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Higher Growth in Power Sector - Challenges & Prospects (Part-II), Shri R V Shahi, Former Secretary, Ministry of Power

(In Part-I, I had covered five issues which were Debate during the Panel Discussion. In this Article, I propose to cover rest of the issues).

(vi)

In view of the energy sources like coal and water concentrated in certain pockets of the country, for example water resources in East, the evacuation and transmission of power to other regions of the country may become a constraint. It could therefore be a matter of concern for power generation project developers.

It is true that concentration of power generation facilities in certain select areas and locations of Load Centres being far away poses a real challenge to the Transmission Systems Planners of the country. The architecture of the Indian power industry, as envisaged under the Electricity Act 2003, provides for a very reliable and robust institutional arrangement to deal with Transmission Systems Planning and implementation. The Act has recognised that there would a need for transmission of power across the country from far East to far West and from North to South, and in fact various permutations and combinations of power flow from energy sources to load centres where power demands exist. The institutions to deal with this subject consist of Central Electricity Authority as the apex technical organisation, Central Transmission Utility (The Power Grid Corporation of India), National Load Despatch Centre, Regional Load Despatch Centres, State Transmission Utilities and State Load Despatch Centres. The Act also provides for Regional Power Committees (RPC) consisting of concerned stakeholders in every region. The macro level transmission planning has been entrusted to Central Electricity Authority and Central Transmission Utility. Power sector launched upon creation of a National Grid interconnecting various Power Regions. The present capacity of inter-regional transmission exceeds 20,000 MW and it would go beyond 30,000 MW by 2012. In the approach for transmission planning, about 30% cushion by way of redundancies in transmission capacity is being provided to take care of merchant capacities in respect of plants, for which long term PPA may not be provided. Thus, any apprehension or concern on the part of power plant developers appears fully mitigated on account of such a comprehensive structure of transmission planning and its execution. Generation project developers will need to enter into proper commercial agreements with transmission utilities well in advance.

(vii)

While power sector is moving forward, particularly after Electricity Act 2003, there appears to be lack of reforms in the coal sector. Dependence of India's power sector on domestic coal is so intense that this disconnect might cause problems. Should the power plant developers not be concerned about this mismatch?

Attempts had been made almost parallel to reform initiatives in the electricity sector, to also reform the coal sector. In fact, the Bill relating to coal industry was introduced in the Parliament almost nine years back, prior to the Bill relating to electricity. Coal industry restructuring has, no doubt, been a controversial subject. This is so because this is a highly labour intensive industry with very strong Workers Unions. It would have been desirable that coal industry also moves forward parallel with the power sector, it is opened up and competition is generated, with large number of players, Competition on performance would obviously lead to efficiency and power sector would benefit from such efficient operations. However, it may be wrong to say that there has been no movement at all in the coal sector. If not the first best, the second best option has been put in place. The Captive Coal Mining Policy has been liberalised and the procedure for allotment of captive coal blocks has been streamlined. Almost 20 billion tonnes of coal reserves have been earmarked for captive mining. A large number of power project developers have been allotted coal blocks aligned to their power generation projects. This has come as a comfortable relief to the sector because it is expected that this would lead to deployment of new technologies of coal mining which, in turn, may inspire better and more efficient operations even among the Government controlled coal companies. Another initiative which was advocated and is being implemented is the acquisition of coal mines abroad by power project developers. In order to ensure that there is full availability of coal for power plants, it has been recommended that about 5 to 10% of coal could be imported. Various Ports in the country are being augmented to meet this requirement. Thus, several options have been envisaged to address the issue of availability of coal.

(viii)

Since India has the advantage of low cost coal, should it invest in Combined Cycle Gas based plants, Nuclear and other Renewable Technology?

It is true that India has about 257 billion tonnes of coal reserves. It is also true that many experts believe that extractable reserves are comparatively much less. Even then reserves can last for a long period. While formulating the Integrated Energy Policy some of the underlying principles that we had in mind include the following:

  1. Even though we have large coal reserves, it is not upto this generation and even the next generation to consume all that we have. We must use it in a manner so that enough is available for future generations.

  2. Recognition of the above approach gave rise to the principle that reasonable amount of coastal based power generation capacities, based primarily on imported coal, should also be planned. Besides, even for existing plants certain amount of imported coal could be blended with the domestic coal.

  3. As it is, almost 55% of installed capacity is accounted for by coal based power plants, the demands in the future are so large that it may not be possible to develop all these plants only on coal as the fuel. We also need to keep in view the concerns relating to global warming and climate change. Therefore, India has little choice than to opt for all the available options for harnessing energy and power.

  4. India has discovered gas reserves, has had good experience of operating gas based combined cycle power plants, has been comfortable to develop, operate and use LNG facilities. Therefore, as a long term perspective, in the Integrated Energy Policy, which covers period upto 2032, it is envisaged that the present proportion of gas based plants, of about 10% of the total installed capacity, could be targeted to be maintained even at 800 GW which is the vision for the power industry. Similarly, the National Electricity Policy has recognised that the contribution of nuclear power plants should suitably be increased. Perspective plan projects and increase from present less than 3% to about 7% based on nuclear fuel by 2032, which would mean that the capacity would rise from present 4,000 MW to almost 60,000 MW of nuclear power plants. Our Energy Policy stresses suitably on development of Renewable Energy Systems. India is the fourth largest in the world on Wind Energy. The target is to increase the present capacity of about 10,000 MW to 45,000 MW which is the potential. Special Incentive Schemes have been formulated to encourage Solar Systems.

(ix)

Policy of Indian Government to welcome FDI in the power sector has had mixed response. Whys is it that inspite of major reform initiatives, Indian power sector has not been able to attract foreign developers?

It needs to be clarified that so far as power sector is concerned, FDI was allowed to the extent of 100% of equity right from the beginning. The only area which had remained uncovered was Power Trading, and even in this case the FDI Policy was extended. While it would be wrong to say that foreign developers have not joined the recent development phase, because we do have company like AES, China Light & Power, which are active, it would also not be wrong to say that we have not been able to have overwhelming response from foreign project developers so far. As regards FDI, through various mechanism of capital market functioning, the Indian power sector has been able to have access to foreign funds. When we launched the Ultra Mega Projects, we were clear that the first Group of projects would be responded to by Indian developers who may also get some joint venture partners from abroad. We knew that once Indian developers get enthused, take up projects on a large scale, succeed in implementing them and demonstrate that Indian power sector has become much more worthy of investments, it will inspire the developers from abroad. All these have happened and, therefore, it is logical to expect that a number of foreign developers would now find it equally attractive to get into Indian power sector.

(x)

Will Nuclear Power Plan have room for foreigners? What kind of scope would be available - Contracts, Ownership etc.? What would be the status of nuclear power in terms of pricing mechanism, off-take etc.?

As per the existing Atomic Energy Act, Nuclear Power plants can be developed only by Government controlled organisations. Accordingly, Nuclear Power Corporation has been executing, owning and operating these plants. There is also a thinking that Nuclear Power Corporation could set up Joint Venture companies with other Government controlled public sector organisations such as NTPC. A few years back, the matter regarding private sector participation was considered. In the National Electricity Policy, which was approved and notified in January 2005, private sector participation in development of nuclear power has been duly recognised and provided. For doing so, amendment to the Atomic Energy Act was also being considered. If the projections in the Integrated Energy Policy, which provides for almost 60,000 MW nuclear capacity by the year 2032, have to materialise, it would be inevitable that private sector participation is encouraged and facilitated. I would definitely feel that amendment to the Atomic Energy Act should be taken up at the earliest because even after the Act comes into being, it would take a few years before real private sector investments happen. Other forms of participation by private sector in the nuclear power development programmes, otherwise than owning and operating the plants, are definitely likely by way of equipment supply, fuel supply, contracting for construction etc. Pricing of nuclear power is regulated. It appears that this policy may continue for sometime. The developers will need to enter into Power Purchase Agreements with the Distribution Companies or Electricity Boards.

(xi)

India has announced an ambitious programme to install 20,000 MW of solar capacity by the year 2020. What are the prospects for FDI, IPP, Equipment Suppliers etc.?

As we know, Indian power sector is highly fossil fuel centric. Dominance of coal, though with most advanced Super Critical and other technologies, may have to be continued. Therefore, the Government of India National Action Plan on Climate Change has drawn a comprehensive Blue Print and Road Map relying heavily on all forms of Renewable Energy. What is even more important is that the Action Plan provides for Mission Mode to achieve various objectives and targets. Addition of 20 GW of solar capacity has to be planned and steered by Solar Mission. Only recently, the Central Electricity Regulatory Commission has come out with a comprehensive Policy on development of renewable energy. It obliges the distribution companies to procure a specified percentage of their total power from renewable energy generators.

There would be enormous opportunities for FDI in this segment. This is a highly technology based generation system. India would definitely like to progressively embrace the latest solar technologies in the world. A number of companies have already become active on the subject. Both PV Systems and Solar Thermal are being encouraged. There would be opportunities for manufacturers and suppliers to supply these systems in India, and set up manufacturing facilities here both for domestic as well as export markets.

(xii)

What would be the likely market structure in the power sector - Regulated Sale, Long term Contracts, Multiple Customers etc.?

The objective of Electricity Act 2003 is unambiguous and crystal clear. It aims at developing electricity market in the overall interest of consumers. In the last few years, initiatives like Ultra Mega Projects based on competitively bid prices as opposed to regulator determined tariff, merchant plants, Power Trading, Power Exchange are all aligned to this overall objective. Slowly and gradually there would be a shift from regulated tariff to market determined tariff as the market matures. In the transition period there would be no escape from the regulatory interventions in determination of tariff. Also the present practice of long term contracts would shift to a mix of long, medium and short term contract and also purchases through Power Exchange which are at present limited upto weeks but subsequently could get into longer periods upto one year.