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Power Sector in the year 2008, Shri R V Shahi, Former Power Secretary,, Ministry of Power

In many ways, the year 2008 has been an eventful year for the energy sector. If we look at various developments which have taken place in the field of energy and analyse the events relating to power, coal, petroleum, non-conventional renewables and nuclear, unquestionably the development in the nuclear field would rank at the top. This development, however, will only have a long term implication on the energy sector of the country. It is indeed imperative that energy sector gets a longer term perspective, and issues are dispensed with keeping not only the short term advantages in view, but the sustainability requires that Policy decisions are guided by considerations on longer term time frame. This is particularly necessary because the global warming concerns emanate primarily from the likely expansions in production and consumption of energy, more particularly of electricity, and of production and consumption of petroleum products in various sectors including transport.

In the year 2008 one of the most important issues that emerged very strongly, which has a direct bearing on each segment of energy, is in relation to climate change. The Fourth Report of the IPCC projected, by the year 2050, a picture of how global warming was going to cause unresolvable problems and would sharply increase the hardships for the mankind. The findings therefore rightly influenced the thinking, the approach and the strategy of different countries, including India on how to strategise the energy policies so as to meet the twin objectives of enhancing the level of production and consumption of energy on the one hand, and at the same time ensure that climate change concerns are adequately addressed, on the other. This write up aims at bringing out in brief the developments that happened during the year 2008 in the power sector.

In the power sector the developments are briefly outlined below:

  1. Power sector could support, in the recent years, a high economic growth rate of 9.6% in the year 2006-07. The GDP growth rate marginally declined during the year 2007-08 also because of the fact that power sector could not sustain the high growth rate achieved in 2006-07 - it declined from 7.3% in 2006-07 to less than 6.3% in 2007-08. Unfortunately in the year 2008-09 till December, the electricity generation growth rate is one of the lowest in the recent years, below 3%.

  2. Several reasons have been given, and certain amount of blame games have also appeared in the media. Inadequate fuel supplies (both coal and gas) have been highlighted as the primary reason for decline in generation besides lesser generation from hydro electric plants in view of inadequate availability of water. These reasons, no doubt, are valid. But, the low level of growth at almost half of what was achieved earlier cannot be fully justified on account of the above factors alone. We need to get into details of plant availability, any less than serious efforts on timely maintenance, in adequacies of transmission systems etc. Even in respect of availability of coal and gas, the issue does not get fully addressed by just saying that domestic production did not support, in full, the need of the power sector. It is perfectly in order to make this point to pinpoint the responsibility on the linked fuel sectors. But, such pinpointing has validity upto a point only. Beyond that it is the power utility sector which must also proactively plan in advance and meticulously execute these plans so as to source the relevant fuels from wherever they could be found. No doubt, this requires not only the action on the part of the power generation utility, which of course has the primary job to do, but also on the concerned supporting infrastructure such as port and railway transportation systems. This was done in the past during 2005-06 and 2006-07, with rewarding results. With regular efforts and constant follow-up and there is no reason why it should not have been achieved during the current year as well. A marginal shortfall is understandable. But a growth of 3% is too little to be logically explained.

  3. One of the most important achievements during the year was notification of the new Hydro Electric Policy. This addresses many of the problems which were faced in the States, being unable to decide, on an objective basis, the allocation of hydro electric projects particularly to private sector companies. Two important features of the Policy, apart from the criteria for allocation of projects, include the issue of local area development and more importantly the issue of market development through 40% of generation being allowed to be developed on the basis of merchant capacity delinked from Power Purchase Agreement.

  4. The speed with which Ultra Mega Project development process needed to happen got somewhat decelerated. In the first one year that is 2006 two projects could be decided. Besides the first stage of RFQ and selection of qualified agencies was also finalised in the first year itself. Thereafter in two years 2007 and 2008 put together, we have not been able to finally decide even one project beyond the third project which had already been partly finalised upto RFQ stage, as mentioned above. If the Tilaiya Project could have been done within the year it could have provided some relief to the considerably slowed down process of the UMPP initiative.

  5. The inadequacy of manufacturing capacity, which started getting projected in 2005-06, received concrete response during the year. Atleast three agencies are working on setting up turbine generator factories in different parts of the country. Bharat Forge, Alstom, L&T, Mitsubishi Heavy Industries etc. are seriously working on these projects. NTPC and BHEL are also considering a Joint venture for this. Though their impact will be felt only in next two to three years, this is a major development for Indian power sector, which has suffered considerably on account of totally inadequate manufacturing capacity in the field of power plant equipment.

  6. Agreement between Nuclear Power Corporation and the French Energy Company, Areva, for supply of about 300 tonnes of Uranium per year was another major event. It may be noted that nuclear power plants in India have been running at less than 60% of their capacities in view of shortage of fuel. Additionality of fuel will bring the desired result.

  7. Power Finance Corporation came out with Bids inviting developers for transmission lines in North-Eastern, Eastern and Northern regions. The process of competitive Bidding for development of transmission systems, which was started in 2006, has been considerably delayed. Both Power Finance Corporation and REC were identified as Nodal Agencies for development of various transmission systems on the basis of competitive Bidding. This year, though delayed, both these organisations came out with the Tenders inviting public private partnership in Transmission Systems.

  8. The year also saw commencement of sale - purchase transactions of electricity through Power Exchange. The first Exchange commenced operations in June, 2008 and the Second one in November, 2008. At present day - ahead transactions have been permitted. Within the limited scope, the response has been reasonably good. This sets a pace for market development through online Trading. Once the scope of Exchange operations is extended to cover weak - ahead, month - ahead and even longer duration transactions, this initiative will make significant contribution towards electricity market development.

  9. Acquisition, by GMR Group, of the Inter Gen to the extent of 50% of equity holding was indeed a historic event, because while in other sectors Indian companies have acquired businesses elsewhere in the world, in the power sector, this is one of the first few initiatives. Inter Gen owns a dozen power plants in U.K., Mexico, Netherlands, Australia and Philippines.

  10. Signing of the Agreement on Civil Nuclear Cooperation between India and France was the first outcome of the Agreement signed with the Nuclear Supply Group Nations. It may be noted that the energy sector of France is heavily predominated by nuclear power, which constitutes more than 75% of the power sector profile in terms of installed capacity. This Agreement, at the Government level, paved the way for Agreement between Nuclear Power Corporation and Areva mentioned earlier. With the background of the nuclear power capability of France, there is tremendous possibility of expansion of nuclear power in India in collaboration with France.

  11. India and Myanmar signed an Agreement for development of hydro electric projects in Myanmar, for supplying power to India, besides also meeting the needs of Myanmar. No doubt, India has more than 150,000 MW of hydro electric potential. But, when the electricity generation capacity is projected to increase to almost 800,000 MW by the year 2032, keeping in view the global warming issues, we will need to depend heavily on hydro electric potentials which exist in neighbouring countries viz. Nepal, Bhutan and Myanmar. It is estimated that Nepal has a potential of more than 80,000 MW, Bhutan - 30,000 MW, and Myanmar - 30,000 MW. Needs for electricity in these countries will no doubt rise, but, larger proportion of power generated may be available for India. Myanmar Agreement, therefore, is an important landmark.

  12. Accelerated Power Development & Reform Programme (APDRP), which was started in the Tenth Plan, did face some discontinuity. Finally, it was decided by the Government and it is back on rails. It is relevant to mention that this Scheme has a powerful potential for transforming the electricity supply systems, distribution infrastructure and above all commercial orientation in the electricity distribution business in towns and cities. Indeed this Scheme can transform the financial health of electricity sector. Though delayed, the reintroduction has been a good development.

  13. Similarly, Rajeev Gandhi Grameen Vidyutikaran Yojna (RGGVY) started in the Tenth Plan, though achieved significant results in the first two years, did get into a slow track in the first two years of the Eleventh Plan. This created uncertainties in the minds of State utilities and other stakeholders engaged in this activity. This again has been brought into the main stream of activities and has now started with the required momentum.

  14. The year also saw hectic activities and follow up for acquisition of coal mines abroad. Though India does possess huge coal reserves, yet, it may not last for more than a few decades, particularly keeping in view our projected capacity additions. Therefore, in the energy strategy, it was decided in 2005-06 that Indian companies should take initiatives to acquire coal mines abroad. Here again, though there have been delays, there are some initial successes during the year.

  15. Rural Electrification Corporation (REC) was the fourth power company in the public sector which accessed the equity market though IPO and the launch was successful. It may be recalled that the first company which was brought into the equity market was Power Trading Corporation, which was followed by NTPC and then by Power Grid Corporation. Prior to this none of the public sector companies under the Ministry of Power was in the equity capital market. This initiative of Listing these companies through IPO route, which was decided during 2003-04, was a major step towards reform of power sector. The outcome has fully vindicated the objective and purpose.

  16. Power Grid Corporation of India entered the 765 KV Extra High Voltage Transmission System and demonstrated its capability to design, construct and operate such systems. With the installed capacity of power rising and the right-of-way problem increasing, higher voltages have become inevitable to take care of the transmission needs from one region to the other. In coming years, 765 KV and higher voltages will keep increasing their proportions in the transmission systems of the country.

  17. On the renewable front, India has emerged one of the four largest wind turbine based power generators in the world. Considerable amount of interest has been seen throughout the country. Not only the companies have gone in for setting up of wind farms - and this includes companies like ONGC who has not been in power - but also a number of wind turbine manufacturers have expanded their capacities. A number of regulators have started prescribing a percentage of total power generation to be sourced, by the distribution utilities, from non-conventional power generation.

  18. Another innovative provision in respect of the wind power, introduced during the year, is on 50 Paise per Kwhr of incentive for power generated through wind turbines. This Scheme is in response to a long felt need that incentivisation on the basis of installed capacity may not always fetch the desired results, in the sense that capacity may be added but electricity generation upto the expected level may not happen. However, it is appropriate that both the incentive Schemes - one linked to power generation and another linked to depreciation benefit for the income tax purposes - will continue concurrently, though benefit by any company can be taken only under one of the Schemes.

  19. Responding very significantly to the climate change concerns, a number of utilities have started initial activities for setting up Photo Voltaic Systems in the solar energy side. Initiatives were also taken by a number of agencies for expanding the manufacturing base for Photo Voltaic System.

  20. The Government also announced a very attractive incentive Scheme to promote solar power. Assuming that cost of power through solar systems would be as high as Rs. 15 per Kwhr, the Scheme of Ministry of New and Renewable Energy provided an incentive of the order of Rs. 12 per Kwhr to be funded by the Government of India and balance Rs. 3 per Kwhr to be paid by the distribution utilities. This has created enormous response, much beyond the limits that the Government has prescribed for any State and for the country as a whole.