Power Crisis: Let There Be Light!
Fixing India's Power Woes : Let There Be Light!
Time is running out, and unless we are able to arrest the growing shortages, the effect on our economy may well prove disastrous.
- Manmohan Singh
Prime Minister, India,
on the worsening power situation in the country.
As India prepares to grow into the double digit, after consistently growing at 8-9% during the last couple of years, one sector that threatens to act as a major deterrent is the power sector. It is no secret that the power situation in the country remains grave even after more than five decades of independence, and more importantly, even after over a decade-and-a-half when we ushered into the era of reforms in 1991-92. The ground reality is: SEBs continue to accumulate losses thanks to unabated power theft and transmission and distribution losses; demand continues to outpace supply (peak demand vs. peak met situation is even worse) as new capacity additions are far and a few. The result is: power cuts are a routine and have become severe during summer as utilities resort to long-duration power cuts making the common man sweat more during sweltering summer every year, and forcing hundreds of tiny and mid-sized firms to shut factories that cannot afford their own captive power plants. This is no good news for the country that aims to grow at 10%.
However, there may be light at the end of the tunnel. Realizing the seriousness of the issue, the government has not only got into an overdrive to augment power supply in the country but has also set itself an ambitious goal of `Power for All,' by 2012. In essence, the govern-ment's latest move with regard to the setting up of Ultra Power Projects across the country, power merchant plants, open access, and continued reforms, including restructuring of SEBs and transmission and distribution, augurs well for the power sector in the country. But, curbing the rampant electricity theft, attracting long-term investment for setting up new power plants, and removing other bottlenecks would pose significant challenges
Delhi is certainly not the place to be in during summer. Soaring temperatures, with the mercury zipping past 44-degree celsius and frequent power cuts in areas such as Munirka, Rajender Nagar and Malviya Nagar—where the ordeal lasts as long as 12-15 hours a day during the peak summer months of May and June, thanks to Delhi distribution companies' (discoms) erratic ways—make days in India's capital a nightmarish experience for the 10 million denizens who have continued to suffer every summer for decades.
Unfortunately, no other Indian city fares better: without counting the hundreds of thousands of villages, which do not even have electric poles, an estimated 20% rural households do not have access to electricity (of the estimated 593,732 villages about 115,067 villages in the country do not have access to power).
In Kolkata, another major metropolis in the country, 2 million consumers are forced to endure power cuts lasting eight hours a day, which is worse than the two to three hours of cuts they had to cope with until last year. In Mumbai, the commercial capital of the country and an aspiring international financial hub, though the situation does not appear to be as grave, sensing the urgency, Tata Power, which supplies electricity to the city, urged Mumbaikars to reduce the use of air-conditioners, use energy-efficient bulbs and put computers on sleep mode to save energy.
On the whole, nationwide, how bad the situation is can be understood from the fact that during peak hours supply shortfall could be as high as 25% in some parts of the country. The national average is, however, lower at 9%, though the figure touched 14% during peak hours last year—the largest shortfall in the last 10 years. Needless to say, the frequent power cuts have led to many shutdowns. It is not surprising then that frequent surveys on businesses have cited power shortages as one of the main reasons for industrial sickness, far ahead of labor strike or mismanagement. And now, with the power deficit reaching an alarming level, it is even threatening to derail the country's recent dramatic growth.
Cancerous crisis
India's power woes began three decades ago, in 1977, when politicians came up with the idea of subsidized electricity for farmers as a populist measure to woo voters. Subsequently, over the years, it has taken the more dangerous form of free power (for agriculture), as India's political masters dangled the carrot of free power supply in front of farmers to ride to power, never minding the fact that it would push the state-run electricity boards into financial bankruptcy; though states of Madhya Pradesh, Punjab and Tamil Nadu have abandoned the practice. Besides, another severe damage that is crippling the power sector is that of power theft. According to Reliance Energy's own submission, every third of its customer in Mumbai lives in a shantytown where pilferage ranges from 15-70%. In other places like Amritsar, pilferers have found the new electronic meters to be a shot in the arm for them to indulge in power theft. Pilferers are able to jam these modern meters even from a distance of more than 25 feet without tampering the meters or the wiring, much to the frustration of the Punjab State Electricity Board.
According to the Central Electricity Authority (CEA), demand for power exceeded by 7.3% (estimated) in FY 2005 and 7.1% in FY 2004. In terms of total requirement and in terms of peak demand there was a shortfall of 11.7% and 11.2% during FY 2005 and FY 2004 respectively. Overall, the total deficit during the fiscal 2006-07 was to the tune of 13.8% or 13,897 MW(peak demand of 100,715 MW vs. 86,818 MW of peak met). The country currently has a total installed capacity of 132,110 MW. Added to this, transmission and distribution losses were to the extent of 33%. Further, load shedding has become quite common in nearly all the states.
During the 10th plan, the Accelerated Power Development and Reform Program (APDRP) was launched with an objective to reduce Aggregate Technical and Commercial (AT&C) losses and reduc outages and interruptions to 10%. However, it has failed to achieve this objective as AT&C losses continue to average over 35%, ranging from 18-62% across states. The loss was mainly due to theft and inefficiencies at various levels. As a result, SEBs suffered heavy losses and the rate of returns fell further to a negative 27.4% in 2006-07 from a negative 24.8% in 2005-06. This has acted as a major deterrent against investment in new projects by SEBs.
|
How realistic is the government's plan of `power for all'? Anish: I think it's a big challenge, I don't think anybody should expect that it will happen at the current space of accuracy, particularly because of long gestation periods. It's not easy to construct power plants within a short time frame. There will be slippages and we will not be able to meet the `power for all' target by 11 th plan. That's the reality. Rakesh Nath: In the 10th plan, 21,180 MW was commissioned against the target of 41,110 MW. The main reasons were delay in equipment supplies and erection by suppliers/contractors, delay in technological tie-up for super critical technology by the indigenous manufacturers, non-availability of gas resulting in dropping and non-commissioning of some projects, and dropping of some projects in private sector due to non-achievement of financial closure and delays in clearances and investment decisions. We have analyzed the reasons for the slippages and have taken corrective action. Compared to the 10th plan, the preparedness for the targeted 11th plan capacity addition of 78,500 MW has been much better. Projects totaling about 50,000 MW are currently under execution as against about 20,000 MW at the beginning of 11th plan. Efforts are being made to complete the ordering process of remaining projects during the year 2007-08. In view of the boom in construction of power projects and other infrastructure sector, we are facing problem of equipment supplies, shortage of contractors, particularly civil contractors, and shortage of skilled manpower. We are addressing these issues. Some major equipment suppliers have taken steps to augment their capacity. We have also organized an International Conclave of equipment suppliers, contractors, industry associations and training institutions on 4 th and 5th July, 2007 calling upon them to augment their capacities. Presently, there is no shortage of finances but considering the huge investment required for transmission and distribution sub-sectors to transmit and deliver the additional electrical energy to the ultimate consumer, financing may pose a constraint. The Government of India has decided to constitute a high level committee headed by the Union Finance Minister to look at the financial issues. The committee is likely to complete its work in three months. What are the major factors that you attribute to the acute power shortage situation in the country? Anish: The major factors are several including the fact that the private sector has not come up to the extent that we expect it to and a combination of poor policies which are there, and also the poor paying capacity of the electricity board. Secondly, State Electricity Boards (SEBs) are also not included; deficiencies are as much necessary which become segmented as a problem. From demand side, we could have had some relief, which has not happened. The third is deficit of faulty planning and policy, I think the wake up call should have come long time back; unfortunately people in power did not react. So, if we are heading towards this level of energy demand now, we should have planned 3 or 4 years back to get this kind of capacity. Fourth is on the fuel side: the big problem is the coal mine allocation and resource availability for shedding of power problem or linkages. The coal production grew at less than 4%. As coal being the mainstay, you cannot have 8% or 9% growth is intra capacity when the principal yield is growing at less than 4%. All these factors together have contributed to this kind of problem which is going to grow bigger as you go along. Rakesh Nath: The major factors contributing to the acute power shortage situation in the country are meagre or no capacity addition from many states during last 10 years, high AT&C losses, inadequate availability of gas, and inefficient end-use of electricity. The agriculture sector, which consumes 23% of total energy, has an abysmally low efficiency usage of pumps. Study estimates indicate electrical energy saving potential of 23% on account of energy conservation alone. In the 11th plan, there is a major thrust on capacity addition, reduction of AT&C losses, and energy conservation. Since there is also high potential for alternative sources (like non-conventional sources of electricity generation), what initiatives from the government are needed to tide over the power deficit? Anish: On the non-conventional energy front (wind, hydro and solar), all of them are pretty much potential sources, some of them seem more expensive but others are not. Wind is now pretty much cost-competitive, even solar is becoming cost-competitive. If these work out, then there is potential for meeting the deficit. These alone would not be enough, I think we need everything; we need thermal, hydro, gas, renewable, nuclear. All of them have to come and contribute in meeting the shortages. I think the Ultra Mega Power Project is a very good initiative from the government. It has been progressing well though there are some controversies regarding the project. It is progressing pretty well and the model is good as it takes away the risks from developers, helps them to keep their focus on project development, and gives customers good tariffs. You cannot have just one flagship scheme and then try to achieve everything from it. UMPP alone will not achieve everything for you; you have to do much more than UMPP. We need more generation, renewable and capital power. There are lots of options to meet the demand; the only thing required is to have large capital power. Rakesh Nath: Renewable energy sources constitute about 6.8% of total installed generation capacity of the country. It has inherent advantages of low gestation period and participation of small entrepreneurs on account of low investment requirement in capacity building. The main development so far has been in wind, small hydro, and bagasse co-generation which have been found commercially viable. In view of the present demand and supply imbalance and anticipated growth in demand, energy generation has to grow at 9% which is possible only by conventional energy sources, as renewable sources have a low plant load factor. However, all encouragement needs to be given for exploitation of our huge renewable resources. In the 11 th plan, a capacity addition target of 13,500 MW has been proposed for renewable sources. Some State Electricity Regulatory Commissions (SERCs) have specified a minimum percentage of energy consumption to distribution companies for sourcing from the renewable energy to encourage development of renewables. Utilities and SERCs have allowed banking arrangements and open access to captive plants based on renewables to encourage development of captive plants with renewable sources. This needs to be emulated in other states. Private players hold a meager share of 12.9%. What reforms are needed? Anish: A few things are holding private investments back. One is the bit process which is slower and not mature enough. You are not allowing the policies to evolve. For instance, the national electricity policy has been designed in a manner where other forms of generation—whether it is by the utilities themselves, or MOU-based project, or PPP-based projects—had to face bumpy regulatory approvals, and I don't think that was a wise measure. We should make avenues for private sector investment. The bit process should expedite and permit projects to come from outside the bit processes also. You need to allocate fuel resources better. Coal mines need to be allocated and then finally I think you need standard transparent contractual framework with typical work set. The private sector is not compelled to come only through the competitor bid route. Now it is not necessary. I don't think we should have any kind of restrictions and that is how businesses are done worldwide. Secondly, the contractual framework does not have the real allocation to the extent necessary; so, a lot of foreign players are not coming in, because they are not happy with the contractual framework which is their specialty. Thirdly, the merchant power policy: where there was some talk of the policy and then it died down. Nobody was clear as to what is happening with the merchant power plant: will they be given any coal mines? Will they be allowed to have long-term contracts? There was a lack of clarity and there were some conflicting signals. Rakesh Nath: Capacity addition in the private sector is very crucial to meet our targets. The weakest link in the whole power supply chain is distribution which suffers from high Aggregate Technical & Commercial (AT&C) losses. The average AT&C losses are to the order of 34%. In some of the distribution companies, AT&C losses are above 40%. Due to high Transmission & Distribution losses (30%) and financial losses (Rs. 221 bn in 2004-05 without subsidy) of State Power Utilities, the desired investment in the private sector has not taken place in the past. Reforms in the distribution sector covering technological and governance issues with a view to reduce AT&C losses to 15% should be the top priority of the State. A healthy distribution sector will attract more private investment. The enactment of the Electricity Act, 2003 has created enthusiasm in the private sector to add to the capacity. Provision of non-discriminatory open access addresses some of the concerns of the power sector. In the tariff-based competitive bidding of the two Ultra Mega Power Projects (UMPPs) of 4,000 MW each, we have seen good participation by the private sector. Execution of one UMPP has already started. The private sector has also taken interest in the development of hydro power. Though in the 11 th plan, 10,760 MW capacity addition in the private sector has been programmed, a number of additional projects in the private sector are on the anvil and are likely to be commissioned during the 11th plan. Your Comments on Andhra Pradesh Power Distribution? Anish: Andhra Pradesh on the distribution end has taken an initiative and it has worked well. It is a question of whether there is a will to do it without worrying about private or public sector participation. But we must remember that Andhra Pradesh took several commercial measures which we normally don't expect from any public sector. They dropped the tariffs and the books were better balanced. They got lot more revenues and incentives in edge which is very good and all of this together has worked. Loss reduction is one dimension of this and it is more commercial in Andhra Pradesh. They can do much better. What is your outlook for the power sector in India? Anish: On the whole, the challenge is about meeting the demand. I think in the next 7-8 years, we will have a surplus of demand over supply. Now, if we manage to free up the captive power sector and the merchant power sector and things like that it would be helpful. However, much depends on how the policy shapes up in the next 1-2 years. I think we need more practical government policies and an overall oversight framework to ensure that capacity addition is much faster and much easier. So hopefully right from the top echelons of power to other levels, there should be a lot more practical initiatives to take the process forward. They need to make the necessary investments in technology, data processes, people capacity, and also better vigilance. All things put together can help. Rakesh Nath: I am optimistic about the future of the power sector in India. The Electricity Act, 2003 has provided the framework for the accelerated development of the power sector. We expect huge capacity addition in the next 10 years. The capacity addition is expected to be predominantly coal-based thermal power projects in 11 th and 12th plans. However, in the 12th plan, we can expect increase in share of hydro power as preparatory works on 30,000 MW identified hydro capacity will be completed during the 11 th plan. Commensurate capacity addition in transmission and distribution will be necessary to absorb the additional power generation. Reduction of AT&C losses will be a thrust area as sustained capacity addition will depend heavily on the financial health of the distribution companies. We expect increased capacity addition in renewables and reduction in energy intensity by improved energy efficiency in the industry, commercial establishment and domestic sectors as people become more conscious about global warming. We are also going to see very soon the establishment of Power Exchange and increased activities in power market by power traded without long-term PPAs and consumers having wider choice to select their suppliers. There has been a marked improvement in grid frequency and voltage profile with the implementation of Availability Based Tariff (ABT). Our regional grids are more secure and reliable and grid disturbances and blackouts are things of past. In 2006, the Northern Grid was synchronized with the integrated Western, Eastern and North-Eastern regional grids thereby creating the large Central Grid having total installed capacity of about 94,000 MW operating synchronously. The All India Plant Load Factor of thermal machines was at an all-time high of 76.8% during 2006-07. The inter-regional transfer capacity has resulted in optimum utilization of surplus power available in some regions. The National Grid is expected to be further strengthened during the 11 th plan with the inter-regional transfer capacity planned to be increased to about 37,000 MW. Any other comments? Anish: The general message is that we need to work at two levels: at the demand side, we need to do much more work on the utilities to build the capacities. Control losses: become more efficient in operations; have better price signaling; all these have to come on the demand side. And on the supply side, we need to free up all avenues. We had a very good legal framework for 2006, but unfortunately, it was not well-implemented because there were some policy bottlenecks. It is necessary to work on those bottlenecks and have a proper framework. - Anish De - Rakesh Nath |
Besides, another concern is related to India's higher power cost when compared with other countries. According to estimates, power costs are higher by 74% in India than in Malaysia and 39% more than in China. This has a major impact on businesses, particularly small and medium industries, which have suffered on account of the massive power costs as well as frequent power cuts. According to estimates, Indian firms are losing output by 9% because of load shedding, which is much higher than that of Malaysia and China with just 2%, which just reflects the worsening power scenario in the country.
| Power Deficit: Status Quo Remains | ||||
| Year | Energy Requirement (MW) | Energy availability (MW) | Energy shortage(MW) | Energy shortage (%) |
| 2000-01 | 507216 | 467400 | 39816 | 7.8 |
| 2001-02 | 522537 | 483350 | 39187 | 7.5 |
| 2002-03 | 545983 | 497890 | 48093 | 8.8 |
| 2003-04 | 559264 | 519398 | 39866 | 7.1 |
| 2004-05 | 591373 | 548115 | 43258 | 7.3 |
| 2005-06 | 631554 | 578819 | 52938 | 8.4 |
| 2005-07 | 690587 | 624496 | 66091 | 9.6 |
| Source: Ministry of Power & CEA, India | ||||
Power for all: a mere rhetoric?
To tide over the crisis, which threatens to derail India's nascent fast-paced economic growth, the central government has launched an ambitious drive which aims at achieving a whopping target of 78,577 MW of electricity generation during the 11 th five-year plan 2007-2012, which is almost four times higher than the capacity achieved during 2002-2007. It raises doubts given the government's past track record. For instance, during the 10th plan (2002-07), against the target of 41,110 MW of electricity, the government could manage only 23,000 MW or 56% of the planned capacity additions. Prior to this, i.e., during the 9th plan, only 47.5% of the planned capacity addition of 40,245 MW could be achieved.
Nonetheless, the government is going ahead with its ambitious plan. A project of around 47,000 MW, which will include a mix of 14,000 MW of hydro power, 30,000 MW of thermal power and 3,380 MW of nuclear power, is currently underway and is expected to be ready in the next two years. In addition, about 9,000 MW that could not be achieved in the 10 th plan would also be added during 2007-08, so as to reach the assured mark of 56,000 MW in the 11th plan. The total of 78,000 MW target is planned as: 16,785 MW in 2007-08 (i.e., its first year of the plan); another 7,272 MW in 2008-09; 15,198 MW in 2009-10; 16,970 MW in 2010-2011; and, finally 22,372 in 2011-12. And if everything goes according to the plan, by the end of the 11 th plan, the country can boast of an energy surplus of 5.6% and a peak time surplus of 0.6%.
Electricity Act 2003 was a milestone and in a significant move to better reforms and tide over the demand and supply gaps, government has amended it and has introduced Electricity Act 2007 that comes into effect from June 15, 2007. This amendment will now bridge the shortage gaps. According to the Act, no approval or license is required to set up captive power plants by individuals, groups and cooperatives. But there is a major hitch while supply of electricity generated from captive power plants to any distribution licensee has been delicensed, industry experts says that supply from captive power plants is only possible if SEBs adopt a strong distribution franchisee model.
Further, achieving such an ambitious target (of power for all) calls for huge investments. According to a Citibank report, "Electricity Sector in India - Status and Outlook", to achieve the planned capacity, the power sector needs an investment of $200 bn over the next five years. Of this, investment about $90 bn is required for generation, an additional $90 bn for Transmission and Distribution (T&D), of which $15 bn is needed for the power grid. Of this, the private sector is expected to invest $25 bn ($19 bn for generation and $6 bn for the national power grid). The balance investment is expected from the state and the central sectors. The report adds that given the market opportunity and competitive positioning, India is an attractive destination for foreign companies. The action plan to revitalize the sector also includes setting up a power project management which is professionally managed, probably headed by the Union Power Secretary.
Apt policies: need of the hour
To deal with the massive power losses, the government has identified the introduction of competition through `open access' to be a major help in the power sector. "We have to look closely at all regulations to ensure that there is `open access' in transmission and distribution. State policy has to proactively encourage utilization of the transmission and distribution corridors to ensure the free flow of power to any consumer who may be willing to contract for the power," the Prime Minister said recently. On the issue of encouraging private sector participation, the Prime Minister said, "The key to attracting investment, particularly from the private sector, lies in ensuring open access to consumers. It will encourage investment. It will also put competitive pressure on the incumbent utility."
The country also needs reforms in the area of electricity distribution. This is due to the fact that about 75% of the technical losses and almost all of the commercial losses occur at the distribution stage. "The quality of the power distribution network, for example, is poor with approximately 40-50% of power lost to the network due to power theft and transmission and distribution loss, resulting in inadequate capacity and frequent power outages," says Manish Agarwal, National Industry Director, KPMG. According to a KPMG report, distribution losses are shown at $6 bn per annum only due to power theft. The Prime Minister said, "Theft is the cancer of the power sector. We need to come down on it heavily as it is seriously affecting the financial viability of the sector as a whole." The KPMG report suggests introduction of tariff and distribution reforms to bring efficiency into the sector.
The government is planning to provide a boost to the distribution sector and proposes a new distribution mechanism that involves delinking the distribution wires business from the last mile business. Further, the T&D of wires would be handled by a new company area-wise, and distribution firms would be allowed to access the network and deliver it from the grid to the end- users. Regional power grid will be allowed to sell power to private distribution firms and bill accordingly under the proposed mechanism. At present, the state-run power companies are the sole controllers of the grid and distribution network. Manish Agarwal, Director, Infrastructure Advisory, KPMG, India, opines, "The Open Access regime has the potential to significantly relieve the capacity addition burden (either through capital or through contract) on the public sector, by transferring the generation investment risk entirely into the private sector."
While this mechanism sounds great, there are certain conditions to be considered such as private players paying the wheeling charges to the wiring company and maintenance charges of distribution to the government. Hence, whether the government's effort through the power distribution mechanism would yield results is not a certainty if the past experience is any indication. For instance, privatizing of distribution was initially launched in Delhi and Orissa, but it yielded mixed results. Besides, no major global power is showing interest in India's T&D area.
Attracting private investment
The government's initiative in 1991 of encouraging the private players in generation, transmission and distribution yielded no results. Because of the regulatory bottlenecks only few private players have invested in building new power plants. "I think this is a serious issue that needs to be considered. Why are we unable to attract private investment? Are there systematic or structural issues that need to be addressed in order to make the sector viable and capable of providing decent returns to investors?" asked the Prime Minister in a recent conference on the Indian power sector. Experts say that in order to attract private investors, there is need for a clear policy framework in areas such as pricing, market structure, foreign investments and exchange of energy products.
Then there are concerns such as deteriorating financial health of utilities with recurrent losses, regulatory uncertainty, high open access charges, pricing of surplus power grid support charges, renewable reliability issues, grid connectivity, fuel availability and price risks. Under these circumstances, the investor needs to be provided with mitigation by government. In response to these concerns, the government is taking up proper steps such as trying to bring in greater transparency in regulatory proceedings and multi-year tariffs, introduction of policy measures like National Electricity Policy, de-blocking of coal reserves held by the public sector, private participation through coal linkage/captive mines, enhanced coal production targets and advanced technologies. However, the government needs to look further into aspects such as risk allocation between stakeholders, price volatility, capacity assessment of utilities, involvement of private parties for energy distribution and assessing the discoms' efficiency. Reforms in the distribution sectors have been taken with the introduction of the open access system. "Reforms in distribution sector covering technological and governance issues with a view to reduce AT&C losses to 15% should be the top priority of the state," says Rakesh Nath, Chairman, CEA, India. However, Agarwal notes, "Open access is largely seen as a threat, and not an opportunity. While many of the regulations have been put in place, there are significant implementation gaps—addressing these will require `champions of competition' in the electricity supply system."
Beyond thermal power
To meet its ambitious target of electricity for all by 2012, the government has plans to set up 46,520 MW of Thermal, Hydel (17,997 MW), Nuclear (3,160 MW) and Ultra Mega Power Projects (36,000 MW). A look at the power generation fuel-wise shows that coal has a major share of 55% followed by Hydro (26%), Gas (11%), Renewable (5%), Nuclear (2%) and Oil (1%).
| Mission 2012: Power for All |
| • Sufficient power to achieve the GDP growth rate of 8% |
| Source: Ministry of Power, India |
The second major fuel for power generation, hydroelectric power stands at 5th position in the world in terms of exploitable hydro potential. Thus far, only 17% of the potential has been exploited and another 5% is under expansion, leaving a huge potential to be tapped. While the government is determined to fully harness the hydro potential, legal and pollution control boards are becoming bottlenecks for these projects. For instance, the hydropower policy has not looked into issues such as submergence of large areas involving forest, ramifications of submergence, safety of dams, drinking water schemes, irrigation and infrastructure. These concerns have held back private sector investment.
In the 11th plan, the government is pinning hopes on Ultra Mega Power Projects (UMPP) as an answer to India's energy shortages. Experts concur that UMPP could yield better results. "In the tariff-based competitive bidding of the two UMPPs (Mudra and Sasan) of 4,000 MW each, we have seen good participation by private sectors. Execution of one UMPP has already started," says Nath. After a competitive bidding, the Sasan project was handed over to Lanco-Globeleq located in Madhya Pradesh and Mudra Project in Gujarat to Tata Power Company. Unfortunately, Sasan project has to be delayed due to Globeleq's with drawal from the project as it failed to meet qualifying norms.
Nuclear energy is another area that the government is looking at to boost supply. Nuclear power offers another option to increase India's power generation capacity quickly. A lot, however, would depend on the outcome of the country's ongoing negotiations with the US. If the fallout is positive, it could see the lifting of the global sanctions on India's nuclear energy program and open up significant commercial opportunities for foreign power sector players. However, a section of experts say that nuclear energy, which today accounts for a mere 3% of the total electricity produced in the country, cannot be the solution to India's power woes, and that even a sustained focus cannot see its contribution going beyond 8-10% even by 2020. Thus, the country needs to focus on resources which could help it meet the power needs in the short-term.
Apart from these, the government has also identified wind and small hydro as very much commercially viable energy sources. Renewable energy is another area where the government is keen to tap the potential. "It has inherent advantages of low gestation period and participation of small entrepreneurs on account of low investment requirement in capacity building," says Rakesh Nath. He also adds, "All encouragement needs to be given for the exploitation of our huge renewable resources."
Another concept that is being explored now to end India's power woes is `power trading'. Currently, around 15 GWh of electricity is traded every year and there are four or five large trading players. Further, the government is planning to set up over a dozen merchant power plants to generate 500 MW-1,000 MW of power, open access and the plan to set up a power exchange will all give a further leg-up to power trading.
 Distribution end efficiency improvement remains the most important requirement for the financial viability of the entire sector. There have been improvements to different extents in different states. The franchisee model is an interesting initiative being pursued by a number of utilities to bring in private sector participation in this area. - Manish Agarwal |
These plants fill different niches in the market: some provide steady sup plies to a power grid, while others fire up only when the demand is highest. The advantage of merchant plants for equity investors is that they can offer returns in excess of 20%, whereas long-term power purchase agreements limit returns to 14-16%. "We are also going to see, very soon, the establishment of Power Exchange and increased activities in the power market by power traded without long-term PPAs and consumers having wider choice to select their suppliers," says Nath.
Grand goal - hope lights up
While there is a major focus on privatization of power distribution, this may not be the panacea for all problems. In fact, one can draw a lesson or two from the state-owned Andhra Pradesh Transco (AP Transco)'s success. At the time, when the Central Government was trying to overhaul the SEBs' losses of more than Rs. 22,000 cr, AP Transco met with significant success. For this state-owned entity, the hitch was AT&C losses and the inefficiencies in the system. To bring down losses, it made its employees accountable; something none of the SEBs would have dared to do. It also improved the efficiencies of the delivery system and service quality by carrying out monthly performance reviews at different levels of supply. "Month to month, we have been doing this without fail for five years," said Rachel Chatterjee, Managing Director, AP Transco. The outcome of the state's turnaround clearly reflects in the sharp reduction in losses from 37% in 1999-00 to 15.8% in 2005-06 and rise in its collections by 100%. The most noticeable and admirable part is that this accomplishment has been achieved with no tariff increase, despite the fact that the state provides free power to farmers.
Apart from such constraints, the state stood as the fourth largest electricity consumer in the country and was rated as the top utility by CRISIL and ICRA agencies for the past three years. Serving almost 18.5 million consumers, AP Transco has turned out to be a healthy and profitable SEB. AP Transco's example clearly underlines the fact that it is not the ownership that matters, rather good governance and apt policy reforms hold the key to success. Perhaps, this also holds the key to India's grand goal of achieving access to power for all.
- Amit Singh Sisodiya and Kavita Putta
posted by Think Original @ Tuesday, July 24, 2007
0 comments
0 Comments:
Post a Comment
<< Home