About Indian Power Sector

Overview

The power generating capacity in India has increased from 1362 MW in 1947 to about 1,43,061 MW in March’ 2008, registering a CAGR of about 6%. The ratio of hydro, thermal, nuclear and wind power capacity stands at approx. 25:64:3:8. Of the total installed generating capacity, the share of Central, State and Private sector stood at 34:52:14.

The electricity generation in FY2007 was about 624 billion units (BUs) (6.7% increase over previous year). The present peak power requirement and the energy stands at 1,00,715 MW and 6,90,587 MU respectively. The demand supply gap has been increasing over the years due to various problems faced by the sector, with energy shortage and peak power shortage during FY2007 at about 66 BUs (9.6%) and 13897 MW (13.8%) respectively.

As per 16th Electric Power Survey (EPS), energy demand at the end of X plan (2007) and XI Plan (2012) is estimated at 719 BU and 975 BU. Peak demand during the corresponding period is estimated at about 1,16,000 MW and 1,57,000 MW respectively. To achieve ‘power on demand’ by 2012, Government of India targets to add about 100,000 MW of generating capacity during X and XI Plans. It may be mentioned that during IX Plan, the overall capacity additions were 18500 MW against the planned addition of 40,250 MW, indicating an achievement of 46%. During X th plan, as on January 2007, there has been a capacity addition of 23,250 MW as against the planned 41,110 MW (56% achievement). It is, therefore observed that notwithstanding the ambitious plans during the IX and X plan periods; the actual achievement fell far short of the targets.

All India installed Capacity as on 12.12.2008 is as given below:

AllIndia	Thermal				Nuclear	Hydro (Renewable)	RES @ (MNRE)	Grand Total
	Coal	Gas	Diesel	Total
MW	77459	14734	1200	93393	4120	36648	13242	147403
%age	52.55	10	0.81	63.36	2.80	24.86	8.98	100.00

Source: http://cea.nic.in/power_sec_reports/Executive_Summary/2008_12/1-2.pdf

Demand Supply Scenarioof india

Historically, the demand for electricity has outpaced the supply in spite of continuous capacity additions. The electricity demand increased at a CAGR of 6% from 305 billion kWh in 1992-93 to 591.4 billion kWh in 2004-05. The supply also increased at a CAGR of about 6% from 276.3 billion kWh to 548.1 billion kWh in the same period. The peak demand and supply grew by 4% and 5% respectively during the same period. The peak shortage exists due to low availability of power during peak periods, due to forced outages and inadequate transmission networks.

The National Electricity Policy envisages demand for power to be fully met by 2012 and energy and peaking shortages to be overcome. This entails provision of adequate reliable power, at affordable cost with access to all citizens. Electricity is in the Concurrent List in the

Constitution and the primary responsibility of structuring its availability and distribution is that of the States. However, both the Centre and the States have to play a decisive and positive role. While shortages are presently being experienced by each region, it is much more acute in the case of some regions and a large number of States are affected.

Amidst all this, the per capita consumption of electricity inIndia stands at about 606 units/year, which is about one fourth of the World average. The same is expected to grow to 932 KWH by 2012 as per the estimates by Ministry of Power. Following are the provisional Region-wise power supply position for the year 2007 – 2008:

Region	Requirement	Availability	Surplus/ Deficit		Peak Demand	Peak Met	Surplus/ Deficit
	(MU)	(MU)	(MU)	(%)	(MW)	(MW)	(MW)	(%)
NR	219,797	196,147	(23,650)	-11	30,700	27,098	(3,602)	-12
WR	247,173	208,228	(38,945)	-16	34,862	26,665	(8,197)	-24
SR	187,743	181,820	(5,923)	-3	25,259	23,704	(1,555)	-6
ER	75,831	72,099	(3,732)	-5	10,995	10,309	(686)	-6
NE	8,799	7,713	(1,086)	-12	1,614	1,268	(346)	-21
AllIndia	739,343	666,007	(73,336)	-10	103,429	89,043	(14386)	-14

Source: Ministry of Power

The total energy requirement in the years to come is as given below:

Year	Gross Energy Requirement ( Gwh)		Energy Required @ Bus Bar ( Gwh)		Projected Peak Demand (MW)		Installed Capacity Required (MW)
	GDP Growth Rate
	7%	8%	7%	8%	7%	8%	7%	8%
2011-12	1031	1097	964	1026	148710	158274	206757	219992
2016-17	1377	1524	1287	1425	204052	225932	276143	305623
2021-22	1838	2118	1719	1980	280332	322896	368592	424744
2026-27	2397	2866	2241	2680	365459	437051	480694	574748
2031-32	3127	3880	2924	3628	476843	591650	627088	778095

Source: Planning Commission of India

Electricity generation and peak demand in 2003-04 is the total of utilities and non-utilities. Energy requirement at bus bar is estimated assuming 6.5% auxiliary consumption. Peak demand is estimated assuming load factor of 76% up to 2010-11, 72% for 2011-12 to 2020-21 and 70% for2021-22 and beyond.

Planned Capacity Additions

The National Electricity Policy (NEP) stipulates power for all by 2012 and annual per capita consumption of electricity to rise to 1000 units from the present level of 631 units. To fulfill the objectives of the NEP, a capacity addition of 78,464MW has been proposed for the 11^th plan. This capacity addition is expected to provide a growth of 9.5 % to the power sector.

MW	XI Plan (2007 – 12)				Grand Total
Sector	Hydel	Thermal	Nuclear	Total
Central	8654	21430	3380	33464	56296
State	3362	23201		26563	37720
Private	3491	14946		18437	25558
Total	15507	59577	3380	78464	119574

Source: Ministry of Power

Transmission & Distribution (T&D) Losses

The T&D losses in the country are on the higher side. The T&D losses in the country, due to concerted efforts has come down from 32.86% during the year 2000-01 to 26.91% in 2007-08 resulting in a reduction of about 5.95%. The year wise details of the T&D losses for the last few years are given below:

Year	Transformation loss, T&D loss and unaccounted energy
2000-01	32.86%
2001-02	33.98%
2002-03	32.54%
2003-04	32.53%
2004-05	31.25%
2005-06	30.42%
2006-07	28.61%
2007-08	26.91%

Source: http://cea.nic.in/power_sec_reports/Executive_Summary/2008_12/1-2.pdf

Regulatory Framework

Electricity is included in the concurrent list (Seventh Schedule) of the Indian Constitution and the development of this sector is vested with both the Central and the State Governments. The legislative framework that governs the Power Sector consists of:

The Electricity Act 2003: The Electricity Act, 2003 has created a new paradigm for the development of power sector in the country. It has abolished the monopoly of the State Electricity Boards created through the Electricity (Supply) Act,1948 and has created a new competitive framework for the development of the power sector in the country with focus on the consumers and safeguarding of their interests by independent Regulatory Commissions. The Act has eliminated/reduced entry barriers in the entire chain of the electricity supply business. It marks the culmination of the process beginning in the mid nineties of States enacting their own Reform Acts and the enactment of the Electricity Regulatory Commission Act of 1998 which brought into place the Central Electricity Regulatory Commission and authorized the States to create SERC if they wished to do so.

The National Electricity Policy: The National Electricity Policy was notified in Feb’2005. The salient features of the Electricity Policy are as follows:

• Access to Electricity Available for all households in next five years.
• Availability of power Demand to be fully met by 2012. Energy and peaking shortages to be overcome and spinning reserve of 5% to be available at the national level.
• Supply of Reliable and Quality Power of specified standards at reasonable rates.
• Per capita availability of electricity to be increased to over 1000 units by 2012.
• Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
• Full development of hydro potential of the country.
• Choice of fuel for thermal generation to be based on economics of generation and supply of electricity.
• Development of National Grid.
• Availability based tariff (ABT) to be extended to State level.
• All India transmission tariff sensitive to distance and direction to be introduced by CERC.

The Tariff Policy: National Tariff Policy was notified in January 2006, with the following broad objectives.

• Ensure availability of electricity at reasonable and competitive rates
• Ensure financial viability and attract investments
• Promote transparency, consistency and predictability in regulatory approaches and minimize perceptions of regulatory risks
• Promote competition, efficiency in operations and improvement in quality of supply

Private Power Development

Existing Private Power Companies in India

Power generation was reserved for Public Sector in the Industrial Policy Resolution of 1956. However, the major existing licensees in the Private Sector viz. TEC, BSES (Now Reliance Energy Ltd), CESC, AEC were allowed to perform the task of generation and distribution of power in their respective territories. The liberalisation of the power sector started in 1991 with the invitation to the private sector to participate in the generation programme. The progress in the IPP programme has been slow with little less than 10000 MW being added in the last sixteen years. This has been mainly due to the deteriorating financial health of SEBs and the ensuing concern of the lenders regarding the SEB’s ability to support the long tenure PPAs. The Government is now undertaking various measures to speed up the reform process and augment the generation capacity.

Led by the Electricity Board of the state of Orissa, various SEBs embarked on the unbundling of the SEB and formed independent entities for power generation, transmission and distribution. Privatisation of distribution was first carried out in Orissa and then in Delhi.

The Government evolved a power policy in the early nineties that underwent gradual refinement over the years. Following are the main features of the scheme to encourage privately owned Independent Power Projects:

Ø No restrictions on private sector entry: The private sector can set up coal or gas-based thermal power projects, hydel projects, and wind and solar energy projects of any size. CEA clearance is no more required except in the case of hydro projects.

Ø Financing provisions :

· Debt-equity ratio of up to 4:1 is permitted

· 100 per cent foreign equity participation through automatic approval route is permitted.

Ø Pricing and Guaranteed Returns (Thermal Generation): Up to 2001, the tariff for sale of power was governed by the Ministry of Power notification of 30th March 1992. Thereafter, CERC issued terms and conditions of tariff 2001, 2004 and 2009; the latter being in force till 2014. As per the said guideline, post-tax return of 15.5% is guaranteed for achieving 85% PLF. Savings through efficiencies can be retained by the company and additional incentives can be earned for higher PLF. Fixed costs including 15.5% ROE can be recovered at 85% PLF. Incentives for generation beyond 85% can be recovered as part of Fixed Cost. Capitalization of interest during construction at actual cost and insurance charges are allowed in the project cost.

Ø Other important provisions:

· Import provisions for equipment for power projects have been liberalized; customs duty (including that of machinery for renovation and modernization) has been reduced.

· A ten-year tax holiday U/s 80 IA of the Income Tax Act, is allowed in respect of profits and gains of new undertakings set up for generation and distribution of power.

· Also there are other concessions in the Customs & Excise duty is available for the mega power projects.