Faced with sluggish progress in hydro projects, state-run NHPC has approached the Power Ministry seeking steps to ensure higher returns on investment in such projects. NHPC, the country's largest hydro power producer, has said that Return on Equity (ROE) for hydro projects is too low to attract investors.
"At a time when energy security has become critical and environmental concerns emanating from the use of conventional fossil fuels are growing, it is ironical that the effective ROE (Return on Equity) on net worth of hydro projects is very meager to elicit investor interest...," NHPC has said.
The foremost reason for this precarious situation is the idle equity during the construction period and the construction period in turn is quite long for hydro projects due to the inherent problems," it said in a recent communication to the Ministry.
NHPC has noted that rate of ROE being allowed for hydro sector is not commensurate with the gestation period and associated risk in construction of hydro projects.
Most hydro projects have been adversely impacted by geological surprises. Besides, inaccessibility and remote locations and delay in land purchases have also hurt the sector.
NHPC has also requested the ministry to consider the possibility of amendments to the tariff policy of 2006, to "extend much needed policy/regulatory support for promoting hydro sector".
According to the company, the Central Electricity Regulatory Commission (CERC) is allowing the same ROE rate to all generators, including hydro and thermal, irrespective of "different gestation/completion time and associated risks" involved in project execution.
"Rate of ROE allowed by the Commission during the tariff period 2001-04, 2004-09 and 2009-14 are 16 per cent, 14 per cent and 15.5 per cent, respectively, uniformly for all generators and transmission licensee," the communication said.
Noting that hydro potential of around 96,379 MW is yet to be harnessed in the country, NHPC has said that promoting hydro power sector through policy and regulatory measures would be in national interest.
The share of hydro power in the total installed capacity of the country is about 18.65 per cent, as on December 2012.
In the 11th Plan Period (2007-12), the share was 20.38 per cent. The decline also reflects the growth of power generation from thermal sources in recent years.
At the end of January 31, installed hydro power generation capacity stood at 39,416 MW while those from thermal sources touched 1,41,714 MW.
As per its website, NHPC has an installed generation capacity of 5,526 MW.
Source - Economic Times