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Prachee Mishraprachee@prsindia.org

December 02, 2015

PRS Legislative Research Institute for PolicyResearch Studies3 rd Floor, Gandharva Mahavidyalaya 212, Deen Dayal Upadhyaya Marg NewDelhi – 110002

Tel:(011)2323 4801-02, 4343 4035-36www.prsindia.org

Vital StatsOverview of issues in the power sector in ndia

In the recent past, several initiatives have been taken to address the challenges in the power sector. These include structuralchanges in the regulatory framework as proposed by the Electricity (Amendment) Bill, 2014, and more recently, the UDAYscheme to address financial issues being faced by companies distributing electricity. In this context, we present an overview ofthe status of the electricity sector and the challenges it continues to face.

Power deficit decreasing; North Eastern region saw up to 12% peak hour deficit last year

* Provisional data

The power deficit situation in the country has improved in the past few years. From 2008 to 2014, energy deficit (shortfallin energy supply during a day) has reduced from 11.0% to 3.6% and peak deficit (shortfall in supply during highestconsumption period in a day) has reduced from 11.9% to 4.7%.

Some of the issues leading to the power deficit situation in the country include (i) shortage of fuel, (ii) high AT&C losses,(iii) a differential tariff structure, and (iv) delays in tariff revisions. High AT&C losses and losses arising due to issueswith tariff affect the ability of distribution companies (discoms) to buy power to supply to the consumers.

Generation capacity increasing, but utilisation of generation capacity is still low

Historically, inadequate generation capacity was the key contributor to power deficit. However, generation capacity hasimproved in the last few years due to high participation by the private sector.

Over the years, the capacity to generate electricity has increased, however the actual generation of electricity has not beencommensurate with this increased capacity. Key reasons for the low utilisation of generation capacity are: (i) shortage offuel, especially coal, and (ii) unviable Power Purchase Agreements.

The coal sector has failed to match production with the growth in coal-based generation capacity. This has created a gap between the demand and supply of coal. As a result, India’s coal imports have risen from 59 to 168 million tonnes from

2008-09 to 2013-14 (185%). Shortage of coal affects the generation of power, leading to power deficits. However, withthe reallocation of coal blocks in 2014 it remains to be seen to what extent the supply of coal has been addressed.

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Power deficit

Energy deficit Peak deficit

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NorthernRegion

WesternRegion

SouthernRegion

EasternRegion

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Region-wise power deficit (2014-15)

Energy deficit Peak deficit

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Installed generation capacity (in MW)

Coal Hydro Gas Nuclear Others

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1,000

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Demand, production and import of coal (inmillion tonnes)

Demand Production Import

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Vital Stats: Overview of issues in the power sector in India PRS Legislative Research

December 02, 2015 - 2 -

Decline in AT&C losses has been slower than the target Aggregate Technical and Commercial (AT&C) loss is the

percentage of power procured by the discom for which itdid not receive any payment. The national average forAT&C losses for 2012-13 was about 25%. In countriessuch as UK and US, AT&C losses are about 6-7%.

Technical loss is the energy lost as heat when electricityis carried over wires. Poor equipment increases this loss.Commercial losses are caused by theft and pilferage of

power, and lack of metering and poor billing andcollection systems.

The Accelerated Power Development Program waslaunched in 2002-03 with the main objective of reducingAT&C losses. However, reduction in AT&C losses(1.1% per annum) has been slower than the target (3% forutilities with losses above 30%; 1.5% for others).

Differential tariff, delays in tariff revisions lead to financial losses

In 2013-14, the average cost of supplying power was Rs 5.9/kWh whereas the average tariff was Rs 4.8/kWh. In the sameyear, across consumer categories, the average tariff was highest for commercial (Rs 7.6/kWh) and industrial (Rs 6.3/kWh)consumers. Average tariff was the lowest for agricultural consumers at 1.8 Rs/kWh (due to direct subsidies received fromthe state government and cross-subsidisation by commercial and industrial consumers).

Supplying electricity at tariff lower than the cost to supply, along with delay in tariff revisions has led to discoms facinghuge financial losses.

Borrowings by state owned discoms has been increasing

The accumulated losses of state-owned discoms (without subsidies) rose from Rs 11,699 crore in 2004-05 to Rs 71,271crore in 2013-14. These losses have resulted in state discoms relying more on short-term loans to fund their operations.Borrowings by state discoms rose from Rs 1,58,003 crore in 2007-08 to Rs 5,45,922 crore in 2013-14 (CAGR 23%).

Consequently, the interest cost on these loans worsens the poor finances of state discoms. Poor finances of the discomsaffect their ability to buy power, thus leading to power deficits.

Data Sources: Ministry of Power; Ministry of Statistics and Programme Implementation; Central Electricity Authority; Lok Sabha Questions; Power

Finance Corporation; PRS.DISCLAIMER: This document is being furnished to you for your information. You may choose to reproduce or redistribute this report for non-commercial

purposes in part or in full to any other person with due acknowledgement of PRS Legislative Research (“PRS”). The opinions expressed herein are entirelythose of the author(s). PRS makes every effort to use reliable and comprehensive information, but PRS does not represent that the contents of the report areaccurate or complete. PRS is an independent, not-for-profit group. This document has been prepared without regard to the objectives or opinions of thosewho may receive it.

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AT&C losses

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2009-10 2010-11 2011-12 2012-13 2013-14

Gap between average cost of supply and tariff

Average cost of supply Average tariff

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6.0

8.0

2009-10 2010-11 2011-12 2012-13 2013-14

Consumer category-wise electricity tariff

Agriculture Domestic Commercial Industrial

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1,00,000

2009-10 2010-11 2011-12 2012-13 2013-14

Commercial losses of discoms (in Rs crore)

Without subsidy With subsidy

01,00,0002,00,0003,00,0004,00,0005,00,0006,00,000

2 0 0 7

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Borrowings by state discoms (in Rs crore)

In Rs/kWh In Rs/kWh