Indian power sector report

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Indian power sector report - Overview, Opportunities an Challenges

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Indian power sector report

  1. 1. A Study on Indian Power SectorJASPAL SINGH ROLL-47SACHIN RANGRAO DESHMUKH ROLL-06CHANDRA MOHAN VERMA ROLL-56ANINDYA KUNDU ROLL -22PRAKASH POLLY MAZHUVANCHERRY ROLL-26
  2. 2. Table of ContentsEXECUTIVE SUMMARY......................................................................................................................... 5INTRODUCTION ...................................................................................................................................... 7GENERATION .......................................................................................................................................... 8 Capacity ................................................................................................................................................. 8 Power Generation ................................................................................................................................ 11 Emerging technologies.......................................................................................................................... 11 Coal-based ........................................................................................................................................ 11 Fluidized bed combustion ................................................................................................................. 11 Nuclear Power .................................................................................................................................. 12 Distributed generation ...................................................................................................................... 13 Resources ............................................................................................................................................. 15 Coal .................................................................................................................................................. 15 Natural Gas ....................................................................................................................................... 16DEMAND - SUPPLY .............................................................................................................................. 17 Sectoral demand ................................................................................................................................... 17ELECTRICITY DEMAND FORECAST .................................................................................................. 19 Elasticity of electricity consumption with respect to GDP growth.......................................................... 20TRANSMISSION .................................................................................................................................... 22 Review ................................................................................................................................................. 22 Overview and Structure ........................................................................................................................ 23 National grid......................................................................................................................................... 25 Grid discipline ...................................................................................................................................... 27 Private investments in transmission ....................................................................................................... 28 Technology in transmission .................................................................................................................. 29 HVDC transmission .......................................................................................................................... 29 Transmission cost structure ................................................................................................................... 30DISTRIBUTION ...................................................................................................................................... 31 Tariffs and financial performance of SEBs ............................................................................................ 32 T&D losses ........................................................................................................................................... 32 Measures to reduce losses ..................................................................................................................... 34 Technical losses ................................................................................................................................ 34 ~2~
  3. 3. Commercial losses ............................................................................................................................ 34 Privatization ..................................................................................................................................... 34 Distribution reforms.............................................................................................................................. 35 New R-APDRP .................................................................................................................................... 36REFORMS IN THE POWER SECTOR.................................................................................................... 36 Pre Reform Stage.................................................................................................................................. 36 Electricity Act 2003 .............................................................................................................................. 40 Generation ............................................................................................................................................ 41 Rural Electrification/Generation/Distribution ........................................................................................ 41 Licensing .............................................................................................................................................. 42 Trading and Captive Generation ........................................................................................................... 42 Open Access ......................................................................................................................................... 43 Distribution .......................................................................................................................................... 43 Transmission ........................................................................................................................................ 44 Tariff .................................................................................................................................................... 44 Regulatory Commission........................................................................................................................ 45 Policy Issues ......................................................................................................................................... 45 Mega Power Policy ............................................................................................................................... 45 Ultra Mega Power Projects ................................................................................................................... 46 Consumer Interests ............................................................................................................................... 46 Enforcements........................................................................................................................................ 47 Dispute Resolution ............................................................................................................................... 47 Electricity (Amendment) Act, 2007....................................................................................................... 47 Demand Side Management ................................................................................................................... 48 Environmental Reform in the Electricity Sector: ................................................................................... 49STUDY OF SELECTED COMPANIES ................................................................................................... 51 1. NTPC Ltd. ........................................................................................................................................ 51 2. RELIANCE INFRASTRUCTURE LTD ........................................................................................... 52 3. TATA POWER COMPANY LTD .................................................................................................... 53 4. POWER GRID CORPORATION OF INDIA LTD ........................................................................... 53 5. JP HYDROPOWER ......................................................................................................................... 53MAJOR FINDINGS: ................................................................................................................................ 54 ~3~
  4. 4. IMPACT OF CERC REGULATIONS ON CENTRAL PLAYERS ........................................................... 55 Generation ........................................................................................................................................... 55 Transmission ........................................................................................................................................ 58IMPACT OF CERC REGULATIONS ON TARIFF AND END CUSTOMERS .......................................................... 59ADVANCED METERING INFRASTRUCTURE................................................................................................. 60RENEWABLE ENERGY......................................................................................................................... 69 Renewable Energy Scenario in India ..................................................................................................... 69 Co-Generation ...................................................................................................................................... 70 Wind Power .......................................................................................................................................... 71 Solar power .......................................................................................................................................... 71 SPV Systems ........................................................................................................................................ 72 Small hydroelectric plants ..................................................................................................................... 72 Biomass Power ..................................................................................................................................... 72 Potential ........................................................................................................................................... 72 Different Technologies Used ................................................................................................................ 73 Gasification ...................................................................................................................................... 73 Geothermal Power ............................................................................................................................ 73NUCLEAR POWER IN INDIA ....................................................................................................................... 75REFERENCES......................................................................................................................................... 80 ~4~
  5. 5. EXECUTIVE SUMMARYAvailability of power is one of the important ingredients for industrial growth. It is an importantinfrastructure facility without which no industrial activity can be thought of in modern times.Increasing automation of Indian industries has created huge demand of power in India. This hugedemand has resulted into demand supply gap in India in recent times.This report is based on the extensive study of the power sector in India. Both global and domesticperspectives of power sector focusing more on Indian players have been looked upon in this report.It includes the literature review by scholars which has analyzed the subject of power sector moreextensively. The objective of this report is to get a comprehensive and apparent knowledge of thepower sector, and to study the changes in power sector over a period of time there by analyzingvarious aspects of the power sector. In the report the power generation companies of the industrychosen, are the top five and bottom five companies of the power sector in India, based on the salesturnover. The trends in the demand, supply and generation in the power sector is discussed throughthe trend analysis.Before 2001, India‘s electricity-supply was mainly owned and operated by public sector. It wasrunning under the risk of bankruptcy. This created a serious impediment to investments in thesector at the time when India desperately needed them. This led to the emergence of Privateplayers in the power sector.The NTPC, Reliance Infra, Tata Power, Power Grid, & Torrent Power are the market leaders in thepower sector and have high Cumulative Annual Growth Rate (CAGR). This is because of thegovernment support, inflow of foreign investment, growing demand and use of latest technologyfor power generation and transmission. The best management policies are adopted by thesecompanies. The small players GVK power, Indowind Energy, Energy Development, JP Hydro, andKSK energy are also imparting new technology, and management policies to survive thecompetition and meet the demand of power sector.The methodology used in report includes comparative analysis of the top 5 and bottom 5companies of the sector. The Potter‘s five forces analysis, SWOT analysis, Trend analysis & Ratio ~5~
  6. 6. analysis are used to analyze the industry of power sector. The various analysis shows that there hasbeen a continuous growth in generation and consumption of power in India.Thermal, hydro and nuclear are three major source of power generation From the installed capacityof only 1,362mw in 1947, has increased to 97000 MW as on March 2000 which has since crossed100,000 MW mark India has become sixth largest producer and consumer of electricity in theworld equaling the capacities of UK and France combined. The number of consumers connected tothe Indian power grid exceeds is 75 million. Rural electrification is one significant initiative of theindustry to trigger economic development and generate employment by providing electricity as aninput for productive uses in agriculture and rural industries, and improve the quality of life of therural people.The International Energy Outlook 2006 (IEO2006) projects strong growth for worldwide energydemand over the 27-year projection period from 2003 to 2030. Much of the growth in energydemand is among the developing countries in Asia, which includes China and India; demand in theregion nearly triples over the projection period. Total primary energy consumption in thedeveloping countries grows at an average annual rate of 3.0 percent between 2003 and 2030. Incontrast, for the developed countries—with its more mature energy-consuming nations—energyuse grows at a much slower average rate of 1.0 percent per year over the same period. This hugeincrease in projected demand of energy in India and China makes analysis of energy sector ofthese countries very important.World electricity generation rose at an average annual rate of 3.7% from 1971 to 2004, greaterthan the 2.1% growth in total primary energy supply. Total world consumption of marketed energyis projected to increase by 50 percent from 2005 to 2030. ~6~
  7. 7. INTRODUCTIONAn economy‘s growth, development, ability to handle global competition is all dependent on theavailability, reliability and quality of the power sector. As the Indian economy continues to surgeahead, electrification and electricity services have been expanding concurrently to support thegrowth rate. The demand for power is growing exponentially and the scope of growth of this sectoris immense.Existing generation suffers from several recurrent problems. The efficiency and the availability ofthe coal power plants are low by international standards. A majority of the plants use low-heat-content and high-ash unwashed coal. This leads to a high number of airborne pollutants per unit ofpower produced. Moreover, past investments have skewed generation toward coal-fired powerplants at the expense of peak-load capacity. In the context of fast-growing demand, large T&Dlosses and poor pooling of loads at the national level exacerbate the lack of generating capacity.India is one of the main manufacturers and users of energy. Globally, India is presently positionedas the 11th largest manufacturers of energy. It is also the worlds‘ 6th largest energy users. In spite ofits extensive yearly energy output, Indian power sector is a regular importer of energy because ofhuge disparity.Global and Indian economy have decelerated, but power is one of the few commodities in shortsupply in India. So, despite the sluggishness in production and demand for manufactured products,India remains power hungry, both in terms of normal and peak power demand. Power is derivedfrom various sources in India. These include thermal power, hydropower or hydroelectricity, solarpower, biogas energy, wind power etc. The distribution of the power generated is undertaken byRural Electrification Corporation for electricity power supply. ~7~
  8. 8. GENERATION CapacityThe government has revised the capacity addition target to 78,700 MW from 78,577 for theEleventh Plan. However, while in 2007-08 it added capacities of 9,263 MW, in 2008-09 only3,453.70 MW capacities were added against the target of 11,061 MW - 69 per cent below thetarget. This was due to delays in the supply of critical components in thermal projects and non-availability of fuel.The capacity addition target for the Tenth Plan (2002-2007) was estimated at 41,110 MW, out ofwhich only 21,095 MW was achieved (2,872 MW was achieved in 2002-03, 3,952 MW in 2003-04, 3,950 MW in 2004-05 3,468.8 MW in 2005-06 and 6,852.8 MW in 2006-07). Major projects commissioned in the central sector in 2007-08 and 2008-09 include: Sipat STPS-II in Chhattisgarh (thermal based, 1,000 MW) • Mejia TPS (block 6) in West Bengal (thermal based, 250 MW) • Ratnagiri CCPP-II (Block 3) in Maharashtra (thermal based, 740 MW) • Teesta-V (unit 1, 2 and 3) in Sikkim (hydel based capacity of 170 MW each) • Omkareshwar (block 1-8) in MP (hydel based, 65 MW each) • Kahalgaon in Bihar (thermal based, 1,000 MW) • Kaiga APP (block 3) in Karnataka (nuclear based, • Bhilai TPP in Chhattisgarh (thermal based, 500 MW) 220 MW) Major projects commissioned in the state sector in 2007-08 and 2008-09 include: Guru Har Govind (Lehra Mohabat) TPS-II project in • Rayalaseema TPS-II (unit 4) in Andhra Pradesh Punjab (thermal based, 250 MW) (thermal based, 210 MW) • Dholpur CCPP (ph 1) (unit GT 2 and ST) in • Bellary TPP (unit 1) in Karnataka (thermal based, Rajasthan (thermal based, 110MW each) 500MW) • Yamuna Nagar TPP in Haryana (thermal based, 300 • Priyadarshni Jurala in Andhra Pradesh (hydro based, MW) 39 MW) • Maneri Bhali-II (unit 1, 2,3 and 4) in Uttrakhand • Santadih unit 5 in West Bengal (thermal based, 250 (hydro based, 76 MW each) MW) • Korba East TPP (unit 1 and 2) in Chhattisgarh • Sagardighi TPP unit 1 in West Bengal (thermal (thermal based, 250MW each) based, 300 MW) • Dhuvaran CCPP Extn. (Unit ST) in Gujarat (thermal • Dugapur TPS Extn unit 7 in West Bengal (thermal based 40 MW) based, 300 MW) • Paras TPS Extension (unit 1) in Maharashtra (thermal • Bakreshwar TPS-II unit 4 in West Bengal (thermal based, 250MW) based, 210 MW) • Sanjay Gandhi (Birsinghpur) TPP Extension ST III • Purulia PSS unit (1,2,3 and 4) in West Bengal (hydro (unit 5) in Madhya Pradesh (thermal based, 500 MW) based, 225 MW each) ~8~
  9. 9. • Balimela-II Extn unit 7 and 8 in Orissa (hydro based, • Valuthur CCPP Extn unit GT in Tamil Nadu (thermal 75 MW each) based, 59.8 MW) • GHT (Lehra Mohabbat) TPS-II in Punjab (thermal • Priyadarshini Jurala unit 2 in Andhra Pradesh (hydro based, 250 MW) based, 39 MW) • Baglihar HEP unit 1,2 and 3 in Jammu and Kashmir • Varahi Extn unit 1 in Karnataka (hydro based, 115 (hydro based, 150 MW each) MW) • Amarkantak TPS Extn unit 5 in Madhya Pradesh • Sagardighi TPP unit 2 in West Bengal (thermal (thermal based, 210 MW) based, 300 MW) • Ghatghar PSS unit 1 and 2 in Maharashtra (hydro based, 125 MW each)Major projects commissioned in the private sector in 2007-08 and 2008-09 include:OP Jindal (Raigarh) TPP phase I and II (unit 1, 2, 3 and 4) in Chhattisgarh (thermal based, 250 MWeach)• Torrent Power has synchronized Sugen CCPP block 1 in Gujarat of 376 MW• Tata power has synchronized Trombay TPS unit 8 in Maharashtra of 250 MWThe total installed capacity in India rose from 89,103 MW in 1997-98 to 147,965 MW by the end of2008-09. In addition, around 19,509 MW of captive power capacity is connected to the grid (as onMarch 2007).Despite the rise in installed capacity, there has been a significant shortfall in capacity additions whencompared to the targets set over the last 10 years. This shortfall is the result of the absence ofsignificant capacity additions by the states and the private sector, which can be attributed to the poorfinancial health of SEBs and private generators unable to achieve financial closure owing to inadequatepayment security mechanisms. Most of the projects in the private sector have been delayed owing toexpensive fuel costs (leading to unviable tariffs), delay in obtaining clearance from the CEA andMinistry of Environment and Forest (MoE&F), signing of power purchase agreements (PPAs) androadblocks in achieving fuel linkage.Over the past 11 years, there has been a marginal shift in the fuel mix. The thermal-hydel mix changedfrom 72:25 in 1997-98 to 63:25 in 2008-09. The share of thermal plants fell on the back of increase inthe share of renewable energy-based plants over the past decade. The share of nuclear power plants inthe overall installed capacity, though, continues to remain low. ~9~
  10. 10. Power - Installed capacity by ownershipSource: CEA, CRISIL Research Annual capacity additions Source: CEA, CRISIL Research Plan-wise capacity additions Source: CEA, CRISIL Research ~ 10 ~
  11. 11. Power GenerationPower generation increased by 3 per cent, from 699.1 billion kWh in 2007-08 to 723.5 billion kWh in2008-09. Between 1998-99 and 2008-09, it increased at a CAGR of 4.9 per cent, from 448 billion kWhto 724 billion kWh.The PLF of thermal power plants rose from 64.6 per cent in 1998-99 to 77.19 in 2008-09. The PLF ofIndian plants is lower than that of their international counterparts on account of old plants,inadequate maintenance, poor quality, unsatisfactory transmission infrastructure and no means ofassured fuel supply. Average PLF Source: Planning Commission, CEAEmerging technologiesCoal-basedConventional coal-based plants have two major drawbacks - low overall efficiency levels and highpollution levels. As a result, technological research has focused on the development of non-pollutingtechnologies using coal. The most popular of these technologies are fluidized bed combustion (FBC) andintegrated gasification combined cycle (IGCC).Fluidized bed combustionIn FBC, air is blown at high pressure through finely ground coal. The particles mix with the air and form afloating or fluidized bed. This bed acts like a fluid in which the constituent particles collide with one another. Thebed contains around 5 per cent coal (or fuel) and 95 per cent of inert material (such as ash or sand). ~ 11 ~
  12. 12. The temperature in a FBC is 800-900 C, compared with 1,300-1,500C in pulverized coal combustion(PCC). The lower temperature helps in minimizing the production of nitrous oxide. Furthermore, most of thesulphur dioxide formed can also be absorbed with the help of absorbents like limestone.The other advantages of FBC technology are its compact nature, ability to burn low calorific value coal (up to1,800 kcal per kg) and produce less erosive ash. FBC-based plants also have lower capital costs (8-15 per centlower) as compared to PCC-based plants.At present, the only constraint in using this technology is its small size. While the maximum size of a PCC-basedpower plant unit could be around 1,500 MW, FBC plants have a maximum unit size of only 250 MW.Integrated gasification combined cycleIGCC technology is used to enhance the thermal efficiency of coal-based power plants and reduce emissions. InIGCC plants, the coal is gasified using a gasifier. The gaseous coal is purified to remove pollutants such assulphur. The purified coal is subsequently burnt to generate hot gases, which are used to run a gas turbine. Theexhaust gases, containing waste heat, are used to boil water and generate steam. The steam is used to run a steamturbine. IGCC technology can deliver thermal efficiency of up to 48-50 per cent. In addition, it can be used withother heavy fuels such as refinery residues and petroleum coke. IGCC technology is also environment friendly, as pollutants such as sulphur dioxide and oxides ofnitrogen, are reduced to very low levels. However, the cost of IGCC plants is higher than conventional plants.Nuclear PowerNuclear power plants reduce carbon dioxide emissions. However, safety concerns abound, particularly thoserelating to exposure to harmful nuclear radiations. In addition, the cost of a nuclear plant is around three timeshigher than that of a gas-based plant. However, new technologies are being developed to address some of thesafety issues associated with nuclear power plants.Pebble bed modular reactorThe pebble bed modular reactor (PBMR)differs from a conventional ‗light water‘ reactor as it utilizes no fuelrods and cooling water. The fuel comprises nearly 15,000 small carbon and ceramic-coated specks of uranium thatare pressed into a small pebble. The pebble is coated with a layer of graphite. Inside the pebble, uraniumundergoes fission and releases heat. However, the graphite layer traps the radioactivity. Around 300,000 pebblesare kept in a reactor, which is cooled by a flow of helium gas. The helium gas expands due to the heat and spinsan electricity generating turbine. However, since helium is chemically and radiologically inert, it does not becomeradioactive as it circulates through the pebble bed. ~ 12 ~
  13. 13. One of the main advantages of PBMR technology is that relatively small units producing 100-150 MW of powercan use it. In addition, the core of the reactor does not melt even at high temperatures, as the operatingtemperature continues to remain below the melting point of the ceramic pebbles that contain the fuel. Thishelps prevent safety hazards.Distributed generationIn distributed generation, small generators are located near the consumer site, within the distribution system.Distributed gencos are not directly connected to the transmission grid. Considering the technologicalimprovements and reduction in the costs of small generators, the amount of power consumption throughdistributed generation is expected to rise in the future.Comparison of different modes of generation:Type of Generation Advantages DisadvantagesThermal Power Plants Low cost of generation Long gestation period Abundant availability of coal. Emissions of carbon dioxide and oxides of sulphur Lack of flexibility in operation.Hydro Electric Plants Low operating costs Long gestation period The absence of emissions Economic and social costs associated with Flexibility of operations the rehabilitation and resettlement of the population affected by the submergence of land Submergence of forests and loss of marine life due to large water reservoirs Possibility of inducing earthquakesNuclear Power Plants Do not emit gases or particulate matter Maintenance of high safety standards for Low cost of generation eliminating the possibility of nuclear hazards High capital costs and long gestation periodDiesel Generation Sets Short gestation period High efficiency in varying load conditions Flexibility to use fuels such as HSD, LDO, LSHS and FO Modular installation (possible to add ~ 13 ~
  14. 14. more units). ~ 14 ~
  15. 15. ResourcesIn India, power generation is largely dependent on coal, gas, nuclear and hydroelectric sources. Non-conventional sources of energy such as wind and solar energy, account for a small share of the totalinstalled capacity. Fuel oil and diesel are largely used in captive power plants.CoalIn India, the proportion of coal-based capacity has increased significantly over the years. According tothe Geological Survey of India, in January 2008, the total coal reserves in India were estimated ataround 257 billion tonnes (including the non-recoverable reserves under riverbeds or urban areas). Outof this, proven reserves stood at 99 billion tonnes, while indicated reserves were 121 billion tonnes, therest being accounted by inferred reserves.In India, the majority of coal reserves are concentrated in the eastern and south eastern regions.Jharkhand, Orissa, Madhya Pradesh, Chhattisgarh, West Bengal and Andhra Pradesh account for around95 per cent of the country‘s total coal reserves.The power generation sector is the largest end-user of coal in India. In 2007-08, it made up for almost 71per cent of total coal consumption.In February 1997, the Central government allowed private sector companies to mine coal for captiveconsumption; and for supply and distribution.In the past, only Coal India Ltd (CIL), a public sector company, could undertake commercial mining andsupply of coal. CIL is organized into several regional subsidiaries, which mine coal in their respectiveregions. Till March 1996, prices of all grades of coal were regulated. However, in April 1996, the pricesof A, B and C grades were deregulated. In February 1997, the price of D grade coal was alsoderegulated. During 1990-2000, the average pithead price of coal increased at a CAGR of 11 per cent. InJune 2004, CIL increased the pithead price of coal by 14-16 per cent. Prices were revised again inDecember 2007 - there was a 10 per cent increase by CIL and its subsidiaries, and by 15 per centincrease by North Eastern Coal Fields Ltd. Even if prices rose further, it will not have any impact on thepower sector, as all PPAs have a fuel cost passage clause.In view of high ash content of Indian coal, the MoE&F has stipulated that all future power plants(situated 1,000 kms away from the pit-head) should be based on washed coal. But, the existingwashery capacity in India is not adequate to meet the requirements of the power sector. In ~ 15 ~
  16. 16. addition, CIL does not have adequate funds to invest in coal washeries. However, the private sector hasundertaken some initiatives for setting up coal washeries with foreign participation as well as incollaboration with CIL.Natural GasNatural gas-based power generation capacity (including naphtha-based capacity) accounted for around10 per cent of the total installed capacity as of March 2009. Further, of the total natural gas produced inIndia, 35 per cent is sourced to generate electricity and 29 per cent to produce fertilizers.At the end of 2007, the proven and recoverable reserves of natural gas in India were estimated at 1,055billion cubic meters (bcm). Around 40 per cent of the gas reserves are located off the western coast, inthe Bombay High and the Hazira fields. In 2007-08, the gross production of natural gas was around 32.3bcm. In the past, a large portion of gas production was flared or re-injected due to inadequate evacuationinfrastructure.The Hazira-Vijaipur-Jagdishpur (HVJ) pipeline evacuates about 40 per cent of the gas produced inIndia. Most of the fertilizers, petrochemicals and power plants based on natural gas are located alongthis pipeline.The consumption of natural gas for power generation and other end uses (like fertilizers) is expectedto increase significantly over the next 5-10 years, as natural gas is an environment friendly andeconomic fuel. In India, the consumption of natural gas was 114.2 mmscmd in 2007-08. However, theunmet demand continued to be around 20 mmscmd. At the current rate of production, the known andrecoverable gas reserves of India are expected to last for around 30 years. In order to supplementdomestic supply, India is expected to import natural gas, either through pipelines or as liquefied naturalgas (LNG). Hence, substantial investments will be required in receiving terminals, regasification plantsand cryogenic shipping vessels to import LNG. Additional investments are also required in pipelines forthe inland distribution of natural gas.New domestic supply of natural gas has commenced from Reliance Industries Ltd (RIL)‘s KG Basinblock. It is currently producing 40 mmscmd of gas, and is expected to ramp this up to 80 mmscmd ofgas by December 2009. Also, discoveries of large natural gas reserves in Myanmar have promptedseveral multinational companies to propose construction of pipelines to transport the surplus natural gasto eastern and northern India. In addition, there are proposals to lay pipelines from West Asia to India ~ 16 ~
  17. 17. (Afghanistan-Pakistan-India). The proposed pipelines include an onshore pipeline from Iran-Pakistan-India and a submarine pipeline from Oman. However, neither proposal has progressed due to unresolvedpolitical and economic issues.DEMAND - SUPPLYDemand for power registered at a CAGR of around 6 per cent from 1998-99 to 2008-09. Further, therehas been a sectoral shift in demand for electricity. The share of the industrial sector declined steadily till2001-02, and then started rising at a flat rate. The share of industrial demand has increased from 25 percent in 2002-03 to 37 per cent in 2006-07. The agricultural consumption, after peaking at 31 per cent in1998-99, declined to 22 per cent in 2006-07. Conversely, domestic demand rose steadily, from 20 percent in 1996-97 to 24 per cent in 2006-07.As per the forecast of the Seventeenth Electric Power Survey (EPS), energy demand will increase at aCAGR of 8.4 per cent to 969 billion kWh during the Eleventh Five-Year Plan period (2007-2012). Peakdemand is projected to register a CAGR of 12.3 per cent to 167,054 MW. The government has revised the capacity addition target to 78,700 MW from 78,577 MW for theEleventh Plan. However, in the first 2 years of the Eleventh Plan only 12,716.70 MW of capacity hasbeen added as against the target of 27,396 MW.This is because only 9,263 MW against the target of 16,335 MW was added in 2007-08. In 2008-09, thetarget fell short by 69 per cent due to delays in the supply of critical components of thermal projects andnon-availability of fuel. Therefore, in 2008-09, only 3,453.70 MW was added against the target of11,061 MW.Taking these factors into account, CRISIL Research estimates that only around 44,846 MW ofcapacities will be added during the Eleventh Plan period. The central sector is expected to account fora major portion of the capacity additions (37 per cent), followed by the state sector (35 per cent) and theprivate sector (28 per cent), respectively.Sectoral demandThe pattern of electricity consumption in the various sectors has changed considerably over theyears. During 1996-97 to 2006-07, electricity consumption in the agricultural, commercial, industrialand domestic sectors increased at a CAGR of 4.9 per cent. ~ 17 ~
  18. 18. Agricultural sector: The agricultural sector had a very low share of power consumption during the early1970s. However, stress on rural electrification led to an increase in power consumption from 10-15 percent in 1970 to 31 per cent in 1998-99. But low tariffs and lack of proper metering resulted in under-recoveries and inefficient utilization of power in this sector, which led to the sector‘s share in powerconsumption declining to 22 per cent 2006-07.Industrial sector: Electricity consumption in the industrial sector increased at a CAGR of 5.1 per centfrom 1996-97 to 2006-07. However, the share of the industrial sector in total electricity consumption fellfrom 37.2 per cent in 1996-97 to 30.2 per cent in 2001-02; but with the opening up of the power sector,it gradually rose to 37.6 per cent in 2006-07. In view of the continuous uptrend in industrialelectricity tariffs, power-intensive industries find it economical to set up captive power plants,especially through co-generation. Further, irregular power supply and increasing shutdowns caused bypower shortages, has forced players to rely on captive power facilities.Domestic sector: In the domestic sector, electricity consumption grew at a CAGR of 7.2 per cent from1996-97 to 2006-07. The share of the domestic sector in total electricity consumption went up from 19.7per cent in 1996-97 to 24.4 per cent in 2006-07, driven mainly by urbanization and the increasing usageof household appliances (geysers, air-conditioners, etc). ~ 18 ~
  19. 19. Power - Category-wise consumption Source: Central Electricity Authority (CEA)Power - Demand and supply, Source: Ministry of Power, CEAELECTRICITY DEMAND FORECASTElectric power surveys: The CEA constitutes a committee every 4-5 years that carries out acomprehensive survey of various consumer segments for estimating the demand for power. Thecommittee publishes the EPS, which provides state-wise demand forecasts, both in terms of energy andpeak power requirements, for a 15-year period. It also provides a sector-wise estimate of energy demandfor a 5-year period.The consumer segments taken into account by the EPS are:• Domestic • Commercial ~ 19 ~
  20. 20. • Agricultural • Public lighting• Industrial [low tension (LT) and high • Public waterworkstension (HT), separately] • Non-industrial bulk consumers• Railway traction Power - Demand project ions Note: Figures are based on the 17th Electric Power Survey (EPS), published in February 2007. Source: CEAElasticity of electricity consumption with respect to GDP growthElectricity consumption is strongly related to the level of economic activity. However, over the past 25years the elasticity of electricity consumption vis-à-vis the gross domestic product (GDP) has beengradually declining. This decline is likely to continue, owing to: • An increase in the share of the services sector (about 56 per cent in 2007-08, compared to less than 30 per cent in 1990-91). • Efforts by industries to improve energy efficiency (to enhance competitiveness) through more efficient technologies and energy audits. • Greater reliance on captive power plants by power-intensive industries due to the high tariffs charged by SEBs and poor quality of grid power. The average annual GDP growth rate (at constant prices) during the Eighth, Ninth and Tenth Planperiods was 5.9 per cent, 5.5 per cent and around 7.7 per cent, respectively. The annual growth inelectricity generation during these periods was 7.2 per cent, 5.7 per cent, and 4.4 per cent, respectively. ~ 20 ~
  21. 21. Elasticity of electricity generation with respect to GDP is the percentage change in generationcorresponding to a 1 per cent change in GDP. The elasticity of electricity generation (not includingcaptive generation) with respect to GDP has fallen from around 1.47 during the Sixth Plan period toaround 0.60 during the Tenth Plan period. This implies that energy usage in the economy hasdeclined, partially due to a rise in the share of the services sector (which is less energy-intensiveas compared with the industrial sector) in the GDP and partially due to an improvement in energyefficiency. ~ 21 ~
  22. 22. TRANSMISSIONReviewThe transmission segment plays a key role in transmitting power continuously to variousdistribution entities across the country. Further, the transmission sector needs concomitant capacityadditions in line with the generation capacity additions to enable seamless flow of power. The government‘s focus on providing electricity to rural areas has led to the power T&D system beingextended to remote villages. The total length of transmission lines in the country has increasedfrom 2.50 million circuit kilometers (ckm) in 1980-81 to 6.94 million ckm in 2006-07. Power-Transmission Lines The decline in 2003-04 is due to reconciliation in data done by the Data Supplying Organization in 33/22 kV, 15/11 kV and in distribution lines up to 500 volts. Source: CEA Transmission line addition (April 2008 to Substation addition (April 2008 to March March 2009) Source: CEA 2009) Source: CEA ~ 22 ~
  23. 23. Overview and StructureA reliable T&D system is important for the proper and efficient transfer of power from generatingstations to load centers. A T&D system comprises transmission lines, substations, switching stations,transformers and distribution lines.In order to ensure reliable supply of power and optimal utilization of generating capacity, a T&Dsystem is organized in a grid, which interconnects various generating stations and load centers.This ensures uninterrupted power supply to a load centre, even if there is a failure at the localgenerating station or a maintenance shutdown. In addition, power can be transmitted through analternate route if a particular section of the transmission line is unavailable.In India, the T&D system is a three-tier structure comprising distribution networks, state gridsand regional grids. These distribution networks and state grids are primarily owned and operated by therespective SEBs or state governments (through state electricity departments). Most inter-statetransmission links are owned and operated by PGCIL, with some jointly owned by the SEBsconcerned. In addition, PGCIL owns and operates a number of inter-regional transmission lines (part ofthe national grid) to facilitate the transfer of power from a surplus region to one with deficit.The transmission capacity added, over the years, has been lower than the generation capacity addition.This is also seen by lower investments in T&D compared to generation. Globally, every rupeeinvested in generation has an equal amount invested in T&D, however in India, every rupee investedin generation has a corresponding 50 paisa invested in T&D. This has also resulted into excess loadingof transmission lines at around 90 per cent.The transmission capacity added as a part of the national grid in the previous year has been at a briskpace of 5,550 MW from December 2006 to December 2007. This has been in line with the target of37,150 MW to be added by the end of Eleventh Plan. The current inter-regional capacity stands at17,000 MW (as on December 2007). ~ 23 ~
  24. 24. Transmission lines Source: Ministry of Power &CRISIL Research The transmission system in India operates at several voltage levels:• Extra high voltage (EHV): 765 kV, 400 kV and 220 kV• High voltage: 132 kV and 66 kV• Medium voltage: 33 kV, 11 kV, 6.6 kV and 3.3 kV• Low voltage: 1.1 kV, 220 volts and belowTransmission and sub-transmission systems supply power to the distribution system, which, inturn, supply power to end consumers. In order to facilitate the transfer of power betweenneighbouring states, state grids are inter-connected through high-voltage transmission links to form aregional grid. There are five regional grids:•Northern region: Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab, Rajasthan,Uttaranchal and Uttar Pradesh•Eastern region: Bihar, Jharkhand, Orissa, Sikkim and West Bengal•Western region: Dadra and Nagar Haveli, Daman and Diu, Chhattisgarh, Goa, Gujarat, MadhyaPradesh, and Maharashtra•Southern region: Andhra Pradesh, Karnataka, Kerala, Pondicherry and Tamil Nadu•North-eastern region: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland andTripura ~ 24 ~
  25. 25. As peak demand for power does not take place at the same time in all states, it results in a surplus in onestate and deficit in another. Regional or inter-state grids facilitate the transfer of power from a surplusregion to the one facing a deficit. These regional grids also facilitate the optimal scheduling ofmaintenance outages and better coordination between power plants.These regional grids will be gradually integrated to form a national grid, whereby power from asurplus region can be transferred to another, resulting in the optimal utilization of generatingcapacity. For instance, the eastern region has some surplus power, which is transferred to the westernand northern regions as the two regions have deficit scenarios.National gridIn order to optimize the utilization of generation capacity through the exchange of powerbetween the surplus and deficit regions, and exploit the uneven distribution of hydroelectric potentialacross various regions, the Central government in 1981 approved a plan for setting up a national grid.The plan envisaged setting up high-voltage transmission links across various regions in order to enablethe transfer of power from surplus to deficit regions.The advantages of a national grid system are: A flatter demand curve (or a higher system load factor) on account of the exchange of power between regions, resulting in a better PLF and more economical operations; Lower investments required for new generation capacities (a full-scale national grid is expected to reduce the need for new capacities by up to 10,000 MW in the next 10 years.); Better scheduling of planned outages of power plants; and Improved stability of the grid, as the share of an individual generating station in the total capacity declines with greater integration of the power system.The process of setting up the national grid was initiated with the formation of the centralsector power generating and transmission companies - National Thermal Power Corporation (NTPC),National Hydroelectric Power Corporation (NHPC) and PGCIL. PGCIL was given the responsibility forplanning, constructing, operating and maintaining all inter-regional links and taking care of theintegrated operations of the national and regional grids.A national grid would enable optimal utilization of energy resources by facilitating a uniformthermal-hydel mix among various regions. From a regional perspective, the exploitation of ~ 25 ~
  26. 26. thermal and hydroelectric resources may not be economically viable in some cases, although it maybe so from a national perspective. For instance, Arunachal Pradesh had a hydroelectric potential ofaround 50,000 MW. (The hydro potential available in Arunachal Pradesh is the highest in thecountry.) However, of this, only 400 MW has been developed and a further 3,000 MW is underdevelopment by NHPC and NEEPCO. Another 23,000 MW of capacities are being planned by variouscentral and private sector players. However, in terms of installed capacity, 95 per cent of the potential isyet to be developed. The hydroelectric potential of the north-eastern region and eastern region is around60,000 MW and 10,000 MW, respectively. Hence, with the integration of the eastern and north-easternregions, the hydroelectric potential of the north-eastern region can be used to meet the peakdemand of the eastern region.Setting up a national grid requires the gradual strengthening and improvement of regional grids,and their progressive integration through extra high voltage (EHV) and HVDC transmission lines.Coordination among the states within a region and among the various regions is critical for the operationof the national grid. This would require an efficient and reliable communication system, comprisingmicrowave links and dedicated data/voice transmission lines between the load dispatch centers andgenerating stations.In addition, synchronization of frequencies is required to integrate regional grids. In the case of adifference in frequencies, HVDC transmission would be effective in integrating the grids through anasynchronous link. Although some inter-regional links are operational, these do not have adequatecapacity to transmit bulk power, and are often loaded to capacity. The national grid, when fullyoperational (likely by around 2012), is expected to have a total inter-regional transmission capacity of37,150 MW.Major milestones in national grid Source: CRISIL Research ~ 26 ~
  27. 27. Power - Inter-regional power capacity Source: PGCIL Inter-regional capacity (till December 2007 17,000 MW) Source: Working Committee Report and CRISIL Research Expected Inter-regional capacity by 2011-12 (37,150 MW) Source: Working Committee Report and CRISIL ResearchGrid disciplineSeveral problems related to the integrated operations of regional grids can be attributed to the lack ofdiscipline among grid constituents. Grid discipline involves maintaining the grid frequency within ~ 27 ~
  28. 28. tolerance limits (49.2-50.3 Hz) and complying with the directions of the Regional Load DespatchCenters (RLDCs), with respect to load despatch and drawing of power.There have been several instances of grid collapse after constituent states drew excess power orbecause there were fluctuations in the grid frequency. Under the Electricity (Supply) Act, SEBs areexpected to comply with the directions of RLDCs to ensure the integrated operation of regionalgrids. However, in the absence of adequate incentives and disincentives, RLDCs are unable to enforcethe directives.Further, load management, through load shedding or backing down by each of the constituents, is animportant aspect of the operation of a grid system. Inadequate load dispatch and communicationfacilities often result in lack of co-ordination with respect to the scheduling of load and generationbetween states.In 1999, the CERC drafted the Indian Grid Code, which, along with the incentives anddisincentives notified under the Availability-Based Tariff (ABT) Order, is expected to induce bettergrid discipline among the various grid constituents.Unscheduled interchange (UI) charges are levied on defaulting entities which overdraw/under draw fromthe grid and disturb the grid balance. Previously, the UI charges had been escalated up to Rs 10 perunit of excess capacity drawn. However, recently the CERC in order to improve the grid stabilityreduced the band (i.e. From 50.5-49.0 Hz to 50.3-49.2 Hz), and charges to Rs 7.3 per unit of excessunits drawn.Private investments in transmissionIn 1998, the Central government enacted the Electricity Laws (Amendment) Act, whichrecognized transmission as an independent activity (distinct from generation and distribution), andallowed private investments in the sector.According to the government policy, the STUs, SEBs or their successor entities and the centraltransmission utility (CTU) PGCIL will identify transmission projects for the intra-state and inter-state/inter-regional transmission of power, respectively. ~ 28 ~
  29. 29. The STUs and CTU will invite private companies to implement these projects through an independentprivate transmission company (IPTC) or on a JV basis.The IPTC would be selected through an international competitive bidding process. The primary criteriafor selection would be the quoted transmission service charges (TSC) and the technical, managerial andfinancial capabilities of the bidders. In the case of JV companies, the CTU and STUs could own anequity stake of up to 26 per cent. JV partners could also be selected on the basis of aninternational competitive bidding process. Further, the primary selection criteria would be thetechnical and financial strength of the bidders. Transmission service charges would be determined on acost plus basis under the supervision of the CERC or SERCs.The IPTC‘s role will be limited to the construction, ownership and maintenance of transmission lines.Operations of the grid, including load dispatch, scheduling and monitoring, will be undertaken by theSTUs and the CTU at the intra-state and inter-state/inter-regional level, respectively. The CTU andSTUs will be involved in the development phase for obtaining project approvals and variousregulatory and statutory clearances (such as environment and forest clearance and securing right-of-way), and will transfer the same to the selected private companies.Technology in transmissionHVDC transmissionOne of the pre-requisites for integrating grids is to synchronies their frequencies. In India,synchronous integration of regional grids was not possible due to variations in frequencies and voltages.Therefore, the most viable alternative is the asynchronous transfer of power through HVDCtransmission links.Advantages of HVDC transmission Cost consideration: DC conductors cost less than AC conductors, as DC transmission requires smaller conductors for carrying the same load of power. In addition, only two conductors are required for DC transmission, while AC transmission requires three. However, the cost of HVDC terminals is higher than that of AC substations. Hence, for a given load of power to be transferred, there is a break-even distance, beyond which, DC transmission would be more economical (approximately 600 km for 500 MW). ~ 29 ~
  30. 30. Maintaining independence of the systems: Impact on a system (due to disturbances in the other) is eliminated due to asynchronous linking. Right of way: For an equivalent load of power transferred, HVDC transmission requires lesser right of way compared with AC lines, as each HVDC line can transmit a higher quantum of power.Transmission cost structure Capital costs The capital costs of the transmission line network have a significant impact on transmission tariffs. Capital costs depend on: Configuration of the line :The configuration of the transmission line, in terms of voltage levels (220 kV, 400 kV, 765 kV etc), mode of transmission (AC or HVDC) and other parameters (single circuit or double circuit) have an impact on the overall capital cost per km. Although the capital cost of transmission projects can vary significantly, the average estimated costs per km for different configurations are: Transmission lines 220 kV double circuit: Rs 5.0-6.0 million per ckm 400 kV single circuit: Rs 7.5-8.0 million per ckm 400 kV double circuit: Rs 11.0-11.5 million per ckm 765 kV single circuit: Rs 15.0-16.0 million per ckm Transmission system components Source: CRISIL Research ~ 30 ~
  31. 31. Cost of setting up a transmission line Source: Industry publicationDISTRIBUTION Distribution is the last and critical leg in the supply of electricity, reaching end consumers such as residential, commercial, agricultural and industrial segments. Distribution has several components such as pricing to various customers, cross subsidization etc. However, as this is a lucrative business, it has been held by the respective state entities, with private participation being marginal (only 5-7 per cent of the total). Further, issues is distribution vary from T&D losses to rural electrification etc. The government has begun a number of initiatives to improve the electricity supply to villages. As part of its initiatives, the power distribution system has been extended to reach remote villages. At the end of 2008-09, a total of 488,926 villages were electrified. However, T&D losses in the country remain high at around 28 per cent, compared to an average 10-15 per cent in developed countries. This is because of inadequate metering and theft of electricity. (The difference in the amount of electricity supplied and the amount actually metered is usually reported as T&D losses.) High T&D losses are also attributed to the T&D of a large amount of power at low voltage - the rise in rural electrification has resulted in the proliferation of low voltage (less than 11 kV) transmission lines. T&D losses rose from 22.27 per cent in 1995-96 to an estimated 26.91 per cent in 2007-08. The losses peaked at 33.98 per cent in 2001-02, but since have registered a declining trend. ~ 31 ~
  32. 32. Power: T&D losses P: Projected; E: Estimate Source: CEATariffs and financial performance of SEBs In India, average electricity tariffs are lower than the average cost of supply (cost of generation plus T&D costs). The gap between average tariff and average cost of supply has increased from 36 paisa per kWh in 2005-06 to 49 paisa per kWh in 2006-07. The main reason for this has been the annual losses of all SEBs which have been increasing continuously - the commercial losses of all SEBs have gone up from over Rs 40 billion in 1991-92 to Rs 257 billion in 2006-07. Power: Costs and tariffs Source: Planning CommissionT&D losses T&D losses can be classified into two main categories: Technical losses ~ 32 ~
  33. 33. The technical component of T&D losses has an inverse relationship with the voltage configuration of the T&D system. Transmission of bulk power of high voltage (400 kV, 220 KV, and 132 kV) over long distances is estimated to result in a loss of 4-5 per cent of the total energy transmitted, while distribution at low voltage levels is estimated to lead to a loss of 15-18 per cent of the total energy transmitted. Commercial losses Commercial losses occur due to non-metering, non-billing or pilferage of power. These losses can be largely attributed to faulty meters, reading errors, unmetered supply and unauthorized connections. On account of inadequate metering arrangement, it is difficult to estimate the extent of the loss and attribute it to a specific reason. Some of these losses are reported as ‗agricultural consumption‘ since most rural connections are unmetered. In addition, a large proportion of the losses can be attributed to theft through unauthorized connections in both rural and urban areas. Though commercial losses are not completely avoidable, they can be reduced substantially through investments. Reasons for high T&D losses A weak and inadequate T&D system. Large-scale rural electrification programme (due to low voltage distribution lines). Numerous transformation stages: This results in a high component of transformation losses. There are 5-6 transformation stages in the Indian T&D network due to the proliferation of low-voltage consumption. The use of low capacity and inefficient transformers results in higher losses and dis-economies of scale. Improper load management: This overloads transmission lines. Transmission lines should be loaded up to 50-60 per cent of their capacity. However, in India, transmission lines are generally loaded to 90 per cent of their capacity, and often operate on ‗alert condition. As a result, a small disturbance in a section can cause a cascading grid failure. Pilferage and theft of energy.A reduction in T&D losses by one percentage point is equivalent to the power generated froma 600-700 MW plant. Although the cost of achieving the reduction is difficult to estimate, itwould be a fraction of the investment required for setting up a new capacity (around Rs 25 billion). ~ 33 ~
  34. 34. Measures to reduce lossesTechnical lossesTechnical losses can be reduced by adopting the following measures: Reducing the length of LT lines by relocating distribution substations, installing additional substations and converting LT lines into HT lines. Installing capacitors at suitable locations. Reducing the number of transformation stages and using high-efficiency transformers. Installing time-of-day meters with incentives to promote the usage of off-peak energy, in order to reduce over-loading of T&D lines. Using better equipment such as all aluminum alloy conductors (AAACs); this can reduce heat losses by 8-12 per cent and eliminate magnetic losses. Although AAACs are priced around 10 per cent higher than aluminum conductor steel reinforced (ACSR), their average life is 60-80 years, as compared with around 30 years for ACSR. Installing high-quality energy meters at the premises of all consumers and substations.Commercial lossesCommercial losses can be reduced by adopting the following measures: Supplying metered energy to all consumers. Prompt calibration, replacement of faulty meters and using tamper-proof meters. Preventing pilferage through stronger legislation and better enforcement.PrivatizationPrivatization of distribution is generally accepted as the first phase in the reforms and restructuring ofthe power sector. With private participation in power distribution, significant benefits are expected toaccrue, such as: Reduction in T&D losses. Improvement in metering and billing practices. Improvement in revenue collection. ~ 34 ~
  35. 35. Distribution reformsTo improve distribution, the government formulated the Accelerated Power Development ReformProgramme (APDRP).This programme aims to improve the financial viability of state power utilities,reduce aggregate technical and commercial losses to around 10 per cent, improve customer satisfaction,and increase reliability and quality of power supply.The APDRP has two components -investment and incentive components. Under the investmentcomponent, the government provides assistance worth 50 per cent of the project cost, of which 25per cent is a grant and 25 per cent is a loan. The balance 50 per cent has to be arranged by theutilities either through internal resource generation or from financial institutions or from other sources offunds (such as state government, the Rural Electrification Corporation, Life Insurance Corporation,ICICI, SIDBI and market bonds). Special category states such as Jammu and Kashmir, HimachalPradesh, Uttaranchal and Sikkim receive full assistance from the Central government, out of which 90per cent is grant and the remaining 10 per cent is loan. Priority is given to projects from those states thathave committed to a time-bound programme of reforms as elaborated in the Memorandum ofUnderstanding (MoU) and Memorandum of Agreement (MoA), and are progressing on thosecommitments.Conditions of the MoU are:• Setting up SERC Filling and implementation of tariff orders• Securitization of CPSUs dues Energy audit at 11 kV level• Metering of all consumers Maintenance of grid discipline Metering of 11 kV feeder Conditions of the MoA are: • Constitution of Distribution Reform Committee at the state level • Identification of nodal officer ~ 35 ~
  36. 36. As part of the incentive component, the utilities are rewarded for actual cash lossreductions by waiving half of the cash losses reduced by way of free grant. The cash lossesare calculated as the net of subsidy and receivables. Up to March 31, 2008, the funds releasedunder this component were Rs 28.8 billion. The disbursement for 2006-07 and 2007-08 was Rs10.2 billion and Rs 14.0 billion, respectively. (This includes both the investment and incentivecomponents.)New R-APDRPTill December 2008, the Government of India had sanctioned 571 projects, amounting to Rs170.33 billion to strengthen and upgrade sub-transmission and distribution systems of the variousstates. The states have so far utilized Rs 126.07 billion. An amount of Rs 28.79 billion has alsobeen released to nine states for achieving reduction in cash losses under the incentive componentof the programme. As per the new APDRP policy, projects under the scheme shall be taken up in two parts: Part-A includes the projects for establishing baseline data and IT applications for energy accounting/auditing and IT-based consumer service centers. Part-B includes the regular distribution strengthening projectsREFORMS IN THE POWER SECTORPre Reform StageConfronted with unprecedented economic crisis in 1991, Government of India embarked upon amassive cleanup exercise encompassing all policies having financial involvement ofGovernments- both at the level of Union and States.Since after Electricity (supply) Act 1948, the power sector was mainly under the governmentcontrol which owned 95 % of distribution and around 98% of generation through states andcentral government utilities, the power sector was chiefly funded by support from governmentbudgets in the form of long term, concessional interest loans. These utilities were made to carryforward the political agenda of the ruling parties of the day and the cross- subsidization i.e.charging industrial and commercial consumers above the cost of supply and to chargeagricultural and domestic consumers below cost of supply was an integral part of the functioningof the utilities. ~ 36 ~
  37. 37. POWER SECTOR REFORMS YEAR MAJOR DEVELOPMENTS 1991 The Electricity Laws (Amendment) Act, 1991--Notification. Amends the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948 by Private Sector allowed to establish generation projects of all types (except nuclear) 100% foreign investment & ownership allowed New pricing structure for sales to SEBs. 5 Year Tax holiday; import duties slashed on power projects 1992 Intensive wooing of foreign investors in US, Europe & Japan 1992-97 8 projects given "fast-track" status. Sovereign guarantees from Central Government. Seven reached financial closure Dabhol (Enron), Bhadravati (Ispat), Jegurupadu (GVK), Vishakhapatnam (Hinduja), Ib Valley (AES), Neyveli (CMS),Mangalore (Cogentrix) 1995-96 World Bank Reform Model - First Test Case Orissa Orissa Electricity Reform Act passed Establishment of Orissa Electricity Regulatory Commission SEB unbundled into Orissa Power Generating Company (OPGC), Orissa Hydel Power Corporation (OHPC) and Grid Corporation of Orissa (GRIDCO) Distribution privatized 1996 Chief Ministers Conference: Common Minimum Action Plan for Power: Recommend policy to create CERC and SERCs Licensing, planning and other related functions to be delegated to SERCs. Appeals against orders of SERCs to be in respective High Courts SERC to determine retail tariffs, including wheeling charges etc., which will ensure a minimum overall 3% rate of return. Cross -subsidization between categories of consumers may be allowed by SERCs, but no sector to pay less than 50% of the average cost of supply (cost ~ 37 ~
  38. 38. of generation plus transmission and distribution). Tariffs for agricultural sector not to be less than Rs.0.50 Kwh and to be brought to 50% of the average costing not more than three years. Recommendations of SERCs to be mandatory, but financial implications any deviations made by State/UT Government, to be provide for the explicitly in the State budget. Fuel Adjustment Charges (FCA) to be automatically incorporated in the tariff. Package of incentives and disincentives to encourage and facilitate the implementation of tariff rationalization by the States. States to allow maximum possible autonomy to the SEBs, which are to be restructured and corporatized and run on commercial basis. SEBs to professionalize their technical inventory manpower and project management practices.1997 CEA Clearance exempted for projects under 1000MW but State Government environment clearance required up to 250-500 MW Liquid fuel policy -- naphtha allocations to IPPs1998 Mega-Power Policy: special incentives for the construction and operation of hydro-electric power plants of at least 500 MW and thermal plants of at least 1,000 MW. - The Electricity Laws (Amendment) Act, 1998 and Electricity Regulatory Commissions Ordinance -- Notification. Creation of Central Transmission Utility STUs to be set up with government companies Establishment of CERC and SERCs Rationalization of electricity tariffs, Policies regarding subsidies Promotion of efficient and environmentally benign policies - Power Grid notified as Central Transmission Utility - Haryana Electricity Reforms Act: HSEB unbundled into Haryana Vidyut Prasaran Nigam Ltd., a Trans Co. ~ 38 ~
  39. 39. (HVPNL) and Haryana Power Corporation Ltd. Creation of HERC Two Government owned distribution companies viz. Uttar Haryana Bijli Vitaran Nigam Ltd. (UHBVNL) and Dakshin Haryana Bijli Vitaran Nigam (DHBVNL) have been established. DFIDs technical co-operation grant of 15 million pounds available for reforms.1999 Andhra Pradesh Electricity Reforms Act APSEB unbundled into Andhra Pradesh Generation Company Ltd. (APGENCO) and Andhra Pradesh Transmission Company Ltd. (APTRANSCO for transmission & distribution) Creation of APERC Other Developments: World Bank loan of US $ 210 million under the APL DFIDs 28 million pounds as technical co-operation grant. CIDA technical assistance of Canadian $ 4 million. - Karnataka Electricity Reforms Act KEB and KPCL transformed into new companies: Karnataka Power Transmission Corporation Ltd. (KPTCL) and Visvesvaraya Vidyut Nigama Ltd., a GENCO, (VVNL) Creation of KERC Other Developments: KPTCL has carved out five Regional Business Centers (RBC) for five identified zones.2000 Power Ministers Conference and Electricity Bill 2000 (draft): Functional disaggregation of generation, transmission and distribution with a view to creating independent profit centres and accountability; Re organization and restructuring of the State Electricity Boards in accordance with the model, phasing and sequencing to be determined by the respective State Governments States to determine the extent, nature and pace of privatization. ~ 39 ~
  40. 40. (public sector entities may continue if the States find them sustainable); Transmission to be separated as an independent function for creation of transmission highways that would enable viable public and private investments; Amendments to the Indian Electricity Act, 1910 made in 1998 for facilitating private investment in transmission have been broadly retained except that the private transmission companies would be regulated by the Regulatory Commissions and Transmission Centres inst under the direction, supervision and control of the Central/State Transmission Utilities; Present entitlements of States to cheaper power from existing generating stations to remain undisturbed; Provision of compulsory metering for enhancing accountability and viability; Central and State Electricity Regulatory Commissions to continue broadly on the lines of the Electricity Regulatory Commissions Act, 1998; State Regulatory Commissions enjoined to recognize in their functioning the need for equitable supply of electricity to rural areas and to weaker sections; Stringent provisions to minimize theft and misuse.Source: www.cea.nic.in/power_sec_reports/general_review/0405/index.pdfElectricity Act 2003An Act to consolidate the laws relating to generation, transmission, distribution, trading and useof electricity and generally for taking measures conducive to development of electricityindustry, promoting competition therein, protecting interest of consumers and supply ofelectricity to all areas, rationalization of electricity tariff, ensuring transparent policies regardingsubsidies, promotion of efficient and environmentally benign policies constitution of CentralElectricity Authority, Regulatory Commissions and establishment of Appellate Tribunal andfor matters connected therewith or incidental thereto. ~ 40 ~
  41. 41. Enabled Market Model under EA 2003GenerationAny Company, association or body of individuals (even unincorporated) can generate electricitywithout requirement of techno-economic clearance of CEA, or approval of State Government orregulator, except in case of hydropower station for which written consent of Central ElectricityAuthority is required.A Generating Company can supply electricity directly to more than one consumer and is vestedwith the duty to establish, operate and maintain sub-stations, tie lines etc.Any entity, (company, co-operative society or association of persons) can establish a CaptiveGeneration Plant (CGP) primarily for its own use without any entry barriers. Open access is to beprovided to all CGPs. No cross-subsidy surcharge would be levied on the persons who haveestablished CGP for carrying electricity to destination of his own use.Rural Electrification/Generation/DistributionGovernment of India will have to formulate a National Policy after consulting StateGovernments & CEA, to govern (i) rural electrification and local distribution through local ~ 41 ~
  42. 42. bodies5, and (ii) rural off-grid supply including those based on renewable/nonconventionalenergy resources.No license is required for generating or distributing in rural areas notified by the State Govt.LicensingTrading has been recognized as a separate licensed activity along with transmission anddistribution. However, a license is not required in respect of (i) trading by a distribution licensee,(ii) transmission, distribution or trading by any Govt., as the Govt. would be deemed a licensee.Electricity Regulatory Commission (ERC), on the recommendation of Government, inaccordance with the national electricity policy and public interest can exempt any of the localbodies6 from requiring license.Trading and Captive GenerationTrading, i.e., purchase of electricity for resale, is a separate licensed activity, except fordistribution licensees who do not require a separate trading license. Traders can enter into directcontracts with the consumers and determine its terms and conditions (including tariff).The Appropriate Commission may specify The entry barriers for traders – technical requirements, capital adequacy requirement, and credit-worthiness; Duties re. supply and trading in electricity to be discharged by a trader; and Fix trading margin in intra-state trading if considered necessary. ERCs have to develop trading market and have to be guided by National Tariff Policy. ~ 42 ~
  43. 43. Open AccessOpen access means non-discriminatory use of transmission lines, distribution system andassociated facilities by any licensee/consumer/Genco in accordance with ERC regulations.The licensees, consumers and Gencos have to pay transmission/wheeling charges for openaccess. Consumers has to also pay a surcharge (to be utilized to meet cross subsidy) determinedby ERC, for open access.ERC may order any licensee owning intervening transmission facilities to provide use offacilities to any other licensee, to the extent of surplus capacity.A State Transmission Utility is obliged to provide non-discriminatory open access to itstransmission system for use by a licensee or Genco forthwith, or by any consumer oncedistribution level open access has been provided.There is no statutory time limit for introduction of open access. ERC has to determine by June10, 2004 the phases and conditions, subject to which open access would be introduced.DistributionThe distribution licensee has a mandatory duty to supply on request of consumer in a time boundmanner if the consumer agrees to pay the applicable tariff. ERC is empowered to suspend orrevoke license of a Discom for failure to maintainUninterrupted supply. Distribution licensee is empowered to recover charges/expenses/securityand disconnect supply for non-payment of dues.Discoms can enter into direct contracts with consumers.Discoms can engage in other businesses but have to share revenue to reduce wheeling charges,and maintains separate accounts for the same.ERCs may grant more than one distribution licenses can be issued in a given area, permittingthem to supply electricity through their own distribution system. To get a subsequent distributionlicense any person will have to comply with additional requirements prescribed by GoI regardingcapital adequacy, creditworthiness, or Code of Conduct etc. If an applicant meets suchrequirements, he shall not be denied grant of the license. ~ 43 ~
  44. 44. ERCs may permit by regulations a consumer/class to receive supply of electricity from anyoneother than the distribution licensee of the area of supply – against payment of wheeling charge &surcharge in lieu of cross subsidy.Distribution licensee is free to undertake distribution for a specified area within his area ofsupply without need for a separate license. Provided that the distribution licensee shall remainliable for the supply.TransmissionTo secure non-discriminatory open access, transmission has been segregated as a wires functionwithout any trading (buying and selling). Central transmission utility (CTU) and all Statetransmission utilities (STUs) are deemed licensee.CTU and STUs functions are (i) Transmission; (ii) planning & co-ordination of transmissionsystem; (iii) development of efficient and economical transmission lines from generating stationsto load centers; (iv) providing non-discriminatory open access to the system.RLDCs and SLDCs are empowered to issue directions, and exercise supervision & control toensure stability, efficiency & economy of grid operation in the region and the State respectively.Licensees, generating companies and other persons connected with operation of power systemshall comply. SLDC shall ensure compliance with RLDC directions.Pending creation of separate RLDCs & SLDCs, the CTU and the STU shall perform the role.TariffGovernment has been distanced from determination of tariff. This power has been vested in theCERC/SERC. In determination of tariff CERC/SERC shall be guided by factors includingNational Electricity Policy, tariff policy (formulated by Central Government), CERC‘s principlesand methodologies for setting tariff and principles rewarding efficiency and multiyear tariff.In case tariff is determined through transparent bidding as per Government of India guidelines,the same shall be adopted by the ERCs.To promote competition among distribution licensees, where there are 2 or more distributionlicensees supplying in an area, the ERC may fix only maximum ceiling of tariff for retail sale.The PPAs/BSAs entered into before 10th June, 2003 have not been explicitly saved or granted aprotection from regulatory intervention. ~ 44 ~
  45. 45. Regulatory CommissionIt is mandatory to establish SERCs within 6 months from 10th June, 2003. Joint Commission canbe constituted for two or more States or Union territories or both by mutual agreement.The new functions to be performed by CERC/ SERC include specifying Grid Code, Supply Code(only SERC), levy fees, fix trading margins in interstate trading.In exercise of their functions, ERCs shall be guided by – National Electricity Policy, NationalElectricity Plan & Tariff Policy; directions of GoI/State Government concerned, in matters ofpolicy involving public interest – where such Government‘s decision shall be final as to whetherthe directions relates to a policy involving public interest. There is no express provision enablingERCs to depart from such directions.Provision for separate ERC funds (not consolidated funds) for finance of ERC expenditures.Policy IssuesCentral Government shall prepare, publish and revise National Electricity Policy and Tariffpolicy in consultation with State Governments and CEA9.The implementation of the Act is largely dependent on the nature and scope of the diverse policyinstruments to be issued by Government, and institutions like Special Courts, AppellateElectricity Tribunal, NLDC, RLDC, SLDC, SERCs and SEB successors to be constituted byGovernment‘s. It is noteworthy that these instruments will have a bearing are:- Role and functioning of ERCs, Role and functioning of CEA, Market development, Governance of the sector – regulation, grid operations, safety issues, and Enforcement.Mega Power PolicyEligibility: Inter-state projects of 700 MW (thermal) and 350 MW (hydro) for Jammu & Kashmirand North Eastern states; 1,000 MW (thermal) and 500 MW (hydro) for others.• Exemption from custom duties, excise & central levies. ~ 45 ~
  46. 46. • Increased ECB capital limits.• State Implementation support.• Decreased import duty on fuel i.e. coal & liquid fuel• Deemed export benefits to domestic bidders• Price preference to PSU bidders• Preconditions: Purchasing state must have ERC;Must agree in principle to privatize distribution in cities of >10 million populationUltra Mega Power Projects• Nine sites identified; each project size about 4,000 MW; Total estimated investment of Rs 160billion.• Projects to be completed on built-own-operate (BOO) basis.• Successful bidder finalized on tariff based competitive bidding; takes over SPV from PFC.• PFC is the nodal agency for setting up the special purpose vehicle (SPV) for project (100 percent subsidiary)• Projects to use supercritical technology based on pithead (captive block) or imported coal(coastal).• Full exemption of central excise duty on goods procured under supercritical technology.• Five coastal sites identified including Mundra in Gujarat awarded to Tata Power.Consumer InterestsCreation of a Consumer redressal forum (CRF) by Distribution licensee in a time bound manner.The consumers aggrieved from CRF can approach to an ‗ombudsman‘10.Distribution licensee has to supply electricity within 1 month from the date of request for supply,except where capital works are required for connectivity. Failure of distribution licensee tosupply within said time period would attract penalty. ~ 46 ~
  47. 47. EnforcementsSuitable provisions for provisional assessments and recovery of compensatory fines may be ableto address a long-standing vacuum in law.Special Courts are to be established by Government‘s for speedy disposal of cases relating totheft of electricity.The scope of offences has been expanded and enhanced punishments have been prescribed forsubsequent or continuing offences.Stronger powers (accompanied with better safeguards) have been provided for conductinginspections/search/seizure.Dispute ResolutionThe appeal against all orders of ERC/adjudication officer would lie to an expert AppellateTribunal (an expert body), which shall dispose appeals within prescribed time.Appeal from appellate tribunal lies to Supreme Court. The appeal to Supreme Court is limited tosubstantial question of law.Electricity (Amendment) Act, 2007.The Electricity (Amendment) Act, 2007, amending certain provisions of the Electricity Act,2003, has been enacted on 29th May, 2007 and brought into force w.e.f. 15.06.2007. The mainfeatures of the amendment Act are: - Central Government, jointly with State Governments, to endeavor to provide access toelectricity to all areas including villages and hamlets through rural electricity infrastructure andelectrification of households. No License required for sale from captive units. Deletions of the provisions for elimination of cross subsidies. The provisions forreduction of cross subsidies would continue. Definition of theft expanded to cover use of tampered meters and use for unauthorizedpurpose. Theft made explicitly cognizable and non-bail able. ~ 47 ~
  48. 48. Demand Side ManagementDemand-side management is used to describe the actions of a utility, beyond the customersmeter, with the objective of altering the end-use of electricity - whether it be to increase demand,decrease it, shift it between high and low peak periods, or manage it when there are intermittentload demands - in the overall interests of reducing utility costs. In other words DSM is theimplementation of those measures that help the customers to use electricity more efficiency andit doing so reduce the customers to use the utility costs. DSM can be achieved through. Improving the efficiency of various end-uses through better housekeeping correctingenergy leakages, system conversion losses, etc ; Developing and promoting energy efficient technologies, and Demand management through adopting soft options like higher prices during peak hours,concessional rates during off-peak hours seasonal tariffs, interruptible tariffs, etc.DSM, in a wider definition, also includes options such as renewable energy systems, combinedheat and power systems, independent power purchase, etc, that utility to meet the customers ~ 48 ~
  49. 49. demand at the lowest possible cost. Often the terms energy efficiency and DSM are usedinterchangeably. However, it is important to point out that DSM explicitly refers to all thoseactivities that involve deliberate intervention by the utility in the marketplace so as to alter theconsumers load profile. Energy efficiency issued in an all encompassing sense and includes anyactivity that would directly or indirectly lead to an increase in energy efficiency. To make thisdistinction precise, a program that encourages customers to install energy efficient lightingsystems through a rebate program would fall under DSM. On the other hand, customer purchasesof energy efficient lighting as a reaction to the perceived need for conservation is not DSM butenergy efficiency gains.There has been growing recognition of the importance of energy efficiency in Indias electricitysectors. The Ministry of Power (MoP) is the nodal agency for energy conservation in thecountry. The Bureau of Energy Efficiency (BEE), an autonomous body under the MoP, was setup in 1989 to coordinate initiatives and activities on energy conservation. Several state electricityboards (SEBs) have also set up Energy Conservation Cells, some of which have been assistingindustries in conducting energy audits. Several reports have been attempted to estimate thepotential for energy conservation in various consuming sectors and have also identified variousEnergy Efficiency technologies (EETs) for important end-uses. The National Energy EfficiencyProgram (NEEP) of the Government of India (GOI) has targeted savings of about 5000 MW tobe realized by the end of the Eighth plan through both demand (2750 MW) and supply side(2250 MW) efficiency improvements. In terms of Government policies, there are specialequipment in the first year, subsidies for energy audits, reduced customs duty for selected controlequipment for managing energy use, and so on.Environmental Reform in the Electricity Sector:Enhanced economic activity and population growth have led to increasing energy demand that inturn has spurred electricity generation. But large-scale electricity generation and distributionhave adverse environmental impacts, varying by the technologies employed and their locations.These need to be addressed so that energy services can be enhanced in harmony with theenvironment, within our ecological footprints. Due to the ―externalities‖ of electricity generation,that is, the negative impacts not directly affecting or being restricted to those involved, the costs ~ 49 ~

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