The latest policy reform decision is aimed at promoting private investment in the hydro sector. The government is planning to allow hydroelectric projects to undertake merchant sales (market-oriented spot transactions) of up to 40 percent of the saleable energy.

According to a Power Ministry official, the move would promote operations of hydro projects where the cost of power in initial years of operations is very high. Merchant sales would enable projects to earn huge premiums on sale of power in the spot market.

The official said the changes have been incorporated in the new hydro policy that the ministry has finalized. It has also prepared a Cabinet note proposing the changes for implementing the policy.

"The hydro sector has potential to generate over 150,000 megawatt of power. However, large projects are not coming up due to investment requirements. The ministry has planned to open a window where developers of hydroelectric projects could also function as merchant power projects and thereby could increase their earnings," a Power Ministry official said.

The project developers would have to give specific timelines for completing a project under the new guidelines. Projects that do not conform to the prescribed timelines would lose the incentive of merchant sales in a graded manner. Delay of every six months in the commissioning date would result in reduction of merchant sales by 5 percent.

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