India’s small hydro programme is slowly taking off, according to Dr P Saxena, Director of the small hydro division in the Ministry of Non-Conventional Energy Sources (MNES). ‘We are on the right path, and hope to add 100MW this year alone, to the already installed capacity of over 1600MW in small hydro,’ says Dr Saxena. In the past decade, the average annual capacity increase had been less than 15MW.

India has a century-old history of small hydro; its first plant was set up in 1897. However, since then, small hydro has remained secondary to traditional energy sources like coal, oil and even large hydro. The state electricity boards (SEBs), created in the 1950s and faced with increasing energy demand, had given a low priority to small hydro.

It was only in the 1980s that the Federal Government became conscious of the need to promote a planned development of renewable energy. A separate government department was created in the year 1982, which later became MNES. This was followed by the setting up in 1987 of a specialised federal financial institution, IREDA, to fund renewable energy development (including small hydro).

The federal government took a series of measures in the 1990s which spurred small hydro development:

• Announcement of a package of incentives and concessions.

• Laying down guidelines for State governments, to enable evolution of their own respective policies for the sector.

• Concessional credit by IREDA.

• Setting up of separate nodal agencies by the States for Renewable Energy (by taking it away from the over-burdened SEBs).

• Opening up small hydro sector to private participation and investment.

• Upgrading technology and local skills in the sector.

• Creating a strong database.

MNES estimates that there is a potential of about 15GW to be developed through small hydro. While sources admit that this figure is empirical, they point out that over 4200 project sites all over India, with a potential of 10.3GW, have already been identified and put on the map. The site identification process is continuing with the assistance of state governments and small hydro promoters.

Furthermore, 495 projects with a capacity of 16GW had already been completed by the end of the last fiscal year 2003-04. Another 170 projects (569MW) were then under construction. The states taking the lead have been Uttaranchal and Himachal Pradesh in the north, Arunachal Pradesh in the north-east and Andhra Pradesh in the south. The federal package of incentives gives extra benefit to ‘special category’ states (north-east, Uttaranchal, Himachal Pradesh, and Jammu & Kasmir) all located in the sub-Himalayan region of the country.

Incentives for development

Over the years, the federal government in India has been giving a set of incentives (including financial subsidies) to spur small hydro development especially in the hilly and remote areas. The package has evolved over time, based on experience and needs. Currently, this package comprises:

• ï„·Subsidy on survey and on preparation of a detailed project report for a small hydro scheme.

• ï„·Financial grant for setting up new small hydro projects, the amount being double for a government project.

• ï„·Financial grant for renovation and modernisation of old small hydro projects

• ï„·Financial grant for small hydro which might be ‘languishing’ for want of funds or other reasons.

In all the above four cases, the subsidy/grant is graded according to the capacity of the project and also its location (whether located in ‘special-category’ states, other hilly regions, or the Plains).

To encourage state governments to give their own promotional and fiscal incentives for setting up renewable energy projects (including small hydro), MNES issued detailed guidelines in June 2001. Based on those or otherwise, 15 State Governments have until now announced policies in that regard, covering the various components.


Promoters of small hydro projects in India can look to a variety of sources for raising funds. For equity, they have generally used their own resources, supplemented by tapping the central market. For debt-financing, the main sources are:

• The three Federal-owned financial institutions that exist in India’s power sector. The most active of these is the New Delhi-based Indian renewable energy development agency (IREDA), set up in 1987 by MNES specifically to fund renewable energy. From then until March 2004, IREDA had lent US$330M to India’s small hydro projects. IREDA’s lending terms are concessional, and are easier for projects being set up in the remote areas. The other two agencies are the Power Finance Corporation and Rural Electrification Corporation, which could also be tapped for project loans.

• India’s commercial banks and financial companies have traditionally assisted the promoters of small hydro power projects with project loans and working capital. The promoters also find it easier to obtain funds from them at reasonable rates.

• The equipment suppliers offer supplier’s credit to part-fund the project cost of small hydro through its most significant component – the expenses on equipment and machinery. A number of suppliers, both domestic and overseas, have set up manufacturing facilities in India to locally vend nearly all the equipment used by the small hydro projects. Overseas companies include alstom, Boving, va-tech Escher Wyss Flovel, HPP and Ganz. Indian companies include BHEL, Jyoti, Kirloskar and Triveni Engineering.

• In recent years, foreign funding agencies – government-owned or multilaterals – have turned their attention to funding India’s small hydro programme. The World Bank gave two lines of credit to IREDA to finance private small hydro projects in India. The United Nations Development Programme (UNDP), aided by GEF, sponsored a US$15M project in 1995 to optimise the development of small hydro resources in the 13 hilly states of India. IREDA is looking to other overseas sources for small hydro funding. These could include Manila-based Asian Development Bank which has been active in financing India’s power sector. Another potential source is the International Finance Corp, part of the World Bank Group.

The role of AHEC

The Alternate Hydro Energy Centre (AHEC) is playing an increasing role of India’s small hydro development. Set up in 1982 by the Indian Government at Roorkee, north-east of Delhi, as a part of the famous engineering university located there, AHEC was meant to be a research & development agency for small hydro, and for evolving decentralised integrated energy systems in conjunction with the other renewable energy sources.

During its more than 20 year existence, AHEC has rendered a variety of services in small hydro development and related areas. These include:

• Preparation of a small hydro master-plan and also zonal plans for 13 Indian states located in the sub-Himalayan region.

• A software package for estimating the potential of small hydro sites.

• Preparation of pre-feasibility and detailed project reports.

• Preparation of detailed engineering designs and construction drawings.

• Techno-economic/environment appraisals.

• Monitoring of small hydro projects.

• Upgrading and refurbishment of small hydro power stations.

• Technical specifications of turnkey execution / equipment.

• Total investigations.

• Consultancy services.

International cooperation

In 2003, a pact for enhanced cooperation in renewable energy was signed between India and China during the visit of the Indian Prime Minister to Beijing.

Another memorandum of understanding was signed between India and Mauritius in November 2003 for cooperation in scientific research, development of projects, introduction of new technologies and joint ventures in renewables. A protocol for cooperation in renewables with Cuba was signed in February 2004, which provides for small hydro resource assessment, development and deployment.

Additionally, technical personnel in small hydro from South Asia and other countries are also being trained in the various institutions in India, such as AHEC.

Private participation

Private-sector participation has given a significant boost to small hydro development in India in the recent years, mainly by domestic companies and local small industries. At the beginning of the 1990s, India’s power-generation sector had been thrown open to private participation and investment. In October 1991, the Indian government announced a detailed policy in this regard. This was further supplemented by its August 1998 Policy on Hydro Power Development, and by the federal guidelines to the State Governments. However, it took almost a decade for them to welcome private entry in small hydro.

The present day situation is that in a number of States, small hydro development is being pursued mainly by private promoters. Over 770 sites totalling about 2.2GW have been offered to private promoters around the country. Through its incentive package, MNES itself has supported 47 private-sector commercial projects until the end of fiscal year 2003-04. Of these, 35 projects (85.45MW) in the states of Andhra Prasdesh, Karnataka and Himachal Pradesh had already been commissioned.

In the south, the lead has been taken in recent years mainly by the states of Andhra Pradesh and Karnataka. By the year 2003, 38 private small hydro schemes (77.8MW) had been commissioned in Andhra Pradesh and another seven schemes (21.7MW) were under construction. In Karnataka, 21 private projects (115.75MW) had been commissioned and another 129 projects were awaiting implementation.

Programme progress

Until 1990, the installed capacity of small hydro in India was marginal – less than 70MW – nearly all of it government-owned. During the 1990s, the progress remained fitful, the annual capacity increase being never more than 30MW. By the end of 1999, the total capacity had risen to around 200MW.

In November 1999, the Indian Government decided to revise the definition of small hydro to include all such projects up to 25MW (instead of 2MW) each. This had two effects. Firstly, it instantly pushed up the small hydro figure of installed capacity to around 1274MW, at the beginning of 2000. Secondly, with many more projects under construction, the annual increase in installed capacity has since risen to between 70-90MW per year during the current decade.

At the end of the fiscal year 2003-04, the total installed capacity had reached to over 1600MW. While this looks good compared to the earlier slow pace, it is still about a mere one-tenth of the total small hydro potential estimated by MNES.

Much of the progress is hindered by the road blocks that small hydro promoters encounter at the various stages of the project, including:

• Difficulty in acquiring land: while mutual negotiations with the owner of land may present problems, even taking state help in this regard is time-consuming due to the lengthy land-acquisition procedures.

• The difficulty is aggravated if the proposed land belongs to the government, even more so if it is part of a reserved forest (as much of the land is, in the hill-areas). The forest-protection laws in India are strict and obtaining a usage permit is a multi-step process involving more than one agency.

• Similar difficulties arise in getting water-usage rights for the small hydro project, especially if the water emanates from government canals or channels.

• In hilly and remote areas, there are other practical difficulties too. These include limited working-seasons, lack of infrastructure facilities up to and at site, lack of willingness of trained staff to live and work there, and difficulty in O&M.

• While the federal government has designated specific funding agencies owned by it to help small hydro, the promoters often find their rules and the paper-work involved to be time-consuming. At times, even the cost of obtaining funds from such agencies gets to be higher than the prevailing market rates.

• At the post-project stage, evacuation and sale of power could present problems, especially if the buyer is a state agency. Many state governments have still to announce their policy for small hydro development.

These and other difficulties are already known to the federal and state governments which interact with small hydro promoters. While many remedial steps have been initiated, more will need to be taken and quickly, if the various targets for small hydro development in India are to be reached in the future.

Author Info:

I M Sahai, A-177, Sector 40, Noida-201303, U.P, India