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Main Industry Centres Should Have Group Captive Power Plants, Shri R V Shahi, Former Secretary, Ministry of Power

Last week, I was invited to address the Annual General Meeting event of the Tamil Nadu Electricity Consumers' Association (TECA) and Indian Chamber of Commerce and Industry, Coimbatore, which is an affiliate of Federation of Indian Chambers of Commerce and Industry (FICCI). The gathering was attended by almost all industry captains, business leaders and other distinguished personalities of Coimbatore. This city requires about 1,500 MW of power, next only to the capital city of Tamil Nadu viz. Chennai which has a requirement of 2,000 MW. In terms of industry and business, Coimbatore is the main centre of the State. The back drop of this event was provided by the immediate concerns that the entire city, but more particularly the industry and business, have on account of heavy load sheddings in the city. It would be relevant to outline some important features of the problems that consumers face:

  • A number of industrial units in Coimbatore belong to process industry group and disruption in power supply causes substantial loss to production and also quality of product.

  • I was informed that official load shedding, almost every day, is of the order of five to six hours but even if during certain hours there is no notified load shedding, industrial units are asked that they should not draw power from the system. As a result, in effect load sheddings on most of these days are of durations varying between nine to ten hours.

  • Significant feeling of resentment and of being aggrieved prevails among the factory owners and those running large commercial offices because, in their opinion, while Chennai is subjected to very little of load shedding, Coimbatore, which is the hub centre of industry, is being given a discriminatory treatment.

  • The consumer profile in Coimbatore is highly weighted in favour of industrial consumption and service sector needs, inasmuchas more than 45% of the total demand comes from industry, trade and business.

It is in the above background that I was invited to speak to them (in fact before my visit to the city I had absolutely no idea that such was the state of affairs of power supply in the city). I structured my address mainly focusing on what could be the short to medium term solutions to the power sector problem of Coimbatore, but since the theme of the address was to give them a total perspective of power scenario including issues and challenges for the whole country, I also gave an account of the long term Integrated Energy Policy, the plan and programmes for the Eleventh Plan and the possibilities of reduction and shortages in coming years. The second part of the address focused on Tamil Nadu electricity sector highlighting, in particular, the reasons for the deficiency, the structural issues of the Electricity Board and the likely prospect in coming few years. The third part of the address focused, in detail, on Coimbatore itself bringing out what needs to be done on a priority basis.

In this paper I would avoid including the details that I brought out in my address for the Indian energy sector including the 25 year perspective on energy as recommended by the Expert Committee and also the recommendations of the Working Group on Power for Eleventh Plan, which forms the basis for Eleventh Plan programme of the power sector. In this article I will like to confine to - (a) Tamil Nadu power sector, and (b) Issues pertaining to Coimbatore.

Tamil Nadu Electricity Board, in the past, was one of the best organised Boards in the country. The problems of electricity supply were rather few. However, in the last ten years things have deteriorated. Some of the points that need to be highlighted to bring the whole issue in right perspective are as follows:

  1. The total installed generation capacity of power in the State is about 11,000 MW consisting of about 5,700 from the State sector and about 5,200 from the private sector. The hydro electric capacity is about 2,100 MW, thermal capacity - 4,700 MW and renewables about 4,200 MW. Thus, this is one State where the capacity profile is highly skewed towards Renewable Energy sources, most of which is contributed by the private sector, to the extent of about 4,100 MW. This is so because, quite an early stage, a number of wind turbines were set up.

  2. Since, a large proportion of the total capacity, to the extent of almost about 40% comes from Renewable Energy sources, the energy generation from these projects are not of the same order as from the other conventional sources of generation. As we know, wind based plants give a Plant Load Factor of about 25% only. Similarly, hydro projects also do not deliver a higher Plant Load Factor than about 45%. In the total capacity of 11,000 coal based thermal is only about 4,700 MW, less than 50%. These imbalances also do account for lesser generation of power and therefore shortages.

  3. The allocation of power to Tamil Nadu from the central generating stations of NTPC, Neyveli Lignite Corporation and Nuclear Power Corporation is about 3,300 MW and there is a special allocation from the Naphtha based power project of NTPC at Kayamkulam (Kerala) to the extent of 180 MW.

  4. Thus, for the whole State inclusive of State based generation (State sector and Private sector) and Central allocation, the total capacity works out to about 11,300 MW.

  5. Even in 2006-07 the peaking shortage in the State was less than 3%. It increased to about 16% in the year 2007-08 and that is the reason that various consuming centers of the State including Coimbatore are facing the problem.

  6. Tamil Nadu is a growing State. Per capita consumption of electricity is about 1,100 Kwhr per year. This is substantially higher than the national average of about 625 Kwhr and it is among the top few States in the country. In the GDP growth of the country, States like Tamil Nadu are expected to contribute significantly higher than average States. Shortage of this nature, therefore, is a matter of serious concern.

  7. It is rather unfortunate that in last ten years the capacity additions by the State have been very low. At the end of the Ninth Plan i.e. in 1997, the total installed capacity of the State was of the order of 9,000 MW. Even if we expect a 7% growth (which we must) and take only simple average rather than compounded growth, in a period of ten years, the State should have added more than 6,500 MW. As against this the performance of the State was abysmally low at about 1,700 MW.

  8. Therefore, if a State has to provide a GDP growth to the extent of 8 to 9%, it needs to deliver an electricity growth of 7% (simple average). Therefore, if it is expected to add, in a long period of ten years, about 6,300 MW and if it does hardly 30% of what it should have done, it is bound to meet with the type of consequences that the State is faced with.

  9. Even now the capacity addition programmes by the State of Electricity Board are not receiving the attention that this subject deserves. Tamil Nadu Electricity Board is now one of the last few Boards in the country, and if we focus on large States, perhaps it is the only one which has not taken up the issue of the restructuring of the State Electricity Board in any serious manner. Quite often a question is raised as to why restructuring the State Electricity Board is necessary to bring about reform in the sector. We need to recognise that large monolith Electricity Boards are unable to focus, in an accountable fashion, on different streams of Electricity Industry. The diffused responsibilities on generation, transmission and distribution have failed to deliver the desired outcomes. In the mix up of priorities none of these segments have been attended to properly. Restructuring of State Electricity Boards, particularly in large States, has demonstrated that the Managing Directors of Generation, Transmission and Distribution Companies have started looking at their responsibilities and tasks not only in a pinpointed manner but also these entities have started performing significantly better. Tamil Nadu is an example of such Electricity Boards which have given scant regards to the most important need of adding large generation capacities so that the power shortage problems are properly mitigated. It is high time that this issue is addressed with the urgency that it deserves.

  10. The strongest positive point of Tamil Nadu electricity supply is that it is one of the very few States where theft of electricity is comparatively much less. The aggregate technical and commercial loss is about 20%. But, with more organised set of actions on electricity distribution, through APDRP and other initiatives, the results could have been much better. There is no reason why in most of the towns the loss should be more than 10 to 12%.

  11. The weakest point, however, apart from very poor track record on capacity additions, is the practice of providing free power to Agriculture. There are only three States in the country which have this problem - Tamil Nadu, Andhra Pradesh and Punjab. The simple question is "How can a State afford the luxury of committing free power to certain sections of consumers if it does not have enough electricity to supply even to those who are prepared to pay for it"?

The third aspect, that I discussed, relates to the power supply situation and possible remedies for Coimbatore. The industrial units here are facing acute problems. While the efforts to persuade the State Government and the State Electricity Board to reduce the extent of load shedding may continue, some of the specific suggestions made are as follows:

  1. The Open Access in distribution, as a system and Policy, is available. What is needed is that the Indian Chamber of Commerce and Industry, Coimbatore, TECA and the Regulatory Commission, sit together and access power, through Trading or otherwise, so that more power could be made available to the industrial units. In cases where Electricity Boards and State Electricity Distribution Companies are totally unable to meet the demands, there is little justification for them to levy cross subsidy surcharge. In Haryana, recently the Government and the Commission decided not to impose such a cross subsidy surcharge in view of huge power demand and supply mismatch. This option, however, is dependant on the fact that power anywhere should be available. Therefore, the arrangement has its own limitations.

  2. Only lasting solution for shortages in industrial belts is the concept of Group Captive Power Plant. The criticism and complaint against erratic supply, long hours of load sheddings, however valid they may be, they do not take us anywhere near the solution. In the ultimate analysis, while we can make these comments it would be desirable that we catch the bull by the horn, evolve workable solutions and implement the Schemes that can effectively address the problem. In the Electricity Act 2003, recognising the fact that for quite sometime it may be difficult for the Governments to fully meet the needs of industry and business and provide them uninterrupted power supply, the provisions relating to setting up of the captive power plants were made very liberal and easy. Additionally, the rules were also made highly industry friendly. In brief, the following aspects of the Captive Power Plants rules may be relevant to highlight:

  1. In the past any industrial establishment, if it wished to set up a captive power plant, required to take permissions from the concerned State Electricity Board, concerned State Government and techno-economic clearance of Central Electricity Authority (CEA). As opposed to this now no such permission is required from any agency.

  2. In the past, there was no concept of Group Captive. Now a number of establishments can group together and set up a power plant of optimal capacity. This has made the economics of captive power plant more attractive.

  3. All the companies put together need to place only 26% of the total equity (and balance 74% can be arranged from outside including from a strategic developer), for a power plant to be qualified as a captive plant. This provision was particularly made so that the industrial units could motivate typical power project developers to join hands with them so that the project viability in terms of Power Purchase Agreement is established, and at the same time reliability of supply to industrial units is ensured.

  4. In the past, those establishing captive plants of required capacity used to face problems for standby arrangement in case of outage of their plants. And the cost of such standby arrangement by the Electricity Board was normally excessive. Keeping this in view, in the new dispensation, captive plants of almost double the capacity of requirement has been permitted. Excess power can be sold to the grid.

  5. No cross subsidy needs to be charged from the industrial units for the use of captive power generation.

For Coimbatore industrial and commercial organisations, setting up a local power plant, as captive to them, could emerge as a long term lasting solution. If the organisations group together, it will be possible to have even a strategic joint venture partner. For such captive plants, exclusive arrangements may be put in place, keeping in view the shortage situation in the country, for speedy allocation of fuel linkage, environmental clearance, land acquisition etc. While for a reliable power supply, in a dedicated manner, location of the plant in proximity of the industrial centres may be desirable, another option could be to set up such a plant near the fuel centres and in such a situation the reliability of supply could be achieved by making special arrangements with the transmission agencies. There is a need for a national level outlook for encouraging and facilitating development of captive plants for important industry centres.