There are increasing concerns about the impact of royalty payments on the additionality of certain types of CDM projects in India. In India, royalty refers to free supply of a portion of generated electricity, e.g. in most cases 13%, to the State government. We have looked at various large and small scale hydro power projects in India and it seems that royalty payments requested by the Government of India in the form of free energy or revenue payments to the Indian government, artificially keep the IRR below benchmark. We found that in cases where the royalty is requested, the free energy or revenue payments are not accounted for in the IRR calculation. This is particularly the case for Project 7269: Small hydro power project by PHPPL; India which is currently