Small hydro |
India backs small hydro
New policy support aims to unlock 1500MW of small hydro capacity,
accelerate rural electrification and strengthen India’s clean energy transition through decentralised renewable power development
electricity access in underserved regions. Government projections indicate the programme could attract around INR150bn (US$1.75bn) in broader sector investment while generating approximately 5.1m person-days of employment during construction.
Incentives target remote regions A central feature of the new policy is its differentiated
India is accelerating its clean energy transition with a new small hydro development scheme. sasirin pamai/
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INDIA HAS TAKEN ANOTHER significant step in its renewable energy transition with the approval of a new Small Hydro Power (SHP) Development Scheme designed to accelerate deployment of decentralised clean energy projects across the country. Approved by the Union Cabinet for the period FY2026-27 to FY2030- 31, the scheme allocates INR25.84bn (US$302m) to support approximately 1,500MW of new small hydro capacity, with a particular focus on hilly and remote regions where energy access remains a challenge. The initiative reflects a growing recognition in India that hydropower, especially small-scale projects, can play a critical balancing role within a renewable energy system increasingly dominated by intermittent solar and wind generation. Unlike weather-dependent renewables, hydropower can deliver reliable round- the-clock electricity while also supporting grid stability and operational flexibility. For India, which continues to expand electricity demand while pursuing ambitious decarbonisation targets, this combination of reliability and sustainability is becoming increasingly important. The Ministry of New and Renewable Energy (MNRE), which oversees small hydropower projects of up to 25MW capacity, believes the programme can help revive a sector that has seen slower growth in recent years despite the country possessing substantial untapped potential. India has already developed around 5,171MW of small hydropower capacity, but official estimates suggest the country still has more than 21,133MW of technically viable SHP resources spread across more than 7,100 identified sites. The newly approved scheme aims to unlock part of
that remaining resource while simultaneously stimulating investment, creating employment and improving
28 | June 2026 |
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financial support structure, designed to encourage development in geographically challenging areas where project costs are typically higher. The strongest incentives are directed toward North-Eastern states and districts located along international borders, regions that possess substantial hydropower resources but often face infrastructure and connectivity constraints. Under the scheme, projects in these priority areas will be eligible for central financial assistance of up to INR36m (US$420,000) per MW, or 30% of project costs, whichever is lower. Support is capped at INR300m (US$3.5m) per project. In other parts of the country, developers can receive up to INR24m (US$280,000) per MW or 20% of project costs, subject to a maximum of INR200m (US$2.3m) per project.
By tailoring incentives in this way, policymakers are
attempting to reduce the financial barriers associated with developing infrastructure in remote and mountainous terrain. Many of these regions currently rely on expensive diesel generation or weak transmission connections to centralised grids. Small hydro projects, because they can be developed close to demand centres, offer an opportunity to provide decentralised power with relatively limited transmission requirements. The government has emphasised that the programme is not solely an energy initiative but also a regional development strategy. Improved electricity access in remote areas is expected to support local businesses, improve public services and encourage broader economic activity. Officials also believe the projects could help strengthen infrastructure in strategically important border regions.
An additional INR300m (US$3.5m) has been allocated
to support the preparation of detailed project reports (DPRs) for around 200 future projects. This aspect of the scheme is intended to address one of the persistent bottlenecks in India’s hydropower sector: the lack of well- prepared, investment-ready project pipelines. By funding DPR development through state and central agencies, the government hopes to accelerate future deployment beyond the current programme period.
Untapped national potential India’s SHP resource base is distributed across
multiple regions, each with different geographical and
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