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Power: Light ahoy? - Views on News from Equitymaster
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  • Feb 27, 2003

    Power: Light ahoy?

    As per the Economic Survey 2002-03, the installed capacity of power generation in the country stood at 106,812 MW by December 2002. India added 1,819 MW capacity between April – December 2002. Thermal plants continue to account for a major chunk of India’s generation statistics at 82% of total generation. Hydro electricity plants contribute 14% and nuclear plants account for the rest.

    Last year, between April –December 2001, India generated nearly 383.2 bn kWh of electricity (up 2.8% YoY). This year, the growth momentum has increased marginally. Power generation in April-December, 2002 stood at 397.6 bn KWh (up 3.7% over the corresponding period in 2001). The growth in generation was largely led by Thermal generation, which grew by 6.3%. Nuclear generation, which recorded a strong growth of 17.1% last year, could only manage 0.6% growth. Hydro generation continued its bad run (down 9.6% YoY) due to poor monsoons. The all-India energy and peaking shortages stand 7.5% and 12.1 respectively as of now.

      Unit 2001 2002* % change
    Electricity generated (utilities only) b kwh 500 515.3 3.2%
    (a) Hydro-electric b kwh 74.5 74.0 -0.7%
    (b) Thermal b kwh 408 422.0 3.4%
    (c) Nuclear b kwh 16.9 19.3 14.2%

    b kwh is billion kilo watt hours
    Source: Ministry of Power

    The overall Plant Load Factor (PLF) of thermal power plants has shown a consistent improvement from 64.7% in FY98 to just over 71% in FY03. This indicates efficiency in India’s generating capabilities. The average PLF in the Central Public Sector Undertakings (CPSUs) continues to be better than that achieved by the SEBs as a whole. Plants in the southern and western regions have shown better performance. The average PLF for Eastern and Northeastern regions continues to be much lower than the All-India level. If the PLF for North East and Eastern states is excluded the PLF of SEBs is not very different from the central utilities. However, the performance of the private sector is much better at 82% PLF.

    T&D woes…
    Financial health of SEBs continues to deteriorate. Barring SEB’s of Himachal Pradesh and Maharashtra, all other states SEB’s are loss making. The planning commission has estimated that in FY02, the commercial loss (excluding subsidy) of SEBs stood at a huge Rs 240 bn. Consequently, due to financial constraints all SEBs defaulted on payments central PSUs like NTPC and Power Grid Corporation and continue to accumulate arrears. The big reason for the SEBs financial dire straits is the climbing transmission & distribution (T&D) losses. (See chart)

    The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage.

    The subsidy angle…
    It is not only T&D losses, which form the SEB’s bane. The various state government’s are carrying far too much subsidy for their own good. The hidden gross subsidy for agriculture and domestic sectors has increased from Rs 74.5 bn in FY92 to Rs 345.9 bn in FY02.

    The Economic Survey identifies that the basic problem faced by the Indian power sector as the gap between user charges and the cost of supply (see chart). Despite reform efforts, the gap between cost of supply and average tariffs has worsened over the years. The deficit per unit of power supplied stood at 23 paise in FY93, which has gone up to 110 paise per unit by FY02. The survey notes that, reforms in the SEBs have not yet yielded the desired results and consequently, a lot more needs to be done to energise SEBs.

    Key reforms so far…

    • In 2000-01, the Government initiated a new Plan Scheme namely the Accelerated Power Development Program (APDP) to provide financial assistance to the States for undertaking renovation & modernization programs of thermal and hydro power stations and also for strengthening and improvement of sub-transmission and distribution network. Under this scheme, a focused investment program has been initiated in 63 identified distribution circles that would be developed as centre of excellence in the first phase of the APDP program.

    • The Government of India realized the need for a focused approach to address the issues afflicting states with special reference to their circumstances. The State Governments are thus being encouraged to sign Memoranda of Understanding (MOU) with the Government of India. The MOUs are broadly joint commitments of the State Government and the Government of India to undertake reforms in a time bound manner. So far 9 States (AP, Delhi, Haryana, Karnataka, Madhya Pradesh, Orissa, Rajasthan, UP and Uttaranchal) have enacted their State Electricity Reforms Acts, which provides for unbundling/corporatising of their respective SEBs and setting up State Electricity Reforms Commissions (SERC’s). The SEBs in these states have been unbundled/corporatised.

    • The primary resources for electrical power generation being unevenly disposed in the country, bulk transmission of electrical power over long distance becomes necessary for supplying the loads. The country’s power system has been organized into 5 Regional Grids, each of which is well integrated, and now with a view to deriving further economies, and increasing reliability, strong interconnections between the regional grids are planned thus creating a strong National grid. It is anticipated that this would be accomplished in a phased manner. By the end of the 11th Five Year Plan (2011-12) a strong National grid will exist in the country.

    • The Electricity Bill 2001 was introduced in Parliament in August 2001. The Bill seeks to replace the three existing Acts, viz., the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. The bill seeks to loosen government control on capacity addition, generation and transmission and distribution. It is likely to encourage the existence of more real rates of electricity supply tariffs in a bid to clean up the financial rot in the system.

    Where do we stand?
    As per estimates, India has to generate an incremental 10,000 MW of electricity every year for the next 10 years to plug the demand-supply gap. More importantly, it has to bring transmission and distribution (T&D) at par with power generation. India’s T&D to generation ratio stands at a dismal 0.3:1, as compared to an international benchmark of 1:1.

    For achieving this, the government has set an objective of providing ‘Power for All’ by 2012. This ambitious program involves setting up of 1,00,000 new generation (which would almost double the existing capacity) and substantial investments in transmission and distribution. All this will require funds to the tune of Rs 8,000 bn (roughly 40% of current GDP). Whew! Easier said than done.



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