New Delhi, Aug 10 (IANS) The World Bank has signed a $648 million loan agreement with state-run hydro power producer Tehri Hydro Development Corporation India to build the 444 megawatt Vishnugad Pipalkoti hydroelectric project on the Alaknanda river in Uttarakhand, the finance ministry said Wednesday.

"The hydroelectric project is expected to generate an estimated 1,665 million kilowatt-hours of electricity each year to help relieve India's chronic power shortage," the ministry said in an official statement.

The financing will help build project infrastructure that includes a 13.4-kilometre headrace tunnel to carry the water to an underground powerhouse near Haat village to generate the power and a 3 km-tailrace tunnel that will take all the diverted water back to the river.

The project will provide a valuable addition of peaking power to India's northern grid, which faces severe power shortages at high-consumption times.

The electricity generated will be supplied to the states of Punjab, Haryana, Rajasthan, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Chandigarh, Delhi and Jammu and Kashmir.

The project will also help reduce India's greenhouse gas emissions by 1.6 million tonnes each year, compared to a thermal plant of the same capacity.

"This project is a trend setter as far as hydroelectric projects in the country are concerned and incorporates a number of special environmental and social safeguards such as maintenance of a high minimum flow standard in the Alaknanda at all times to sustain the aquatic health of rivers," said Venu Rajamony, joint secretary, Ministry of Finance.