Large Hydel Projects Get ‘Renewable Energy Status’: Impact and Implications
The Indian government, under its New Hydroelectricity Policy, recently conferred the ‘renewable energy status’ to large hydel projects. Before this move, only smaller projects with a capacity of less than 25 Megawatt (MW) were given the renewable energy tag while larger projects were treated as a separate energy source. The implications of this policy shift are multifaceted, which will be reflected in the nation’s renewable energy sector, renewable energy mix, and will also have potential impacts on grid stability, the thermal-hydro mix ratio and even on the stock market.
Revamping the Renewable Energy Sector
Prior to the implementation of this policy, the installed capacity of the renewable energy sector in India was 75,055.92 MW as of February 2019, based on the data from the Central Electricity Authority. This accounted for approximately 21.4% of the overall energy mix with the rest coming from thermal, nuclear and large hydro sources. With the inclusion of large hydro as a part of renewable energy, there is a significant change in the energy mix. The renewable energy capacity now stands at an impressive 1,20,455.14 MW or 34.4% of the total energy mix.
Alterations in the Renewable Energy Mix
The drastic increase in renewable energy capacity has also brought about a considerable shift in the composition of renewable energy. Wind energy, which dominated by contributing nearly 50% of all renewable energy capacity before February 2019, now makes up only 29.3%. Similarly, solar energy’s contribution has fallen from 34.68% to 21.61%. However, the hydro sector has shown substantial growth. Its share has seen a significant rise, moving up from just over 6% to over 41%.
Hydroelectric Energy and Grid Stability
Unlike renewable sources such as wind and solar, hydroelectric energy provides grid stability. The primary reasoning behind this new classification appears to be the provision of grid stability and a better energy mix. Over the past few years, there has been a significant imbalance in the thermal-hydro mix due to sharp growth in thermal and complete stagnation in hydro.
Impacts on India’s Renewable Energy Goals
The shift in policy will immediately help India move closer to achieving its ambitious target of 175 GW by 2022. An added advantage of this policy could also potentially be the positive impact on the stock prices of State-run hydroelectric companies such as the Sutlej Jal Vikas Nigam (SJVN), leading to cheaper credit for large hydel projects.
Distribution Companies and Cleaner Energy
The new policy also compels State distribution companies to purchase a certain percentage of hydropower. This is similar to renewable purchase obligations and is expected to create a vibrant market for hydropower, making the sector competitive.
Policy Beneficiaries
| Beneficiaries | Benefits |
|---|---|
| Large Hydel Projects | Access to cheaper credit, Budgetary support for infrastructure, Access to green finance. |
| Distribution Companies | Access to cleaner energy, obligation to fulfil renewable purchase |
| National Renewable Energy Goals | Helps achieve the target of 175GW by 2022 |
Increased Demand and Competitive Market
These projects will not only receive budgetary support for infrastructure but will also have access to “green finance”. There is an expectation of an increased demand from distribution companies for cleaner energy which in turn will create a more competitive market environment for hydropower.
