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Power: Search for light… - Views on News from Equitymaster
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  • May 18, 2002

    Power: Search for light…

    As per the economic survey of 2001-02, India’s power generating capacity stood at 102,907 MW (mega watts) in October 2001. Out of this, it approximately managed to generate only 58,676 MW (or 57%) of electricity during FY02. What’s more, the pace of growth in electricity generation seems to have slowed down in FY02. Last year India generated nearly 499.6 bn kWh of electricity (up 3.9% YoY). Power generation during April-December, 2001 stood at 383.2 bn KWh (up 2.8% over the corresponding period in 2000), which is worrying.

    India has adopted a blend of thermal, hydel and nuclear sources to increase the availability of electricity. Thermal plants at present account for 80% of the total power generation, hydro electricity plants contribute 16% and nuclear plants account for the rest. Thermal and nuclear generation grew by 3.5% and 17.1% respectively, while hydro generation decreased by 3.6%.

    Capacity addition and generation…
    Year Capacity Addition
    % change Generation
    % change
    FY93 3,550 - 301 -
    FY94 4,565 28.6% 324 7.5%
    FY95 4,605 0.9% 351 8.2%
    FY96 2,135 -53.6% 380 8.4%
    FY97 2,624 22.9% 396 4.2%
    FY98 3,283 25.1% 421 6.4%
    FY99 2,747 -16.3% 449 6.5%
    FY00 2,907 5.8% 493 9.8%
    FY01 3,776 29.9% 500 1.4%
    FY02* 2,357 -37.6% 514 2.8%
    Source: CMIE

    On an average, India’s transmission and distribution losses (T&D) exceed 20% of total power generation compared to around 10% for developed economies. In fact, T&D losses in some states like Orissa and Karnataka are shockingly very high (49% and 37-40% respectively).

    This is however, only a part of the problem. 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.

    The main problem for all parties concerned is to mitigate risk. The poor financial health of the SEBs became a bone of contention between the investors and the respective state government’s. The shifting stand regarding the security package offered by the government of India in its policy has led to uncertainty in the minds of the institutions (foreign as well as domestic). Conflicting demands also came from these institutions, as they keep on adjusting their demands depending on the nature of the project, the state in which it is being set up and the changing stance of the government.

    Owing to heavy T&D losses suffered by State Electricity Boards (SEBs), low user charges and operational and technical efficiencies, the power system in the country is experiencing great difficulty. This has taken a toll on the power generation growth in India. In FY02, India managed to add approximately only 2,357 MW of capacity, against the 10,000 MW per annum needed. Most of the capacity addition took place in the public sector.

    But it will be wrong to say that India remains ignorant of the problems and its needs. Reforms are gradually picking up momentum. In order to make states more responsible, the centre promulgated new scheme namely the Accelerated Power Development Program (APDP) to provide financial assistance to states for undertaking renovation and modernization programs of power stations and also for strengthening 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. An amount of Rs 9.8 bn was provided to SEBs during FY01. An amount of Rs15 bn has been budgeted for release to states during FY02 under APDP, and proposals are under consideration for the sanction of funds.

    In simple terms, APDP is an incentive given to the states by the centre wherein the centre is willing to write off the states past electricity losses, and help them develop power infrastructure. But in lieu of this, the states have to give an undertaking that SEB losses will be a thing of the past and T&D losses will be checked. If the state fails on this objective then losses incurred will be adjusted against the state’s planned outlay.

    One more important change in the government’s stance has been its focus. From now on transmission and distribution would be the focus of planned development and not generation. This bodes well for the sector as a whole as it is aimed at stemming the losses arising out of T&D as well as improving the existing utilisation of capacity.

    These measures should improve investments in the power sector. One only hopes that these measures are executed in spirit at the ground level.



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