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NEW STRIDES IN POWER SECTOR
Stendra sri | 05 Apr 2008

Power for All by 2012 is the goal set by the Ministry of Power. This entails provision of adequate reliable power, at affordable cost with access to all citizens. Electricity is a concurrent subject. The primary responsibility of structuring its availability and distribution is of the States. The Government has been facilitating this process through coordinated planning, regional electricity boards, inter-state transmission links and a few central generating stations. With the establishment of major central generating companies like National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation Ltd. (NHPC), North Eastern Electric Power Corporation (NEEPCO) and the Central Transmission Utility, Powergrid, as well as with the decline in the financial and operational health of State Electricity Boards or other utilities, the role of the Government has got enlarged. Seeing the state of household electrification, particularly in rural areas, the Rajiv Gandhi Grameen Vidyuteekaran Yojana (RGGVY) was launched in 2005. This has been preceded by major intervention schemes like Accelerated Generation and Supply Programme (AG&SP) to boost state sector generation and Accelerated Power Development and Reform Programme (APDRP) to address the severe malady of high Sub Transmission, Distribution and Commercial losses. Along with restructuring the opaque monolithic electricity boards, an independent tariff setting regime under the regulatory commissions has been put in place.

There is need for a growing and urgent realization that the power sector is not merely a welfare activity. It is an industrial and commercial venture which must not only be self supporting but also provide for improvements and expansion, besides being an activity which is deemed to be a profitable venture for private investment.

Some key issues relating to this sector are:

Persistent energy and peaking shortages.

Despite consistent generation growth of over 5% during the last four years shortages remain alarmingly high due to the rapid increase in demand for electricity. The rapid growth of the commercial and industrial sector, coupled with the penetration of electrical equipment in rural areas, as a result of complete access, demand is likely to burgeon.

The increase in generation is the outcome of capacity addition and improvement in the plant load factor. In the last few Plans only 50% of the capacity addition targets have been met and increase in generation has been mainly due to improvement in the plant load factor.

With plant load factor reaching the technical threshold limit, any further slippages in the capacity addition targets would have serious repercussions.

Lack of commercial viability of State Electricity Boards/State Distribution Companies and modest private sector investment.

Transmission and Distribution losses at 31% in India continue to be among the highest in the world. Aggregate Technical and Commercial (AT&C) losses have shown only marginal decline from 38.86% in the year 2001-02 to 34.54% in 2005-06.

Large scale theft of power. Amendment to the Electricity Act, 2003 for more stringent provisions has been approved by the Lok Sabha on 07.05.2007. However, distribution being almost entirely with the States, enforcement of law is in the hands of the States.

Distorted tariff structure with high industrial tariffs adversely affecting competitiveness of Indian industry combines with highly subsidized (in a few cases, even free supply of electricity) to agriculture leading to wasteful usage of water and ground water depletion. The growing rural domestic consumer constituency and their aspiration level to get power supply at part with towns has brought about the need for feeder separation for rural domestic and agriculture loads.

Operationalisation of open access in State level transmission and distribution is the key for operating an electricity market on competitive lines.

Incomplete electrification of the country. Only 43% rural households had access to electricity according to the 2001 Census.

Inefficient consumption of electricity requiring Energy Conservation and Demand Side Management (DSM).

To revamp the Power Sector with a view to over come above mentioned bottlenecks, a number of path breaking initiative have been taken in the recent past, both in terms of policy pronouncements and programmes ranging from bringing about efficency in generation segment through introduction of super critical technology to penetration of commercial energy in the rural areas and consolidation of electricity delivery system.

The Electricity Act, 2003 and various policies frame there under, provide a very strong enabling structure for ushering in competition and market orientation to electricity business. Every segment of the electricity value chain i.e. generation, transmission and distribution will have to compete in a much more open and transparent framework. The electricity regulators will determine the business play while keeping in view the consumers interest.

Generation

Since Independence, there has been sizeable growth in the power sector. At the time of inception of planning era, generating capacity in the country was only 1750 MW which has increased to 1,38,252 MW as on November 30, 2007. After, United States, China, Japan, Russia and Canada, India ranks Sixth in terms of Electricity Generation. Power generation in 2006-07 was 668 billion KwH. Despite, rapid increase in population over period of time, per capita consumption has increased from 15 KwH at the time of Independence to 631 KwH in 2005-06. The target for 2012 has been set as 1000 units per capita.

Central Sector’s share in generation had gradually increased from 12% in 1979 to 35% as on 31.3.2007. On the other hand the share of State sector has declined from 82.5% to 55% during same period. Share of Private sector has gone up from 5.2% to 10.7%. Resource crunch in the State Power Sector had adversely affected the investible surplus available with the States and hence their capacity addition programme is not in line with growing demand for power.

New Thrust in 11th Plan

Capacity addition programme of 78,577 MW has been envisaged for the 11th Plan. In the 8th 9th and 10th Plan together capacity addition has been 56,722 MW. In comparison 11th Plan target is 28% more than the last three Plans put together. In addition about 14,000 MW is expected from renewable energy sources and another 12,000 MW is likely to be added by way of captive power plants of which 5,000 MW is expected to be available to the grid. The proposed capacity addition of 78,577 MW comprises of 39.865 MW (50.7%) in central sector, 27,952 MW (35.6%) in state sector and 10,760 MW (13.7%) in private sector has been proposed during 11th Plan.

Out of 78,577 MW, projects of 6,445 MW (8.2%) have commissioned and project of 59,393 MW (75.6% of the proposed capacity) are already under construction. Thus about 84% of the proposed capacity addition has either commissioned or is at execution stage. Regarding Fuel mix, it is to mention that coal to remain mainstay in meeting the fuel requirement of the 11th Plan projects. About 54,300 MW is to be on coal/lignite. Over 90% of the 11th Plan coal based projects have already got the coal linkage. In the Eleventh Plan super critical technology would be introduced in the country in a big way and it is expected that over 8,000 MW (15% of Coal based capacity planned) would be coming up in this category.

Development of Ultra Mega Power Projects

Development of Ultra Mega Power Projects (UMPPs) has been identified as a thrust area. These are very large sized projects, approximately 4000 MW each involving an estimated investment of about Rs. 16,000 crore. These projects will meet the power needs of a number of states/distribution companies located in these States, and are being developed on a Build, Own and Operate (BOO) basis. In view of the fact that promotion of competition is one of the key objectives of the Electricity Act, 2003 and of the legal provisions regarding procurement of electricity by distribution companies, identification of the project developer for these projects is being done on the basis of tariff based competitive bidding. Guidelines for determination of tariff for procurement of power by distribution licencees have been notified in January 2005 under the provisions of the Electricity Act, 2003. The Power Finance Corporation (PFC), a PSU under the Ministry of Power, has been identified as the nodal agency for this initiative.

Out of the nine identified sites, Sasan in Madhya Pradesh and Mundra in Gujarat are already under the implementation stage. The RfP stage in respect of Krishnapatnam UMPP is over and Apex Evaluation Committee has recommended Reliance Power Limited as L1 quoting the levelised tariff of Rs. 2.33 per unit. Accordinlgy, Coastal Andhra Power Ltd. had issued Letter of Intent to Reliance Power Limited on 30.11.2007. In addition, the RfQ stage in respect of Tilaiya UMPP was completed on 12.11.2007 and 13 bids have been received. The bids are under evaluation. Five other sites are to be located in States of Orissa, Chhattisgarh, Maharashtra, Tamil Nadu and Karnataka.

Transmission

Indian power system is demarcated into five independent regional grids viz. Northern, Eastern, Western, Southern and North-eastern Regions. All the regional grids, except Eastern and North-eastern Regions, operate independently with only a limited exchange of power across the regions.

Inter-regional connectivity has been planned with hybrid system consisting of HVDC, Ultra High Voltage AC (765 KV) and Extra High Voltage AC (400 KV) lines. The present inter-regional capacity is 17,000 MW. This capacity is further slated to grow to 37,700 MW in 2012. 

Distribution Sector Reforms

The decade of the 1990s also saw the gradual deterioration of the financial health of State Electricity Boards. Towards the latter half of 1990s, it was apparent that the deterioration in the finances of the State Electricity Boards was becoming unsustainable. Restoration of the financial health of the State Electricity Boards/State Utilities was recognized as the most critical challenge facing the sector. In this context it becomes clear that the Distribution Sector needed urgent attention if the trend of deteriorating financial health had to be reversed. The reversal required a combination of the following key measures:-

a) Control of theft of electricity

b) Reduction in the cost of supply through reduction in technical losses.

c) Better management and lowering the cost of generation

d) Payment of user charge and tariff rationalization

Attention over the last few years has been focused on each of these and there has been significant progress. Notwithstanding encouraging initial results, the task ahead is challenging and the momentum achieved needs to be sustained. To achieve this second phase of reforms are being launched. The new APDRP scheme is on anvil.

Role of Renewables

Given the limited amount of domestic conventional energy sources, renewable energy sources gain significance in the Indian context. It has been India’s considered stand that all hydro projects irrespective of size are to be considered renewable. Out of the total installed capacity of over 1,39,000 MW (excluding captive capacity), 34,261 MW is hydro and another about 10,175 MW is contributed by other renewable such as wind. Both together constitute more than 32% in the total fuel mix. During the course of 11th Plan capacity addition through hydro segment has been proposed over 16,000 MW, whereas capacity addition from other renewable sources including wind, has been proposed about14,000 MW. India has fourth largest installed capacity on wind in the world.

Increasing the Reach of Commercial Energy

Electricity has never been a pure public good as principle of exclusion was invariably applied to the consumers by way of prevailing tariffs. However, by not reaching these large number of villages we have literally excluded vast population of the country from making a rational choice as a consumer. This order needs immediate correction. The National Common Minimum Programme has rightly identified this as a major problem of the country and envisaged for providing electricity to all the rural households within the span of five years. This is a daunting task but achievable.

A number of studies have shown conclusively that Human Development Index (HDI) is highly correlated with the Energy Development Index of that country. Energy Development Index in turn, is dependent upon the commercial energy used in the country. Millennium Development Goals (MDG) have envisaged the target of halving the percentage of population living below the poverty line and also to increase commercial energy in higher proportion. These goals, in Indian context, imply huge penetration of commercial energy in rural areas.

Ministry of Power has redefined its priorities and brought about a paradigm shift in the approach. Rajiv Gandhi Grameen Vidyuteekaran Yojana has been launched to change the energy landscape of rural India by electrifying all the villages and households in a time bound manner. RGGVY is part of the Bharat Nirman Programme of the Government which targets to electrify one lakh twenty five thousand un-electrified villages and to give electricity connections to 23.4 million households by 2009. 90% capital subsidy is being provided for projects under the scheme. A capital subsidy of Rs. 5000 crore was provided for Phase-1 of RGGVY during the last two years of the 10th Plan period. As on December 7, 2007 under RGGVY 43,802 un-electrified villages have been electrified and 16.26 lakh BPL connections have been released. To achieve revenue sustainability; it has been made mandatory to appoint franchisees in RGGVY areas. The Government has approved availability of Rs. 28,000 crore subsidy for the scheme during 11th Plan.

Energy Conservation

Energy Conservation Act is in place to facilitate energy conservation drive in the country. Bureau of Energy Efficiency (BEE) was set up as a nodal statutory body in 2002 at the central level to facilitate the implementation of the EC Act. The Integrated Energy Policy (IEP) lays emphasis on energy conservation and efficiency, particularly through Demand Side Measures (DSM) and estimates 15% saving of energy is possible by such interventions. The Conference of Chief Ministers chaired by the Prime Minister on May 28, 2007, recognized the significant potential of saving electricity through its efficient use by Demand Side Management interventions which would provide immediate results for saving electricity. Interventions include bulk procurement and distribution of CFLs, adoption of Energy Conservation Building Code (ECBC), promoting and mandating the use of energy efficient pumps and other energy efficient appliances.

The major initiatives launched/being launched by BEE include:

Bachat Lamp Yojana to promote energy efficient and high quality CFLs as replacement for incandescent bulbs in households.

Standards & Labeling Scheme targets high energy end use equipments and appliances to lay down minimum energy performance standards.

Energy Conservation Building Code (ECBC) that sets minimum energy performance standards for new commercial buildings.

Agricultural and Municipal DSM targeting replacement inefficient pumpsets, street lighting, etc.

Operationalising EC Act by Strengthening Institutional Capacity of State Designated Agencies (SDAs). The scheme seeks to build institutional capacity of the newly created SDAs to perform their regulatory, enforcement and facilitative functions in the respective states.