Hydro promises to be a big power churner

MUMBAI: Move over the brouhaha about nuclear power. It is hydro power that has the biggest potential among the power generation resources in the country and is poised to be the second biggest contributor to the country’s power graph.

Hydro power has a potential to generate 1,75,000 MW in India, that is, five times the current capacity, according to Brajesh Koshal of Enam Securities. India’s present hydro power installed capacity is over 30,000 MW.

“The hydro power sector would see capacity additions of up to 40,000 MW in the next seven to ten years,” Koshal said. This translates into an investment of approximately Rs 2 lakh crore if on an average Rs five crore is required to install and commission one megawatt of capacity, he said.

According to a May 23 SSKI India Research report, India’s total installed capacity, as on February 2007, was 1,28,582 MW. Out of this, thermal contributed 84,405 MW with coal, gas and diesel having a share of 69,621 MW, 13,582 MW, and 1,202 MW respectively. Nuclear accounted for 3,900 MW, wind for 6,191 MW and hydel 34,086 MW.

Koshal said the capacity addition in the sector would see a number of foreign joint ventures at the state-level and several technology transfer agreements with private players.

“In the next couple of years, finance and technology would be the major drivers for hydro power projects, and this will see a lot of foreign direct investment flowing into the sector,” he said. Most of the joint ventures would be seen in technology, which could help in cutting down the time required to construct a hydel plant.

“Currently, India has not even touched 25% of the total potential of hydro power generation and a lot of companies are planning to diversify into hydro generation,” he said. Koshal said the maximum action would come from the engineering, procurement and construction (EPC) companies who might diversify into hydro power generation.

“Companies that are supplying equipment and constructing hydro power plants have the necessary expertise. Therefore, diversifying into hydro power generation completely is the next logical step. However, the move would also be determined by the size of the company’s balance sheet. This would also pave the way for a number of public private partnerships (PPP) in the sector,” he said.

Citing the example of Jaiprakash Hydro Power Limited, Koshal said, it was an EPC company earlier but later forayed into hydro and today it is one of the biggest hydro power generating companies.

The SSKI report said power reforms are driving investments worth Rs 3,56,400 crore in generation. Moreover, the government’s rural electrification initiative would see further investments of Rs 20,000 crore over the next 10 years.

“Overall, we expect Rs 5,51,600 crore to be invested across the power value chain over the next five years, where hydro would accrue an investment of up to Rs 83,900 crore, spearheaded by private players,” the report said.

Koshal said Patel Engineering, another EPC company, would probably toe the same line. “In past, Patel Engineering’s main focus was on cash contract business. But in order to move up the value chain and bid for PPP projects, Patel Engineering has started using the special purpose vehicle (SPV) model,” he said. It has formed an SPV-Patel Engineering Infrastructure Limited-to bid for hydro power projects.

However, there is a risk involved in hydro power generation. Koshal said the end project cost is always 15-20% more than what is always estimated, because of the nature of the work involved and the geography. That is the reason why smaller players are averse to getting in hydro power generation.