NEW DELHI: The notion that hydro power is cheaper than thermal power is proving to be a fallacy. An FE analysis of the tariffs of some of the country’s largest hydro stations has revealed that they generate electricity at a cost much higher than most thermal plants.
Thermal stations using domestic coal generate electricity at less than half the cost of some hydro stations like GVK Group’s 330MW project at Alaknanda in Uttarakhand. Even plants using use costlier fuels like imported coal and LNG generate electricity at costs significantly below many hydro projects (see table).
In most cases, hydro power has become expensive due to geological surprises and the consequent rise in capital expenditure. Environmental issues have also resulted in cost escalation of many hydro projects.
Undue project delays and cost escalation have made electricity from several hydroelectric projects unaffordable. Since developers are allowed to recover extra cost incurred on implementation of these projects under the prevailing dispensation, consumers have to bear the burden of cost escalation.
Apart from GVK’s Alaknanda project, Baglihar, Dulhasti, Subansiri Lower, Parvati-II and Sewa-II are some of the other hydroelectric projects facing sharp cost escalation due to subsequent changes in equipment design necessitated by geological surprises.
Both PSUs and private players score poorly when it comes to managing cost escalation risks relating to implementation of hydro power projects. While developers mostly blame geological surprises for cost overruns, regulators have little choice but to approve the claims. Discoms cannot refuse to buy costly power after signing power purchase agreement with developers.
“Geological and hydrological surprises faced during construction lead to time and cost overruns for hydro power projects,” said former Union power secretary RV Shahi.
At GVK’s under-construction Alaknanda project, project cost is estimated to go up from the originally estimated Rs 1,978 crore to Rs 4,192 crore due to a two-year delay in project completion. As result, tariff for the project is estimated to go up to Rs 6.23 a unit from Rs 2.80 a unit. The increase is expected to strain the finances of the UP Power Development Corporation, which is contractually bound to buy 88% power from the project. The discom is already reeling under debt. The project was conceptualised in 1985 before Uttarakhand was carved out of Uttar Pradesh. Uttarakhand is entitled to 12% free power from the project as the home state.
Since then, the state electricity regulator has twice approved cost escalation for the project – Rs 720 crore in 2008 and Rs 977 crore in 2011. The developer has again approached the regulator for approval to fresh cost escalation, which will take project cost to Rs 4,192 crore and tariff to Rs 6.23 a unit. The developer has promised to commission the project in May 2013. The projected was initially scheduled for commissioning in July 2011, with tariff envisaged at Rs 2.80 a unit.
“The ministry of environment imposed Section 5 (of the Environment Protection Act) in May 2011 restraining us from taking up construction work other than safety and electricity related work of the project, resulting in time overrun which in turn led to increase in cost,” GVK clarified to FE.
Similarly, the cost estimate of NHPC’s 2,000 MW Subansiri Lower project in Arunachal Pradesh has increased to Rs 11,000 crore from the initial Rs 6,200 crore due to delay in project implementation, caused by environmental hurdles. Tariff is projected to rise to Rs 3.64 a unit from Rs 1.86 a unit envisaged for the project.