation.
 The decline in hydropower capacity development
continued from 1987-2007 with both the growth of
capacity addition and generation falling to about 3
percent.
 Though hydro-power generation was open to the
private sector both capacity addition and generation
fell to about 1 percent in 2007-2019.

Enabling Policies
 In 1991, hydropower generation was opened to the
private sector and a 16 percent return on equity was
allowed in 1992.
 In 1998 the hydropower policy was formulated to
facilitate the development of hydropower projects in
the North and Northeast of the country that held huge
potential.
 In 1995, the government issued a notification
providing a two-part tariff for hydel generation stations
that addressed some of the concerns of private
developers.

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 The notification of the Electricity Act 2003,

the National Electricity Policy 2005 and the tariff
policy 2006 favoured private investment in electricity
generation.
 The 2007 policy for rehabilitation and resettlement of
people affected by industrial projects addressed one of
the key concerns over hydropower projects.
 In 2003, the government launched the 50,000 MW
hydropower initiative to expedite hydropower
development. The policy intended to fast-track land
acquisition and environmental clearances.
 This central government policy was followed by several
state-level policies to promote private sector
participation in hydropower development, with State
Electricity Boards (SEBs) retaining authority to select
developers to execute projects.
 In 1996, all hydro projects estimated to involve a
capital expenditure above INR 1 billion required
techno-economic approval from the central electricity
authority (CEA) later raised to INR 2.5 billion.

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Issues with the privatisation of the sector

 The private sector often portrays the entrenched role of
the government in the Indian energy sector as a
liability. However, the private sector
leveraged government dominance over the energy,
water and environmental sectors at the central and
state levels to enter a new relatively high-risk sector
such as hydropower generation.
 The presence of the government enabled
the ‘socialisation’ of the environmental, social and
economic cost of hydro-projects essentially minimising
risks for private investment.
 The use of contracts and auctions rather than open
markets to attract investment enabled the
marginalisation of expert opinion on environmental
issues, hydrological challenges and social
participation.
 The costs determined contractually were passed
through to consumers administratively rather than
through responsive price mechanisms.
 The government’s rush to meet ambitious targets for
decarbonisation that enhances its global prestige is

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following roughly the same route of minimising risk

and maximising reward for the private sector involved
in renewable energy projects.

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