As India accelerates its transition to renewable energy, hydro and pumped storage projects (PSPs) have emerged as a reliable solution to address grid stability challenges and help in peak load management. With the growing integration of intermittent renewable energy sources such as solar and wind into the national grid, the hydropower segment is becoming crucial for providing reliable and flexible power, improving peak load management, and facilitating system regulation and energy storage. The past few years have brought significant change in the country’s hydropower segment, owing to government reforms and initiatives and ongoing project development.
An overview of the hydropower sector, including the cost economics, policy developments and the way forward…
Current status
According to the Ministry of New and Renewable Energy, the installed large hydropower and small-hydro power (SHP) capacities in the country stand at 46,968.17 MW and 5,100.55 MW, respectively, as of January 2025. Of the total installed renewable energy capacity (212.17 GW) as of January 2025, hydro comprises over 52 GW, that is, around 24 per cent. Of the 46.97 GW large hydro capacity, the central share is 34 per cent (15.7 GW), the private sector share is 8 per cent (3.93 GW) and state share is 58 per cent (27.29 GW).
The growth in large hydro capacity has been modest during March 2014-December 2024, increasing from 40 GW in 2015 to 47 GW in 2024. In fact, the contribution of large hydro to the total installed power capacity has gradually declined over the years, dropping from 16 per cent to around 10 per cent during the same period. Moreover, large hydro’s contribution in the generation mix decreased from 13 per cent to 9 per cent during the same time frame. Furthermore, during FY 2014 to FY 2024, the percentage share of hydro in the overall capacity addition decreased from 5 per cent to almost nil in FY 2024. However, it is expected to rise to 3 per cent in FY 2025, as per ICRA.
Amidst tepid growth, PSP uptake has shown revived enthusiasm. Notably, as pumped storage is a mature technology and has been around for generations, there has been a surge in demand for these projects in the past few years as India moves towards integrating 500 GW of clean energy into its grid by 2030. PSPs, with long-duration storage capabilities, have become an important part of the clean energy landscape in the country, particularly with the increasing demand for round-the-clock renewables by both utilities, and commercial and industrial consumers.
As per the Central Electricity Authority (CEA), as of December 2024, India has eight on-river PSPs in operation with a total capacity of 4,745.6 MW, installed in various locations across the country, including two each in Telangana, Maharashtra and Gujarat, and one each in Tamil Nadu and West Bengal. However, only six plants, with a combined installed capacity of 3,305.6 MW, are operating in pumped mode, while the remaining 1,440 MW across two sites in Gujarat are not currently functioning in pumped mode. Further, there are four on-river and two off-river PSPs under construction with a total capacity of 4,850 MW and 3,120 MW respectively. Moreover, there are two on-river and off-river PSPs, with a capacity 2,500 MW and 1,600 MW, respectively, for which detailed project reports (DPRs) have been concurred by the CEA. Currently, survey and investigation are in progress for 47 projects totalling 62,510 MW. Of these, one is an on-river project of 640 MW and 46 are off-river projects, totalling 61,870 MW.
Cost economics
Concerns regarding the economic viability of hydropower plants remain a crucial factor for its tepid growth. As per ICRA Limited, for hydro projects, the levellised tariff is Rs 4.60 per kWh at a capital cost of Rs 100 million per MW and a PLF of 55 per cent. The levellised tariff rises to Rs 12.60 per kWh at a capital cost of Rs 150 million per MW and a PLF of 30 per cent. This calculation is based on several assumptions – a debt and equity mix of 70:30, with the cost of debt at 9 per cent, free energy considered as 12 per cent of generation and other assumptions as per Central Electricity Regulatory Commission regulations for 2024-29.
For PSPs, in addition to the above assumptions, with eight hours of storage capacity and the cost of input energy considered at Rs 2.70 per unit, the levellised tariff will be Rs 4.40 per kWh at a capital cost of Rs 50 million per MW and a round-trip efficiency of 77.5 per cent. The levellised tariff rises to Rs 6.80 per kWh when capital cost is set at Rs 75 million per MW and round-trip efficiency at 65 per cent.
Furthermore, for under-construction large hydro projects, the average capital costs are likely to remain above Rs 100 million per MW. For instance, the Parbhati II (800 MW) and Rangit IV (120 MW) hydro projects have a capital cost of Rs 152 million per MW each, while other select projects have the following capital costs: Vishnugad (444 MW): Rs 134 million per MW, Kutehr (240 MW): Rs 120 million per MW, Teesta Stage IV (500 MW): Rs 115 million per MW, Dibang multipurpose (2,880 MW): Rs 111 million per MW, Subansiri (2,000 MW): Rs 106 million per MW, Kwar HEP (540 MW): Rs 84 million per MW, Pakul Dal (1,000 MW): Rs 81 million per MW, Kiru (624 MW): Rs 69 million per MW, and Ratle (850 MW): Rs 62 million per MW. Overall, no specific trend can be seen in the cost variation based on capacity size; the cost seems to vary primarily due to site-specific reasons.
Moreover, ICRA estimates the average capital cost for upcoming PSP projects at Rs 60 million per MW. Apart from this, PSPs have witnessed a sharp decline in tariff bids in 2024. For instance, Power Company of Karnataka Limited’s bid for 700 MW and 300 MW of capacity in March 2023 was Rs 5.90 per unit each. Meanwhile, Maharashtra State Electricity Distribution Company Limited’s bid for 1,500 MW in September 2024 was Rs 3.70 per unit.
Policy developments
The central government has renewed its focus on hydropower and PSP development by launching various reforms. In the hydropower space, the central government has announced Rs 41 billion in equity support for the north-eastern states. To be implemented from 2024-25 to 2031-32, the scheme will support the development of a cumulative hydropower capacity of 15 GW. In addition, the union cabinet has approved a Rs 125 billion budgetary support scheme for developing hydropower projects totalling 31,350 MW of capacity. A cumulative PSP capacity of 15,000 MW will also be supported under the scheme. Rather than funding the power plants, the funds will be allocated for essential components such as access roads, bridges, transmission lines and communication systems. Additionally, the government has extended the of interstate transmission system charges waiver for hydropower plants, reducing operational costs for project developers and making hydropower investments more financially attractive and viable in the long term.
Meanwhile, in a bid to promote innovation in the hydro sector, the CEA has officially recognised Surface Hydrokinetic Turbine (SHKT) technology. Unlike traditional power generation methods that use structures such as dams, diversion weirs and barrages to create the necessary “head”, SHKT generates electricity by harnessing the kinetic energy of flowing water, with almost no need for a potential head. Further, SHKT turbines are easy to install and offer a cost-effective generation method, with electricity production costing just
Rs 2-Rs 3 per unit.
While there is no central government policy for the SHP segment, different states have developed their own policies to encourage such projects. For instance, Himachal Pradesh, Uttarakhand, Madhya Pradesh, Karnataka, Sikkim, Assam, and Jammu & Kashmir offer financial incentives, streamlined approval processes and measures to encourage local participation. Tamil Nadu also released its small-hydro project policy in August 2024.
Meanwhile, the government announced plans for a comprehensive PSP policy in the Union Budget 2024. This builds on the policy framework introduced in April 2023, which includes measures such as no upfront premium for project allocation, simplified approval processes, monetary benefits such as reimbursement of state GST and stamp duty, no obligation to supply free power to the home state, and eligibility to participate in the hydropower purchase obligation market. A key recent policy impetus has come from the Ministry of Power’s tariff-based competitive bidding guidelines for procuring stored energy from existing, under-construction or new PSPs. The procurement process is divided into two modes – Mode 1 involves developing PSPs on sites identified by the procurer, operating on a build-own-operate-transfer model for 25-40 years. Mode 2 allows procurement from PSPs either identified by the bidder or already commissioned, operating on a build-own-operate basis for 15-40 years. Further, the CEA, in August 2024, revised the guidelines for the preparation of DPRs to speed up the process of setting up PSPs. This includes a shortened document checklist for
DPR examination.
The way forward
According to the CEA, around 133 GW of hydroelectric potential has been identified across India. Additionally, the evaluated potential for SHP is about 21,133 MW across 7,133 identified sites, as per a study by IIT Roorkee. Meanwhile, PSPs have an identified potential totalling 181.35 GW, with significant opportunities of 68.19 GW and 60.47 GW in the western and southern states respectively. The National Electricity Plan 2023 envisions adding 10,814 MW of hydro and 2,700 MW of PSPs by 2027, followed by an additional 9,982 MW of hydro and 19,240 MW of PSPs by 2032. The country’s pumped storage requirements are projected to reach 7 GW by 2027, expanding to 27 GW by 2032 and ultimately reaching 90 GW by 2047. These expansions will require substantial investments, estimated at Rs 542 billion for 2022-27 and Rs 752 billion for 2027-32.
Moreover, the north-eastern states offer a substantial opportunity in the large hydro segment, with an exploitable identified capacity of 55,929.7 MW as per a reassessment study (2017-23), as of January 1, 2025. The north-eastern region has 42 per cent of the country’s untapped hydropower potential, presenting a significant opportunity for infrastructure development and energy generation. The region has 58,356 MW of identified capacity as per a reassessment study (1978-87). Currently, about 3.62 per cent (2,027 MW) of the potential in the Northeast is operational. About 8.94 per cent (5,000 MW) of the potential in the region is under construction, with the highest in Arunachal Pradesh at 4,880 MW, followed by Assam at 120 MW.
Despite this growth potential, the hydropower segment faces several challenges, including disputes over water rights, environmental concerns, land acquisition issues, shortage of financially strong civil contractors, difficulty in securing financing for substantial upfront investment, complex regulatory frameworks for tariffs, lack of infrastructure and transmission connectivity, long approval timelines, difficulties related to resettlement and unforeseen geological conditions. These problems often result in delays and cost overruns, further complicating the financial viability of the projects and adding to the risk. These issues need to be resolved if the planned projects are to be completed on time with no cost overruns. This is crucial in view of the country’s ambitious growth trajectory in this space.
Going forward, success in achieving these targets will depend on effectively addressing the sector’s challenges, while maintaining the current momentum in policy support and investment.
Net, net, as India moves forward on its clean energy journey, the coming years will be crucial in determining whether the government can turn this vast potential into reality. With the right mix of policy support, financial backing and strategic implementation, the hydropower sector could emerge as a cornerstone of India’s energy security. The challenge is formidable, but so is the opportunity. Going forward, the tepid growth witnessed in the hydro sector in the past will hopefully be water under the bridge.
Sakshi Bansal
