(Bloomberg) -- India is considering lowering tariffs for new hydro-electric power projects to help them compete against cheaper forms of electricity, according to people with knowledge of the matter.
The federal power ministry has proposed excluding the costs of building infrastructure such as roads and bridges from tariffs to make new hydropower projects viable, the people said asking not to be named as the discussions are not public yet. Those costs might be borne by the federal government and the states where the projects are located, the people said, adding that the details haven’t been finalized.
Power ministry spokesman Rajesh Malhotra declined to comment.
Nearly 100 gigawatts of electricity potential in India’s rivers is lying untapped because of high tariffs. Hydropower projects, often located in remote regions, are crucial to stabilize the grid as India looks to add 175 gigawatts of renewable capacity. These plants can be swiftly turned on and off, helping the grid withstand fluctuations caused by intermittent supplies from solar and wind.
“The cost of building roads and bridges to ferry construction equipment can be quite large, because most of the projects are located in hills,” said K.M. Singh, who in July retired as the chairman of NHPC Ltd., India’s largest hydro-power producer. “They have a high utility value for states where the projects are located and they should consider bearing these costs.”
Besides balancing the electricity grid, hydro-power is also strategically important for India, as it can boost economic expansion in states that border its neighbors, China and Pakistan. China lays claim to a part of the north eastern state of Arunachal Pradesh, which is among Indian states with the greatest hydro-electricity potential.
The proposals also include making it mandatory for power retailers to include a share of hydro-electricity in their purchases and providing longer-term loans for such projects to even out tariffs over time, the people said. The proposals have been sent to other ministries for consultation. Once finalized, the power ministry will seek approval from the cabinet, the people said.
State electricity retailers, under pressure to shore up their finances so that they can invest in new infrastructure and buy more electricity, have been unwilling to buy high-cost supplies.
The tariff of new hydro projects will work out to about 6 rupees a kilowatt hour or more, while most power retailers are looking at a cost of below 5 rupees a kilowatt hour, according to Sambitosh Mohapatra, a partner at PwC India. The distribution utilities are unlikely to sign up for such high-priced power because they have cheaper electricity available from thermal and renewable sources, he said.
Wind and solar power tariffs plunged to a record low last year, while the average spot price of electricity in India was 3.37 rupees a kilowatt hour as of Friday noon. India has installed hydropower capacity of about 45 gigawatts, compared with a potential of almost 149 gigawatts, according to the Central Electricity Authority, the planning wing of the power ministry.
©2018 Bloomberg L.P.