MNRE Notifies Comprehensive Small Hydro Power Development Scheme

The Ministry of New and Renewable Energy (MNRE), Government of India, has issued a notification dated May 15, 2026, providing administrative approval for implementation of the Small Hydro Power (SHP) Development Scheme for the period FY 2026–27 to FY 2030–31 and has simultaneously released detailed Operational Guidelines for implementation of the Scheme (the “Guidelines”). The Scheme, which was approved by the Government of India on March 18, 2026, establishes a comprehensive framework for development of Small Hydro Power projects across India.

Approved with a total financial outlay of INR 2,584.60 crores, the Scheme aims to support installation of approximately 1,500 MW of new SHP capacity across India. The Scheme places particular emphasis on hilly regions, North-Eastern States and districts having international borders while also contributing towards avoidance of approximately 4.3 million tonnes of carbon dioxide emissions annually following commissioning of the targeted SHP capacity.

Importantly, the Scheme is applicable only to projects where construction commenced after March 18, 2026. Projects where construction had commenced prior to the announcement of the Scheme are not eligible for benefits under the Scheme.

Out of the total approved outlay, INR 2,532.60 crores has been earmarked towards Central Financial Assistance (CFA) for SHP projects. Separate allocations have also been made for preparation of Detailed Project Reports (DPRs), support to technical institutions such as IITs and NITs, and for Information, Education and Communication (IEC) activities, capacity building, international cooperation and establishment of a dedicated Project Monitoring Unit (PMU).

Under the Guidelines, Solar Energy Corporation of India Limited (SECI) has been designated as the National Programme Implementing Agency (NPIA) responsible for scrutiny and appraisal of applications, monitoring implementation, processing CFA disbursements, maintaining project records, and overseeing audit and compliance requirements. At the State level, designated State Nodal Agencies (SNAs) are required to facilitate verification of applications, monitor project implementation, coordinate with developers, facilitate statutory clearances and grid connectivity approvals, and support power offtake arrangements through Power Purchase Agreements (PPAs).

The Guidelines establish a dedicated online SHP portal for registration, submission of applications, DPR proposals, CFA release requests, project monitoring and grievance redressal. Developers are required to submit quarterly progress reports through the portal, while MNRE, SECI and SNAs retain the authority to conduct inspections during project implementation.

The eligibility framework permits participation by private developers, government entities, joint ventures and other eligible entities, provided projects are allotted through a transparent and competitive bidding process. The Guidelines further permit allotment to government sector entities on a nomination basis where competitive bidding has been attempted but has not produced successful outcomes. Developers are also required to obtain all applicable statutory clearances, approvals and no-objection certificates prescribed under the Guidelines.

A key feature of the Scheme is the structured Central Financial Assistance (CFA) framework. Projects located in North-Eastern States and districts having international borders are eligible for CFA up to 30% of the normative capital cost prescribed by the Central Electricity Regulatory Commission (CERC) or actual project cost, whichever is lower, subject to a maximum cap of INR 30 crores per project. Projects in other eligible locations are generally entitled to CFA up to 20% of the applicable normative capital cost or actual project cost, whichever is lower, subject to a cap of INR 20 crores. The benchmark normative cost is based on the CERC (Terms and Conditions for Tariff Determination from Renewable Energy Sources) Regulations, 2024 dated June 12, 2024.

CFA disbursement is linked to project milestones. Projects become eligible for release of the first instalment, equivalent to 50% of the sanctioned CFA, upon achieving 50% physical and financial progress. The balance CFA is linked to project completion, achievement of Commercial Operations Date (COD), and satisfaction of the minimum generation performance criteria prescribed under the Guidelines.

The Guidelines also incorporate accountability measures relating to project implementation timelines. Projects are required to be completed within four years from commencement of construction, subject to a possible one-year grace period in appropriate cases. Delays in completion attract reduction of CFA at the rate of 4% of the eligible CFA for every quarter of delay. Further, projects that fail to achieve completion and commercial operation within seven years from commencement of construction may lose eligibility for CFA and may be required to refund the CFA already released, together with applicable interest.

Apart from project financing, the Scheme provides financial support for preparation of DPRs and seeks to support preparation of a minimum of 200 DPRs during the Scheme period. An allocation of INR 30 crores has been earmarked for this purpose. Eligible government agencies, departments and public sector entities may avail CFA support for DPR preparation in accordance with the prescribed framework.

The Scheme also provides support to IITs, NITs and other technical institutions for activities relating to the small hydro power sector and earmarks separate funding towards IEC activities, capacity building initiatives, international cooperation and operation of the PMU.

Overall, the Scheme and the accompanying Guidelines establish a structured framework for promoting development of the small hydro power sector through financial assistance, institutional support, digital administration mechanisms, monitoring requirements and performance-linked implementation measures. The Scheme is expected to support expansion of SHP capacity while strengthening project oversight and implementation across the sector.