Can private companies play a key role in reducing India's carbon emissions by partnering with the power sector?
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Background
The hydropower generation sector, which is an alternative to clean energy, was completely neglected in 2021, according to the Executive Director of the International Energy Agency. Because of this, if we want to reduce carbon emissions to zero, we need to take a serious look at hydropower generation in terms of energy generation and climate change.
India's power sector is witnessing a decline in power supply from hydropower plants. In 1947, hydropower generation capacity accounted for 37 per cent of the total power generation and 53 per cent of the total power supply came from hydropower plants.
In 2021-22, however, the share of hydropower generation went up to only 11 per cent (excluding small hydropower projects) and the share of power supply was only 11 per cent.
In 1991, the government opened up the hydropower sector to private investors to boost investment in the hydropower sector. However, the share of the private sector in hydropower generation is currently only 10 per cent. At the same time, the contribution of private companies in the alternative energy sector is 96 per cent and in thermal power generation it is 36 per cent. Between 1947 and 1967, hydropower generation capacity increased by 13 per cent and power generation from the plant increased by 11 per cent.
Temples of India
During this period, the government took the initiative to build a large multi-purpose dam. These large dams built by the government were called the temples of India. These dams were supplying irrigation and energy to the country.
In the next two decades, from 1967 to 1987, the capacity of hydroelectric power plants increased by 18 per cent, but only 5 per cent. During this period, power generation from hydropower plants was replaced by coal-based power projects and large dams were used for irrigation by digging canals. At the same time, the need for water began to be met by drawing groundwater. Grants for power supply started being given at the state government level. Of course, the power came mainly from coal-based projects.
From 1987 to 2007, not much effort was made to increase the capacity of hydropower plants. As a result, the capacity of hydropower plants and the resulting power supply was reduced by 3 per cent.
At the same time, since 1980, there has been growing opposition to large dams on social and environmental issues. Therefore, opening up the sector to private companies has not been of much use. As a result, hydropower generation fell by 1 per cent between 2007 and 2019.
The need for competent policies
In 1991, India witnessed partial economic liberalization. The government changed and implemented policies to encourage the private sector to invest in hydropower. In 1991, the hydropower sector opened up to the private sector, and in 1992, a 16 percent return on equity was approved. In 1998, a policy was formulated for the hydropower sector. The policy was formulated in recognition of the potential for hydropower development in North India and Northeast India.
In 1995, the government issued a two-part rental permit for hydropower plants. The private companies that landed in this area had some questions. The government took this decision to address it.
Encouragement of private investment
The Power Supply Act 2003 and the National Power Supply Policy 2005 and the Rent Policy 2006 have encouraged private investment in the power generation sector. A rehabilitation policy was formulated in 2007 to rehabilitate people displaced by industrial projects. It also settled the displacement caused by hydropower projects.
In 2003, the government announced the construction of a 50,000 MW power plant to boost the hydropower sector. The objective was to expedite land acquisition for hydropower projects and obtain environmental certificates.
Following this policy of the Central Government, various State Governments also adopted policies at the state level. These policies were conducive to the participation of private companies in the field of hydropower generation. The power to choose which private companies to set up hydropower projects came from the State Electricity Corporations, the alternative states. In 1996, another change was made. Provision was made for technical and financial approval from the Central Electricity Regulatory Commission for projects which are estimated to cost more than Rs 1 billion. Later, the limit was raised to Rs 2.5 billion. For projects selected by competitive bidding by state government agencies , CEA The exemption limit for techno-economic clearance has been raised to Rs 10 billion. These concessions offered to the private sector gave impetus to the construction of dams on the river.
Run of the River : The role of the private sector
These Run of the River projects are different from the traditional hydropower projects . These projects are built on the flowing stream of the river. These projects do not generate electricity on the water stored in the dams but on the natural flow of the river.
It uses the power of the natural flow of the river. For this, the river bed is diverted and the water is brought down from the heights through tunnels and electricity is generated on it. By generating electricity on the river water, the same water is once again released into the river basin. It does not require the construction of large dams to store water and the displacement caused by such large dams can be avoided. Experts claim that the use of the river's natural flow for power generation has no adverse effect on the river's environment.
The lower the cost, the higher the benefit
Such run- of-the-river projects also cost less than large dams, take less time to build, and reduce the damage to the local environment. Experts also claim that local people do not have to suffer the consequences. Most importantly, such projects also benefit in less time than large dams.
India 's 'Hydropower Policy 2008' included many generous concessions. Therefore, private companies did not have to take much risk technically and financially.
On the other hand, by increasing the price of electricity, this risk was transferred to the people. The increase in power tariffs has resulted in higher profits for private developers. But at the same time, companies in the power sector have not been given any financial incentives to make structural improvements in these projects, the report said.
The private companies were expected to make maximum profit from the hydropower projects as they were being paid considering the total capacity of the project. Even if there was a shortage of water in the project or power generation was declining, the electricity consumers were paying the same amount for that electricity. The Himalayan states allowed most of the private companies to run the hydropower projects. The state governments have also entered into similar MoUs with these private companies. Since the government's policies are favorable to private companies, these companies, both experienced and non-experienced, have been able to compete with each other.
The virus of reconciliation agreements
The media has reported that the virus of the MoU has taken over the Himalayan states in anticipation of the hydropower resources to be found on the river waters. A decade later, however, the situation is different. The assumption that hydropower projects will not cause any environmental or social harm in these states is false. Also, the financial benefits of these projects have been declining. So the companies that used to compete with each other to get these projects are now competing with each other to get out of the hydropower projects.
Important points
These private companies have from time to time played the role of the government in India's power sector. However, these same private companies have dominated the country's energy, water and other environmental resources through agreements with the government as they enter high-risk areas such as hydropower. Government participation in hydropower projects makes it possible to socialize the environmental, social and economic costs of such projects and also reduces the risk of private investment.
The use of contracts and auctions instead of the open market to attract investment ignores environmental issues , hydrological challenges and social participation.
Moreover, the rates of electricity coming from such projects are decided according to the agreements made with the companies. Therefore, consumers are not taken into consideration while setting such electricity rates. The government has taken-up promising vision to reduce carbon emission, to an extend to reduce the carbon footprint. The government is in a hurry to complete it and raise its profile globally. In such a scenario, the government has adopted a policy of minimizing risk and offering large rewards to private companies investing in alternative energy sectors. Only time will tell whether these private companies will be able to provide abundant and affordable clean energy to all by reducing India's carbon emissions.
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