The Union Cabinet chaired by Prime Minister Narendra Modi has approved the ‘Small Hydro Power (SHP) Development Scheme” for the period FY27 to FY31 with an outlay of Rs.2,584.60 crore, envisaging SHP projects with aggregate capacity of 1,500 MW.
The scheme will support small hydro projects (between 1-25 MW capacity) to come up in different states and will especially benefit hilly and northeastern states with high potential for such projects.
Central financial assistance
In northeastern states and in districts with international border, central financial assistance to the tune of Rs.3.6 crore per MW or 30 per cent of the project cost, whichever is lower with an upper limit of Rs.30 crore per project will be available.
In other states Rs.2.4 crore per MW or 20 per cent of project cost, whichever is lower, with a cap of Rs.20 crore per project would be available.
This will help in tapping the small hydro potential in remote and difficult to reach locations. An amount of Rs.2,532 crore has been earmarked for such projects, a government release said.
The scheme will also incentivise the states to prepare the detailed project report for about 200 projects to create a pipeline of small hydro projects in future. An amount of Rs.30 crore has been kept to support state and central government agencies to prepare such DPR.
Impact
The new scheme is likely to bring in Rs.15,000 crore of investment in the small hydro sector giving a boost to the clean energy initiative, investment in remote and rural areas and creating significant employment opportunities. The investment will also leverage 100 per cent of the plant and machinery from indigenous sources fulfilling the objective of Atmanirbhar Bharat.
The scheme will support 51 lakh person-days of employment during the project construction and will also enable employment in maintenance and operation of these SHPs which will come up in largely rural and remote locations. SHP projects being decentralized in nature, the requirement of long transmission line is minimal, which also reduces the transmission losses, the release noted.
Faster exploitation of potential
Launching of this scheme will rejuvenate the small hydropower sector and will help in exploiting the available potential at a much faster pace. SHP projects are environmentally sustainable, as they avoid large-scale land acquisition, deforestation, and displacement of communities. It will also promote socio-economic development of remote areas by boosting local investment, apart from creating long-term employment with project lifespans typically ranging from 40 to over 60 years.
Installed capacity & potential
According to information released by Central Electricity Authority, the country’s total installed capacity of small hydropower projects stood at 5,171.36 MW (or 5.1 GW) spread over approximately 1,200 sites, as of February 28, 2026.
As per a government release dated August 2024, assessment of small hydropower potential was carried out by Indian Institute of Technology, Roorkee, in 2016. As per the report, the estimated potential of small hydropower is 21,133 MW (around 21.1 GW) from 7,133 potential sites. This potential has been assessed for run-of-river, canal based and dam-toe projects.
Small hydropower projects fall under the purview of the Union Ministry of New & Renewable Energy (MNRE), while conventional/large hydropower projects (of installed capacity exceeding 25 MW) come under the power ministry’s ambit. The country’s total hydropower capacity, coming from large hydropower projects, was 51.1 GW, as of February 28, 2026, as against the estimated exploitable potential of around 133 GW.
Featured photograph (source: IREDA) is for representation only