Hydropower push in Arunachal: Looming threat to stranded assets

[ Ashwini Chitnis & Shripad Dharmadhikary ]
Around 2005, Arunachal was the hub of the ambitious ‘50,000 mw initiative’ launched by the government of India to add as much hydropower capacity in the country by 2013. Around 27,000 mw of this capacity was to be added in Arunachal alone. Additionally, the state had also signed a large number of MoU with hydropower developers. There were visions of huge revenue that would accrue to the state, and the State Hydro Electric Power Policy, 2005 talked about how “the state would be floating in hydrodollars as popularly said that the Arab countries are floating in petro dollars.”
In this atmosphere, voices warning that these expectations were unrealistic as hydropower projects were high risk, caused serious environmental damage and produced power that would be too expensive, were brushed aside. Fifteen years down the line, the critics have been proved right, and at a total of 815 mw installed capacity as of June 2020, hydropower development has been nowhere near the ambitious plans of the early 2000s.
Yet, we see the state as well as the central government again pushing for hydropower development in a big way, virtually ignoring the experience of the past decade as well as the growing mass of new evidence which shows that hydropower is a risky and unviable investment, even from a purely financial point of view.
Unfortunately, this renewed push is likely to meet the same fate as the earlier, or worse, leave in its wake large-scale ecological destruction and saddle the state with massive stranded assets and debt burden. It would also be wrong to think that this failure of meeting hydropower ambitions is due to some inefficiency in the system and better management could address it. It is mainly the fundamental problems of hydropower, mentioned earlier, that are responsible for this.
The Etalin hydropower project is a prime example this.

Etalin project: A stranded asset in the making

The proposed Etalin hydroelectric project (HEP) is among the largest hydropower projects in the country, with a planned installed capacity of 3097 mw. It consists of two dams and a power house on the Dri (Dibang) and Tangon rivers in the Dibang valley. The project is a joint venture company of the Jindal Power Limited (JPL) and the government of Arunachal, through the Hydro Power Development Corporation of Arunachal Pradesh Limited (HPDCAPL), with the former having a 74 percent stake and the latter 26 percent.
It is claimed that the project would bring development to the area and provide the state with revenues, but these hopes may be mere wishful thinking.
The cost of the project had been estimated at Rs 25,000 crore at 2014 prices, with an expected levelized tariff of Rs 4.32/kwh.
This puts the cost at Rs 8 crore per mw installed capacity, which makes the project already a very expensive one. It is for this reason that that the forest appraisal committee, in its meeting of 23 April, 2020, while looking at the project’s application for diversion of forest land, first decided to ask the union ministry of power (MoP) for its opinion on three crucial issues related to the economics of the project. One, tariff from the project, which was already high even in 2014; two, whether the country’s energy demand-supply balance has changed as the project is already delayed by over six years; and third, the priority of this project over others.
While we are not sure whether the MoP has responded to these queries, we decided to independently examine these questions with detailed analysis of the data and documents available, and our findings presented here are based on this.
We see that the project was to start construction in 2014, so it has already been delayed by six years. Costly as the project was at 2014 prices, with this delay, we estimate the project will now cost around Rs 33,000 crore, with the levelized tariff of around Rs 5.93/kwh if started right away, and completed as scheduled in seven years. With even the clearances not in place, this scenario is highly unlikely. A more realistic scenario is that the project would be completed in 2031 and cost over Rs 44,000 crore, with levelized tariff of Rs 7.88 /kwh and first year tariff of over Rs 9/kwh.
This makes the power from the project so costly that it would be extremely difficult for it to find buyers. This is more so when we look at the rapidly falling prices of renewable energy sources like solar. While electricity prices from solar power-based schemes have been consistently low in the last several years, a recent study by the Lawrence Berkeley National Laboratory estimates that in India, the prices of solar PV plus lithium ion battery system storing 25 percent of the pv energy to be around Rs 3.94/kwh in 2020, Rs 3.32/kwh in 2025, and Rs 2.83/kwh in 2030. These tariffs are even cheaper than the levelized tariff of the proposed Etalin HEP of Rs 4.32/kwh estimated in 2014, not to say the much higher tariffs that will be more realistic tariffs for the project, given its time and cost overruns. Due to storage facility, these solar systems can also provide reliable peaking support, which is often considered a unique benefit of hydropower.
The prices of solar electricity as well as storage are only likely to fall in the coming years. Power from Etalin, on the other hand, is likely to be costlier than the estimates presented above as the actual delay in construction and commissioning is likely to be much more, given the record of hydropower construction in the Himalayan states. As per the CEA quarterly report, as of March 2020, hydropower capacity of 11,975 mw is under construction and on an average these projects have been delayed for about eight years. The costs of these projects have almost doubled. Moreover, estimates for price of electricity from Etalin calculated in the detailed project report use ad hoc figures for environmental flows. If we use the flows as mandated by the project-specific environmental flow studies, the price is even higher.
Given this, the question is whether the Etalin project will find any discoms (distribution companies) or any other buyer, and if it already has buyers, would they still be interested in buying such expensive power. It would useful to look at the example of the Sikkim-based 1200 mw Teesta-3 HEP, which is already commissioned, but buyers like Punjab and Rajasthan discoms are highly reluctant to buy the power they had committed to buying, because it has become too expensive. Given this, it’s a moot question whether buyers will commit to buy power from Etalin which is not likely to generate a single unit for at least 7-10 more years, and which is already more expensive than existing alternative sources.

A burden on the state exchequer

In case the project is still pushed ahead, it is likely that it will simply become a burden on the exchequer. Teesta-3 is again a case in point. The Teesta-3 project was initiated in 2005 as a joint venture between the government of Sikkim and Athena Projects Pvt Ltd, with the former holding 26 percent of the equity and the latter 74 percent. The cost of the project was estimated then at Rs 5705 crore, which more than doubled to Rs 13,800 crore as a result of delays, geological issues, financial crunch and natural calamities. Due to this, the private partner expressed inability to raise any more funds, and ultimately the Sikkim government had to bail out the project to save the several thousand crore rupees already sunk in. The government of Sikkim increased its equity from 26 percent to 51 percent, but as it had no money to do so, was forced to take a loan from the PFC for this equity. Given that cost of power increased from the promised Rs 1.92/kwh to Rs 5.06/kwh, buyers are now showing extreme reluctance to purchase the power, and it is highly likely that the project may end up becoming a stranded asset. If that happens, the government of Sikkim then would be left with a huge debt to be repaid for a project that is not earning enough revenue, as well as pay back the debt it raised for financing equity to the PFC.
The parallels to the Etalin are stark, and there is all likelihood that if the project goes ahead, the government of Arunachal would be stuck in a similar position.
On the other hand, the promises of power revenues are likely to be belied. As we have pointed out, the Etalin project is unlikely to find any buyers for its electricity with its cost being so high. However, Arunachal may assume that since it gets 13 percent of the power free of cost, it can still sell it in the market at the prevailing rate, and thus, at least for this 13 percent of electricity, it will not be constrained by the high cost, and can generate good revenues. This assumption is not likely to hold as a project that cannot sell most of its energy is unlikely to generate just the 13 percent to provide free power to the host state. It is more likely that the plant may not generate any electricity for most of the time.
Further, Arunachal being a 26 percent owner of the project is also responsible for the repayment of the high levels of debts that the project will have to incur. Further, as with Teesta-3, if there are any delays in the construction and commissioning of transmission lines, the resultant loss of revenue due to this inability to transmit power will also have to be shared by Arunachal.
More generally, Arunachal’s expectations of high revenues from hydropower projects are unrealistic, given the increasing cost of hydropower as against the falling prices of alternative sources.
The experience of Himachal Pradesh, which has had similar plans for revenues from hydropower projects, will be useful for Arunachal to consider in this context. An analysis of the state finances for Himachal Pradesh undertaken by the Himdhara Collective and Manthan Adhyayan Kendra shows that revenues from power sector for the state fell sharply from Rs 1146 crore in 2011-12 to Rs 687 crore in 2017-18, even as the total installed capacity in the state went up by 2600 mw, from 7,913 mw to 10,519 mw. This shows the increasing difficulty of raising revenues from hydropower projects, especially the newer ones.
Given all this, it is clear that unless the state wants to be saddled with large stranded assets and huge debt burdens, not to mention large scale destruction of its rivers and ecology, Arunachal should not only drop the Etalin project but critically review its entire hydropower development programme. (Ashwini Chitnis is an independent researcher and policy analyst with experience in power sector regulation and planning. Shripad Dharmadhikary is with the Manthan Adhyayan Kendra, engaged in monitoring and analysis of water and energy issues.)