Power Sector Analysis in India

Introduction

Power or electricity is one of the most critical components of infrastructure, affecting economic

growth and wellbeing of nations. The existence and development of adequate power infrastructure

is essential for sustained growth of the Indian economy. With a production of 1,006 terawatt hours

(TWh), India is the fifth largest producer and consumer of electricity in the world after US, China,

Japan and Russia.

The Indian power sector is one of the most diversified in the world. Sources for power generation

range from commercial sources such as coal, lignite, natural gas, oil, hydro and nuclear power to

other viable non-conventional sources such as wind, solar, and agriculture and domestic waste. The

demand for electricity in the country has been growing at a rapid rate and is expected to grow

further in the years to come. In order to meet the increasing requirement of electricity, massive

addition to the installed generating capacity in the country is required.

Current Scenario

Indian power sector is facing challenges and despite significant growth in generation over the years,

it has been suffering from shortages and supply constraints. Energy and peak load shortages were

7.8 % and 13 % respectively in the year 2000-01. The per capita electricity consumption in India is

about 400 kWh/year, which is significantly lower than the world average of around 2,100 kWh/year.

As GDP growth accelerates to an ambitious 8 to 10 %, the shortage of power will become more

severe.

The power situation in India is characterized by demand in excess of supply, high Transmission and

Distribution (T&D) losses, low Plant Load Factor (PLF), peak demand and energy shortages, poor

financial health of the State Electricity Boards (SEBs) and Severe resource crunch. The power sector

reforms in the country and consequent privatization of generation, T & D have been sluggish, due to

complexities involved. The Ministry of Power has been making continuous efforts for promoting

reduction of T&D loss and re-structuring of SEBs. The electricity regulatory commissions, recently

formed as a part of the reforms, have been still learning to exercise adequate control on power

tariffs.

With reference to above power and energy scenario, Ministry of Power (MoP) and Ministry of Non-

conventional Energy Sources (MNES), Government of India, has been Promoting viable renewable

energy technologies including wind, small hydro and biomass power, energy conservation, demand

side management etc. MNES has been promoting various sources of renewable energy since 1990.

Wide spread need of power generation has created the need for a cheap and readily available

commercial fuel for generating electricity at low cost. Coal was the first to be selected in India as a

commercial fuel in early thermal power stations and is still king of the power market.

Central Electricity Authority (CEA) has initially projected a shortfall of 1,50,000 MW in 15 years and

therefore, a capacity addition target of 10,000 MW every year, the actual capacity addition has been

far short of targets. The CEA has recently revised the capacity addition target to 1,00,000 MW from

earlier target. This implies an annual addition of 8,500 MW as against earlier fixed of 10,000 MW.

Capacity addition in the last five years including financial year 2000 was average 3,000 MW per year.

Out of the total capacity

added during last five years, 49% was added by the states and balance by central plants excluding

only 4% contributed by private sector. This indicates that, the states have been the largest

contributors to incremental capacity.

Market Size

Electricity production in India (excluding captive generation) stood at 911.6 TWh in FY13, a 4 per

cent growth over the previous fiscal. During FY14, electricity production stood at 967 TWh. Over

FY07–14, electricity production expanded at a compound annual growth rate (CAGR) of 5.6 per cent.

The Planning Commission’s 12th Plan projects that total domestic energy production would reach

669.6 million tonnes of oil equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22.

As of April 2014, total thermal installed capacity stood at 168.4 gigawatt (GW), while hydro and

renewable energy installed capacity totalled 40.5 GW and 31.7 GW, respectively. At 4.8 GW, nuclear

energy capacity remained broadly constant from that in the previous year.

Indian solar installations are forecasted to be approximately 1,000 megawatt (MW) in 2014,

according to Mercom Capital Group, a global clean energy communications and consulting firm

http://powermin.nic.in/indian_electricity_scenario/introduction.htm

Current stats.

Investment

The investment climate is positive in the power sector. Due to policy of liberalisation, the sector has

witnessed higher investment flows than envisaged. The Ministry of Power has sent its proposal for

the addition of 76,000 MW of power capacity in the 12th Five Year plan (2012-17), to the Planning

Commission. The Ministry has set a target of adding 93,000 MW in the 13th Five Year Plan (2017-

2022).

The industry has attracted FDI worth US$ 9,269.45 million during the period April 2000 to August

2014.

Some of the major investments made into the Indian power sector are as follows:

Three landmark initiatives for energy efficiency – Design Guidelines for Energy Efficient

Multi-Storey Residential Buildings and Star Ratings for Diesel Gensets and for Hospital

Buildings – were launched by Mr Dharmendra Pradhan, Minister of State with Independent

Charge for Petroleum and Natural Gas, Government of India.

Neyveli Lignite Corporation (NLC), as part of its entry into green energy generation, has lined

up renewable energy projects worth Rs 500 crore (US$ 81.51 million) to set up wind and

solar energy projects of 80 MW in India.

Larsen & Toubro Ltd (L&T) has signed a contract worth US$ 200 million to set up a 225 MW

gas-based power plant at Sikalbaha in Chittagong, Bangladesh.

Adani Power has bought Lanco Infratech’s Udupi power plant for Rs 6,000 crore (US$ 978.24

million), which has made it the largest acquisition in the thermal power space.

ReGen Powertech has forayed into solar power business as it plans to produce India’s first

solar powered inverter devices.

Astonfield Renewables plans to set up two 2 MW solar projects in Mauritius with an

investment of approximately US$ 8.2 million.

POWER GENERATION

1. State Electricity Boards (SEBs) -

The SEBs are state owned entities. Presently there are 13 SEBs all around India. The SEBs are the

major generators of power in the country. The together account for about 55% of the total power

produced in the country.

2. Central Power Supply Units (CPSUs) –

Like the SEBs, the CPSUs are also government owned entities. However they are owned by the

central government. One known example of a CPSU could be NTPC. They are also one of the major

electricity producers in the country accounting for almost 35% of the total generation capacity.

However the capacity additions for these public sector companies (SEBs & CPSUs) have been below

targets because of large public deficit that hampers the government’s ability to invest.

3. Independent Power Producer (IPPs) –

They are privately owned power producers. One major constraint for IPPs is that they are allowed to

sell the power produced by them only in the state they located.

4. Private Units –

The private units are power producing companies with no state participation. The orders received by

the private units are mostly backed by power purchase agreements (PPA). The government has also

allowed foreign participation in this sector of power generation. Currently there are 65 private

licenses given to private entities but only a few of them are operational. One of the main reasons

could be the large capital outlay required to run this business. Also, there are inadequate

arrangements for ensuring payment security, delay in land acquisition, environment clearances,

contractual problem. The main problem also could be deteriorating condition of main purchaser in

transmission. i.e. SEBs.

5. Captive power plants –

The captive power plants are those that are run by large private industrial houses. This is mainly due

to high and unsubsidized power tariffs charged to the industrial sector.

POWER TRANSMISSION

The transmission segment can be further categorized as

- National transmission Grid

- Regional transmission Grid

- Sub- transmission Network

- Primary Transmission Network.

The ownership of the transmission companies can also be divided into public and private

ownership:-

1. SEB’s-

The SEBs are state owned public entities and they are responsible for intra state transmission of

power.

2. Power Grid Corporation of India-

It is a central government owned entity and is responsible for inter state transmission.

Together the SEBs and PGCIL account for 90% transmission capacity all over the country.

3. Private Entities –

Private entities have low presence. However their business is picking up by orders received from

state owned transmission companies. Also the implementation of the RGGVY scheme has helped

such companies to have thick order books.

POWER DISTRIBUTION:

1. SEB’s & Public Utilities –

Together they account for almost 87% of total distribution services in the country.

2. Private licenses -

Private licenses account for the remaining 13% of distribution services carried out in the country.

Example of privately owned distribution companies are BSES, TEC & CESC & Torrent Power AEC Ltd.

Power Equipment Sector

The Indian power equipment sector constitutes of 20% of total power sector. The increase in

generation capacity results into increasing need for transmission and distribution capacities. All this

invariably results in high demand for power equipments. The growth of power equipment

manufacturers has remained shunted. The Indian companies face huge competition in terms of cost

effectiveness from Chinese, Korean and Japanese players. However, the Japanese and Korean

components are more accepted in the market than the Chinese components. Key Japanese players

like Mitsubishi and Toshiba have already entered the Indian manufacturing sector through JVs.

INDIAN POWER SECTOR ISSUES

According to planning commission report, in 11th Five-Year Plan (2007-2012), Indian government

aims to add over 78,500 MW of new capacity to achieve the ambitious mission of „Power for All by

2012‟. To meet its large and growing power needs, there are many shortcomings [3].

A. Limited fuel

In the Indian Power sector, primarily electricity production is from thermal power stations. The main

fuel used is coal. Coal fuels about 55% of India‟s power generation, and if current projections are

accurate, that proportion will grow substantially in the next 20 years. Additional power generation is

likely to require incremental amount of coal transportation by Indian Railways within the country

and increasing unloading at ports in India for imported coal.

B. Equipment Shortage

Equipment shortages have been a significant reason for India missing its capacity addition targets for

the 11th five year plan. While the shortage has been primarily in the core components of Boilers,

Turbines and Generators, there has been lack of adequate supply of Balance of Plant (BOP)

equipment as well. These include coal-handling, ash handling plants, etc. Apart from these, there is

shortage of construction equipment as well

C. Transmission & Distribution Losses

High distribution-line losses are among the most vexing problems in the Indian power sector. India‟s

aggregate technical and commercial losses average about 32% of electricity which is very high as

compared to those developed countries (6-11%). This is a matter of concern as well as potential for

saving, which may reduce the demand supply gap. A reduction in Transmission & Distribution losses

by 1% would result in a saving in capacity by about 800 MW.