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Indian Power Sector in 2009, Shri R V Shahi, Former Secretary, Ministry of Power

Indian power sector presents, during the year 2009, a mixed bag of pluses and minuses. In this paper, I propose to highlight important developments during the year in respect of (a) Capacity Addition, (b) Power Generation, (c) Transmission Sector Growth, (d) Rural Electrification, (e) Energy Efficiency and Demand Side Management, (f) Regulatory Interventions, (g) Operations of Power Exchanges, (h) Performance of Power Sector Stocks, and (i) Major Policy Interventions.

Capacity Addition

A total of about 7,300 MW of capacity was added. Considering the past trend, this is indeed a significant achievement. However, we must take note of some of the serious constraints, which were faced, but for which capacity addition programmes could have progressed much better, even though the commissioning for some of them would have gone beyond the year.

The severe most constraint, which was faced, was on account of the VISA issues for Chinese personnel. In the month of August, a directive issued by the Ministry of Home Affairs created a panic across the power sector among the project development companies, which had Chinese equipment suppliers, as their main contracting agencies, for setting up of power projects. It needs to be mentioned that a number of power projects, with aggregate capacity of about 22,000 MW, fall under this category. The Home Ministry directive meant that all Chinese personnel (in fact all foreign personnel) should have to leave the country latest by 30th September, 2009, and if they had to return they needed to get their Visa's again. There could not have been a more unimaginative way of handling the situation, whatever might be the consideration behind, than this. Even if there was a need to regulate deployment of foreign personnel, the reduction could have been planned in a phased manner, spread over a few months. The situation got further compounded in view of three major Ministries of the Government of India getting involved in the matter of issue of Visa - Home Ministry, External Affair Ministry and Labour Ministry. Each has its own consideration. All these considerations, not necessarily always on valid grounds, have had adverse impact on the progress of power projects under construction. The worst part is that the situation continues, though an impression is being given that it is being remedied. The fact of the matter is that such a course of action cannot be considered justified on two important ground (a) Contractual arrangements between the project development company and equipment suppliers will have to have due weightage, or else it will lead to avoidable contractual implications including financial obligations, and (b) we do not have enough skilled personnel in the country to handle, at a time, construction of projects aggregating to over 80,000 MW (this is the capacity under construction now). Unfortunately the view of the Ministry of Power and Central Electricity Authority has not been given due consideration by the other three Ministries mentioned above.

The positive development on the capacity addition programme has been the enhancement in manufacturing capacity in respect of power plant equipment. Efforts of last few years have started yielding expected outcomes. BHEL's annual capacity is assessed at around 10,000 MW as compared to 5,000 MW three years ago. Concrete actions have taken place on development of manufacturing capacity by a few other agencies, notable among them being BHEL - MHI joint venture and Bharat Forge - Alstom joint venture. The momentum that was introduced through continuing pressures by Ministry of Power for the manufacturing sector to expand continues. It could be expected that in a period of next five years, the country may have an annual manufacturing capacity of the order of about 20,000 MW. Similarly, pressures on and criticisms of the manufacturers of Balance of Plants have led to a new awakening and a number of them are expanding their capacities as well as a few new agencies have also started off on manufacturing of these systems.

A disturbing development, however, is in relation to the problems of land acquisition which may not have impacted the projects already under construction, but could have serious implication on future projects. The type of approach that is emerging, including in the proposed Act for land acquisition, is fraught with serious implication in this regard. The thinking of the Government that it could pass on the responsibility of land acquisition to public and private sector project developers, may sound good, but it is unlikely to deliver the expected results. Infrastructure projects in general and power projects in particular are likely to suffer considerable delays on this ground.

Power Generation

Power generation during the year from January to December, at about 756 billion units, has been 5.2% higher than that during 2008. It is reported that the loss of electricity generation on account of shortage of coal was of the order of 10.5 billion units. But for this, the power generation growth could have been of the order of over 6.5%. Some of the issues which need to be highlighted, in so far as electricity generation sector is concerned, are outlined below :

  1. Hydro projects suffered a negative growth of the order of minus 8%. As we know, much of the generation performance in the existing hydro power plants depends upon availability of water. Monsoon and melting of snow contribute towards this, though proper planning, utilisation of water from the reservoir and maintenance of the power plants also have definite contribution towards improved performance.

  2. The most notable positive feature of the year has been the improved supply of gas to power plants. In the past they used to run at around 65% Plant Load Factor only. This year, though for part of the year, they got much better supply, thus recording a power generation of 89 billion units as compared to 73 billion units last year, an increase of about 22%.

  3. For last many years, it is known that domestic coal producers are not able to fully meet the requirement of power sector. Normally, the coal linkages are provided for 80-85% Plant Load Factor. The supply is normally 90 to 95% of the linkage. It is indeed gratifying that a large number of power plants, in the Central sector, State sector as well as Private sector are now performing well above 90% PLF, thus requiring larger quantities of coal. While it is important to flag the issue of criticality of coal supply with Coal India and Coal Ministry, it is equally important to highlight that power generation utilities need to be somewhat more proactive than they have been in the matter of decisions and actions on import of coal. Power sector recognised this as early as 2004-05 and all the utilities were advised that since mismatches between demand and supply of coal were likely to continue, it would be desirable that they planned well in time to import coal to supplement the domestic supplies. During 2005-06 and 2006-07, change in approach on above lines did make a good difference, though not fully, in improving power generation. In 2006-07, power generation growth was highest at 7.3%. During 2009-10, if the sector has lost 10,500 million units of power due to shortage of coal, while power sector may continue putting pressure on coal industry, it should also be prepared to share a part of the blame. Timely decisions to import coal followed by constant monitoring to secure supplies could have definitely made a significant difference.

Extra High Voltage Transmission System

Adequacy of transmission system is crucial not only for evacuating power from different generating stations, but also for facilitating competition in the electricity sector through Open Access on Transmission and for enhancing Plant Load Factor of various power stations. Power Grid enhanced, during the year, the capacity of National Grid for inter-regional transmission of power by 2,300 MW. They also added 4,866 CKT Kilometer of transmission lines during the year for regional transmission systems alongwith 5,240 MVA of transformation capacity.

During the year, a few private sector transmission lines on the basis of competitive bidding were also offered and, in some cases, final decisions to award were also taken. This is important to be mentioned because simultaneous with the Scheme of Ultra Mega Projects on the basis of competitive bidding, it had been envisaged that a number of transmission lines would also be offered for development on the basis of competitive bidding on transmission charges. It took some time for the Empowered Committee to activate itself. However, it is gratifying that the year 2009 saw some definite and positive movements on this issue.

Rural Electrification

It may be recalled that the Government of India launched, in 2004, an ambitious programme of rural electrification with almost grant funding to the States with objective that by the year 2012 access to electricity would be available to all. During 2009, till November about 13,000 un-electrified villages were electrified and intensive electrification was done for another around 27,000 villages. Under the Scheme, electricity connections have to be provided to BPL families - 39.8 lakhs such families were provided electricity connection. The objective of power for all by 2012 is a challenge. There are difficulties in many States because of inadequacies in their own implementation systems. It is also, however, a fact that constant flow of fund, so that the progress is uninterrupted, is essential. This sometimes does become a constraint because of the procedures involving Rural Electrification Corporation, Ministry of Power, Planning Commission and Ministry of Finance. One of the important elements of the Rajiv Gandhi Vidyutikaran Yojana is the decentralised distributed generation. I have written about it in a number of papers in different contexts that reliable power supply to rural India can be possible only if, in a systematic way and at a large scale, DDG is implemented. The year saw a good beginning by REC notifying the Scheme for implementation.

Energy Efficiency and Demand Side Management

Bureau of Energy Efficiency further consolidated on various initiatives relating to conservation of energy, as outlined below :

  1. The Scheme of Star Labelling, which was launched in 2006 with a few products on a voluntary basis, was strengthened by having 12 more products in the Star Labelling Programme. During the year, the four initial products viz. refrigerators, air-conditioners, tube lights and distribution transformers were brought into the mandatory category of Star Labels.

  2. In the area of LED lighting demonstration projects were started in different States, so that these could be expanded to large scale implementation.

  3. Under the Bachat Lamp Yojna, first pilots in Visakhapatnam and Yamuna Nagar have already been implemented. These will be extended to all over the country.

  4. CRISIL and ICRA ratings of 23 Energy Service Companies were introduced.

  5. Investment Grade Audit in ten Municipalities for implementation through ESCO route were also started.

  6. As assessed by the Bureau of Energy Efficiency, savings of 1,350 MW on account of energy conservation measures have already been certified. It is estimated that during the year the energy efficiency projects would lead to an outcome of as much as 2,600 MW of avoided capacity.

Regulatory Interventions

The year saw a number of important regulatory interventions, particularly by the Central Electricity Regulatory Commission, as briefly outlined below:

  1. Right in the beginning, in January, 2009, CERC notified Multi Year Tariff Regulation. In many ways a number of improvements were included in the new Tariff Regulation.

  2. In March 2009, Regulations were notified for Unscheduled Interchange. These were meant to streamline and smoothen the commercial arrangements on account of U.I.

  3. Transmission systems to be developed on the basis of Competitive Bidding Guidelines notified by the Government of India needed the appropriate documentary support from the CERC in respect of licencing of such transmission systems. CERC issued Transmission Licence Regulation to cover these cases.

  4. To introduce competition and develop electricity market, one of the constraints faced was the periodicity of Open Access on transmission. The previous Regulation provided either for three months of Open Access or for 25 years. This did not permit development of power projects through commercial arrangements other than through long term PPA of 25 years or so. Professionals, Energy Experts and Power Project Developers, all were feeling the need for a better and more friendly regulatory regime which would facilitate market development on the basis of various permutations and combinations of commercial arrangements for sale and purchase of power. CERC must be lauded for such a Regulation which was notified during the year. This permits Open Access upto three months, upto three years and twelve years and beyond. This will go a long way in encouraging project developers and in facilitating competitive market structure in the medium and long term.

  5. Another notable Regulation notified by the CERC has been to promote a Renewable Energy project development. This brings out a lot of clarity and it could only be expected that Regulators throughout the country would implement it in an encouraging manner. Unless high cost technology based green energy generation is proactively and positively promoted by Regulators, India will continue to remain highly fossil fuel based energy economy. Towards this objective CERC Regulation is a major milestone.

  6. Operations of Power Exchanges were stabilised during the year. From Day Ahead to Term Ahead was suggested by various stakeholders. CERC did come out with a Term Ahead Exchange Operation Regulation which covers weekly transactions, thus setting a trend for the future role of the Power Exchanges. I have written it elsewhere that in the time to come, may be an year or two, Power Exchanges should cover transactions upto one year and Trading Agencies could graduate into playing the role of facilitators for project development and deal with transactions beyond one year.

  7. The CERC has also issued two important Draft Regulations during the year - (a) Regulation on Power Market Development, and (b) Regulation on Renewable Energy Certificate.

Performance of important Power Stocks

With the revival of economy, positive impacts have been obviously experienced in the stock markets. During the year, Sensex rose from 9958 as on 2nd January, 2009 to 17,465 as on 31st December, 2009, thus registering an increase of 75.4%. Power sector stocks have also registered increases, though in varying degrees. The highest increase has been in REC (208%), PFC (92.1%), Reliance Infra (82%), Tata Power (79%), PTC (53%), CESE (49%), Power Grid (31%), NTPC (28%). The year also saw a few IPO's including that of Adani Power. All these were oversubscribed. Power sector continues to be a preferred investment destination.

Policy Issues

Review of Mega Power Project Policy, in recognition of need for mitigating a few loose ends and ambiguities, has been another important development of the year. This would definitely take care of a number of constraints the project developers were facing and will also help in expanding the role of Supercritical Technology.

Thus, the year 2009, as mentioned in the beginning, presents a mixed bag of a number of positive and satisfying developments as well as a few disturbing and continuing constraints.