Development of hydropower in South Asia requires a perspective makeoverThe slow development of hydropower projects in the region in the past decade has become a massive concern.
As the world turns to renewable energy sources, it needs low-carbon resources to counter the effects of intermittency of wind and solar energy. For this purpose, hydropower provides the cleanest and the most reliable energy. Given its importance, the slow development of hydropower in South Asia in the past decade has become a massive concern. Capacity addition in the region is down to about 1 GW per year on average—a negligible amount when placed in the context of the region’s burgeoning needs.
The region did see accelerated development of hydropower, particularly in the 1950s and 1960s when India built large multipurpose projects such as the Bhakra-Nangal dam and the Damodar Valley Corporation. But the principal aims of these were around food and human security. As a newly independent nation, India was aiming to avoid the Malthusian prospect of food production being unable to meet growing needs. Preventing the large-scale loss of lives from frequent inundation was an equally strong motivation. Electricity generation, vital as it was, got placed lower in the pecking order. Security of food and life was a higher priority, and rightly so.
Having done a remarkable job on food and flood, the focus now has to be on energy security. In this context, the value of hydro—especially storage hydro—can not be measured or equated to other resources in simple energy value terms. It needs to be seen from a security perspective. The robustness that the grid obtains from hydropower projects with storage capability lends strength to the system, which lets other resources, such as coal and renewables, flourish. If hydro or other economical means of large-scale generation do not flourish, other resources will flounder—as will the grid. Potential projects like the 7000 MW Pancheshwar Multipurpose Project on the Nepal-India border and the 4000 MW Sankosh project in Bhutan can play a tremendous role. Such projects can transform the energy landscape and tremendously enhance grid security in the region.
Arguably, these projects need to be undertaken without too much emphasis on direct financial costs. The projects must be built well and provide adequately for the environmental and social safeguards that must accompany such projects. They must, however, be constructed. And the focus should not solely be on financial metrics such as the Internal Rate of Return (IRR). Hydro is not just another regular investment opportunity and is a means to manage climate challenges and energy transitions.
This is not to suggest that the projects should be built without adequate financial prudence. A more rounded view is necessary. If the benefits have to be stacked up against the costs in a conventional manner, then the revenue line must carry the security benefits including the capacity value that such hydro projects carry; the economic value of avoided grid collapses; and the value in restoration of power systems after a security failure. All of these are quantifiable but never counted, since we refuse to pay for them in our conventional wisdom. If we want a secure grid and a sustainable environment, that has to change.
Financing issues deserve attention in this context. The amount of capital required for large-scale hydro and associated transmission development is significant. Governments can play a role in financing. However, by no means can governments bring in all the capital that is needed. Commercial finance, including through debt and equity, will have to play a crucial role but may need backstopping of risks that it simply cannot bear. Regulators need to find instruments and mechanisms, including some acceptable forms of guarantees, to enable the funding of such programmes and mitigate the impact on affected assets rather than let the asset owners bear all the risks.
Some of these risks could also be covered through greater access to power market platforms. If the infrastructure is indeed of the nature of a public good (or essential for the delivery of a human right), then the risks need to shift back to governments and spread across over ratepayers and taxpayers. Investments may disappear otherwise.
There is ample space for financial innovation that is both essential and possible. It is necessary to identify and develop a rigorous risk framework for projects, identify the mitigation mechanisms and the respective risk bearers through the asset life cycle. Instruments that provide rational and reasonable risk protection and bring the projects for financing and development are required. Hydropower projects are complex and require very substantial preparatory activities and planning. Cross-border projects bring an additional layer of complexity. It is important to align the policy goals within countries and among nations where the projects or the flows involve cross-border activities. While some progress has happened, this needs to be built on to ensure the successful development of hydropower in response to the burgeoning sustainable energy needs in the South Asian region.
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