While every party is intensely involved in the power game, no one is paying as much attention to the power sector as it deserves. Liberalisation of the economy by itself would not produce the desired results in tandem with growing needs of the industrial and economic progress. The Indian Merchants Chamber, which spearheaded the movement for economic emancipation of masses as a part of India's struggle for independence, deserves to be congratulated on organising a workshop on challenges and opportunities in the power sector in the post liberalisation period as a part of their 87th Annual General Meeting.
Now, the Power & Energy Infrastructure sector in India is poised for a major take-off. The APDRP (Accelerated Power Development & Reforms Programme 2002 - 2012) has seen an addition of around 22,000 MW during last five years and during the next five years, a capacity addition of over 78,000 MW has to be setup by 2012. (A commitment of 15,600 MW of capacity additions per annum).
The Market Potential to sustain the GDP Growth rate of India @ 8% plus per annum needs the power sector to grow at 1.8 - 2 times the GDP rate of growth as espoused by economists, planners and industry experts. This would mean a YOY capacity addition of 18,000 - 20,000 MW to achieve this ambitious plan of moving India to a Developed Economy status, as an Economic Global Powerhouse. The Target Mission: ‘POWER for all by 2012’ would mean achieving the target of 1000 KH (Units) of per capita consumption of electricity by this period.
To achieve this goal, following milestones are critical: -
• Attract US $ 250 Billion Investment into the sector. (FDI & Domestic Investment Combined)
• Adequate Capacity Growth to Sustain GDP Growth at 8% plus.
• Reliable & Quality Power On 24 x 7 bases, at least in Urban & Industrialized areas.
• 100% Rural Electrification with Adequate & Qualitative Power for irrigation purpose.
• Increasing the Role of Hydel & Renewable Energy in the Energy Mix.
• Urgent need to develop the alternatives, both in the Fuel & Technology terms.
• Focus on implementation (Outcomes are more important than Outlays)
- As espoused by the Indian Prime Minister, Dr. Manmohan Singh
Power sector after independence
Significant changes have been observed in the Indian power sector after independence. Major characteristics of the growth are as follows
· Installed capacity was 1713 MW in 1950. Now it is increased up to 89090 MW.
— Electricity generation increased from 5.1 billion units to 420 Billion units
— Per capita consumption of electricity increased from 15 kWh in 1950 to about 338 kWh. Still this is much less than world average. As mentioned earlier, per capita consumption is aimed to be at 1000 kWh by 2012.
— About 80% to 85% of the villages electrified. It means the electricity has reached 80 to 85% of villages. Not every household in these villages is getting electricity. By 2012, India is poised to achieve 100 % electricity penetration in every household in every village.
Aftermath of Liberalisation
Before the liberalisation took place in India in 1991, the growth in power sector was very sluggish. There has always been a huge power deficit as power generation could not meet the demand. With the growth in demand being exponential, still power deficit is a big problem. But some accelerated positive initiatives were taken by Indian Government after liberalisation. Some of them are mentioned below:
— Government is encouraging private players not only to produce power but also carrying out its transmission and distribution activities. In effect there has been significant Increase in private participation.
— Government has come with the provisions for determining the tariff smoothly. So the ambiguity involved in complicated tariff rates has been done away with.
— To encourage all the states in active participation in the power generation and distribution, government has placed various policies and plans ( for detailed information, please refer ‘regulations and policies’ section of this paper)
— To regulate the power industry at centre level and also at state level, regulatory authorities like Central Electricity Regulatory Commission (CERC) & State Electricity Regulatory Commission (SERC) are appointed.
Facts and Figures: Size and Composition
In 2006/07, the country experienced an overall energy shortage of 9.6% and peaking power shortage of 13.8%. In 2007/08, the percentage energy shortage further declined, though marginally, and was 9.9%. However, the percentage peaking deficit dipped sharply in 2007/08 to 16.6%.
Figure 1 shows the power supply situation in terms of requirement, availability, and percentage shortage for the past 10 years, from 1998/99 to 2007/08, for the country.
Figure 1 (Source CEA (2008a))
Figure 2 shows the fuel wise power generation in India.
Figure 2 (Source CEA (2008a))
Thermal— 53% of the power is produced by thermal production using coal. 10% is power is produced using gas and 1% power is produced using diesel.
Hydro-India was one of the pioneering states in establishing hydro-electric power plants; the power plant at Darjeeling and Shimsa (Shivanasamudra) were established in 1898 and 1902 respectively and is one of the first in Asia. The installed capacity as of 2008 was approximately 367.76 MW. The public sector has a predominant share of 97% in this sector.
Nuclear- Nuclear power is the fourth-largest source of electricity in India after thermal, hydro and renewable sources of electricity.[ As of 2008, India has 17 nuclear power plants in operation generating 4,120 MW while 6 other are under construction and are expected to generate an additional 3,160 MW. India has recently made a 123- Nuke deal with USA where Indian atomic sector is divided into two sectors; military atomic sector and civilised atomic sector. Under this deal, Indian civilised atomic sector has come under the governance of IAEA (International Atomic Energy Agency). India can receive the required fuel to generate the power from nuclear power plant as well as nuclear reactors also from various countries.
Renewable- Renewable energy includes power from small hydro, wind, biomass, and urban and industrial waste, solar energy, wind energy, tidal energy etc. Current installed base of Renewable energy is 13,242.41 MW which is 7.7% of total installed base with the southern state of Tamil Nadu contributing nearly a third of it (4379.64 MW) largely through wind power.
The following table shows the actual amount of the units of MW generated through various sectors.
| SECTOR | MW |
| State | 76036 |
| Central | 48471 |
| Private | 22246 |
| Total | 146753 |
The following tables show the transmission and distribution scenario in India.
Cumulative growth in transmission sector-
| Transmission lines | At the end of 10th plan i.e. March 2007 | At the end of 11th plan i.e. March 2012 |
| 765 kV | 1704 | 7132 |
| HVDC +/- 500kV | 58728 | 11078 |
| HVDC 200kV monopole | 162 | 162 |
| 400 kV | 75772 | 125000 |
| 230 kV/220 kV | 114629 | 150000 |
| Total transmission lines | 198089 | 293372 |
Unit is ckm- circuit km
Substation capacity where the power is converted from high voltage to low voltage or vis-Ã -vis is shown below:
| Substations | Unit | Plan 10 | Plan 11 |
| HVDC BTB | MW | 3000 | 3000 |
| HVDC Bipole-monopole | MW | 5200 | 11200 |
| Total HVDC terminal capacity | MW | 8200 | 14200 |
| 765 kV | MVA | 2000 | 53000 |
| 400 kV | MVA | 92942 | 145000 |
| 230 kV/220 kV | MVA | 156497 | 230000 |
| Total AC substation capacity | MVA | 251439 | 428000 |
MW- Mega Watt, MVA-Mega Volt Ampere
Major Players
NTPC
NTPC, India's largest power company was set up in 1975 to accelerate power development in India. It has emerged as an ‘Integrated Power Major’, with a significant presence in the entire value chain of power generation business.
NTPC is ranked 317th in the ‘Forbes Global 2000’ ranking of the World’s biggest companies. With a current generating capacity of 30,644 MW, NTPC has embarked on plans to become a 75,000 MW company by 2017.
NHPC
NHPC Limited (Formerly known as National Hydroelectric Power Corporation Ltd.), A Govt. of India Enterprise, was incorporated in the year 1975 with an authorised capital of Rs. 2000 million and with an objective to plan, promote and organise an integrated and efficient development of hydroelectric power in all aspects. Later on NHPC expanded its objects to include development of power in all its aspects through conventional and non-conventional sources in India and abroad.
At present, NHPC is a Mini Ratna Category-I Enterprise of the Govt. of India with an authorised share capital of Rs. 1,50,000 Million . With an investment base of over Rs. 3, 17,000 Million Approx., NHPC is among the TOP TEN companies in the country in terms of investment.
Initially, on incorporation, NHPC took over the execution of Salal Stage-I, Bairasiul and Loktak Hydro-electric Projects from Central Hydroelectric Project Construction and Control Board. Since then, it has executed 13 projects with an installed capacity of 5175 MW on ownership basis including projects taken up in joint venture. NHPC has also executed 5 projects with an installed capacity of 89.35 MW on turnkey basis. Two of these projects have been commissioned in neighbouring countries i.e. Nepal and Bhutan.
NPCIL-Nuclear Power Corporation of India Limited is a Public Sector Enterprise under the administrative control of the Department of Atomic Energy (DAE), Government of India. The Company was registered as a Public Limited Company under the Companies Act, 1956 in September 1987 with the objective of operating the atomic power stations and implementing the atomic power projects for generation of electricity in pursuance of the schemes and programmes of the Government of India under the Atomic Energy Act, 1962.
NPCIL is a MOU signing Company with DAE. Presently NPCIL is operating seventeen nuclear power plants with total installed capacity of 4120 MW has five reactors under construction totalling 2660 MW capacity. NPCIL has achieved more than 285 reactor years of safe nuclear power plant operating experience. NPCIL operates plants with motto ‘Safety first and production Next’. NPCIL generated about 90 billion units of electricity in the X plan (2002-2007) exceeding the set target by about 10%, and added 1180 MW capacity against the target of 1300 MW capacity, thus realizing 91% of the target capacity addition.
POWERGRID
POWERGRID, a Navratna Public Sector Enterprise, is one of the largest transmission utilities in the world. POWERGRID wheels about 45% of the total power generated in the country on its transmission network. POWERGRID has a pan India presence with around 71,500 Circuit Km of Transmission network and 120 nos. of EHVAC & HVDC sub-stations with a total transformation capacity of 79,500 MVA.POWERGRID has also diversified into Telecom business and established a telecom network of more than 20,000 Km across the country. POWERGRID has consistently maintained the transmission system availability over 99% which is at par with the International Utilities.
TATA power
India’s largest private sector power utility, Tata Power has an installed power generation capacity of above 2785 Mega Watts, with the Mumbai power business, which has a unique mix of Thermal and Hydro Power, generated at the Thermal Power Station, Trombay, and the Hydro Electric Power Stations at Bhira, Bhivpuri and Khopoli, accounting for 1797 MW.
Reliance
Reliance Power Limited is part of the Reliance Anil Dhirubhai Ambani Group and is established to develop, construct and operate power projects domestically and internationally. The Company on its own and through subsidiaries is currently developing 16 large and medium sized power projects with a combined planned installed capacity of 35,460 MW, one of the largest portfolios of power generation assets under development in India.
Suzlon
Conceived in 1995 with just 20 people, Suzlon is now a leading wind power company with over 14,000 people in 21 countries with operations across the Americas, Asia, Australia and Europe. It has got fully integrated supply chain with manufacturing facilities in three continents. It is rich with sophisticated R&D capabilities in Denmark, Germany, India and The Netherlands. Market leader in Asia and 3rd largest wind turbine manufacturer in the world, Suzlon Market Share rose to 12.3% thereby making Suzlon 3rd largest wind turbine manufacturing company in the world
Regulations and Policies
The regulation of Indian Electricity Industry commenced from Indian Electricity Act, 1910. It was a comprehensive piece of legislation to “regulate the generation, supply and use of electricity and dealt with licensing, regulation and safety”, giving considerable authority to the provincial governments.
In 1948, the Electricity (Supply) Act, 1948 was passed “to facilitate the establishment of the regional co-ordination in the development of electricity transcending the geographical limits of the local bodies”.
Amendments in 1976 enabled generation companies to be set up by the central and state governments resulting in the establishment of the NTPC, NHPC, NEEPCO, Mysore (now Karnataka) Power Corporation and the consulting firms WAPCOS.
Ministry of Power (MOP) is the apex body governing the power industry in the country. The Central Electricity Authority (the ‘CEA’), constituted under the Electricity (Supply) Act, 1948 (the “Supply Act”), is the technical wing of the MOP assisting on technical and economic matters.
By amendment in 1991 generation was opened to private investment, including foreign investment. Tariffs in cases of interregional movements and transmission charges were to be determined by the central government on the advice of the CEA.
Further amendments in 1998 opened transmission to private investment subject to the approval of the Central Transmission Utility (CTU) with a license to be issued by the CERC.
The Central Electricity Regulatory Commission (the “CERC”) is the regulatory body constituted under The Electricity Regulatory Commission Act, 1998 (the “ERC ACT”) to bring into effect rationalization of electricity tariff and transparent policies regarding subsidies for regulation of interstate transmission of energy and promotion of efficiency and environmentally benign policies. The ERC Act also provided for formation of State Electricity Regulatory Commission (“SERC”) in the respective states for the rationalization of electricity tariff and formulation of policy within each state.
The challenges and opportunities faced by Indian Power sector are:
• Low per-capita consumption of electricity
• Estimated demand growth of Power at 6-7%
• Estimated investment of Rs. 8,00,000 crores in power sector over next 10 years
• Privatization of SEBs
• Rationalization of the tariff structure
• Politically-sensitive issues such as subsidies
Indian Power Sector has some of the major strengths such as abundant coal reserves to support thermal power generation, huge potential for hydro-electricity generation and abundant engineering skills to commission and run large-scale projects and a large consumer base.
But at the same time Indian Power Sector has number of weaknesses/problems such as,
• Inadequate power generation capacity
• SEBs’ weak financial health
• Lack of optimum utilization of existing generation capacity
• Inadequate inter regional transmission links
• Alarming level of Transmission and Distribution Losses
• Abysmally low level of collection efficiency
• Inadequate metering of consumers
• Large-scale theft
• Cross subsidization of Power and Skewed tariff structure
• Energy shortage of about 7.3% and peaking demand shortage of 12.5%
• Low PLF of Generating stations
The proposed reforms/restructuring is aimed at resolving these issues, which will improve sector health. Power reforms are happening though the pace is slower than desired. The direct financial implications of most of the changes are not yet visible but as states progress further on reforms, the investment scenario would improve.
The reform strategy adopted by Ministry of Power comprises of Power Generation Strategy, Power transmission Strategy, Distribution and supply Strategy, Regulation Strategy, Financing Strategy, Conservation Strategy, Communication strategy, Legislative Initiatives.
The Chief Ministers met on 16th October and 3rd December, 1996 to discuss and deliberate upon the issues pertaining to the power sector. A national consensus evolved for improving the performance of the power sector in a time bound manner covering National Energy Policy, Setting up of SERCs, CERCs, Rationalisation of Tariffs, and Distribution Privatization etc.
APDRP: Ministry of power launched accelerated power development and reforms program for the period of 10 years from 2002-2012. The promotion and distribution of the power is done through two types of support from government:
· Investment based- 25% of the project cost to general states and 90% project cost to special states
· Incentive based- funds to the less loss making State electricity boards
As on 31 October 2007, a total of 571 projects have been implemented under the APDRP in various states, with the total project cost estimated at Rs 170.34 billion. So far, a total amount of Rs 71.24 billion has been released, and a counterpart fund of Rs 48.36 billion has been drawn under the investment component. Nine states, that is, Andhra Pradesh, Gujarat, Haryana, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, and West Bengal, have shown reduction in cash losses, amounting to Rs 57.53 billion, and have received benefits to the tune of Rs 28.76 billion under the incentive component from the Government of India (MoP 2008).
Rajiv Gandhi Vidyutikaran Yojana: The Government of India launched the RGGVY in April 2005, which aims at electrifying all unelectrified villages and providing access to electricity to all rural households over a period of four years (MoP 2008).
FDI
The huge size of the market in the power sector in India and high returns on investment are important factors in boosting FDI inflows to power. 100% FDI is permitted to this sector under automatic route in almost all the power sectors in India except the Atomic energy. There are huge opportunities of FDI in power sector in India. The power sector in India has grown significantly and is an important part of infrastructure. Investment potential in power sector in India is huge due to the market size and returns on investment capital. Past few years have witnessed an outstanding growth in the power sector especially the sectors based on renewable sources of energy. Opportunities of FDI in the Power Sector in India
Opportunities of Foreign Direct Investment (FDI) in the Power Sector in India exist in -
- Hydro Projects
- Captive Power
- Ultra Mega Power Projects
- Nuclear Power
- National Grid Program
- Rural Electrification
- Trading
- Renewables
Important aspects of FDI in the power sector of India are -
- 100 percent Foreign Direct Investment is allowed under automatic route in almost all the power sectors in India except the Atomic Energy
- Power projects involving generation and distribution tasks are allowed in all types and sizes
- As per the Electricity Act 2003, trading in power is activated. Power trading inherently means a transaction where the price of power is negotiable and options exist about whom to trade with and for what quantum. In India, power trading is in an evolving stage and the volumes of exchange are not huge.
- A duration of 30 years will given as a renewable license period
- Thermal power plants will get a return of 16 percent on equity and will get 68.5 percent PLF
- The import of equipments will be entitled to 20 percent of import duty
- Power generating projects will have a five year tax holiday with five more years which will have a deduction of 30 percent taxable profits.
Impact of Technology
The MoP is promoting the use of information and technology, through several applications and e-governance initiatives, for achieving efficiency in transmission and distribution. The ministry is also implementing several measures for implementing e-governance for bringing in transparency and accountability in the functioning of the ministry.
· Hydropower net project It is a web-based application for monitoring of hydro projects by the MoP and sharing of data by hydro utilities and the CEA. This system has remote data updating facility and is presently being updated by hydro utilities and the CEA.
· Public Grievances Redressal and Monitoring System, or PGRAMS, and Centralized PGRAMS, or CPGRAMS: This is an online system for handling public grievances. The centralized version was launched in 2007.
· MIS (Management Information System) on power sector scenario: It is a web-enabled application, providing information on various activities undertaken by the MoP.
· Use of clean coal technology: The Government of India is making concerted efforts to reduce the rising levels of CO2 emissions, which are currently about 9% of the global emissions. It has been promoting the use of clean coal technologies for meeting future energy needs of the country. IGCC (integrated gasification combined cycle) technology is one such cutting-edge technology in clean coal technologies. It produces significantly less greenhouse gases, has operating efficiency of around 40%, reduces water consumption by about 40%, and also produces less solid waste.
SWOT Analysis of the Power Sector
Strengths
· Well established and vast T & D network
An extensive network of T&D lines has been developed in India over the years for withdrawing the power produced at various generating stations and distributing the same to consumers. Lines of appropriate voltages are laid, depending on the quantum of power and distance involved. The state of Andhra Pradesh has the largest T&D network of 803 367 ckt km in the country. Besides, the states of Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, and Uttar Pradesh have more than 0.4 million ckt km of T&D lines.
· Non conventional energy resource base
India has substantial non conventional energy resource base and technologies to meet growing power requirements by tapping this energy. The MNRE (Ministry of New and Renewable Energy) laid down Guidelines for Promotional and Fiscal Incentives by State Governments for Power Generation from Non-conventional Energy Sources. To address environmental issues related to the power sector, the Government of India has started various initiatives, including promotion of renewable energy sources for power generation through schemes such as RPO (renewable purchase obligation), wherein certain quantum of electricity distributed must be purchased from renewable sources. Fifteen states have committed to the RPO. A mechanism for RECs (renewable energy certificates) is also being evolved, which would provide a platform for carrying out trading between renewable energy surplus and deficit states.
· Regulatory mechanism for tariff setting established
· Emergence of strong and globally comparable central utilities: NTPC,
POWERGRID. National Thermal Power Corporation) is the largest power generation company in India. Forbes Global 2000 for 2009 ranked it 317th in the world. It is an Indian public sector company listed on the Bombay Stock Exchange although at present the Government of India holds 84.5%(after divestment the stake by Indian government on 19october2009) of its equity.
Weaknesses
· Persisting shortages
Peaking shortages are about 12% on an all India basis. India’s track record in adding power generating capacity is poor: in the five years to 2007, the country added 20,950MW of capacity, against a target of 41,110MW. According to data from CEA, the western region is the worst affected in the country with around 19% power shortage, with states such as Maharashtra and Gujarat reeling under a shortage of 23.7% and 23.4%, respectively. States draw power from a transmission and distribution grid and overdrawing by one state could hurt the others.
· Power theft
Power theft is an increasing menace; the culprits use the latest in technology: remote sensing devices, high power electromagnet with capacity to effect recordings of meters.
· Pitfalls in billing and revenue collection:
The free power given to farmers is unmetered, so their consumption is not known.
Opportunities
· Natural sources
· Use of digital technology
· Rural electrification
· Untapped hydro power in northeast
Threats
· High AT & C losses (Aggregate technical and commercial losses)
AT&C loss (defined as the difference between the input energy and the units of energy from which the payment is actually realized) has come down further in 2006/07, to 32.07%. Compared to the last two years, this marks an improvement in efficiency, of over 2%
· Waste generation leading to environmental damage
Recommendations
— More focus on CDM (Clean development Mechanism)
The power sector has a predominant share in the CO2 emissions from India and there are significant opportunities to mitigate these emissions. The renovation and modernization of an old thermal power plant will help not only to improve efficiency but also the plant load factor. It also proffers a remedy in a power-starved situation, in a shorter time frame compared to Greenfield projects. While R&M has been regarded as an important option by power planners, and incentives have been given for such investments, the drive has not been particularly successful due to a lack of capital and fiscal incentives. This situation could be altered by CDM revenues.
· Policy stability
Despite central as well as state governments providing various fiscal and other incentives for private investment in the sector, the uncertainty associated with their scope and continuity fails to enlist investors’ commitment for long-term projects.
— Promote more power exchange with neighboring countries
— Rural electrification
— Stringent penalties for power theft
— Research and Development
— Addressing climate change through initiatives in the power sector
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