Why hydropower could be a key investment opportunity for Arunachal Pradesh

Chief Minister Pema Khandu said the state will continue to receive its 12% share of free power from such projects, while the Centre has agreed to support a 26% equity stake for the state—potentially worth around Rs 15,000 crore—in upcoming schemes.

Speaking at a function in Pasighat in East Siang district, CM Khandu argued that expanding hydropower would not only boost the state’s own revenues but also strengthen India’s strategic posture in a border region where water flows from upstream areas remain a sensitive issue. At the same time, he stressed that no major project should move ahead without completing technical studies and wide public consultation.

19,000 MW under development: Free power and equity returns for the state

The scale of the pipeline is large. Around 19,000 MW of hydropower capacity is currently being planned or developed in Arunachal, according to the chief minister. Under existing arrangements, the state gets 12% of the generated power free from projects located within its territory.

In addition, the Centre has agreed to facilitate a 26% equity share for Arunachal in such projects. With the current pipeline, the state’s equity contribution could be in the region of Rs 15,000 crore, which the Centre has indicated it will help support.

“With around 19,000 MW of hydropower capacity under development, the state’s equity contribution could be around Rs 15,000 crore, which the Centre had agreed to support,” CM Khandu said, as per an official statement.

A key project is the 2,000 MW Lower Subansiri project, which is expected to be fully commissioned next year. Once operational, it will start delivering both free power and equity‑related returns to the state exchequer.

CM Khandu also pointed to the broader fiscal picture, i.e., Arunachal’s budget has grown from about Rs 12,500 crore in 2015 to roughly Rs 40,000 crore now. He expressed confidence that expanding investments and better utilisation of state‑owned resources would further strengthen the economy.

Siang Upper project: ‘Not just a hydropower scheme, but a national project’

Much of the public debate in recent months has centred on the proposed Siang Upper Multipurpose Project (SUMP) in the Siang basin. CM Khandu reiterated that the immediate requirement is to complete the Preliminary Feasibility Report (PFR) and that no final decision on construction should be taken before all prescribed technical and legal processes are finished.

“Until and unless we are satisfied, this project cannot go ahead,” Khandu said, stressing the need for informed public participation rather than misinformation.

He said SUMP should not be viewed merely as a conventional hydropower project. Its principal consideration, he argued, is to create a mechanism to address potential water‑related risks and provide a controlled system for managing water flows in the Siang belt, which has faced recurring floods.

“The project should not at this stage be viewed merely as a hydropower project, as its principal consideration was to create a mechanism to address potential water-related risks and provide a controlled system for managing water flows,” the chief minister said.

Khandu also linked the project to strategic and security implications, noting Arunachal’s location along international borders. He referred to potential risks associated with water diversion and sudden release of water from upstream areas, and to the need for long‑term measures to address flooding in the Siang region.

“SUMP was a national project with strategic implications,” he said, adding that Arunachal Pradesh’s border location made the state strategically important for the country.

PFR first, then SIA, EIA, DPR: ‘If experts say no, there will be no further process’

In a separate interaction with government officers and officials in Siang district at Boleng, CM Khandu again underlined that the PFR is the immediate priority and should be completed without further delay.

“If the experts determine after the PFR that the project cannot be built, there will be no further process,” he said.

The PFR is expected to take about three months, covering November, December and January, after which there should be greater clarity on:

Whether the proposed structure is technically feasible in Arunachal’s Seismic Zone V

What level of protection it could offer against a possible release of water from upstream

Whether suitable locations exist for construction

If the project is found technically feasible after the PFR, the next stages would include:

Social Impact Assessment (SIA)

Environment Impact Assessment (EIA)

Preparation of the Detailed Project Report (DPR)

All in accordance with applicable laws and procedures

“If the project is found technically feasible after the PFR, the subsequent stages would include Social Impact Assessment (SIA), Environment Impact Assessment (EIA) and preparation of the Detailed Project Report (DPR) in accordance with the applicable laws and procedures,” Khandu said.

He also clarified that land acquisition, assessment of agricultural and horticultural assets, and Relief and Rehabilitation (R&R) are separate components. Affected villages would be consulted regarding relocation, including the choice of location, and those whose land is acquired would receive compensation as per rules.

“Affected villages would be consulted regarding relocation, including the choice of location, while those whose land is acquired would receive compensation in accordance with applicable rules,” he said.

The chief minister added that even after the PFR, if public hearings and consultations establish that the project should not proceed, people would have the opportunity to reject it through the prescribed process.

Khandu said the state government would keep its offices open for delegations and discussions on SUMP and invited representatives to meet the government, make presentations and seek clarifications. He also said efforts would be made to disseminate information about the project in the Adi language through social media.

“My duty is to tell you everything. My duty is to listen to your questions. It is our responsibility,” he said.

He assured that if the project moves beyond the feasibility stage, the government would undertake extensive consultation with affected communities. “Once a technically feasible location is identified, the government would engage with Gram Panchayats, villages and local communities, make detailed presentations and discuss the project point by point,” Khandu said.

Emphasising direct engagement, he said he would undertake an extensive tour of Siang during his next visit and meet villagers wherever required.

“I am prepared to spend a week or even 10 days in the area, visit villages suggested by local officers and community representatives, and personally hear concerns and questions,” he said.

Arunachal’s hydropower opportunity: Stable returns, grid-balancing role

While speaking to The Financial Express Digital, Dhaval Popat, Energy Analyst at Choice Institutional Equities said, “Hydropower presents a significant investment opportunity for Arunachal Pradesh, given its vast untapped potential of 67 GW, of which 19 GW is at various stages of development. The sector benefits from strong policy support, with the Centre providing funding for flood moderation and enabling infrastructure, alongside facilitating the state’s 26% equity participation.”

“Most projects are PSU-led and operate under a regulated cost-plus tariff framework, offering relatively stable returns, with regulated RoE of 15.5–17%. Hydropower projects also benefit from zero fuel costs and long asset lives of 35–40 years, supporting EBITDA margins of 50–60%. However, given the regulated return structure, scope for sustained margin expansion remains limited, with earnings growth primarily driven by capacity additions and commissioning of new projects,” he added.

“Beyond attractive operating economics, hydropower is becoming increasingly critical to India’s energy transition. Unlike intermittent solar and wind generation, hydropower, particularly storage-based projects, offers dispatchable and flexible power supply, enabling grid balancing as renewable penetration increases and complementing the growing deployment of battery energy storage systems (BESS),” Popat further stated.

Investment scale, jobs and ancillary economy: “One of the country’s largest investments”

On the economic front, Khandu described the proposed SUMP as potentially one of the country’s largest investments. He estimated the initial investment at around Rs 1.5 lakh crore, possibly rising to Rs 2 lakh crore as plans mature.

“The proposed project could represent one of the country’s largest investments, estimating the investment initially at around Rs 1.5 lakh crore and potentially reaching Rs 2 lakh crore,” he said.

Such a scale of investment, he argued, could generate substantial economic activity and employment opportunities for local youth in:

Construction

Road building

Quarrying

Supply of aggregates and sand

Transportation

Other ancillary activities

He urged officers and officials to understand the project comprehensively and help facilitate informed discussion rather than allowing misinformation or uncertainty to dominate public discourse.

For Arunachal, the push for hydropower is about two things, i.e., making money for the state and managing water in a border area that is important for national security. In the coming months, technical studies and public consultations will decide if projects like SUMP will actually be built or dropped based on what experts and local people say.