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Anil Razdan, Former Secretary, Ministry of Power

22 Feb 2013

Former Secretary of Power Anil Razdan talks to InfralinePlus’ Priyanka Singh about the challenges faced by the Indian power sector, the solutions and the future road map. He speaks at length about peaker power plants, hike in tariffs and how the functioning of the power sector can be improved as a whole. Excerpts:

What are the challenges facing the power sector? What kind of policy reforms can contribute to its growth?

Fuel availability (both coal and gas) and inadequate tariffs are the major challenges that the power sector is exposed to. Over the years, the regulatory commissions have created fictional regulatory assets and have not been revising tariffs, periodically. Plus, most states suffer from high AT&C (aggregate technical and commercial) losses and an inefficient power distribution system. There should be quick implementation of the restructured Accelerated Power Development and Reform Programme (APDRP) and separation of domestic and agricultural feeders in the rural sector. Meters should be changed from
fixed-tariff based to time-of-day tariff based, so that we respect the need to conserve power. In future, we may have to move on to frequency-based tariff so that consumers are alerted in advance of curtailing load. However, in extreme weather conditions in summers, there are bound to be aberrations. So, we will need to have some peaking power available, and that will depend on the availability of fuel and affordability.

Fuel availability and inadequate tariffs are the major challenges facing the power sector today
With poor availability of fuel, where are we heading to?
We are largely moving towards a coalbased power portfolio. A decade back, we had aimed for a 40 per cent hydro and 60 per cent coal combination. But today hydro power contributes only 19 per cent to the total installed capacity. In terms of generation of power, last year it was only 15 per cent of the total power generated, which means out of a total of 876,337 million units of power generated in the year, only about 130,000 million units were contributed by domestic hydro. In fact, we should give great importance to storage projects in hydro because they are ideal peaking power requirement projects and also are able to store water. Regarding coal-based and gas-based generation, yes we have to ramp up our internal supply of coal. In future, we will certainly need to import coal, and there is no escaping that. In fact, time has come to have intergovernmental negotiations for coal supplies. We have an installed capacity of gas-based stations, which is under utilised because of non-availability of gas. In the 12th plan, I don’t expect much addition to the gas-based capacity from the existing 18,381 MW plus. Rather we should go for combined heat and power in smaller modules of micro turbines in new urban settlements and multistoried building complexes as well as in commercial spaces like malls.
How realistic are the targets of the Planning Commission to set up 78,000 MW capacity in the 12th Five Year Plan?
With most projects being stalled or their progress slowed down, I have my doubts about achieving the targets. We perhaps may end up doing only about 50,000-55,000 MW with the recent directive of the ministry to Coal India to supply 65 per cent of the fuel demand for the first three years after signing a fuel supply agreement (FSA). It would result in plants not running at their desired PLFs (plant load factor) and newer plants running at about 90 per cent PLF. There is a vast shelf of projects that may be commissioned in the power sector adding almost 1,14,000 MW. In hydro, about 12,000 MW is available, in coal it is about 93,000 MW, lignite is 1,300 MW, and gas and LNG constitute about 2,500 MW. We have a lot of potential but it will all depend on multiple clearances and fuel tie-ups to achieve the desired targets.
What is the true potential of the country for hydro power generation?

We have a hydro potential of about 80,000 MW, with an installed capacity of 125,000 MW. Currently, our installed hydro capacity is about 39,000 MW, which should be scaled up to 60,000 MW by the 13th plan. Hydro projects take anywhere between 6 to 10 years to be completed, which is why the result of what we plan today would be seen only in the 13th plan. We can also look into cooperation from Bhutan and Nepal. In fact, we can offer some good incentives to the Nepal projects for completion.

A turnaround plan for the power sector can be made through a tripartite agreement
-- between the discoms, the financial institutions and the respective state government.
What are the major issues and challenges of the sector? How can you bring in investments?
We have to hasten the process of clearances and reduce land requirement for thermal projects. Of course, there shouldn’t be any exploitation of the local people but quick decisions have to be taken. Tariff is the next big issue. The regulatory commissions need to revise their tariffs annually, particularly taking into account the dismal state of power distribution companies today. Their accumulated losses stand at `1.9 lakh crore plus their AT & C losses have not come down drastically. This should be put on priority by state governments. They should convert the loans given to the discoms to equity. There should be takeover of the bonds, which the discoms can issue equal to about 50 per cent of the short-term liabilities corresponding to the current accumulated losses. A turnaround plan can be made through a tripartite agreement -- between the discoms, the financial institutions and the respective state government.
There is a lot of discussion over peaker plants. What are the positives and the negatives?
Ideally peaking stations would be welcome because first and foremost in our tariff policies we ask for about 5 per cent spinning reserves. So, this 5 per cent power should be available during emergency situation. So, we should encourage hydro power stations; give them top priority because they are the ones, which can instantly control the frequency profile. I would certainly be game for peaking power stations provided we can afford them. So, whenever we are fixing tariffs, we have to take into account time-of-day tariff. You have to let the consumer know that at this time, power is going to be more expensive. The real requirement of peaking power is according to the frequency profile of the grid, so we can have a meter that can convey to the consumer that at a certain point of time the grid is under strain, and the consumption needs to be reduced. If he cannot reduce consumption, he needs to pay up more for the peak time. But this system, I feel is wasteful expenditure, and the same money can be used to increase generation capacity.
Is our power infrastructure adequate to meet the requirement of peaker plants?
Well, we will have to do some fine tuning. Our substations have been designed to a certain capacity and when there is overloading in the feeder area, it gets strained. We have to see what are the load requirements, re-do the profile, and revamp the distribution system. The government is planning some incentives beyond the restructured APDRP in case the AT & C loss reduction profile is faster, then what was planned in the restructured APDRP. We have to introduce a system or rewards for those who are performing better or more efficiently. And we have to ensure a 100 per cent metering of all consumers.
Why have they not been considered an option so far?
In the past, we did talk of hydro to be feeding peak demand hours, which is why it was thought that in the Indian power grid we’ll need about 40 per cent hydro power. In fact, North America and Europe have a fair amount of hydro power. But yes, for gas-based stations, you got to see, what the availability of gas is and if LNG has to be procured, at what price it is available. If you get LNG at say $10 or $12 per mmbtu, you may be looking at tariffs at the supply end at about `5 or 6. Plus, add to that transmission costs. So, the regulatory commissions have to see when the discoms come for these tariffs, the gap between the average cost of supply and the revenue realised should be reduced. If you have to supply uninterrupted power, it will come at a cost.
With dwindling gas resources, would it make business sense to set up peaker plants in India?
We have had a major setback on the KG basin estimates, as against the expectation of about 80 MMSCMD gas, we are only getting about 28 or 30 MMSCMD or may be even lower. There has been no new gas finds but we have to utilise CBM (Coal Bed Methane) wherever we can. We can look at cross-country pipelines because that gas will certainly be cheaper. There have been talks and plans of an undersea pipeline also, which has its own technical problems of gas hydrate formation, in those depths. There is a solution to everything but it’s at a cost. So, we need to be looking at LNG contracts, particularly long-term at this juncture from Canada or the US because Shale gas has resulted in a drastic reduction of the Henry hub price of gas. But that will require LNG terminals at our end to be able to handle this gas. This of course can again be swapping agreements on the way but we do need terminals.
Tariff seems to be the key concern of most power distribution companies. What exactly do you think is the solution?
Tariffs need to be revised much more frequently than they have been. In fact, it should be an annual exercise. Gujarat is a reasonably well managed state in terms of the power distribution sector but there the quantum of hike in 2011-12 have been less than 5 per cent. In Himachal Pradesh, Madhya Pradesh, Karnataka, Punjab and Uttarakhand, it has been between 5-10 per cent; in Mizoram, Assam, Manipur, Chhattisgarh, Maharashtra and West Bengal it has been between 10-15 per cent; in Andhra Pradesh, Orissa, Bihar, Jharkhand and J&K it was between 15-20 per cent and in Nagaland, Delhi, Rajasthan, Chandigarh and Tamil Nadu, it was more than 20 per cent in 2011-12. But this has happened because in a number of states, there was no tariff revision for many years. There are some states, which have shown an increase in their AT & C losses over the past few years because tariff and AT & C losses have to be seen together. Increase in tariff leads to an increase in AT & C losses, so that also has to be kept in mind. However, there are a few states which are improving. Bihar, Assam, Delhi, HP and Karnataka have shown a reduction of about 4 per cent in AT & C losses; Orissa, J&K, Rajasthan, Uttarakhand and Andhra Pradesh have shown a reduction of 2-4 per cent; Arunachal Pradesh, Punjab, Tamil Nadu, Puducherry, Gujarat and Maharashtra have shown reductions of about 0.2 per cent. We can tell the states that 15 per cent was the norm set for the AT & C losses and the penalty as well

(InfralineEnergy thanks Anil Razdan, Former Power Secretary for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)