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New hydro power policy may ease repayment norms, ask states to buy 2.25% of demand

December 16, 2017

In the works for more than a year, the government is now looking to bring in more changes in the proposed hydro power policy to weed out the hurdles in subsidising these projects and also make them more attractive for developers and investors, according to an official familiar with the development. This includes giving a longer timeframe for the generator to repay loans and making states buy 2.25 percent of their power demand from hydel sources.

The official said the hydro power policy was still a couple of months away from being taken up for consideration by the Cabinet.

“The loan repayment period for the developers may be extended to 25 years from 15 now. The depreciation of the plant will also be allowed for that long, bringing down the cost of the power and making it more affordable,” the official said. He said these steps would bring the cost of the power to well below Rs 4 per unit and make hydro power competitive against solar as well as thermal power.

A separate hydro power purchase obligation of 2.5 percent — different from the renewable power purchase obligation that is in practice — is also proposed. While a separate quota for hydro power purchase was expected, the quantum of 2.25 percent hadn’t been decided earlier.

As per the law, utilities are required to buy a certain part of their total power demand from plants running on renewable energy sources. Each state — power being a state subject — has its own minimum threshold that it imposes on utilities for adhering to the renewable purchase obligation including a separate obligation for solar.

The electricity commission in each state currently fixes its own quota annually for the renewable power that the distribution companies need to buy. While the National Action Plan on Climate Change envisages share of renewable power at a minimum 15 percent in the country’s total power consumption by 2020, the rise in share hasn’t been consistent with some states even bringing down the purchases in a given year.

The policy will aim to provide a subsidy of Rs 16,000 crore for hydro projects that are to be put into operation by 2027. These projects, with an estimated capacity of 28,000 MW, will also get 4 percent interest subvention under the new hydro power policy.

The funds for these projects are envisaged to come from two sources — National Clean Energy Fund and National Investment and Infrastructure Fund.

“NIIF’s preamble doesn’t include supporting hydro projects. It includes irrigation and water projects and roads and highways but not hydro power. That, too, needs to be amended to include hydro power. That is the Finance Ministry’s job,” the official said.

The Narendra Modi government aims to have an installed capacity of 175 GW of power based on renewable sources by 2022. This would comprise 100 GW of solar, 60 GW of wind, 10 GW of biomass and 5 GW of small hydropower capacity coming from units of up to 25 MW capacity.

The new policy will also consider all hydroelectric capacities as renewable. So far, hydel projects of up to 25 MW were considered under renewable category and thus only such units attracted lower tax and got other benefits. Hydel projects of over 25 MW were considered as conventional units and thus failed to get many of the benefits that units of up to 25 MW managed to get.