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The power sector plays a significant role in the country’s overall economic development and is a critical infrastructure component that ascertains the socio-economic development of the country. The power sector is expected to grow exponentially going forward as the Indian government aims at providing electricity to all households by 2012.

In FY07, India accounted for 3.5% of the world’s total energy consumption and was ranked the world’s fifth largest energy consumer. However, its annual per capita consumption of electricity was around 672 KWh, which was only around 25% of the world average. Due to inadequacies in generation, transmission, and distribution, and inefficient use of electricity, very high levels of technical and commercial losses, substantial energy shortages prevail in the country. Moreover, high transmission and distribution (T&D) losses is an important challenge for the government, as a combination of technical and non-technical factors lead to T&D losses. The Aggregate Technical & Commercial (AT&C) losses are presently in the range of 18-62% in various states and are estimated to be around Rs 200 billion per annum. Reduction of T&D losses to around 10% is expected to release energy equivalent to an additional capacity of 10,000-12,000 MW. The Indian government has taken several measures to reduce overall T&D losses.

Installed Capacity

As on August 31, 2008 the total installed power generation capacity in India was around 145,627.1 MW. Capacity increased at a CAGR of 5.24% during the Tenth 5-year plan. During the same period, thermal, hydro, nuclear and renewable energy sources (RES) grew at a CAGR of 2.9%, 6.7%, 9.4%, 47.8%, respectively. Thermal energy contributes the maximum to India’s power generation.


The power sector can be broadly classified into three main categories:

• Generation
• Distribution
• Transmission

Generation

The generation of electricity in India is mainly focused on key segments — hydro, thermal nuclear and RES. During FY08, power generation recorded a growth of 6.3% against 7.3% in FY07. In FY08, power generation was the highest in the Western region, followed by the Northern region, Southern region, East and North-east regions.

In FY08, state government owned power generation companies contributed around 48.0% of the total 704.5 BU of power generated, followed by the Central government undertakings (42.4%) and private sector companies (8.8%). While private sector companies generate just 8.8%, they are more efficient than their government run counterparts. Plant load factor (PLF) of the overall power sector is considered to be an important measure of the operational efficiency of agencies. The table below shows that private sector companies are comparatively more efficient in terms of PLF than the public sector undertakings.

During FY08, 666 BU of power was supplied and 739.3 BU of power was demanded in India, indicating a deficit of around 73.3 BU or 9.9% deficiency in power supply. Considering the rising demand for power from all sections, there is an urgent need for improving power distribution as well as generation. Demand for power grew at a CAGR of 6.25% during FY03-FY08.

Distribution

Distribution of electricity has been privatised in the states of Delhi and Orissa. At the national level 98% feeders and 89% of consumers have been metered. 100% feeder metering has been achieved in 20 states of the country.

The government launched Accelerated Power Development Reforms Programme (APDRP) in FY03 for implementation in the 10th Plan as additional central assistance to the states for strengthening and up gradation of sub-transmission and distribution systems in high-density load centres. The main objective of the programme was to reduce AT&C loss, reduction of commercial loss and to improve quality and reliability of supply. The programme has two components namely the investment component and the incentive component.

Investment component
Under the investment component the Central Government provides assistance to the tune of 25% to 90% of the project cost in the form of grant to non-special category and special category states respectively. Funds are released by Ministry of Finance, GoI under the advice from Ministry of Power in three instalments based on implementation progress. Balance amount is raised from financial institutions and own resources.


Incentive component

The government incentivises the State Electricity Boards (SEB) to reduce their financial losses. Funds are released to the SEBs for actual cash loss reduction. For every Rs 2 of cash loss reduction Rs 1 is given as grant.

Nine states have shown reduction of cash loss amounting to Rs 57.53 bn and have become eligible for APDRP incentive of Rs 28.76 bn. Government has released Rs 19.59 bn so far to Andhra Pradesh, Gujarat, Haryana, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan and West Bengal.

AT&C loss has come down in towns where APDRP has been implemented. Some of the utilities which adopted various methods interventions as envisaged under the programme have shown significant decline in AT&C loss. AT&C losses have gone down by less than 20% in 215 APDRP towns in the country, of which 163 towns have been brought below 15%.

Transmission

Efficient transmission of power is another important cornerstone in the government’s ambitious ‘power for all by 2012’ initiative. Efficient transmission aids efficient distribution to all regions of the country (entire country has been divided into 5 regions — North, West, South, East, and North east regions) and also makes provisions for linking regions internally to transfer power from those regions having surplus power supply to those regions having deficit power supply due to diversity in demand over the years. India has made the same progrress in transmission. The following table will state the growth of power transmission sector since the Sixth 5-year plan to the Tenth 5-year plan.


Government Policies and Initiatives

The Indian government has taken several measures to improve electricity generation, transmission and distribution. It has also enacted the ‘Electricity Act 2003’ to improve the three functions in the industry. Prior to the Electricity Act 2003, India’s power sector was regulated by three acts namely 1) The Indian Electricity Act, 1910; 2) The Electricity (Supply) Act 1948; 3) The Electricity Regulatory Commissions Act, 1998. In addition, the Indian government also notified the National Electricity Policy in 2005 in accordance with the Electricity Act 2003. In 2008, the government approved a New Hydro Policy that will create a level-playing-field for public and private power producers in the country.

The seventeenth Electricity Power Survey (EPS) report has emphasised on providing power to all by 2012. According to the EPS, it is estimated that by FY12, India’s total projected energy demand will reach 969 Tera Watt Hours, and peak electricity demand will reach 153GW (152,746 MW); this denotes that around 78,700 MW of capacity additions will have to be generated by that time.

Ultra Mega Power Projects (UMPPs)

In view of growing demand of electricity, the Indian government has identified UMPPs, which will use supper critical technology to achieve higher levels of fuel efficiency. These projects are large-sized; each project has a capacity of around 4,000 MW and will involve an estimated investment of around Rs 160 billion. All the projects will be developed on build, own and operate (BOO) basis. There are nine UMPPs identified by the Indian government, four at pithead and five at coastal locations. The Power Finance Corporation (PFC) has been identified as a nodal agency for these projects and accordingly it has set up SPVs for each UMPP. The identified projects are given below:

1. Five coastal site projects:- Mundra in Gujarat, Krishnapatnam in Andhra Pradesh, Tadri in Karnataka, Girye in Maharashtra, and Cheyyur in Tamil Nadu.

2. Four pithead site projects:- Sasan in Madhya Pradesh, Tilaiya in Jharkhand, Sundergarh district in Orissa and Akaltara in Chhattisgarh.

During the Eleventh Plan, the Central government-owned power generation companies are expected to contribute 46.8% of the total (78,700 MW) capacity, followed by state governmentowned companies’ contribution of 34.0% and private sector companies’ contribution of 19.1%.


In addition, according to the Ministry of New Renewable Energy Sources, during the Eleventh 5-year plan, around 15,000 MW of renewable energy is likely to be added, out of which wind power capacity will constitute 10,500 MW, followed by bio mass (including co-generation) at 1,700 MW, small hydro at 1,400 MW, urban and industrial energy at 400 MW and others at 1,000 MW.

Investment Opportunities

In order to achieve higher economic growth in the Eleventh 5-year plan, the government has started encouraging more private participation in power sector development. Also, funds worth Rs 6,665.3 billion will be needed for India to augment its capacity by 78,700 MW during the Eleventh Plan period.

Outlook

The country is experiencing huge shortages in power due to demand driven by the booming economy and rapid industrialisation. Therefore, capacity expansion, increase in generation, transmission, distribution are essential to meet the growing demand for power. As per the seventeenth EPS, electrical energy demand is expected to reach 1,915 Tera Watt Hours by 2021-22 and peak electric demand will reach 298 giga watts (298,253 MW).

However, abundant coal reserves, which are expected to last nearly 200 years at present consumption rates, abundant hydroelectric potential (150,000 MW), a conducive policy for private investors, a large pool of highly skilled technical manpower etc make India’s power sector one of the potentially largest markets in the world today.