A number of states have agreed not to take free power they get from hydro projects for the time being. The power ministry is proceeding on a case-by-case basis to convince states to forego some free power in the initial years in order to make the projects viable.

Jammu and Kashmir and Arunachal Pradesh have agreed to the proposal. However, it is being opposed by states like Himachal Pradesh, Uttaranchal and Meghalaya -- states with significant hydro-power potential.

At present, states where the projects come up, get 12 per cent of the power generated each year free of cost. The cost is recovered from the rest of the electricity being sold, which makes the rates uncompetitive for the paying consumers.

An earlier attempt by the power ministry to move a Cabinet note to the effect had to be abandoned in the face of stiff opposition from some states. The issue is therefore being taken up on a case-by-case basis.

The Jammu and Kashmir government has agreed to forego some percentage of the free power in the initial years from the 450 MW Baglihar hydro-power project, which is expected to generate 2,804 million units. The power will be sold outside the state, which will make the project viable, said officials.

Arunachal Pradesh has agreed to a similar proposal in the case of two projects and so is the Madhya Pradesh government in the case of the Onkareshwar Hydel Project.

The total cost of generation for hydel projects decreases over time. Once the loan is paid off, the project only has to bear the variable cost and therefore the tariff comes down sharply, said analysts. There is usually an attempt to back-end the tariff in order to ensure that power is not too expensive in the initial years when the fixed costs are being paid.

Agreeing to reduce the percentage of free power ensures that in the initial years, more power can be sold and the average tariff can come down. This can make a significant difference to the viability of the projects.

State of the matter

• Many states, including Jammu and Kashmir and Arunachal Pradesh, have agreed not to take free power from hydro projects for the time being
• But many states with significant hydro-power potential like Himachal Pradesh, Uttaranchal and Meghalaya have opposed it
• At present, states where the hydro power projects come up, get 12 per cent of the power generated free of cost