This capital-intensive business is lucrative in the long run. But a protracted breakeven time and a number of clearances could put your patience to test
When Spentex, a Rs 1,200 crore textile major set up Himalayan Crest Power Limited, a special purpose vehicle in the year 2000 announcing its entry into the hydropower sector, it was seen by many as the usual attempt to diversify.
But for Mukund Choudhary, the promoter-director of the company, it was a sense of personal effort “to contribute towards reducing global warming.” Since its start, Himalayan Crest’s three small hydro projects of 3 MW each—Manal, Chandni and Timbi—all located in the Sirmour district of Himachal Pradesh, have been well on track. While the Manal project was commissioned in the year 2005, the Chandni project will go on steam soon, even as the work on the third one is on in full swing.
|- Hydropower is a renewable, non-polluting source of energy|
|- Small hydropower systems capture the energy in flowing water and convert it to usable energy|
|- Small hydropower systems have capacities of up to 25 MW|
|- The country’s first hydro project was commissioned in Darjeeling in 1887|
|- Setting up a 3 MW plant costs approximately Rs 15-20 crore|
|- The cost is broadly divided under four heads—land, machinery, construction and labor|
|- Finance for projects is available from government bodies such as IREDA and PFC. Banks also offer term loans for setting up a project|
|- The generation cost of hydropower is not only inflation free, but also reduces with time|
It has been 15 years since Himachal Pradesh opened up its hydropower sector for entrepreneurs, inviting them to set up small hydro projects of up to 5 MW each across the state. Himurja, the state government’s energy development agency, has since awarded 259 projects to private firms with the target to generate around 900 MW of electricity. But so far, only 15 projects are up and running, generating a mere 50 MW of hydropower. Many projects are believed to have got entangled in several clearances that are needed for starting work on the sites. These include those at the gram panchayat level and at the various government departments.
Given the dismal situation of private projects of other companies in the state, it was indeed a pat on the back for Himalayan Crest when soon after the commissioning of its Manal project in July 2005, an appreciation letter from Himurja landed in the hands of Anil Kumar Verma, the director of the company. The letter dubbed the Manal project as a “milestone” in the state’s quest to harness hydel power through private participation. It also expressed Himurja’s interest in bringing out the “success story” of the project, to be used as “guidelines” for the upcoming projects. “We have received several quality certifications for our hydel projects. These include ISO 9001, ISO 14001 (environment management system) and ISO 180001 (operational health safety assessment system),” says Verma.
Albeit at a small level, Spentex is among several corporate biggies that are playing a major role in the hydropower sector, sensing huge potential. Jaiprakash Hydro Power, part of the infrastructure major Jaypee Group, is among the early entrants in the sector. Its 300 MW Baspa-II project in Himachal Pradesh was fully commissioned in June 2003 at a cost of Rs 162,472 crore. The company has also bagged other projects in Uttarakhand, Himachal Pradesh, Arunachal Pradesh and Meghalaya. Jaiprakash Hydro Power is the country’s largest private sector player in the hydel generation.
Another player, Bhilwara Energy, the power sector flagship of the LNJ Bhilwara Group, commissioned its first project of 15 MW in Madhya Pradesh in 1997. In January this year, the company bagged two projects of 710 MW in Arunachal Pradesh. This has given an impetus to the company’s plans to generate 2,850 MW of hydropower by 2015. The other major private sector players in the business are Tata Power and Reliance Power. The Videocon group has also announced plans to set up a 1000 MW hydropower plant in Uttarakhand. The company is expected to put in Rs 60 billion in the project.
|Setting Up a Small Hydro Project|
|Step 1: Project identification: Depending upon the availability of a suitable site, a project is identified either by the government or the entrepreneur. |
Step 2: Project allotment: The government puts a group of projects up for bidding, which sees participation from interested parties. Based on the lowest quotation, the government allots projects
Step 3: Pre-feasibility report: Once the project has been allotted, the entrepreneur is expected to carry out a study of the site and submit a pre-feasibility report to the government. If the project is not found to be viable, the government returns the earnest money it received at the time of the allotment.
Step 4: Detailed project report: If both parties are satisfied about the viability of the project, the entrepreneur works on a detailed project report that closely looks at aspects related to finance, technology, man power, etc.
Step 5: Techno-economic clearance: The detailed project reports are submitted to the government based on which and other aspects, the entrepreneur will have to get a techno-economic clearance from a committee of experts set up by the government.
Step 6: Environmental and other clearances: Only after the techno-economic clearance has been granted by the government, can the private firm approach various departments for clearances. These include the departments such as forest, wildlife, pollution control board, fisheries, PWD, revenue, etc. Local panchayats are also approached for relevant clearances.
Step 7: Financial closure: This involves arranging project finance, paying the relevant levies and taxes, and finalizing contracts for civil and mechanical work.
Step 8: Commencement of construction: With everything now in place, the work on the project is started.
Note 1: This is only a broad outline of the steps involved in setting up of a small hydro power project. The actual steps are detailed and may vary from state to state. More information is available on websites or offices of every state government’s energy development agencies, which also work as nodal agencies for such projects.
Note 2: Some state governments expect that all the activities after the grant of techno-economic clearance should be completed within a period of 30 months.
* With inputs from AK Verma, Director, Himalayan Crest Power Ltd
written by Mayank Jain, October 20, 2010
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