Small hydro is just one of the initiatives promoted by the Indian Renewable Energy Development Agency (IREDA) in its mission to improve and extend power use in India. The agency’s role is expanding, as it has won funding from national and international sources. In recent years it has taken steps to institutionalise its projects across the country.

There is much work to be done: IREDA estimates that a capacity growth rate of 9% annually is required to meet demand, which is increasing at 7.5% per year. Improving efficiency is a large part of the Agency’s work. Indian industry is energy-intensive even in comparison to other developing countries, and compared to the foreign average Indian industry requires 50.75% more energy per unit production in large manufacturing. As a result demand side management and energy efficiency programmes are as important to IREDA as are new sources of generation. Nevertheless, small hydro has a long and distinguished history in India, and it is an ideal source of power for many communities out of reach of the national grid.

As regards financial assistance to small hydro projects in India, funds from a variety of sources, domestic and overseas, are available. The specialised financial institution for all renewables projects has been New Delhi-based IREDA, fully-owned by the Government of India. IREDA gave its first loan in the small hydro sector in fiscal 1990/91, and by the end of April 1997 it had sanctioned about Rs3.7B (US$90M), of which about Rs0.66B (US$16M) had been disbursed.

On its present terms, IREDA gives loans in this sector at an interest rate of 16.5-17%, with a repayment period of ten years (including a moratorium up to three years). For microhydro, its interest rate is 16%, repaid over seven years (including a two year moratorium). In either case, its loan covers up to 75% of total project cost, provided that the promoter of the project contributes the balance. Concessions in interest rate and administrative charges are allowed on loans to projects in hilly and north-eastern regions.

IREDA has used loans and other lines of credit from a variety of overseas sources including multilateral agencies. In 1992, for example, the World Bank sanctioned a credit line of US$70M to be utilised between 1993 and 1997 to help create a capacity addition of 100MW. IREDA had used it all by 1996, lending to 21 small hydro projects with a total capacity of 116MW, nearly all promoted by private developers. A further credit line of US$170M is being processed by the Bank.

IREDA also offers consultancy services in project preparation, monitoring and technical areas.

Apart from IREDA, two government-owned financial institutions (also located in New Delhi) in the power sector have extended their activities to small hydro in India. Power Finance Corporation, which has funded about 800 thermal and hydro projects in the country during the nine years since it began operating, is one of these. The Corporation had previously funded a few SEB-promoted projects, but since 1996 it has also accepted applications from private promoters. The other institution, the Rural Electrification Corporation, set up in the 1960s specially to fund rural power systems, aids only government-promoted schemes.

In addition to these agencies, recourse could be made to the network of commercial banks in the country, both for part-funding of project and working capital requirements.

In themselves, these are much-needed and welcome measures. However, if these are to serve their purpose in boosting small hydro in India further initiatives to fine-tune the policy and procedures are required. The developers still complain about administrative delays in getting project approval, and onerous loan terms. An interest rate of 16-17% (the same as that generally charged for a conventional power project) is considered dissuasive. There have been repeated demands for its reduction, as is the case for other renewable sources. Solar projects, for example, are charged only 5-8.3%, with a ten-year repayment period.

Greater co-ordination is also needed between central and state governments if quicker and more meaningful implementation of small hydro policies is to be assured.