Chief Executive Officer, Hydro, Moser Baer Projects Private
Ltd, Awadh Bihari Giri, speaks to InfralinePlus about the
advantages of hydro power projects, problems with their
financial model and why they have not been able to take
off in India. Excerpts.
Despite several policy initiatives in the recent past, the share of hydro power in the country’s energy basket remains stagnant. Are you satisfied with the way things have moved in the sector?
While the present is no doubt stagnant, I hope tomorrow will be better….I mean after the elections. It was in May 2003 that the then prime minister of India had launched a very inspiring programme to generate 50,000 mw from hydro power.
That was a wonderful move. It created a market and brought about a boom but after the change of government in 2004 the decline started. The landscape of economic opportunities changed. It
happened not only in hydro sector but in the entire infrastructure sector.
What was it that created such enthusiasm in 2003 and 2004?
That enthusiasm was due to the success of two or three hydro projects. One of them proved that hydro power was inherently a good business. It’s a business free of most problems -- no inflation, no escalation, not much of labor problem or transportation – and that attracted the investors into the sector. Until 2000, not many projects were given to the private sector and prior to that it was done only in the
government sector as an engineering project and not as an investment project or not as a business. The second development which created a positive environment was that one of the states offered these projects on a transparent basis to
the private sector which by then had come to realize that hydro power was good business for investment. Not only investors in India but private equity the world over became interested
in funding hydro power projects on the back of success of one or two examples which went from concept to commissioning or commercialization.
That brought the boom and the then prime minister gave a boost to it.
But what, in your view, precisely happened after 2004?
The new government in its enthusiasm became overactive in reviewing policies and imposing policies – both at the state and at the central level. And today eight years later we have come back to where we were in 1992. So from 2008 we have gone back to 1992.
Why should hydro power be given precedence over thermal? It too has its set of problems.
Hydro power is secure energy. It has no geo political risks. It’s a peaking supply. We have
been hearing for a couple of months that the government is planning to come out with peaking
tariffs. It should be there any time. This peaking capability comes due to the basic ability of the hydro power project to be started and stopped within minutes. There are patterns of load variation during the course of the day over a period of different months in India because of climatic factors, life style and cultural factors. Our demand varies widely during the day and over the months. We therefore need flexibility. Otherwise, we have situations,
particularly in western India, where we keep on producing power even if we do not need it and keep it pumping into the system and the frequency goes up. Not only frequency but pollution also goes up. Foreign exchange is unnecessarily wasted for buying coal, but that does not happen with hydro.
What kind of maintenance cost does a hydro power plant entail vis a vis thermal power plant
besides the fuel cost? Is hydro power plant easy to maintain than a thermal power unit?
The life span of a hydro power project is long given one or two renovations in a span of 100 years. Most hydro power projects are centurions. I know this as I have run a couple of projects which are 100 years old. So you have assets which can create value for 100 years. Irony is that we put finances which are short-term, which seek to give returns in six to eight years for a 100 year old asset. Hydro power is clean while thermal power is not. The pollution that China saw suffocating people is going to happen in India because of our
over-dependence on coal-based power. That used to happen in Delhi and it will happen again. It is an economic stress.
Why then is hydro power not taking off in India? How are financial issues impacting this sector?
The reason it is not happening is purely financial rather the method of computing tariffs. The cost of hydro power generation is front loaded because of the expectation that return on investment will come in 10 years. This makes interest rates very high. The rules of finance demand that you must depreciate the value of the asset in a short time even though the asset may have a life of 40 years. So depreciation becomes front loaded. Add to that tax reliefs etc. So when a hydro power project is commissioned, the cost of power is higher than what the market can accept. This keeps away
debt finance also. The solution to the problem is simple -- flatten the cost of generation. But that is something which is the prerogative of policy makers in the country.