Power lies at the core of all economic activity and controls a country's rate of growth and development. India is poised to become the fastest growing global economy in 2010, as per World Bank estimates, which project an 8 per cent growth-rate for the country. A McKinsey report released in August 2009 provides a projection of the Indian economy by 2030: real per capita GDP will climb to US$2700 (five times the 2005 level), cities will host around half a billion people, demand for power will rise to 3870 TWh (from 700 TWh in 2005), and automobiles will number around 380 million (an estimated 7 per cent growth compared to 2005). India's gross energy demand will shoot up to 1.8 btoe per year (from 0.5 btoe in 2005) [making it the third biggest global energy consumer, after the US and China].
Historically, India has experienced a large capacity shortfalls, poor reliability, and quality of electricity which has been a major hurdle to economic growth. The shortage in meeting the demands is due to slow pace of capacity addition. Government of India has recognized that the key factor to sustain an economic growth of 8-9 per-cents is the infrastructural development of power sector and has taken many steps to bring reforms in power sector by attracting private players, increasing competition and reducing T & D losses. Electricity supply has been in the public sector dominant in most of the developing countries. Under public ownership, the sector has not been able to catch up with the growing demand for electricity. The operational inefficiency and financial losses often lead to poor quality of supply and underinvestment.
India is facing a major challenge in upgrading the entire electricity delivery chain. Given the various constraints on government, primarily the financial ones, private participation in power sector is likely to increase sharply. But the pace of the reforms is required to be accelerated.
This paper covers an overview of the electricity delivery chain in India. The paper begins with an overview of the industry, the current situation with respect to the in Power Generation, Transmission and Distribution and the risks associated with these system. The paper finally concludes with the solutions to deal with these issues of the Power Sector in India.
CHAPTER-2 THE INDIAN POWER SECTOR
2.1 A SYNOPSIS OF THE POWER SECTOR
Electrical power is the most vital and essential input for all economic and industrial activities in any country. In India, the primary sources for generating electric power are hydro sources, fossil fuels which include coal, lignite and natural gas and nuclear power, besides non-conventional sources such as wind, biomass, solar etc. a
When India became independent in 1947, the electricity supply was mostly limited to metropolitan cities and big towns. Power stations and associated transmission and distribution network were by some private agencies and, in few cases, by departments of state governments and the Municipal committees. Per capita consumption was merely 16 KWH in 1950. Giving due consideration to the fact that this most basic infrastructure needed to be developed on an industrial pattern, Indian Electricity supply act was enacted in 1948. This Act provided measures to rationalize power industry, envisaged formation of SEB's with various state governments and a central agency for overall planning, coordination and regulation at the national level. Subsequently, this Act was amended in 1975 providing for establishment of generating companies under the central government.
2.2 STRUCTURE OF POWER INDUSTRY
The broad structure of the power supply industry, as it exists today, consists of the following:
Ministry of Power in the union government of India.
Central Electricity Authority as a statutory technical wing of the Ministry of Power, Government of India, to assist the government in overall planning, coordination and regulation of power development programs of the country.
A number of corporations are present under the union government to develop and operate power stations which include National Thermal Power Corporation Ltd., National Hydro Electric Power Corporation, etc.
Rural Electrification Corporation, a government of India Company for assisting the SEB's in development & programs of rural electrification.
Power Grid Corporation under the Government of India to establish transmission system and regional load dispatch centers.
Power Finance Corporation under the Government of India to assist various electricity boards and other organization in power sector.
Department of Energy/Power under various state governments.
State electricity boards (22 in nos.) under respective State Governments to take care of generation of thermal and hydro power as also transmission and distribution within their own states.
The power generation on the nuclear side is handled by Department of Atomic Energy which has setup Nuclear Power Corporation.
The whole country is divided into 5 power regions and the planning of generation and transmission system is done on a regional concept.
The structure of power ministry is shown in figure 1(Annexure).
2.3 PROFILE OF INDIAN POWER SECTOR
2.3.1 EXISTING SCENARIO
2.3.1.1Generation
India is the fifth largest producer of electricity in the world. According to the
Planning Commission, the State Governments account for 51.5% of the total
Generation capacity, the central sector accounts for 33.1% and the private sector account for 15.4 % of total capacity generated.
India's current installed power generation capacity as on 30th June, 2009 is 150324 MW. The break up as per the fuel mix is shown in table 1 and figure 2 (Annexure).
According to the latest assessment, total capacity of 62374 MW is likely to be commissioned and additional 12590 MW capacities have been targeted during the XIth plan. Further, 12,000 MW Captive Power Plants are under execution against which about 5,000 MW has been commissioned till August 31, 2009.
Requirement of capacity addition for XIIth plan is under finalization in CEA and the requirement of capacity addition comes out to about 1, 00,000 MW. There appears to be a need to set higher target for private player's participation for the XIIth Plan in accordance to their performance during the XIth Plan. The XIth plan project status and achievements are shown in figure 3(Annexure).
During the Xth Plan, total investment in the power sector was US$ 60 billion out of which the private sector contribution was US$ 13 billion. The projected investment during the XIth Plan period is about US$ 133 billion out of which, the private sector contribution is expected to be around US$ 37 billion. A target of 78,700 MW was fixed during this XIth plan, which has now been finally revised to 68,504 MW. The capacity addition growth in plan wise is shown in figure 4(Annexure).
Despite the expected strong growth in capacity addition, India's power shortage is likely to remain high. On the T & D side, the government has come up with a revised APDRP which will provide support and financial incentives for reduction of T & D losses. This is crucial for sustainable development of power sector, as India has the highest T & D losses in the world. XIth plan under this scheme are targeted to US $10 billion which is likely to be spent on rural electrification to achieve government's target of "Power for all" by 2012. The T & D losses are shown in figure 5(Annexure).
India ranks fifth in the world in terms of total installed power generation capacity but it ranks among the lowest in terms of per capita consumption of power. More than 45% of total households' and 18% of villages in India still does not have access to power. The peak power shortage, which was around 11-12 % level during the IX Plan is on an increasing trend and has already, crossed 14% in the 2009. The Electricity consumption/capita is shown in figure 6(Annexure).
During 2007-08, energy demand reached 737 billion kWh and the supply during 2007-08 however reached 664.6 billion kWh, which only emphasizes the growing demand supply gap. The Electric Power Survey (EPS) which is conducted by Central Electricity Authority (CEA) has forecasted that the peak demand will be growing at a CAGR of 7.8% in the 11th Plan and the supply is expected around 6.8-7% during this period thereby continuing with the upward trend of power deficit.
Huge investments are required in Transmission and Distribution, which are critical for the overall development of the Power sector in India. Globally every rupee invested in generation has an equal amount invested in T&D. However, in India, every rupee invested in generation has a corresponding half a rupee invested in T&D.
With an increase in generation capacity, India requires a huge investment in T&D sector to transmit and distribute power. Demand shortages are more in the Northern and the western part of the country. Massive investments are required to expand inter-regional grid capacity and to improve the distribution infrastructure and for rural electrification.
2.3.1.2 TRANSMISSION
The transmission network currently reaches about 80% of the population. The XIth plan predicts an addition of over 60,000 MW of transmission network by 2012, designed to carry 60% of the power generated. The existing inter-regional power transfer capacity is 17,000 MW which is likely to be further enhanced to 37,000 MW by 2012. In 1998, reforms in the transmission system began with the creation of the Power grid Corporation. The state-owned Power grid (PGCIL) is responsible for transmission of about 40% of the electricity generated in India. In order to accomplish the planning objective for 2012, it is vital to create an adequate infrastructure and transmission facilities.
The different elements of transmission such as policies, regulatory framework, transmission losses, transmission charges, private participation etc. poses a challenge to the evolving Power Sector in India. Merely adding transmission capacity to the existing infrastructure may prove inadequate. It becomes equally vital to re-examine the individual elements in order to remove the constraints. A lot requires to be accomplished in this sector to realize the vision "Power for all" by 2012.
2.3.1.3 DISTRIBUTION
Out of the three sectors of electricity delivery chain, the distribution sector in India has been the most affected sector. More than 80% of the total energy consumption is distributed by the public sector while the balance is distributed by the private sector.
The distribution sector is segmented into urban and rural parts. Both segments are distinct with different challenges and concerns. The urban distribution is distinguished by high consumer density coupled with higher rate of demand growth. The consumer mix is mostly commercial, residential, and industrial. Rural distribution segment is characterized by wide dispersal of network in large areas, high cost of supply, low consumer paying capacity, large number of subsidized customers, and un-metered flat rate supply to farmers, non-metering due to high cost and practical difficulties, low load and low rate of load growth. The consumer mix in rural areas is mainly agriculture and residential.
The biggest challenge of the distribution sector is the high Aggregate Technical & Commercial (AT&C) losses. The current AT&C losses are in the range of 18% to 62% in various states with a National average of 30%. The poor condition of distribution sector has attracted the policy makers and regulatory attention. The need to improve this sector was realized was felt at the beginning of X Plan and is ongoing in the XI Plan.
CHAPTER 3
POWER DEVLOPMENT PROGRAMMES:
ROAD BLOCKS AND REMIDIES
Past experience has lead one to conclude that these targets are virtually impossible to achieve. Therefore it is important to generate alternate strategies to remove these road blocks and evolve remedies which can lead to fulfillment of these targets.
There are large number of issues and problems which have merged as road blocks to power development programs. From large number of issues, the following are the most important loop holes, which impact the power sector massively:
Bankability of projects in context of poor financial health of state utilities.
Deteriorating financial condition of SEB's.
Demand-supply gap is growing.
Operational and technical inefficiencies in system.
Low Hydro-Thermal mix.
Environmental issues.
Sincerity and financial ability of developers
3.1 Bankability of projects in context of poor financial health of state utilities:
The major road block is with respect to the bankability of projects due to poor financial health of state utilities. It has emerged as the strongest road block in development of these projects among other issues. Thus has resulted in question of developer' ability to provide adequate comfort to lenders. In view of this, a large number of projects which could happen are not happening. The following courses of action are suggested as remedies:
From among a large number of projects proposed by private developers, we may choose those projects where the state agree to take up time -bound reform programs and develop business plan simultaneously with commissioning of these projects, thus there would be enough liquidity to provide comfortable payment security. Sincerity of the state government and the concerned state utilities and their commitment to the agreed program of action would be essential. Government of India has a scheme which recognizes and distinguishes and rewards committed state as compared to those which do not proceed with reform agenda.
A fewer projects which have been waiting only for financial closure merely on account of payment security problem, could perhaps be taken up if state agrees to allow appropriate distribution to these developers. The state and the utilities would need to recognize that if these developers are asked to take most difficult areas of distribution, like remote agricultural supply, obviously this initiative might fail even before it is taken up. We need to recognize that we need capacity to be added to overcome the shortages. For this to happen we need investment from all sources. Restoring financial viability of the distribution segment alone can provide sustainable solution. This will require overall restructuring, electricity theft control, adequate billing and collection.
3.2 Deteriorating financial condition of SEB's
Weak financial condition of SEBs was the another roadblock in power sector's development Due to un-remunerative tariffs and irregular payment of subsidies by state governments, SEBs have not been able to invest in capacity additions and system up gradation. Also SEBs has not been able to make full payments for the purchases, and therefore their creditworthiness is questionable.
One of the biggest worries for private generators is that they may never get paid for the electricity they produce. Most distribution companies are still under state control and are financially distressed. Commercial losses at SEB in 2004-05 alone are estimated to be INR 225 bn (US$ 5 bn).
Much of these losses result from the underlying tariff structure and low revenue collection rates. Cross subsidy structure is used to subsidies domestic and agricultural users and higher rates are paid by industrial consumers. In addition, revenue arrears, or collection inefficiencies, on average are about 25 - 30%. In some states like Bihar and Jammu and Kashmir, revenue arrears are remarkably high - as much as 155% and 227% respectively. While investors may be lured into power projects with promises of long-term agreements, the ability of SEBs to pay for the purchase of electricity still remains questionable. Simple unbundling followed by privatization may not be sufficient. The restructuring process must determine who absorbs the existing liabilities and re-establish the financial credibility of electricity purchasing entities.
3.3 Demand-supply gap is growing:
There has been an average shortage of 8-10% for last many years. Total availability of power during the peak hours has remained far behind the peak requirement. According to Electric power survey of India the peak load which was about 68000MW during 1996-97 is estimated to increase over 176000MW in 2011-12, i.e. with an average shortage of 8-10% and a peak shortage of 18-20% and almost 50000MW is needed to be created every 5 years. Thus there is a huge demand-supply gap, which is required to be met. Therefore optimum utilization of energy generated occupies an important position in our strategy and there are number of methods to meet the objective:
Energy Conservation
Energy saving
Demand Side Management
3.4 Operational and technical inefficiencies in system
Operational and technical inefficiencies in our existing system have been a major road block in meeting our estimated targets. These include low PLF of thermal plants, high T & D losses.etc. Thus have resulted in under-utilization of existing capacities. Measures to prevent this are as follows:
Conduction of energy audits to identify the factors causing excessive losses
Installation of capacitors for high voltage level transmission.
Installation of tamper proof meter boxes to check the theft of electricity & setting up a vigilance squad to monitor the whole process.
Focusing on R& D in power sector in order to develop technology to minimize losses.
3.5 Low Hydro-Thermal mix:
The inherent property of hydro plants is to quickly start and stop. They are more economical & ideal for combination with thermal plants to meet the peaking requirement. They are mainly used as base load stations which adversely affect the optimum utilization of thermal plants and thus putting burden on power sector.
The current Thermal-Hydro mix is of 60-23% and the desired mix is 60-40%. Thus there is a need to accelerate the pace of development of hydro plants in order to meet the cureent and future energy requirements.
3.6 Environmental issues:
The next roadblock is the clearances from environmental angle. Both Hydro and coal based projects have been criticized more than they deserve from environmental point of view. In both these areas of project development massive communication is required both at central and state level to counter the propaganda which is mounted by various agencies against the development of projects. Thus it would be essential that all issues are communicated with public, press and media, both nationally and internationally. The present procedures for environmental clearances need to be revisited for faster disposal and to remove the road block of longer gestation periods for the development of these projects.
3.7 Sincerity and Financial ability of developers
Another road block is concerning the sincerity and financial ability of developers themselves. A scrutiny of the list of power projects under IPP category would reveal that procedures adopted in a large number of states left a lot to be desired. This resulted in selection of developers, lacking not only in experience in developing power projects but also in not having sufficient financial capability and in many cases even sincerity to develop the projects. Remedies to overcome this issue are as follows:
Suitable criteria and well-structured qualifying requirement for selecting developers could help in avoiding cases where later on it is discovered that financial ability of developers is totally inadequate for undertaking the project.
Government of India and the state Government could also consider approaching various groups within the country which have established good track record of project development and financial soundness to consider the enormous opportunities that exist in power sector.
Thus a brief overview of measures which would need consideration in order to overcome above roadblocks is as follows:
Reduction in T & D Losses
Accelerating the pace of Hydro projects development
Optimum utilization of energy surplus
Demand side management
Reforms in SEB's
Promoting captive/co-generation plants
Modernization and Renovation of existing power plants
Focus on energy efficiency & energy conservation
Reduction in thefts
Proper fuel-mix is required
Reduction in cost of power & elimination of cross-subsidies
CONCLUSION
Power is one of the prime movers of economic development. The basic responsibility of power supply industry is to provide adequate electricity at economic cost, while ensuring reliability and quality of supply.
The country has gone a long way from installed capacity of merely 1862MW at the time of Independence to the present level of 150324MW. Electricity is a concurrent subject. Up to 1975 generation, distribution and transmission, all were handled practically only by state electricity boards. The Central government has entered this sector only after 1975 and has played an important role in contributing in total generation capacity of the country and will continue to play a major role in future too. The Electricity act 2003 has played important role in improving the condition of power sector, particularly state electricity boards. Yet, the pace of implementation has not been successful in order to raise tariffs to cover their liabilities. More work has to be done to improve bill collection systems. As for financing the sector the government has to start working on getting more and more private players and to develop a private-public participation model. Direct incentives are to be offered to independent power producers and have to introduce multiyear tariff regime along with gradually reducing cross-subsidies which hampers the rationalization of tariff.
In spite of many efforts taken by government, the power sector at present suffer from shortages, high level of technical and commercial losses, fuel shortages, low plant load factor in some plants, inadequate rural electrification, inefficient utilization of resources etc.
Thus the report brings a unique perspective on what has gone wrong, what needs to be done and what is being done to reform the power sector so as to provide reliable and affordable electricity to all.
