You are on page 1of 16

Issues in Power Generation

Some Fundamentals:

• Voltage is the energy difference between the positive and negative

terminals of the battery.
• Voltage causes current to flow in the wire.
• Voltage=Current x Resistance (Ohm's law)
• The energy consumed per second is the power.
• Power=Voltage x Current
• Power=Current x Current x Resistance
• Units: Voltage-Volt, Current-Ampere, Resistance-Ohm, Power-
• Energy=Power x Time
• Electricity Consumption Unit=Number of hours of operation x
Power in KW
• DC Circuit: Current always flows in one direction
• AC (Alternating Current): The higher the voltage, the higher the
current and vice-versa.
• The number of times the current changes its direction in a second
is called frequency.
• Nearly all the power systems today operate on AC because AC
Power can easily be 'transformed' or changed from one voltage to
another. This is of great help in sending the power over long
distances.Current will be less if voltage is increased. Power loss in the
wires in the form of heat is proportional to the square of the current.
Therefore, higher the voltage level, the greater the reduction in power
loss. Furthermore, it is easier to generate AC power and motors operating
on AC are cheaper and easier to maintain. High voltages are dangerous
since there is a higher chance of electric shock. AC helps resolve this.
Power can be generated at low voltage at generating stations. Then it can
be transformed to high voltage and transmitted to consumer locations. At
consumer's place voltage can be lowered.
• In AC circuit there are two components which resist the flow of
current. They are resistance and reactance. Reactance is caused by
coils(typically found in motors) or capacitors.
• Net effect of resistance and reactance is called impedence.
• If current wave and voltage wave coincide then power factor is one
as in the case of a resistor like bulb.If current lags behind voltage then the
load is said to be inductive, as in the case of a motor. If current leads
voltage, the load is capacitive, caused by capacitors. In an AC System,
active power and reactive power depend on voltage, current and power
• The power required by electrical equipment to operate is called
• Load is made up of an active part(measured by watt) and a
reactive part(measured by VAR(Volt-Ampere-Reactive)s)
• Depending on consumer behaviour, load keeps changing from
second to second.
• Average Load=Sum of hourly loads/24
• Load Factor=Average Load/Maximum Load
• The installed Capacity of a generating unit is its maximum MW
capacity at the time of installation.
• The minimum capacity is the minimum MW at which the
generating unit can operate in a stable way.
• Energy generated by a generating unit is measured by metering
instruments at the station and can also be calculated if one knows the
average hourly MW generation. It is typically measured in Millions of
Units(MU) and is usually calculated for a period of one year,i.e 8760
hours (8784 hours for a leap year.)
• MU=Sum of hourly MW values for one year/1000
• Average Capacity is the average of all the hourly MW generation
• Average Capacity=Annual Energy Generation/ Number of hours
in a year.
• Firm Capacity of a unit is the MW power that can be assured from
the unit at any point in time.
• Plant Load Factor = 100 x (Energy Generated in a Year)
(Maximum energy generation possible in a Year)3
Base load stations have high PLF and peaking stations have low PLF.
• That's why power generation by base load stations is cheap and that
by peaking stations is costly. High PLF implies economy of scale due to
high capacity. Since base load is assured, high capacity stations can be set
up and run continuously to meet this load.
• Availability of a generating unit is the per hour average of the
declared generating capacity values over a period of time (typically a
• Availability = 100 x (Hours for which the unit is available for
generating power)/ (Total Hours in the Year).


• Penstocks are huge pipelines that carry water from the reservoir
to the turbine.
• The Full Reservoir level is the maximum height of the water in the
• The Minimum Draw Down Level is the minimum permissible level
in the reservoir.
• Hydro stations located right on the water stream are called 'run of
the river' stations. They don't have a reservoir to store and regulate water
• Pumped Storage Stations: These are special type hydro stations
with two reservoirs-one upstream, near the dam at high level and another
downstream, after the tail race at low level. Water from the dam reservoir
is guided to the turbine making it and the generator rotate to generate
power. Water leaves the turbine to the tail race reservoir through a pipe
called the tail race. This is the generating mode. In the pumping mode,
water is pumped up from the tail race reservoir to the dam reservoir. In
this mode, it draws power from the grid. The pumped storage station is
run in pumping mode during off-peak hours so as to increase the storage
in the dam reservoir. During peak hours, it is run as a generator to supply
energy needs at that time. This arrangement can reduce the cost of peak
period energy generation.
• The difference in levels of water at the storage reservoir and the
turbine is called the 'Head'. Head is measured in metres.
• When water flows through the penstock and the valves, some
pressure is lost due to friction. The friction head is around 5% and the
remaining 'net head' contributes to power generation.
• Power (kw) = 8 x Net Head (metres) x Flow Rate(Litres/sec)/100
• Hydro plants can also generate some reactive power.
• Hydro plants in the condenser mode can generate only reactive
power. In this mode of operation, a minimum water flow is to be
maintained and the unit will consume some active power from the grid.
• A hydro station can be started up or put off in a few minutes. It
can be easily operated over a wide range of power output with high
efficiency. Ideal for peak load.
• Low auxiliary power consumption-2-3% of the power generated
• Simple to operate, high overall efficiency
• Hydro-power is clean
• Hydro-power is cheap-no fuel cost (though construction costs are
• If there is a natural high head, initial costs are lower.
• Environmental costs and R&R costs.
• Run of the river stations without adequate storage cannot be used
as peaking stations.
• Hydro-power is renewable-long life
• Execution of hydro projects requires thorough survey and
investigation, preparation of DPR, development of infrastructure,
Environment Impact Assessment and other preparatory works which are
time consuming and take 2-5 years.

Coal-based Station :

• Main elements-Coal Yard, furnace, boiler, cooling tower,

• Coal based thermal stations are typically run as base load,
generating at the same level most of the time. This is because of the fact
that the generation level of these stations is changed by controlling steam
flow and pressure. But since there is a limit to the permissible changes,
generation levels cannot be changed fast.
• Large number of devices-higher maintenance cost
• Power is generated typically at 10-15 kv and the voltage is stepped
up at the substation which links the generating station to the grid.
• The fixed cost of a coal based station is less than that of a hydro
• Variable cost and auxiliary consumption values are high.
• The overall efficiency of power generation is quite low compared
to hydro stations.
• Auxiliary consumption-8-10% of the power generated
• The coal based station is expected to run at full steam all the time.
But even the coal plants may be asked to reduce generation at night, when
the demand falls. Such instructions are given by the load dispatch centre.

Gas-based Station:

• Fuel(LNG,Oil or Naphtha) arrives at the generating station

through pipeline from a refinery.
• For safety reasons, very little fuel is stored at the station.
• Open Cycle Gas Turbine Mode: Air is compressed and fuel burnt
in a combustion chamber. This releases high-pressure hot gases which
drive the gas turbine. The turbine turns the generator, producing power.
• Closed Cycle Gas Turbine Mode: the exhaust gas from gas turbine
is sent back to the compressor, not to the atmosphere.
• Combined Cycle Gas Turbine has a gas turbine followed by a
steam turbine. Output gases from the gas turbine flows into the
boiler/steam generator. Steam produced here turns a steam turbine.
• Gas based stations can be started, stopped and the generation level
changed quite easily, making it a convenient choice to meet peak loads.
• These stations are usually required to change generation levels at
short notice by the Load Dispatch Centre.
• Less polluting.
• Can be constructed quite fast.
• Average life-10-15 years
• High fuel cost
• Auxiliary Consumption-3-4% of the power generated

Diesel-based Station:

• Similar to gas based station

• Ideally suited to handle peak load conditions and emergency
power requirements.
• Low capital cost and requires little space.
• Average life-5 years
• Fuel cost and O&M cost is high.
• Highly polluting.

Nuclear Station:

• Similar to coal stations.

• Instead of burning coal, the process of nuclear fission produces
• High Capital Cost
• Need for stringent safety measures
• Problem of Radioactive Waste Disposal
• De-commissioning problems
• Takes 6-10 or more years to build
• High auxiliary consumption-11-12% of the power generated
• Take 1-2 days to start up and shut down-used as base load plant
• Overall Efficiency-30-35%
• Typical life-30-40 years

Generation Scheduling:

• Planning the level of generation of the available generating units to

meet the load is called generation scheduling.
• The base load generating units (big coal based, nuclear, irrigation
dependent hydro etc.) are scheduled first to meet the base load. Then the
peaking stations (open cycle gas, small hydro) are scheduled during the
morning and evening peak hours. The intermediate loaded stations
(CCGT, small coal based and hydro) are used to meet the remaining load.
• While scheduling the units of a particular type (say peak load),
units with low operating cost are scheduled first and the costlier ones last.
Ordering of units on the basis of operating costs is called the merit order,
which is prepared based on the Variable Cost values.
• If there is sufficient generation capacity, some units may not be
scheduled at all. On the other hand, if available generating units are not
sufficient to meet the load, then power may have to be imported from
another utility. If all the generating units and the imported power cannot
meet the demand of the state, and then load shedding has to be resorted
to. Broad plans for load shedding should be prepared as part of the
annual plan.
• Generation Capacity has to be planned to meet the load forecast.
The total available generation capacity in the state and power imports
should be sufficient to meet the peak load at all times of the year. Energy
from these should meet the annual energy requirement of consumers.
• Step 1: Prepare a load duration curve for the 10 year horizon.
(Load Duration Curve captures the load behaviour and the energy
• Step 2: After finding the energy requirement at the consumer
location this is converted to the requirement at generating stations by
adding the estimated T&D losses over the planning horizon.
• Step 3: Then account for the auxiliary consumption, spinning
reserve and expected outage of generating units. (Spinning reserve means
generation capacity which is already spinning and can be used at short
notice.This is managed by ensuring that some generators, which are 'on'
and connected to the system, are not fully loaded so that they have some
spare capacity.)
• Expected Outage includes planned outage and forced outage.
Planned Outage is owing to routine maintenance planned for all
generators. On the other hand unforeseen failure of a generator is called
forced outage. Based on the type of the generator, it is possible to
reasonably predict the percentage of time in a year during which such
failures occur.
• When generation is not sufficient to meet the load it is called loss of
load. Loss of load probability (LOLP) is the probability that available
installed capacity falls short of load.
• If high excess capacity is planned and the spinning reserve is high,
LOLP will be low and vice-versa.

Issues for Discussion :

• Severe power shortage plaguing the economy

• Approximate peaking power shortage-13-14%
• Average power shortage-around 8.8%
• Tenth Plan original target for capacity addition-41,110 mw. In
2002-03 it became clear that over 12400 mw would not be feasible due to
inadequate preparedness. These include 4000mw supercritical projects
(unit size 660 mw) of NTPC and over 3300 mw hydro projects. On the
basis of the review taken at the time of Mid term Appraisal capacity
addition of 36956 mw was found feasible. But after the finalization of this
revised target, gas based projects totalling 1730 mw (Kawas:725 mw,
Gandhar: 725 mw, Monarchak: 280 mw) had to be excluded from the 10th
plan due to non-availability of gas. The target was subsequently revised to
34000 mw and 32000 mw respectively. According to February estimates
only 23,163 mw could be added during the plan which is about 57% of the
initial target. An additional capacity of 4200 mw is stated to be coming up
under the captive category.
• Reasons of slippage:

1. Non availability of escrow cover by State Governments to

IPP Projects
2. Delay in fund tie up and financial closure
3. Delay in super-critical technology tie-up by BHEL for six
units to be taken up by NTPC-Delay in tendering
4. Delay in Supply of Plants and equipments from BHEL and
other suppliers
5. Non-availability of gas and coal linkages
6. Delay in land acquisition
7. Geological Surprises
8. Delay in Environment clearance
9. Delay in preparation of DPR and signing of MoU with State
10. Relief and Rehabilitation issues
11. Court Cases
12. Law and Order Problems

• At present generation power projects totalling 47178 mw at an

estimated cost of Rs.210948 crore are under implementation.
• 11th Plan requirement for additional capacity during 2007-12-
about 79000-80000 mw. However, depending upon the preparedness of
various projects about 78530 mw seems feasible. The remaining gap is
likely to be met from renewable energy sources, through DSM and energy
efficiency measures. Another 12000 mw is likely to be added by way of
captive power plants of which 5000 mw is expected to be available to the
• It takes about 5 years to execute a hydro-project after the work is
awarded for construction. Thus in order to achieve completion of a hydro
project during 11th plan, the project should either be already under
construction or execution should start at the beginning of the Plan. Power
Ministry has included those hydro projects whose concurrence has been
issued by CEA (order for main civil works likely to be placed by first
quarter of 2007-08) and those projects which are of smaller capacity/
ROR type having surface power houses.
• Keeping in view the availability of fuel, a moderate capacity
addition of 3360 mw has been programmed during the 11th plan by the
Nuclear Power Corporation. All projects are presently under
• Only 4242 mw gas based capacity has been planned for 11th plan
where gas supply has been tied up. This does not include NTPC's gas
based projects at Kawas and Gandhar, totalling 2600 mw.
• As far as coal and lignite based thermal power plants are
concerned the following types of projects have been considered:

1. Such projects as have already been taken up for execution

in the 10th Plan and are due for commissioning in the 11th Plan.
2. Thermal projects where Letters of Award have already
been placed
3. Thermal projects where LOA are expected to be placed by
30th September, 2008 and commissioning is expected during the
11th Plan.

Type Hydro Thermal- Thermal- Thermal- Thermal- Nuclear Total

Total coal Lignite Gas/LNG
Projects 13831 29967 25625 1200 3142 3380 47178
Projects 2722 28630 27280 250 1100 0 31352
where LOA
is being
Total 16553 58597 52905 1450 4242 338 78530

Projects under Construction

Type Hydro Thermal- Thermal- Thermal- Thermal- Nuclear Total

Total Coal Lignite Gas/LNG
Central 8565 11644 10190 750 704 3380 23589
State 3075 13597 12735 450 412 - 16672
Private 2191 4726 2700 0 2026 - 6917
All- 13831 29967 25625 1200 3142 3380 47178

Projects where LOA is being pursued

Type Hydro Thermal- Thermal- Thermal- Thermal- Nuclear Total

Total Coal Lignite Gas/LNG
Central 1120 15120 14120 250 750 0 16240
State 530 10750 10400 0 350 - 11280
Private 1072 2760 2760 0 0 - 3832
All- 2722 28630 27280 250 1100 0 31352

• It is discernible from the above tables that 42% of the proposed

capacity addition is yet to be brought at LOA stage. Projects aggregating
over 11000 mw under the State sector are such where orders related to
main plan and other packages are yet to be placed. Given the experience
of the 10th Plan, for achieving the 11th Plan target and that too with the
avoidance of tail end bunching, it is imperative that ordering in respect of
all projects is completed by December, 2007. States need to put an action
plan in place to ensure that placement of LOA is completed in a time-
bound manner.
• There are projects adding up to 11545 mw which are originally
planned for the 12th Plan, but with additional efforts could yield benefits
during 11th Plan.
• Expansion projects are to be taken up on priority as needed
infrastructure associated with the projects already exists. Marginal Cost
of setting up such projects is much lower than setting up Greenfield

Fuel Related Issues:

• Domestic Coal Requirement by 2011-12 is 547 MT.

• Total likely coal based capacity addition is 52905 mw out of which
4500 mw linkages are yet to be allocated and 1350 mw are likely to be on
imported coal for which formal fuel supply arrangements are yet to be
• Domestic Gas/LNG requirement now (2006-07) is 61 MMSCMD
vis-à-vis 40 MMSCMD actually available. The requirement will be to the
tune of 89 MMSCMD by 2011-12.
• Due to uncertainty in availability of gas it would be advisable to
keep the gas based projects as back up projects. These may work out to
be a bonus in the event of availability of gas in required quantity and at
reasonable price.

Compensation to Resource Rich States for exploitation of Natural Resources:

• The coal bearing States argue that they bear huge environment
costs as well as the burden of creating and supporting the infrastructure
required for the huge thermal power projects, while the power produced
is utilised by other States. Therefore, these States should be compensated
by allowing a certain portion of the power produced by these projects
being made available to them free of cost or at variable cost.
• Ministry of Power's argument:

1. These States are benefited in the form of royalty on coal.

2. Distress and dislocation not as severe as in the case of hydro
3. These States are at their liberty to build plants and sale
power to other States.
4. Environmental concerns are addressed through the
environment policy governing coalmines and power plants.
5. Constitutional provisions/the working of a common market
in India/the federal structure.
6. Such demand may also give rise to demand of similar
dispensation from other power stations.
7. Host States are already getting 10% extra power allocation
from such stations.
8. Power at variable cost will only result in raising of cost of
the bulk supply tariff and this may not be in the interest of
developing a competitive market in the long run.
9. It is expected that the new R&R package for thermal
stations will adequately compensate and address the concern of the
Project Affected Persons(PAPs).

Demand from Coal bearing States for free power from Pit Head based station:

• The above arguments apply in this case too.

Pithead Power Plants versus Load Centre Power Plants:

• Pithead plants are a cheaper option as they save on railway

transportation tariff.
• But still the load centre plants are desirable because:

1. System Stability/ Security

2. Security of State Grid and emergency supplies to critical
systems like Railway, Airports and Hospitals.
3. To take care of emergencies in case of transmission system
4. Dispersion of environmental degradation
5. Problems of right of way in case of construction of new
transmission lines

Development of Private Sector Power Plants:

• Ultra Mega Power Projects-nine states are in fray
• Four pithead sites-Madhya Pradesh, Chhattisgarh, Jharkhand and
• Five coastal sites-Gujarat, Karnataka, Maharashtra, Andhra
Pradesh and TamilNadu
• 4000 mw and above-tariff based competitive bidding
• Shell Companies set up as wholly owned subsidiaries of PFC to
facilitate tie-ups of inputs, undertake preliminary studies and obtain
• Bidding process is over in case of Sasan (M.P) and Mundra
• Bidding process is in progress for Krishnapatnam and Tilangi
• Merchant Power Plants: Compete for customers and absorb the
full market risk. There is no guarantee that they will have a minimum
offtake of their output. They must respond to market needs. Typically
their risk is carried on the balance sheet of the promoter. MPPs operating
competitively help assure that power is produced with efficiency and
supplied to locations where it is needed most. MPPs would be expected to
have dedicated lines upto the nearest regional/national grid system. They
would be provided coal linkage for capacity of any of the plants upto 1000
mw. They may also be provided captive coal blocks for capacity in the
range of 500-1000 mw. PFC is the nodal agency for completing the
preliminary work.

Issues related to Technology:

• Gross efficiency in power generation should increase from the

current average of 30.5% to 34%.
• The efficiency of new plants should increase from 36% to 38-40%.
• Need to introduce super-critical technology in the form of setting
up plants of capacity 660 mw-1000 mw.
• BHEL should augment its capacity and capability to handle the
introduction of super critical plants
• 11th Plan-12 projects on super critical technology aggregating to
about 8000 mw.
• These projects are in the central sector
• States should also follow suit.

Issues related to Funding:

• PFC and REC have been geared up to mobilize funds for

generation projects.
• Seemingly, there would be no dearth of funds for good projects
coming up in the State sector and also in the private sector.
• However, for equity participation States have to make adequate
arrangements for providing funds from their Budget.

Human Resources Development:

• Hiring the manpower with requisite skill
• Continuously upgrading the quality standard of the existing
manpower through requisite training.
• Drawing comprehensive programmes for ensuring local persons
gaining the required skills.
• States to have action plans for meeting the HRD/Training needs of
technical manpower required by the sector.
• Involvement of ITIs.

Bringing unutilized Idle Captive Generation into the Grid:

• The installed capacity of captive power plants has increased from

588 MW in 1950 to 19103 MW in March 2005.
• The average PLF of the captive plants is of the order of 42.7%.
• Captive plant including cogeneration plant could play
supplementary role in meeting the countries power demand.
• Surplus power, if any, from the captive power plant may be fed
into the grid as open access has been allowed.
• As per electricity act 2003 every captive generator shall have the
right to open access for the purpose of carrying electricity from his
captive plant to the destination of its use.
• For a power plant to qualify as a captive generating plant not less
than twenty six percent of the ownership is held by the captive user(s) and
not less than 51% of the aggregate electricity generated in such plant,
determined on an annual basis, is consumed for the captive use. In case of
an association of persons not less than 51% of the electricity generated
annually shall be consumed by them in proportion to their shares in
ownership of the power plant within a variation not exceeding 10%.
• National Electricity Policy on Captives:

1. Captives are also encouraged for facilitating creation of

employment opportunity.
2. Provisions relating to Captives to be set up by group of
consumers are primarily aimed at enabling SMEs or other
consumers that may not individually be in a position to set up
plant of optimal size in a cost effective manner.
3. Surplus Capacity could be supplied to the grid continuously
or during certain time periods.
4. Grid interconnections for captive generators shall be
facilitated as per Section 30 of the Electricity Act.
5. Appropriate commercial arrangements would need to be
instituted between licensees and the captive generators for
harnessing of spare capacity from captives.
6. The appropriate Regulatory Commission shall exercise
regulatory oversight on such commercial arrangements.
• At the same time it is necessary for the State Governments to
review the duties/cess on captive power with the objective that such duties
do not distort competition.
Issues related to Thermal Sector:

• Emission of SO2, NO2, suspended particular matter, soil

degradation and the related social cost
• Ministry of Environment is continuously revising the emission
norms and the emission norms are extremely progressive.
• The environment externalities could be handled through reflecting
environment externalities directly in the respective Central Pollution
Control Boards' emissions/effluent standards and through imposition of
emission fees or environmental taxes.
• Air Pollution-Provision of high efficiency Electrostatic
Precipitators, Tall Chimneys of 275 metres for 500MW and above units,
dust suppression system in coal and ash handling areas
• Water Pollution-Close cycle circulating water system with cooling
towers to eliminate thermal discharge
• Water Conservation-recycling ash water overflow
• Afforestation-developing a greenbelt of 100 metre width around
the thermal plant plus extensive plantation in available spaces in the plant
and township areas.
• Soil Degradation-deposition of fly ash particles emitted from the
chimneys and fugitive emission of settled ash from the ash disposal areas-
use of tall stack of 220/275 metres to release fly ash results in wider
dispersal and low ground level concentration-designing the ash ponds in
such a way that a permanent blanket of water is maintained over the
settled ash to avoid fugitive emission of ash in the surrounding areas.
• Progressively greater utilization of ash in cement plants, brick
manufacturing and other valuable products. Presently about 46% of the
total ash being generated in thermal power stations is being utilized.
• Environment tax may not create any incentive to reduce emission
but would only add to the cost of electricity. It does not incentivise use of
clean coal. Such taxes could also be demanded by other industries like
steel and cement etc.
• Another suggestion is that the power generating company should
contribute to an Environment Management Fund and may spend about
2% of its profits in local area development as part of its Corporate Social

Issues related to Hydropower:

• For realizing the target of hydro capacity addition in the 11th Plan,
a shelf of 61 projects aggregating to about 18,330 mw has been prepared.
• 49 projects totalling 15585 mw are 'feasible projects' and 13
projects totalling 2745 mw are 'best effort projects'.
• A capacity addition of 30,000 mw is being envisaged in the hydro
sector in 12th Plan.
• For this purpose, a shelf of 144 projects with aggregate installed
capacity of about 58000 mw has been prepared.
• State Governments are yet to allocate sites for a number of such
• The State Governments may consider setting up a strong
monitoring mechanism to review the progress of the identified projects
against the milestones and take remedial measures for timely
commissioning of these projects.
• It is necessary to ensure that all the clearances are accorded in
time by the concerned agencies for taking up these projects. Some of the
11th plan projects are awaiting investment decision/financial closure and
in respect of some the concurrence of CEA/ State Governments is yet to
be accorded.
• Land acquisition and R&R issues may be suitably addressed.
• Many 11th Plan projects are in active construction stage. There
may be labour related problems, law and order issues, problem of
implementation of Environment Management plans etc. State
Governments must render necessary assistance to tackle these issues.
• Because of the inherent strength and experience of the Central
PSUs in the hydro sector, the State Governments may consider giving
preference to CPSUs or their Joint Ventures.
• All projects involving CAPEX less than Rs.500 cr would not
require concurrence of CEA. Therefore State Governments should evolve
their own guidelines for according concurrence to such projects at their
• Hydroelectric power potential in the country was assessed in 1987
to be 84044 mw at 60% load factor.
• At present, about 20% of the potential has been developed and 9%
is under development.
• A total of 845 schemes have been identified in various basins,
which will yield 442 billion units of electricity. With seasonal energy, the
total energy potential is assessed to be 600 billion units per year.
• In case of Central sector hydro projects the host States will be
supplied 12% of power generated by the station free of cost. Such
incentives enable the States to take care of the problems of rehabilitation
in the areas affected by the project. But recently it has been observed that
the revenue generated due to free power is not utilised for rehabilitation.
• The tariff regime for hydro projects allows recovery of full fixed
charges on design energy. For generation beyond design energy a rate
equal to the lowest variable cost for the Central thermal power station in
the Region is paid by way of incentive.(Design energy is calculated on the
basis of the water available in a 90% dependable year.)
• If water availability goes below the design energy full fixed costs
are allowed to be recovered provided the power station achieves the
required capacity index. The normative capacity index has been reduced
from 90% to 85%.
• With the objective of mitigating the hydrological risks, design
energy benefits are being reviewed by CEA on completion of the project
and every five years thereafter.
• The minimum qualifying capacity of hydro plants located in J&K
and NE to avail mega project benefits has been reduced from 500 mw to
350 mw.
• Mega project benefits:

1. Import of capital equipment free of customs duty

2. Deemed export benefits to domestic bidders for both public
and private sector projects
3. Domestic bidders allowed quoting in US Dollars or foreign
currency of their choice.
4. Income tax holiday for any block of 10 years within the first
15 years.

• A number of States have started allocating projects to

private developers on considerations other than tariff. In fact, no uniform
criteria are followed by the States in this regard.
• As per present guidelines-projects upto 100 mw-MOU basis
and above 100 mw-tariff based competitive bidding
• Even for projects below 100 mw, the EPC contracts must be
awarded through ICB process.
• The tariff policy notified on 6.1.2006 requires that all
distribution utilities shall procure power only through competitive
bidding (except in case of expansion of existing projects or projects set up
by the Public Sector utilities till January 2011.)
• States having hydro potential are either power surplus or
do not have capacity to absorb the entire power generated. There are
uncertainties and risks associated with the construction of these projects.
Unless good quality DPRs are prepared and long term arrangements for
procurement of power are put in place through PPAs the developers find
it difficult to get financial closure. This renders tariff based bidding a
difficult proposition in case of hydro projects.
• While allotting projects some of the State Governments are
also charging upfront premium, demanding free equity stake in the
project and are imposing other conditions like return of the project after
a fixed period of time free of cost to the State, renegotiation of conditions
of allocation after a specified period of time etc. All these additional costs
being charged by the State Governments from the developers would
result in higher tariffs for the consumers.
• Following the 'cost plus' approach, the first year tariff of
the hydel projects is quite high as compared to the levelised tariff. As a
result, some of the otherwise good hydel projects are rendered unviable.
FIs normally look at the first year tariff.
• Thus, a special requirement of hydro projects is the
availability of long term funding at reasonable interest rates for back
ending of tariffs so that the cost of power during the initial years is
• In line with the transmission corridor requirements the
minimum tenure of PPAs should be at least 25 years.
• Recognizing the value of peak power to the system and
resultant improvement in operation of thermal stations, it may be
appropriate to allow a premium on the sale rate for hydro generation
during peak period. Considering the fact that in future, to meet peaking
power the propositions of LNG based thermal stations may be very costly
affair, the development of hydro projects can be planned based on
premium tariff structures.
• The per capita storage capacity of water in India at 262
cubic metres is among the lowest in the world. There are very few suitable
sites for construction of multipurpose storage projects and these sites
should be developed as storage type schemes by harnessing the full
• However, the storage schemes involve high capital cost
making them economically unviable if the entire cost of the dam is
apportioned to the power generation from the project.
• Sharing of cost of storage projects among various
beneficiaries would result in lower tariff and would make many storage
schemes having multipurpose benefits commercially viable.
• To eliminate or mitigate the adverse impacts of
hydroelectric projects, the following main environment management
plans are implemented:

1. Rehabilitation Master Plan (RMP) for the Project affected people

2. Environment Impact Assessment
3. Plan for protection and rehabilitation of flora, fauna, forests and
4. Catchments Area Treatment (CAT) Plan.
5. Plan for rehabilitation/relocation of archaeological, religious,
cultural/historical monuments.
6. Compensatory Afforestation Plan(CAP)
7. Disaster Management Plan(DMP)
8. Biodiversity Conservation and Management Plan
9. Fisheries Development Plan
10. Provision of Public Health Delivery System
11. Restoration of muck disposal at the pre-determined sites
12. Landscaping and restoration of construction area to restore the
environment once construction activities are over
13. Green belt and voluntary afforestation to protect soil erosion from

• State Governments can play a pro-active role in expediting the

environment related clearances.
• CAT needs to be taken up in an integrated manner and its cost
should be apportioned to various developmental projects in the
• CAT to be done at project cost for hydro project should be limited
only to immediate vicinity of the reservoir and the damaged area and not
the entire catchments.
• R&R Plan should be realistic and balanced keeping in view the
need of development so as to make a proper trade off between benefits
from development and sacrifice by PAPs.
• MoEF guidelines-recovery of NPV of forest land being diverted for
non forest purposes.
• Supreme Court has given a range for rates from Rs.5.8 lakh/ha to
Rs.9.2 lakh/ha for NPV.
• Kanchan Chopra Report has requested for an exemption of 30%
from chargeable NPV for major irrigation and hydel projects.
• Levying these rates of NPV on hydro projects would increase their
hard cost and proportionately increase the tariff. This would make the
projects costly and sometimes unviable.
• Developers are already paying a huge amount to State Forest
Department in lieu of the diversion of forest land. Furthermore,
compensatory afforestation is done.
• The exercise of updating the land records of affected areas may be
taken up by the States in right earnest at the stage of planning hydro
projects to prevent double recording.
• States should assume responsibility to enrol the wards of project
affected families under their Employment Exchange and give them
preference for jobs.
• Some State Governments are laying down additional conditionality
like minimum release of water downstream of the hydel project,
requirement to obtain consent for the project from State Pollution
Control Board, formation of local area development committees, etc.
These are retrograde steps.
• Some of the State Governments are imposing additional costs like
keeping a certain percentage of the project cost towards environment
management plan and local area development over and above the
provisions made under R&R including community development. These
are too much considering the 12% free power given to them.
• The Environment Management Plan is executed through the State
Government Departments. However, this is not implemented in true spirit
in a time bound manner.
• Some projects fall within the boundaries of protected areas like
National Parks, Sanctuaries etc. However in many protected areas the
settlement rights of the local people has not been finalized by the State