It is anticipated that by the year 2012, India’s peak demand for energy will be 152,746 mw, with total energy re­q­u­irement of 969 billion units. Also, to sustain a gross domes­tic growth ra­te of 8-9 per cent, India wo­uld require an additional capacity of about 66-79 gw by 2012, 152-183 gw by 2017 and 271-334 gw by 2022.

The Indian government has initiated various programmes to address this sh­ortage and is planning to reach a perfect balance between thermal, hydro and nu­clear energy.

Of late, hydroelectricity, with a total installed capacity of 36,863.40 mw or 23 per cent of the total installed capacity, has attracted the attention of policy makers.

Untapped potential

Two years ago, the government introdu­ced the Hydro Power Policy 2008 to promote hydroelectric power generation in jo­int venture with private players. Since then, the co­untry has witnessed inc­rea­sed participation from private sector pl­ayers in a sphere dominated by the pu­blic sector companies such as NHPC and Satluj Jal Vidyut Nigam (SJVN).

Market experts say with better returns on equity and also higher margins, the sector is a better bet for investors in the long term despite its long gestation period.

Abhinav Bhandari, senior power sector analyst at Elara Securities, said private players such as Jaypee Hydro Power, Patel Engineering and Madhucon Pro­jects have made an entry into the space.

“These companies were earlier in­volved in taking the complete engineering, procurement and construction (EPC) contracts for the public sector compan­ies and acquired the skills to build the projects for themselves. They moved into the construction space when the government offered incentives such as merchant sales of up to 40 per cent, if projects were completed in time,” Bhandari said.

Sushil Maroo, deputy managing director of Jindal Power, said India will have to rely heavily on hydroelectricity for fulfilling its energy requirements.

“There is scarcity of coal and oil. Nuclear power plants are unlikely to co­me up anytime soon. So, the county will have to tap its hydro potential,” he said.

According to the Hydro Power Policy, 2008, there is an enormous untapped po­tential for hydroelectric generation, equivalent to 84,000 mw at an optimum 60 per cent load factor, which translates to 1,48,700 mw in terms of installed capacity. And it would require an investment of around Rs 1.8 lakh crore with pr­ivate sector participation of 23 per cent to produce 15.5 gw of hydro power.

“This will be a major driver for large investments that will be witnessed by this sector going forward,” said Rupesh Sankhe, power analyst at Angel Broking.

Expression of interest

Some major private sector companies in the space such as Jaypee group, Tata Po­wer, Patel Engineering and Madhucon, along with public sector majors like NHPC and SJVN, are already adding ca­pacity to meet the challenge that India would face.

Jaypee group plans to raise its total power capacity to more than 13,000 mw by 2019 with 60:40 thermal-hydro mix. Manoj Gaur, executive chairman of Jaypee group, said, “In hydropower, we have 700 mw of capacity in operation as of now. By 2011, the total hydropower capacity will be 1,700 mw thanks to the commissioning of 1,000 mw Karcham-Wangtoo project in Himachal Pradesh. All our key projects are progressing as per schedule.”

Similarly, Tata Power, along with in­ternational partner SN Power, aims at having 2,000 mw under construction — or in operation, by 2015, besides 4,000 mw capacity by 2020.

The two companies have already be­gun pursuing potential project opportunities based on the vast reserves of ren­ewable energy in the Himalayas.

“The business model for the exclusive partnership is to develop hydropower pr­ojects that will meet the increasing energy demand in India and Nepal through the provision of clean energy. The partners will also establish a jointly-owned services company in India, which will provide each project with world-class te­c­hnical and managerial expertise,” Ban­amali Agarwala, executive director of Ta­ta Power, had said at the time of agreement.

The two public sector companies — NHPC and SJVN, are also busy adding capacity. NHPC, as of now, produces 5,175 mw of hydropower and plans to take it to 9,500 mw by 2012. It seeks to add 800 mw in the present financial ye­ar. At present, SJVN produces 1,500 mw and plans to take the figure to 1,900 mw in two years with the completion of its Rampur project, which will generate 412 mw.

Roadblocks ahead

However, there are certain concerns that are raised about hydro power plants, be it regarding the long gestation periods, land acquisition, environmental clearances or rehabilitation issues, which normally puts off the companies planning to move into the hydro power business.

“The long gestation of hydropower projects results in cost overruns. Power projects in general have a long gestation period. In addition, these projects are also prone to delays related to the obtaining of environment clearance, land acquisition, procurement of equipment and fuel supply,” Sankhe of Angel said.

Also, despite benefits of hydroelectric projects, the share of electricity generated by hydroelectric power schemes in India has steadily declined over the ye­ars, from 37 per cent of total installed ca­pacity at the end of the first five-year plan (1951 to 1956) to 23.67 per cent in the present 11th five-year plan.

Stock performance

In a year-to-date comparison, the shares of hydropower companies such as NHPC and SJVN have fallen more than the shares of miscellaneous power generators.

However, experts say long-term pr­ospects of hydropower companies are go­od. Public sector companies would be be­tter placed compared with private sector players, since they have a direct support of the government in bagging projects and getting environmental clearances.

Compared with the BSE power index, which dropped 4.87 per cent year-to-date, the stocks of hydro power generators have plummeted as much as 15 per cent. Shares of NHPC have plunged 17.98 per cent.

Jaiprakash Power Ventures and KSK Energy Ventures have dropped 13.05 per cent and 11.48 per cent, respectively.

SJVN, the newly listed firm, has also dropped 6.73 per cent, as against its listed price of Rs 24, while Tata Power dr­opped 10.07 per cent.

In comparison, other power generators such as Adani Power, Reliance Po­wer and Torrent Power have climbed 19.32 per cent, 3.13 per cent and 2.73 per cent, respectively.

“The 15.5 per cent return on equity under the new tariff policy, which came into effect in April 2009, and also the margin enjoyed by hydropower generators is much better compared with the thermal power and other renewable sources. These companies are definitely better bets in the long term, but when compared with public sector players, th­eir growth would be comparatively low­er,” Bhandari of Elara said.

Sankhe of Angel said among all the hydropower stocks, SVJN is attractively priced, considering the fact that the co­m­pany has 1,500 mw of operational as­sets, which provides it with good near-term revenue visibility and a steady cash flow.

“We believe that SJVN, with its ex­pertise in operating India’s largest hydro-electric power generation facility, is well placed to make use of opportunity available in hydro power segment,” he said.

(With inputs from Sarita C Singh, Amit Mudgill)