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.
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%.
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
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.
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
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.
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
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
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.
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.
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.
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
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.
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.
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.
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.
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.
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
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.
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.
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.