UMPP for Hydro Projects: Demands for advance premium by states a major hurdle

Govt of India , in its effort to ramp up hydro power capacity of the country mulls the idea to develop UMPP ( Ultra Mega Power Plants) in hydro projects. India is currently developing coal based UMPP and already 4 UMPPs have been awarded.

In UMPP, SPVs ( Special Purpose Vehicles) are created for particular UMPP where the SPV facilitates in aquiring all kind of clearances and the SPV is transferred to the successful bidder at a later stage.

But in case of hydro projects which are extremely site-specific and are not as modular as thermal projects, a huge amount of preparation is required. The detailed project reports need to be prepared upfront.The states have not come up with the DPR at the time of awarding the hydropower projects.

With the share of hydropower falling from 40% to 25% in the past 20 years, the government is worried, as the sector accounts for only 32,000MW of the country’s 147,000MW power generating capacity.

In an attempt to create large hydropower capacities and attract investment in the sector, the power ministry had written to Uttarakhand, Himachal Pradesh and Arunachal Pradesh, asking them to identify and allocate projects with a potential of at least 500MW, to be awarded through the UMPP model. State govt are skeptical about the huge hydro power projects as these projects cause environmental problems as well as severe R&R issues. State govt are demanding an upfront fee from the developers which does not augur well with the project developers and sometimes they back out of the projects.

Last year, state-owned NTPC Ltd’s refusal to pay an advance amount led to the cancellation of a contract to develop two hydropower projects in Arunachal Pradesh at an estimated cost of Rs22,500 crore. The state wanted NTPC to pay Rs5 lakh per MW as upfront payment for the projects at Etalin (4,000MW) and Attunli (500MW).

Arunachal Pradesh government charges an upfront premium of Rs1 lakh to Rs6 lakh per MW, depending upon the size of the project. The north-eastern state is at the centre of the controversy because it has the highest potential for hydropower in India. The potential of hydropower of all the north-eastern states and Bhutan is about 58,000MW. Of this, Arunachal Pradesh alone accounts for 50,328MW. In northern India, Himachal Pradesh has a potential of producing 20,376MW from hydropower plants and Uttarakhand, 16,500MW.

The upfront premium is the bone of contention in case of the proposed hydro UMPP. On one side, govt fears to identify and declare a site for the project as it may backlash with the people rejecting the idea and in an election year the govt do not want to take any risks.

And in the other side, the upfront advance premium demanded by the govt do not seem to hold water with the project developers as they are skeptical of the project coming up. These hurdles do need some serious thought and should be resolved in an amicable manner so as to develop India as a power hub.