Typical Regulations for the Installation and Operation of Small Hydro Power Plants (SHPP)

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Overview


Country Examples

Indonesia

In Indonesia, the decree on Small Power Purchase Tariffs (SPPT) opens the energy generation market to private entrepreneurs and cooperatives. The decree aims to regulate the selling of privately produced electricity to PLN (the electric utility of Indonesia), with one of its priorities being the electricity production from non-conventional energy sources (NRES) such as wind, solar and mini-hydro. PLN, according to the small power project agreement (SPPA) and the SPPT, will purchase NRES-based electricity generated and fed into the PLN grid by private companies. All SPPAs are long-term agreements with PLN to safeguard the interest of the private investor.


Rwanda

Rwanda’s Energy Policy is a comprehensive document, which addresses the principal issues in developing the energy sector in Rwanda. The draft policy which has been developed addresses some of the following key issues: use of indigenous energy resources, private sector participation in energy which should be promoted at all segments of the energy supply industry and the promotion of the use of renewable energy technologies that are financially, economically and socially beneficial. This also pertains to micro hydropower in the country.

The existing Electricity Development Strategy builds on these points and defines them in more detail. It sets as its objective to, among others, generate an additional 1,000 MW from both the indigenous energy resources and from shared energy resources with neighboring countries. In order to achieve this goal the following specific targets have been set in the Electricity Development Strategy: Hydropower generation should be increased to about 333 MW and 5 MW of additional electricity supply should be generated from renewable energy sources (solar PV, micro hydro power or wind) and distributed to local communities beyond the national electricity grid

Rwanda’s Electricity Law also regulates the micro-hydro power sector and the participation of private actors therein and was enacted into law in June 2011 and gazetted in July 2011. It promotes the liberalization of the electricity sector and the participation of private actors in the latter by specifying that the electricity market of Rwanda shall be a single market based on free and open third party access to the transmission and distribution networks based upon the principles of regulated access to ensure a transparent and non-discriminatory marketplace. The Electricity Law gives the Ministry in-charge of electricity the rights to provide Concession Agreements to firms, and provides the legal basis for the Rwanda Utilities Regulatory Agency (RURA) to approve and grant licenses for the production, transmission, distribution and sale of electricity. Moreover, the law also encourages the privatization of public assets and empowers RURA to set and approve electricity tariffs, in consultation with the Ministry and pursuant to laws and regulations in force. The Law also for cost-based tariffs to ensure adequate return on investments made by license holders


The latter were set on February 9th 2012 with the Government of Rwanda issuing a Renewable Energy Feed-in Tariff (REFIT) for small and mini-hydropower. The REFIT guarantees access to the grid for renewable energy generators and obliges the national utility EWSA to purchase the renewable energy generated. The REFITs are calculated based on a cost plus return basis to ensure sufficient incentives for private investors. They apply to hydropower plants ranging in size from 50 kW to 10 MW. The Rwandan REFITs are valid for a period of 3 years after which they will be subject to review by the Rwanda Utilities Regulatory Authority (RURA).REFITs for other renewable energy technologies, such as solar, wind and geothermal are also planned but have not been issued yet by the regulator.

For further information on REFITs in Rwanda, see:

Moreover, the GOR is in the process of developing a Hydropower Policy. The guidelines are currently still being drafted and no information regarding the date of finalization is yet available. In addition, it is also planning to develop a Hydropower Master Plan to develop water resources in the country, and has shortlisted consultants to conduct the study.

Import duty exemptions for plant components have only been granted on an individual case basis and until now do not constitute common practice.


The Philippines

The Philippine Department of Energy’s Renewable Energy Power Program (REPP) allocates US$30 million as a financial facility for private sector participation in NRE projects with capacities ranging from 200 kW to 25 MW. Project proponents are free to negotiate the financial terms with the conduit bank but the proposed interest rate, 12% for the funding source plus a 4-6% spread for the conduit, seems unattractive. To stimulate mini-hydro development, the Philippine government enacted Republic Act 7156, or the Mini-hydro Law. The law stipulates special incentives and privileges, such as tax and duty-free imports, lower sales tax, 10% VAT exemption, and seven-year income tax holiday.


Thailand

To initiate private participation in power sector development and to promote the use of indigenous by-product energy sources and renewable energies for electricity generation, Thailand introduced the Small Power Producer (SPP) scheme in March 1992. At the end of 1996, there were 17 SPP contracts, three firm and 14 non-firm, with a total installed capacity of 910 MW; about 370 MW were sold to the national grid. The Thai government has embarked on a comprehensive Energy Conservation (ENCON) Program, adopting the Energy Conservation and Promotion Act of 1992. As one of its main objectives, the ENCON Program aims to promote the development and use of renewable energy sources, through Voluntary Programs. The program offers two types of financial support: support for the project implementing organization for the operational cost for management, administration incentives to individuals.


Vietnam

The energy master plan of Vietnam recommends the establishment of a Small Hydropower Development Authority (SHPDA). Since investments in the sector have been stagnant for years, the objective of the SHPDA would be to stimulate small hydro development by building local capacity to prepare a "bankable" pipeline of isolated and grid-connected small hydro projects that could lead to investments in this least cost remote power source on the order of US$20 million over a five-year period.


India

In India, the utilization of SHP technology for electricity generation has a long history. India had SHP projects more than a hundred years ago. The Ministry of Non-Conventional Energy Sources (MNES) has taken considerable interest in accelerating the small hydro development in the country in the state sector as well as through private sector participation in various States. Guidelines for SHP development were issued by MNES in 1993. Some of the salient features of this policy guideline are - buy back price of Rs. 2.25 per kWh with 5% annual escalation, with 1993 as base year, concessions regarding the banking, wheeling and third party sale and fiscal incentives like allowing 100% accelerated depreciation for renewable energy projects were also given. Recognizing the high investment costs of renewable power projects, loan for renewable energy projects at lower interest rate were provided by Indian Renewable Energy Development Agency (IREDA), a financing institution established by MNES specifically for promotion of renewable energy. Power being a concurrent subject between the Central and the state governments in India; different states adopted the MNES guidelines to varying degree. From November 1999, the capacity of SHP projects up to 25 MW too came under the jurisdiction of MNES. Based on the 1993 guidelines for development of SHP, 13 states have so far announced their policies.


The Electricity Act 2003 (EA 03) that was notified in June 2003 directed the SERCs (state electricity regulatory commissions) to determine tariffs for generation, transmission and distribution of electricity. This also brought into the SERC’s purview tariff setting for the non-conventional energy sources. Further, the National Electricity Policy that was notified in February 2005 recognized the role of renewable energy technologies and stand-alone systems. As a result, the SERCs are now crucial players in the context of state level regulations for renewable energy based electricity generation. In continuation to the EA 03, the Ministry of Power, Government of India also notified the National Tariff Policy on January 6, 2006. Implementation of Section 86 (1) (e) of the EA 03 and Section 6.4 (1) of the National Tariff Policy are underway and different SERCs are in the process of issuing tariff orders for renewable energy based electricity generation and specifying quota/share for power from renewable energy.


Sri Lanka

The key Acts and Policies that have a direct bearing on renewable energy based electricity generation in Sri Lanka are – the Electricity Sector Reforms Act 2002, Public Utilities Commission of Sri Lankan Act 2002, Sri Lanka Rural Electrification Policy (November 2002) and the Energy Conservation Fund Act 1985. As per the Electricity Sector Reforms Act (ERA) 2002, the reforms in the electricity sector were to focus mainly on (a) the deregulation of the sector and (b) vertical and horizontal unbundling of the Ceylon Electricity Board (CEB) and the Lanka Electricity Company Ltd. (LECO). Additionally, there is a provision for an independent electricity regulatory commission to regulate the power sector.


The main objective of the ERA was to transform the present electricity industry - which is owned, operated and regulated by the Government of Sri Lanka (GOSL) to one which would provide stability, certainty and predictability and ensure fairness to all industry participants and consumers, whilst implementing action plans based on defined GOSL policies. This was to be achieved by unbundling the CEB/LECO vertically and horizontally and allowing the new entities to operate with commercial independence under independent regulatory control. Under these proposed reforms, the power sector was to be regulated by the Public Utilities Commission of Sri Lanka (PUCSL) that was established in 2003. However, though the PUCSL has been established, it cannot take up the role of electricity regulator, as the unbundling of CEB has not yet taken place. Presently, the regulatory authority lies with the Minister in charge of power. In the field of renewable energy promotion, there have been two key projects that have been implemented in Sri Lanka – the Energy Services Delivery (ESD) Project and the Renewable Energy for Rural Economic Development (RERED) project.


In Sri Lanka, since at present the PUCSL has not yet begun functioning completely, pricing of renewable energy (which is predominantly small and mini-hydro power) is currently done by CEB. Once the regulatory commission starts functioning on a full-time basis, it will start setting tariffs for renewable energy based electricity.


Further Information


References


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