India has a history of small hydro that reaches back over 100 years. The first hydropower project in the country was a small 130kW power station, commissioned in 1897, near Darjeeling in Bengal. But since then, small hydro development has been slow and unsteady.

India’s potential for hydropower development at all scales has been estimated by the Central Electricity Authority, the technical wing of Indian Ministry of Power, at 84,044MW (at 60% load factor). Annual potential is assessed at 600 billion kWh, but this vast potential has remained unexploited. Hydropower projects in operation account for only around 15% of the total potential, while those under construction will use another 8%.

The exploitation of small hydro potential in India has been even more neglected: the potential is estimated at no less than 10,000MW, but only around 1000MW has been, or is being, developed. One of the primary reasons for this neglect has been the indifference of state power utilities towards small hydro. The power sector in l9 (out of 25) states in the country has been in the hands of the government-owned state electricity boards (SEBs). Burdened with the responsibility of owning, maintaining and expanding its system, an average SEB prefers to go in for a few large projects, rather than develop a number of widely scattered small stations. In recent years, state governments, under pressure from central government, have progressively created separate agencies for developing renewable sources of energy (including small hydro). However, these agencies are still in a transitional state, with a weak financial base and inadequate manpower.

A second main reason for neglect of small hydro had been the overall paucity of resources. Till recently, the hydro sector was considered by financial institutions in the country to be a high-risk area, and to Indian bankers small hydro was a relatively unknown activity.

There were also other difficulties over developments in this sector. The strict environment laws in India, particularly those related to deforestation, obstructed projects in sub-Himalayan and other hilly areas where much of the small-hydro potential is located. Such areas are also inaccessible, creating logistical problems for the developer. Technical data related to geology and hydrology is often scarce, as detailed site investigation in the past had often not been undertaken. Lastly, there has sometimes been a problem of what to do with the power generated from a small-hydro project. A ready, but often uneconomic, solution was to connect it to the state grid by laying long lines — often over uncertain terrain. A localised power supply (isolated from the grid), based on nearby power is not generally considered.

This situation is, however, changing and steps have been taken in recent years in India to rectify matters:

•The Indian government created a separate Department (Ministry since 1992) of Non-conventional Energy Sources (MNES), to prepare and implement programmes for renewables.

•In 1987, a government.-owned financial institution called Indian Renewable Energy Development Agency Ltd. (IREDA) located in New Delhi, was set up to mobilise and lend funds for the purpose, and to offer consultancy services. Many of the activities of IREDA and MNES have been in the development of small hydro.

•The Indian government decided, as a part of its economic liberalisation, to open up the power sector to private development and investment, and incentives were offered by central and state governments to attract investment.

•Aid was forthcoming from UN agencies and multilateral institutions for pre-project activities and project funding.

•Anticipating a demand for small-hydro machinery, engineering companies in India have embarked on production of such equipment, either on their own or in collaboration with overseas partners.

Other factors have also combined to draw the attention of developers, both private and public, to small (2-15MW), mini (l00-2000kW) and micro (up to 100kW) hydropower schemes. First is the steadily-increasing demand for power across the country, many areas of which are already suffering energy shortages. A second factor is the problems associated with construction of large and medium hydro projects — land acquisition, resettlement, and inter-state water disputes. Thirdly, a big dam-based hydro project involves large financial resources which are hard to mobilise. In contrast, small hydro is less costly, faster to build and easier to manage. Finally, there is the factor of local socio-economic development. Exploitation of local power potential in remote areas, hitherto unserved by a power grid, meets a long-felt need.

Pinning down the potential

As noted above, one of the lacunae in the small hydro programme in India in the past was the paucity of data about potential sites. In recent years, a database of sites in all states with up to 3MW capacity has been developed by MNES, using information provided by the respective state governments. The result was nearly 5000MW of potential, located and identified through more than 2000 sites in 13 states (see table below).

Further potential of 1200MW of small hydro in hilly areas has been identified under a separate scheme. State governments are progressively taking action towards survey and field investigations, and preparing a detailed project report (DPR) for each site under an MNES scheme initiated in the year 1993-94. Under this scheme the full cost of a survey and half of the cost of preparing a DPR is met by government grants. This has enabled state governments to prepare a shelf of small-hydro projects which could be offered to likely developers.

For hilly regions, since 1994 a US$15M project has been in operation which aims to check deforestation in this ecologically volatile region, by seeking to demonstrate the use of electricity from small hydro for domestic use, irrigation and running local industry. Half the funds for this project come from the UN Development Programme via its Global Environment Facility, and its main activities are: preparation of a master-plan to develop small hydro in such areas; standardisation of designs using cost-effective technology; installation of 20 pilot projects and upgrading of 100 existing water mills into power units.

In line with the thrust given to small hydro this decade, the Indian government has announced a set of incentives for such schemes. They include:

•No approval from the Central Electricity Authority is required for projects with capital costs below Rs4B (US$100M).

•No ecological approval is required from the Ministry of Environment & Forests for projects with capital costs below Rs500M (US$12.5M).

•Tax ‘holiday’ for five years.

•Custom duties on imported equipment reduced by 20-25%.

•Locally produced hydro turbines with capacities up to 15MW are exempt from excise duty.

Financial incentives are also available from MNES as follows:

•To encourage small hydro projects in the hilly and north-eastern areas of the country, a capitalised interest subsidy is offered up to Rs11.2M (US$0.28M) per MW. For such projects in other regions, the maximum subsidy available is at the rate of Rs3.83M (US$95,000) per MW. This subsidy, available for projects up to 3MW, is meant to reduce the interest on loans obtained for such projects from financial institutions in India.

•Additionally, for projects up to 100kW in hilly and north-eastern areas, a capital subsidy of Rs15,000 (US$375) per kW is available where a project loan is not forthcoming from a financial institution. This subsidy is being given only to projects o state government, local bodies and non governmental organisations.

•Assistance in procurement and installation is offered for portable micro-hydro sets up to 15kW. Meant for remote and hilly areas, these would not require major civil construction and could be procured and installed in a few months.

To supplement the foregoing incentives, state governments have also put in place a policy framework to encourage private investment in small hydro. This covers procedural simplification, incentives and concessions in local duties and charges, and areas such as power wheeling, rates for power purchase by state governments, third party sale, and royalty on water.

A number of such states have released sites and advertised for bids from private developers on a build, own, operate (BOO) basis, and by end-1997 the total capacity of such sites had reached 1000MW. Prominent in these efforts have been the states of Himachal Pradesh, Punjab, Karnataka and Kerala.

There has been almost complete indigenisation of equipment for small hydro in India. About 15 reputable manufacturers make such equipment, suitable for a wide range of head and flow conditions, for grid-connected and stand-alone applications. Two Indian manufacturers have also established joint ventures in collaboration with Sulzer of Germany and Ganz of Hungary.