A boost for hydro

THE successful completion of the 1530MW Nathpa Jhakri hydroelectric power project in the northern state of Himachal Pradesh seems to have boosted the attractiveness of new hydro schemes in India. Despite numerous obstacles and delays, the US$1.9B plant was completed four months ahead of schedule, providing electricity to a wide area, encompassing Delhi, Haryana, Himachal Pradesh, Punjab and Rajasthan. Most new Indian generating capacity over the past 20 years has been provided by thermal plants but the tide could now finally be turning in favour of hydroelectricity.

Nathpa Jhakri has been developed by Satluj Jal Vidyut Nigam (SJVN), which was previously known as the Nathpa Jhakri Power Corporation (NJPC). The company was set up by the Himachal Pradesh state government and the federal government: the latter provided most of the funding with some help from the World Bank.

The project’s site on the River Satluj in the Kinnaur and Shimla districts of Himachal Pradesh, in the foothills of the Himalayas, has long been considered ideal for a hydroelectric development and the original plan to build the plant was drawn up in the 1970s. Construction work did not begin until 1992 and was expected to be completed by 1998 but a major rock fall prompted a redesign of the scheme. Strike action and repeated major flood damage to the 60m dam provided further problems and even as late as August 2000, the World Bank talked of problems with the project at its review meeting.

However, the National Hydroelectric Power Corporation (NHPC) was co-opted to the project and work was brought back on schedule after it took over the then NJPC. Nathpa Jhakri’s six 255MW units were brought on stream between October 2003 and March 2004, and all remain fully operational. The project is notable on a global scale for several reasons: the power tunnel is one of the world’s longest at 28km, while the scheme also boasts the world’s largest underground desilting complex and the deepest surge shaft.

A large number of companies worked on the project. Kvaerner Energy of Norway provided the six 255MW Francis turbines and Kvaerner Boving of the UK the gates and valves, while the Eucona consortium of ABB, Kvaerner, Siemens, and Sulzer Escher Wyss won a US$200M main equipment contract. Canada’s Foundation Corporation and Impregilo of Italy carried out the construction work, while Indian firms Hindustan Construction Company (HCC) and Bharat Heavy Electricals Ltd (BHEL) also won contracts on the scheme.

National implications
It is possible that the success of the Nathpa Jhakri scheme could encourage a more general move towards building more hydroelectric plants in India, particularly as the project’s tariffs are believed to be competitive. The rate of new plant construction has fallen behind rising demand over the past decade and so the main question centres on how big a role hydroelectric schemes can play in the required plant construction programme.

The focus of the Indian power sector policy has fluctuated over the past 30 years. While the commitments to industrialisation and electrification remain intact and continue to drive growing demand for electricity, official opinion over the role of hydroelectric power in the generation mix has changed wildly. While hydro was favoured to some extent in the first 30 years after independence, the country’s abundant coal resources placed coal fired plants at the heart of national power policy. The 1980s and early 1990s saw a major drive to encourage more gas fired plants, but regulatory and financial difficulties led to the cancellation or long term postponement of many liquefied natural gas (LNG) schemes and recent government soundings have again leant towards more hydroelectric investment.

The development of many thermal plants since the 1980s means that hydro schemes currently account for just a quarter of national generating capacity. However, in June last year, the government announced plans for a spate of new hydroelectric plants. If all the schemes are completed as envisaged, 50,560MW of new capacity will be provided, over half of it in Arunachal Pradesh alone. However, the plans are a statement of intent rather than a concrete programme of new plant construction, and feasibility studies need to be carried out in each case.

In unveiling the proposed new plants, prime minister Atal Bihari Vajpayee argued that too little effort had been put into new hydro projects since the 1980s. He also sited the high and fluctuating cost of oil and the need to increase overall national generating capacity by whatever means as major incentives behind the plans. The NHPC is likely to develop most of the new plants, although as with Nathpa Jhakri, contracts are likely to be awarded to private sector companies.

The first signs of a move towards hydro projects may just be discernible. Almost a third of the 3468MW of new private sector generating capacity under construction is provided by the hydro schemes listed in Table 1. However, an analysis of the power generating projects that are currently under development but not yet at the construction phase reveals little interest in hydroelectric potential. As a result, it seems that the government is going to have to sustain its new found enthusiasm for hydro schemes over a long period if even a fraction of the proposed new capacity is to be developed.

Power shortages have become more common over the past few years, particularly in northern India, and are scheduled to become worse over the next few years. As Table 2 indicates, plant load factors have increased sharply over the past decade, as demand has risen and any slack that may have existed in the system has disappeared. The federal government is committed to boosting generating capacity, but the relative failure of its LNG initiative has resulted in less private sector investment in the sector than had previously been expected.

The government estimates the country’s hydroelectric potential at over 150,000MW, with a further 90,000 MW potential for pumped storage schemes. Of this, 15% has already been developed and another 7% is under construction. Himachal Pradesh and Arunachal Pradesh, which contain much of the Indian portion of the Himalayan Mountains, already contain over 60% of the country’s hydroelectric generating capacity and still hold a large proportion of India’s economically viable hydro sites.

The government has set a target of increasing generating capacity by 10% or over 10,000MW every year up to 2011, which should result in total capacity of 212,000MW by that year. However, recent new plant completion has not come anywhere close to achieving that figure and it is likely that a phase of major plant construction will be required if the power supply situation is not to deteriorate markedly over the coming decade. This could provide the best opportunity in several decades for a major expansion of the hydroelectric sector. At the very least, 5000MW of new generating capacity needs to be developed every year, with demand rising at 5% per annum, yet even this figure has not been achieved in the past decade.

Despite the obvious imperatives behind the construction of many new hydroelectric plants, a number of major obstacles need to be overcome. Increased reliance on hydroelectric capacity in northern India could further exacerbate the region’s vulnerability to drought. Power shortages in 2002 were largely triggered by drought and similarly low rainfall at any time over the next few years would have even more impact. Improved transmission links between north and south India would help to spread both this vulnerability and the benefits of any new hydro plants, but the country still remains some way away from a truly national power grid.

Project finance
Although the federal government is eager to encourage independent power producers (IPPs), most new hydro schemes are likely to be financed and managed by parastatals. This could act in favour of the hydro industry, as there is substantial political opposition to foreign control of the power sector and gas fired plants are more likely to be developed by foreign companies. However, opposition to new dam construction is likely to be greater over the proposed plants than over previous hydro schemes: both because of the environmental impact and as a result of the displacement of local people.

Indian cities are among the world’s most polluted, partly because of the number of coal fired plants in the country and so the government is keen to develop hydroelectric plants rather than increase the country’s reliance upon coal still further. However, hydro schemes tend to be more expensive per megawatt of capacity than coal fired plants and so financial constraints may slow the construction of new hydro developments.

Moreover, the government’s attentions are being taken up by the financial difficulties of the state electricity boards (SEBs). A number of commitments have been made on power sector reform in order to increase competition but SEB debts have reached such a level that it may be difficult to restructure the boards as viable entities. The Indian power sector has traditionally been state-owned and controlled, allowing the SEBs to offer free electricity to poorer people but its regionalised nature has created localised imbalances and inefficiencies in the power supply situation. Although the government has promised to create a market-led power sector, the slow rate of regulatory change has deterred foreign investors and the country has appeared to fall between two stools.

The recent change of government does not appear to have had a significant impact upon power sector policy. Despite expectations that the new Congress Party led coalition would cancel planned economic reforms, the new finance minister, Palaniappan Chidambaram, has assured the markets that the reform programme will continue.
Nathpa Jhakri has been regarded as a great success story precisely because it is providing electricity to the very parts of the country that are most in need. The publicity surrounding the project could boost support for other similar schemes currently under consideration, particularly as the federal government seems keen to encourage the construction of a succession of new hydro projects. Some state governments may share this enthusiasm but the federal authorities must improve the enforcement of air quality standards if hydroelectric development is to compete with the country’s traditional reliance on coal.