In a recent development on the proposed policy for small hydel projects, government sources told CNBC-TV18 that the draft proposal is likely to be sent to the Finance Ministry’s Expenditure Finance Committee (EFC) by September 15.The EFC clears financial proposals in policies before they are sent to the Cabinet for final approval. Sources added that the capex-based model is likely to continue for small hydel projects given their long gestation period.Currently, India has no support scheme for small hydel projects, with the last scheme having lapsed in September 2017.
Policymaking for small hydel projects below 25 MW capacity is handled by the MNRE, while policymaking for large hydel projects above 25 MW capacity is overseen by the Power Ministry.
On July 24, government sources had indicated that the new small hydel policy will bring a revised incentive structure to attract fresh participants. The policy is expected to help expedite round-the-clock hydel power in remote locations, leveraging surplus hydel generation to support local economies and create jobs for technicians. For this purpose, cheaper transmission infrastructure using 11 KVA lines is being installed in remote areas to transmit and extract generated power.To promote the hydropower sector, current measures include tariff rationalization by allowing developers flexibility in backloading tariffs after extending project life to 40 years, increasing debt repayment period to 18 years, and introducing an escalating tariff of 2%. Budgetary support is also available for flood moderation components on a case-by-case basis, along with funding for enabling infrastructure such as roads and bridges, limited to ₹1.5 crore per MW for projects up to 200 MW and ₹1 crore per MW for projects above 200 MW.In May 2025, sources told CNBC-TV18 that MNRE had begun preparing a new policy for small hydel projects, with several review meetings already held. The policy is also expected to clarify the role of private players by laying out contours for feasibility, financing, storage, and distribution in the small hydel sector.Globally, small hydel projects have powered remote villages without grid connectivity but with flowing water sources, and can be installed on rivers, rivulets, streams, and canals. With relatively lower investments, small hydel plants can even be developed by a village or a cluster of villages once a policy framework is in place.Sources said the draft policy will soon be tabled before the Union Cabinet for approval. According to the Hydro and Renewable Energy Department (HRED), India’s estimated small hydel potential is 21 GW across 7,133 sites. Nearly half of this lies in mountainous regions such as Jammu and Kashmir, Himachal Pradesh, Uttarakhand, and Arunachal Pradesh. With India suspending the Indus Water Treaty (IWT), thousands of sites in the Indus river basin can now be tapped for small hydel projects without objections from Pakistan.HRED also identified Maharashtra, Chhattisgarh, Karnataka, and Kerala as states with significant potential, where such projects could also aid in water storage and management to prevent shortages. A reassessment by the Central Electricity Authority (CEA) between 2017 and 2023 pegged India’s exploitable large hydro potential at over 133 GW, while pumped storage potential stood at 176 GW. As per data submitted in Parliament, India’s hydel capacity is projected to rise from 42 GW to 67 GW by 2031-32.
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