Himalayan blunder

Last Updated: Saturday 04 July 2015

Dam makers rake in the moolah irrespective of the amount of electricity projects generate

TWO issues back this magazine had done a detailed analysis of the wind energy sector in the country. We told you how wind turbines were being installed in increasing numbers, but performed at a dismal level and generated electricity far lesser than their potential. The policy gave incentive only to installation and very little to actual generation. In this issue we analyze the business of dams: the hydroelectricity sector. And the findings are, if anything, even more shocking.

The rate at which new, and now mostly private, dam projects have been springing up is intriguing. Hundreds of new dams are either being constructed or in the pipeline in the Himalayan states of Uttarakhand, Sikkim and Arunanchal Pradesh. Why this sudden rush? Because hidden in those reservoirs is a goldmine. Once a dam has been made the project developer will get paid an annual fixed charge irrespective of how much electricity he is able to generate. This annual fixed charge not only guarantees to cover all the annual charges like depreciation, operation and maintenance, interest on loan and working capital, it also ensures that the project developer gets a 14 per cent return on his equity. This is guaranteed irrespective of how much electricity the project generates: 100 per cent, 50 per cent or no electricity at all. It covers all the hydrological risks like changes in flow pattern of the river and problems due to silt load. The state electricity boards, which enter into a power purchase agreements with the project developers, are the ones who lose out as they have to pay even when they do not get the promised electricity.

This is precisely the reason why no project proponent is worried about natural risks like water availability in the river due to climate change or other reasons. Because the current payment formulas do not take into account water availability, a critical component for any hydroelectric project. Setting up a hydroelectric project is simply a zero loss proposition for any private player which explains their recent mushrooming. There is no accountability in cases of non-performance. And that is what is happening. Data shows that about 90 per cent of the existing projects generate electricity below the levels they were designed for. And half of them do not generate even half of the projected electricity. But these defaulters are actually being rewarded.

Dams are a bigger scam than wind turbines because in hydroelectric projects it is the taxpayer's money that keeps flowing out. And those megawatts only exist on paper.

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