Hydropower in the Himalayas: the economics that are often ignored

China has forged ahead on developing hydropower, while other Himalayan nations have languished, Nilanjan Ghosh* explains why

The problems with resettlement and rehabilitation was one of the reasons of the escalating social costs of the Tehri dam [image by: Sharada Prasad CS]
Of all Himalayan nations, China has made the most progress towards hydropower development. This has been driven by three major factors. First, China has insufficient reserves of fossil fuels to meet the needs of its growth aspirations. The ongoing 13th 5-year plan of the nation places substantial emphasis on increasing domestic consumption so as to promote consumption-led growth of the economy, marking a shift from its previous regime of export-led growth. This has to be associated with large-scale urbanization. Hence, the energy demands are only going to increase. Second, with the government’s aspirations to achieve energy independence, hydropower can play a big role in the energy policy of a fossil-fuel-deficient economy. Third, the concerns of global warming and climate change and the concerns raised under the COP also create the imperative towards less carbon-emitting sources of energy than fossil fuels. Though China’s potential hydropower capacity is estimated at up to 600 GW, the technically exploitable and economically feasible capacity is around 500 GW. There is therefore considerable potential for further hydro development.

In South Asia, however, the hydropower potential has barely been tapped. Despite India’s tremendous potential in hydropower – fifth in the world – hydropower accounts for merely 12% of the total generation in the country as compared to thermal power’s contribution of over 70%. This shows the marginal role of hydropower in the Indian economy. On the other hand, the other Himalayan nations like Nepal and Bhutan boast of their hydropower potential due to the perennial nature of their rivers and the steep gradient of their topographies. Yet, even they have not been able to develop substantial parts of their hydropower potential.

Now there are serious concerns with private players leaving the hydropower sector, especially in India. The crucial problem is sheer lack of understanding of the economics of hydropower in the Himalayas. One needs to understand the tough terrain, the fluvial geomorphology, the unique nature of the Himalayan rivers, and the vulnerable Himalayan ecosystem, before any hydropower project is taken up. Presently, the sheer lack of holistic understanding of the economics of hydropower in the region is largely responsible for many problems related to hydropower development.

By holistic understanding, I mean taking into consideration the broader social and ecological forces that affect the economics, and vice-versa. It is here that neoclassical economics will fail.

Nonviable hydropower business

The first major concern in the hydropower sector is to do with its pure business economics. In a large numbers of instances over the Hindu Kush Himalayan stretch, the viability of these projects has been in question and private players are exiting the business due to their inability to break even within their planned period. This has recently been witnessed in the case of Jammu and Kashmir State Power Development Corporation, which has been bleeding with losses. It is allegedly stated that the surplus power produced in other projects has reduced the market price of hydropower substantially, with the proposed selling price being 2-3 times of the market price.

Yet, one needs to recognise that this aspect is more demand-driven than anything else. Because fossil fuel rule the roost by meeting over 70% of the energy needs of the nation, the deficit demand for hydropower prevails. However, over time, this may be a temporary phenomenon as India might have to search for cleaner sources of energy, and hydropower will definitely be a contender in the pack.

The second concern with lack of hydropower growth is the “transaction cost” issues, as neoclassical economists put it. This is related to the invisible barriers to entry into this business. Delays in environmental and forest clearances have been allegedly stated as one of the major reasons that create apprehensions and entry barriers. Again, project execution on the tough terrain of the Himalayan rivers often makes it difficult for developers to build the plants. What adds up to the transaction costs are illegal constructions in the floodplains, the eviction of people living there and their resettlement, as well as rehabilitation projects. In situations where the resettlement and rehabilitation are not proper, social conflicts occur which result in escalating social costs. This has been prevalent in the cases of Subansiri low dam over the Brahmaputra, and the Tehri dam in Uttarakhand, where improper rehabilitation led to conflicts.

The third element is related to the concerns of uncertainties from the perspective of global warming and climate change that affect hydrological regimes. This uncertainty is clearly a knowledge gap – one of the “known unknowns” – with which hydropower projects are operating in the Himalayas. Often reductionist neoclassical cost-benefit analyses do not take this critical aspect into account in their models. A comprehensive assessment across five major river basins in the Hindu Kush Himalayan region by ICIMOD (2015) reveals that: a> temperatures across the mountainous Hindu Kush Himalayan region will increase by about 1–2°C (in places by up to 4–5°C) by 2050; b> the monsoon is expected to become longer and more erratic; c> precipitation across the Hindu Kush Himalayan region will change by 5% on average and up to 25% by 2050; d> rainfall is becoming less frequent, but more intense, and is likely to keep increasing in intensity; e> glaciers will continue to suffer substantial mass loss.

However, despite the growing attention to assess the vulnerability of freshwater to global change, basin-wide assessments on the impacts of climate and land use change on freshwater availability remains quite limited. The Kedarnath flashflood in Uttarakhand in June 2013 made many hydropower projects initiators realise the perils of not taking extreme events into consideration in prior planning.

The fourth concern that adds to the costs is related to another knowledge gap with respect to tectonic and seismic sciences on the Himalayas. Most projects have not taken into consideration this very crucial aspect of the capacity of a structure to withstand high-intensity earthquakes. Despite the widespread popular belief floated at one point in time that the Tehri Dam is earthquake-resistant, there is no assurance that it can withstand an earthquake that may measure more than 8.5 in the Richter scale, which is the maximum probable event in the region. The situation is no different in other parts of the Himalayas especially with the projects in the north-eastern parts of India. Multiple projects of Bhutan and Nepal are no exceptions either.

The ecological costs

It is a fact that multi-purpose projects can be used for flood cushioning, storage facilities in the hydropower reservoirs upstream, and may also generate substantial employment. There are anticipated influences and implication on other sectors as well, such as service, transport, and tourism. Despite these, one needs to understand the broader ecological costs that these projects impose (Bandyopadhyay et al 2016). Prime among these occurs in the form of alteration in flow regimes affecting downstream ecosystem. In the process what gets affected are the ecosystem structures and functions, and eventually the ecosystem services. The critical issues that are missed out are losses in the ecosystem services that are often not valued, or at least not factored into the cost-benefit analyses.

A recent account in thethirdpole.net suggests how mindless construction of successive hydropower projects over the Teesta River in Sikkim has practically killed the river. One of the reasons behind the decline in dry season flows and the consequent water conflict between Bangladesh and India is the existence of as many as more than 25 hydropower projects in Sikkim and West Bengal (Ghosh 2017). This is another social element of the cost that traditional models fail to incorporate. Though these projects claim to be “run-of-river”, in practice most of them have “pondages” during dry flows, and store water for a large number of hours during the day, with turbines running for only a few hours. This makes the investment unviable, with many private players now exiting them.

A holistic economics of hydropower

The hydropower initiatives require useful analysis for net benefits considering both long-term tangible and intangible gains and losses including the costs imposed on ecosystems. Embarking on any large hydropower project in the Hindu Kush Himalayan region is currently fraught with a range of technical and non-technical challenges, mainly due to the threat to socio-economic resources, biodiversity and potential downstream threats and impacts, including impacts of seismic activities. The protest against hydro-power projects in the northeast of India has been primarily related to the downstream impacts, with no sincere efforts visible to address the issues adequately. The Environmental Impact Assessment (EIA) reports accepted by the Ministry of Environment and Forest for the projects in Arunachal Pradesh, (like the Lower Subansiri, Kameng, and Siang hydropower projects) are often alleged as inadequate (see Menon and Kohli 2009; Menon et al 2003).

Full and free participation of all stakeholders in decision making, focus on environmental security, safety of locations, availability of power grid system, international transmission routes are some of the major issues pertaining to hydropower generation in the Himalayas. Any project in this region should ensure that elaborate technical investigations covering all pertaining aspects are carried out to allay all apprehensions and putting in place fool proof mitigation measures of unavoidable yet reconcilable impacts including ensuring security of socio-economic activities, livelihoods, as well as the environment including water and food is not jeopardised. A well enforced licensing system for hydropower projects, as practiced in Switzerland and USA, can be a good mechanism to ensure implementation of all essential mitigation measures to safeguard environment and people from possible harm.

Development of small hydroelectric projects, wherever feasible, should be a priority. They benefit villages by job creation, monetary compensation including other priority activities like safety and livelihood security. In many instances, at local levels, these are being argued as better options and hence deserve careful examination, although in a limited monetary picture, it may appear less profitable. The present models of cost-benefit analysis are too narrowly based on reductionist neoclassical thinking, and are inadequate. A more holistic ecological economic approach is needed from an integrated approach prior to embarking in the hydropower business in the Himalayas.


Bandyopadhyay, J., N. Ghosh, and C. Mahanta (2016): IRBM for Brahmaputra Sub-basin: Water Governance, Environmental Security, and Human Well-Being (New Delhi: Observer Research Foundation).

Ghosh, N. (2017): “Sharing Teesta’s a murky business”, The Hindu Business Line, May 19.

ICIMOD (2015): The Himalayan Climate and Water Atlas:Impact of Climate Change on Water Resources in Five Of Asia’s Major River Basins. (Kathmandu: ICIMOD).

Menon, M. and K. Kohli (2009): “From Impact Assessment to Clearance Manufacture”, Economic and Political Weekly 44(28)20-23, 11 July.

Menon, M., N. Vagholikar, K. Kohli and A. Fernandes (2003): “Large Dams in the North East: A Bright Future?” The Ecologist Asia, 11(1), 3-8.

Senior Fellow and Head of Economics at ORF; and Senior Economic Adviser at WWF India. Contact:  nilanjan.ghosh@gmail.com

This article originally appeared in thethirdpole.net


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