SHP sector in India witnessed growth, yet challenges remain: ICRA

Even as the total installed capacity of small hydro power (SHP) in India witnessed a significant increase from 1,909 MW as in March 2006 to 3,300 MW as in January 2012, still a considerable amount of potential1 remains untapped across states with favourable SHP potential, says a recent report by ICRA Ratings.

According to the ICRA Ratings- ‘Steady growth in small hydro power; however significant challenges remain…’ the share of SHP in the country‘s total installed renewable energy (RE) capacity accounts to almost 15 per cent. According to an estimate of the ministry of new and renewable energy (MNRE), the total potential of SHP in India is around 15384 MW, whereas
the current installed capacity accounts for 21.5 per cent. Hence a lot of the potential still remains untapped.

Growth in capacity addition has been moderate, although in line with targets. The pace of the capacity has picked only recently, especially in the 11th Plan, supported by favourable fiscal policies such as: accelerated depreciation benefit, tax holiday under section 80 IA soft loans by Indian Renewable Energy Development Authority (IREDA), state level incentives, financial support from MNRE, improving tariffs and CDM revenues.

ICRA envisions an increase in the demand for SHP given the support now available from improved fiscal and regulatory measures. The Government of India‘s National Action Plan for Climate Control (NAPCC) has set the minimum share of RE in the overall energy procurement of utilities at 10 per cent by 2015 and 15 per cent by 2020. Thus, even if SHP were to maintain its current 15 per cent share of the total RE capacity, the additional demand in the medium
term would be significant. Also, the Central Electricity Regulatory Commission (CERC) has come out with several measures, including: generic tariff norms for SHP projects; norms and pricing framework for RE certificates; and an amended grid code to ensure smoother offtake and transmission of RE power by utilities.

However, there are certain barriers that need to be tackled for the sector to grow at a steady pace. Some of the barriers that hare hampering the growth of the sector include remoteness of the SHP sites, delays in getting clearances from government organisations, problems in land acquisition, lack of transmission infrastructure, lack of consistency in SHP tariff norms across states, high wheeling and open access charges in some states, and the reluctance of financial organisations in funding the projects.