Editorial Notes

[Editorial Notes] Are hydropower projects in Northeast sustainable?

The new hydropower projects in NE don’t fill any gap; are financially unviable; lead to displacement with a high risk of geological mishaps.
By IASToppers
July 22, 2020

Contents

  • Introduction
  • Present scenario
  • Supply glut
  • Reasons to stop new projects in NE
  • Conclusion

Are hydropower projects in Northeast sustainable?

For IASToppers’ Editorial Simplified Archive, click here

Introduction:

The Northeast in general, and Arunachal Pradesh in particular, is considered to have immense hydropower potential. However, these projects are financially unviable and are likely to burden India’s financial institutions with non-performing assets, while adversely affecting the health of state electricity distribution companies.

Present scenario:

  • India is the third largest producer and consumer of electricity worldwide.
  • But it still has one of the lowest per capita power consumptions (1,181 kWh) as compared to the world’s average per capita power consumption, which stands high at nearly 2,700 kWh.
  • The power sector is currently dealing with a unique challenge, wherein there is surplus power generation capacity but adequate distribution infrastructure is lacking.
  • This leads to lower utilization of power plants and increased losses in power distribution sector, which brings in liquidity stress in the sector.
  • The sector faces an aggravating problem of poor financial performance of Distribution utilities (DISCOMS), which are now faced with dual challenge of subdued demand from Industrial & Commercial customers and lower collection efficiency during lockdown.

Supply glut:

  • Due to sustained investments, increased efficiency and attractive pricing in solar and wind energy sector, and recently-commissioned power assets, there is a supply glut (excess) in the energy market.
  • The market for energy is saturated and there is negligible shortage in peak demand (which was only 0.7% in the last 18 months).
  • This is likely to continue in the future, well beyond the current decade.
  • Hydropower has been justified as being necessary to provide power at night, when demand peaks and solar energy is absent.
  • This rationale is no longer applicable for new projects, as hydropower loses ground to hybrid solutions — a mix of solar and spare thermal capacity, that offers round-the-clock power and are priced at low, competitive rates.
  • Power storage — specifically battery technology — is rapidly evolving.
  • The total cost of energy-storage systems should fall 50 to 70% by 2025 as a result of design advances, economies of scale, and streamlined processes.

Reasons to stop new projects in NE:

1. Financially unviable:

  • The proposed hydropower projects in the Northeast are financially unviable and it is likely that most of them will end up as stranded assets.
  • An analysis of Etalin Hydropower project (3,097 Megawatt) shows cumulative cash flow during loan life-cycle of 23 years to be negative, despite a highly favourable levelled tariff of Rs 4.32 per unit.
  • The project will be unable to even service its loan of Rs 17,500 crore.

2. Long gestation period:

  • A hydropower project in Arunachal Pradesh will take 8-10 years or more to be operational, after considering the terrain, monsoon activity and the clearance of forest cover.
  • The economics of power generation are likely to change substantially in favour of consumers in this decade, which will affect revenues and profitability.

3. Hurting DISCOMS:

  • The DISCOMS are already at loss due to poor policies and management, mandatory Power Purchase Agreements, poor collection efficiency etc.
  • The hydropower projects will lead to further deterioration in DISCOM finances.
  • It will aggravate the inevitable power transmission losses from a remote location in the Northeast to its user destination.

4. Geological Accidents:

  • Arunachal Pradesh is categorised as Zone V (maximum risk) in the mapping of seismic zones in India.
  • There is a recent history of numerous quakes above five on the Richter scale. (Earthquake at Teesta Dam site, 2011)
  • Regular landslides in the monsoons have also been disruptive.
  • A study by the Institute of Earth and Environmental Sciences, Germany, estimates that at least 25% of hydropower projects in the India, Nepal and Bhutan’s Himalayas are likely to face severe damage from quake-triggered landslides.
  • Then there are risks from glacial melt and lake bursts due to the unpredictable nature of the volume and velocity of the water.

5. Lacking Social Responsibility:

  • Hydropower projects in India have a poor record in engaging with local communities.
  • Their concerns of livelihood and displacement; these concerns have been met with indifference and, at times, force.
  • The existing projects in the Northeast do not pass even the most basic tests in the social responsibility checklist that financial institutions seek from their borrowers.

6. Environmentally Unsustainable:

  • The larger question that needs to be addressed is if large hydroelectric projects, i.e., projects of more than 25 MW, should be classified as a renewable source of energy.
  • In March 2019, the Union government moved to recognise large hydroelectric projects as a renewable source of energy.
  • The multiple risks and uncertainties to the environment and biodiversity make this move questionable.
  • The renewable status is given to grant certain incentives to generators of renewable sources of energy.
  • Sites where large hydel can be built are a limited resource. Once these sites are used for construction of dams, they’re not usable again.
  • Example: Maheshwar Hydel Power Project on Narmada river, Madhya Pradesh where work has been going on for about 25 years.
  • After spending thousands of crores and building the dam, it is said that the project is not viable. This has caused irreversible damage to the site, the majority of which is lost and is not renewable now.

Conclusion:

Hydropower projects in the Northeast seem to be a poor financial investment and need to be shelved for the larger common good. Instead of providing subsidies to the power-generation value chain, the urgent imperative is to encourage power conservation (by introducing, for instance, a variation of surge pricing during peak hours), reduce distribution losses, promote optimum utilisation of existing energy infrastructure and popularise rooftop solar energy.

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