Hydropower projects have become very expensive. The cost of electricity from Hydropower is about rupees 7 to 9 per units while it is available in the market at rupees 3 to 4 per unit. In India we have an India Energy Exchange where producers and buyers bargain with each other and do sale and purchase of electricity.
The price for the last year 2018-19 until January has been in range of rupees 3 to 4 per unit. The question is why we are producing hydropower at Rs. 7 to 9 per unit when electricity is available at Rs 3 to 4 in the market? We made a study of the under construction Singoli-Bhatwari project on Mandakini River and find that it makes economic sense to stop this project right now.
The original cost of the singoli-Bhatwari project was Rs. 666 crores. The cost of electricity generated by the project at this cost was Rs 2.66 per unit.
However, due to the delay in completing the project, including due to the damage inflected during 2013 disaster of Uttarakhand, the cost of the project has increased to Rs. 1694 crores. Accordingly, the cost of electricity generated from this project today will be about Rs 6.76 per unit.
The average price of electricity from April 2018 to January 2019 was rupees 3.85 per unit according to the data on the India energy exchange site. This means that the consumer will have to pay an additional Rs 2.91 per unit for the electricity supplied from the Singoli Bhatwari project. The consumer will have to pay rupees 6.76 per unit when the same electricity was available in the market at rupees 3.85 per unit.
Electricity will be generated from this project for the next 40 years. In order to access what is the total burden on the consumer during this period, we can discount the additional burden in the consumer that will be imposed in future years to present values. Let us say, a Fixed Deposit will be encashed for Rs 100 after 7 years. We have to deposit only Rs 50 today for this FD. Thus, the discounted value of Rs 100 after 7 years is Rs 50 today. Similarly, the additional burden to be imposed on the consumer for the next 40 years can be discounted to present value today.
The additional burden on the consumer during the single year 2020 will be Rs 120 crores (41.55 crore units electricity multiplied by Rs 2.91 per unit additional burden on the consumer). Our calculation shows that the present value of the burden on the consumer for the next 40 years is rupees 1175 crores (See here Anx 1). In other words, continuation of the Singoli-Bhatwari project would mean that the consumer will have to pay an additional rupees 1175 crore for the expensive electricity got from the project.
The cost of the project today is Rs 1694 crore. According to Clause 11 of the agreement made with the government of Uttarakhand, the Government can buyout this project at anytime by paying 75% of the investment (See here Anx 2). Accordingly, the government has to pay Rs 1252 crores today if it buys out this project and closes it.
The conclusion is that continuation of the project involves an additional burden on the consumer of Rs 1175 crores. The consumer will save Rs 1175 cores if the project is stopped. This savings can be made if the government pays Rs 1252 crores and buys out this project. The saving to the consumer and the cost of buyout is almost equal and therefore it makes sense to buy out and close the project. Note that the above calculation is only regarding the cost of electricity. Additional burden of the project is in terms of the negative impact on the biodiversity, landslides, contribution to disaster, deterioration of water quality will take place due to the project. If we take these environmental and social impacts in account, the saving to the consumer will be much increased and it will make much stronger sense to close the project.
Question is why does the government don’t want to do this? The reason is that the government of Uttarakhand gets free electricity of 12 to 18% during the next 40 years. The discounted value of this electricity today is Rs. 235 crore (See here Anx 3). The government of Uttarakhand wants to continue with this project and is willing to import an additional burden of Rs. 1175 crores on the consumer in order to get this Rs. 235 crores. For a small gain of Rs. 235 crores the consumer of country will have to pay an additional Rs. 1175 crore. Therefore, the project is not beneficial for the country but only beneficial for the government of Uttarakhand and it must be removed.
The situation of almost all new hydropower projects in the pipeline is very similar to this. The cost of electricity produced from these hydropower projects is in the range of 7 to9 rupees and will impose the burden on the consumer. Therefore, the government should basically examine the economics of the hydropower because of the low price of electricity available on the market. It may be mentioned that this low price is mainly because of the low price of the solar power which has declined due to advances in technology. We should move from hydropower to solar power in this circumstance.