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Decentralised Distributed Generation: A pragmatic part solution to power shortages, Shri R V Shahi, Former Secretary, Ministry of Power

On account of the lower growth of electricity generation (less than 3%) during the year 2008-09, power shortages across the country, both in terms of peaking deficit and average energy gap, have increased. The gaps would have been even higher if the present slowdown in economy was not there. In view of reduced growth rates in manufacturing and in service sector, which is leading to a GDP growth of less than 7% during the year 2008-09, demand on power was obviously lower. If the economic activities were to remain at the same level as they were during 2006-07 and 2007-08, obviously the electricity shortages would have been significantly higher. 2009-10 is likely to continue to face the difficulties of global slowdown. And, therefore, the power shortage may remain more or less at the same level i.e. about 15% of peaking shortages. However, when the economy comes to the right pitch of activities, hopefully during the year 2010-11, it is likely that shortages could be even higher, notwithstanding the capacity additions that are in the pipeline.

Wartsila organised a half day discussion on the subject of Decentralised Distributed Generation as a means to support mitigate the shortages. I made the following observations as a part of the Keynote Address:

  • People often ask "When will the situation of power shortage be over?" My reply consistently has been that in the foreseeable future it is unlikely that we will have a situation of no - power - shortage. There is a well considered rationale behind this argument. Unlike most other commodities, in the case of power the very availability of it creates more demand. In any case, India is on a much lower side of per capita consumption of electricity, as compared to many other countries. Even if we do not compare with advanced countries of the West on account of various reasons including vast differences in climatic conditions, we are far behind even China which has reached a per capita electricity consumption level of about 2000 Kwhr as compared to about 650 Kwhr (less than 1/3rd) in case of India.

  • Considering all the relevant factors and variables, while preparing the Integrated Energy Policy (IEP), we developed the projections for installed capacities to be created during the period 2007-32. The total installed capacity has to be increased almost 6 times to 800 GW as compared to 130 GW as in the beginning of 2007.

  • With all the best intentions and renewed preparations, taking due care of lessons learned in the past, it is unlikely that in coming five to ten years we shall succeed in achieving targeted capacity addition programmes. We have been performing in successive Five Year Plans between 45 to 55% of the targets. We might improve to 70%. Yet, we will end up with huge gaps because the scale of targeted programmes itself is on the increase.

  • We should, therefore, agree on the conclusion that we will definitely be confronted with (a) growing demands, and (b) usual shortfalls in capacity additions. These two put together may put pressure on supply side management. Shortages, particularly during peak hours are likely to increase.

  • All steps are being taken and some more steps might be initiated, for smoothening the load curve. In spite of these, it may not be reasonable to expect that our load curve during 24 hour period would be a flat one. Some results have been achieved in the last few years on account of steps like separation of Agricultural and Domestic Feeders. But, we have a long way to go in putting in place various energy efficiency measures, so that we have a more comfortable situation on managing particularly peak hour demands.

  • Intensity and impact of the shortages in supply of electricity could very well be appreciated by the fact that during the current summer season, which has just started, the price of power during peak hours, on short term day - ahead purchases, is reported to have gone beyond Rs. 10 per Kwhr. There are State utilities which, to manage the crisis, prefer paying Unscheduled Interchange (UI) rates of Rs. 8 per Kwhr or higher rather than not drawing the additional power from the grid.

  • Liberalisation of captive power capacity development under the Electricity Act 2003, as further reinforced by the Rules made under the Act, was aimed at mitigating part of the shortage problem. Industry has responded to these liberal policy initiatives. However, the pace of capacity development has not been as expected. I believed, when we liberalised various provisions, that atleast 12,000 to 15,000 MW capacities could come up through captive routes during the Eleventh Plan itself. No doubt, a large number of projects are under construction, but the aggregate would be significantly less than the above projection.

  • Taking advantage of the provision of the Electricity Act, which has fully delicenced power generation capacity development, it was expected that a good number of power plants may come up under the Merchant Plant Group. Here again, it was expected that about 15,000 MW of such capacities could come up. There are a number of projects which have been initiated. But, for a number of reasons, including uncertainty about land, transmission, in some cases about fuel and also in some cases due to financing issues, the process is slow.

  • As a result of all these, we may continue to have a gap in the peaking, of the order of 15% to 20% in various states. The consequence of such shortfalls is experienced throughout the country. In spite of several steps and continuing supports provided to Delhi, we have several areas which suffer load sheddings of varying durations. Situations in other Metros and Cities are even worse. A large number of other towns suffer load sheddings of 5 to 6 hours and rural areas 12 to 20 hours.

  • It is in this context that Decentralised Distributed Generation (DDG) systems can be considered to be a workable alternative to mitigate these problems. We may examine these for three different situations (a) peaking support in towns and cities, (b) group captive power plants for industrial estates, and (c) local distribution network connected decentralised generation in rural areas:

  1. We may examine, for each of the cities/towns, the extent of shortages that are experienced during peak hours. We may exclude all such situations which might come up because of emergencies. Even if we plan for the normal shortages with some marginal addition for emergencies, decentralised generation facility could come quite handy to cope with fluctuating peak hour demands. For example, in a city whose demand is, say, 1,000 MW during peak hours, normal experience indicates that it faces a shortage of the order of, say 100 to 150 MW. A plant on DDG mode (modular units to cope with fluctuating demands) could be set up to handle the peak hour situation. Obviously, such a plant cannot be expected to have a high plant load factor. It might be expected to provide peaking support for about three hours during the day time and about five hours during evenings. As a result it may not have a load factor higher than 30 to 40%. Consequently the fixed cost per unit of power in these cases would be higher. We should compare cost of such power with avoided cost under Unscheduled Interchange rates and with the short term trading rates which may vary between Rs. 6 to Rs. 10 per Kwhr. Obviously, a distribution licensee, as a long term planning, does not think in terms of such an arrangement keeping in view the high price of such power. But, the point that is being made is that given the situations in which we are placed, and there is no reason to believe that the situation would be better for quite sometime to come, it would be desirable to plan such DDG's to cope with peak hour demands which might prove eventually more economical and less painful. Regulatory Commissions may have to consider such an arrangement, allow purchase of such power at rates which could work out more economical than Unscheduled Interchange rates or short term trading rates. This will, however, need entrepreneurs to come up to set up such facilities within or in the neighbourhood of towns and cities.

  2. Industrial estates are another category of large consumers where this concept could make all the difference in making power supply reliable and of quality. Group captive policy permits even 26% of equity investment by consumers. They don't need to take additional financial burden if they don't want to do so. There could be other entrepreneurs who could develop such projects for a group of industrial consumers. The liberalised policy provides - (a) a minimum of 51% of power produced to be consumed by the group of consumers, the balance could be sold to the grid, (b) a minimum of 26% equity to be provided by all the consumers together, the balance could be given by others, may be a developer or a consortium of developers. In order to keep the price within limits, the extent of the additional capacity through such DDG system could be determined on the basis of shortfalls that are generally experienced.

  3. In the rural area DDG's are most relevant. It has been the general experience that whenever there is a mismatch between demand and supply of power in any State, the first group that gets affected most immediately, due to load shedding, is the rural area. Towns and cities which have media presence and presence of opinion leaders are spared to the extent they can be. This situation is likely to continue. Atleast in the next ten years, if not more, DDG has very relevant application for supplying power in villages. We could do it through the small sets to be run on HFO (diesel to be avoided to the extent possible because of high cost), gas based small generation facilities when gas grids are extended in rural areas or even through other means of transportation of gas, bio-fuels based generation facilities, bio-mass systems etc. State utilities should agree to allow the use of their local distribution infrastructure free of cost, so that the burden of higher cost of power could, to some extent, be reduced. Regulatory interventions in a proactive manner could facilitate this process through Public Private Partnership models. Franchisee arrangement for distribution of power in these areas may piggyback the DDG, so that the whole Scheme is made commercially sustainable.

All the stakeholders need to appreciate the necessasity and the rationale of DDG for each of the three situations - in cities to provide peaking support, in industrial areas to match the shortfalls and in rural areas to provide the main source of power supply. We need to have complete acceptance by the regulatory institutions in the larger interest of not only coping with the increasing shortages but also for creating satisfaction among customers with reliable power supply. Customers should recognise that uninterrupted power may cost somewhat higher like in Pune model. We need to have entrepreneurs who should capture the opportunities and create generation facilities with a win-win situation. Governments of the States may formulate Schemes which could facilitate development of these facilities.