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Indian Power Summit 2006: Part II - Views on News from Equitymaster
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Indian Power Summit 2006: Part II
Oct 4, 2006

This article is the second in the series of articles of our key takeaways from the India Power Summit 2006, which was recently held in New Delhi. Read the first article. The second theme of the power summit delved deeper on the power transmission sector. Experts were of the view that power sector reforms should have started with the transmission sector and not generation. It was outlined that commercial autonomy to buy and sell power may not achieve desired results if the transmission network does not have adequate capacity.

The history of the Indian power sector, however, suggests that the government has traditionally focused more on the generation end of the value chain to alleviate power shortage in the country. As a result, the transmission and distribution (T&D) segment has been neglected and has attracted significantly less investments. In fact, against the global average of 1:1, the ratio of T&D to generation investments in India has historically been 0.5:1, i.e., only 50 paise invested in T&D for every rupee spent towards generation. This has led to the Indian T&D system constrained by exceptionally high T&D losses of (nearly 30%) as compared to global average of 10% to 15%. Although, as reported by the power ministry, a large part of T&D losses in the Indian system is due to losses in retail distribution.

As was discussed in the summit, one of the major reasons for the high T&D losses in India was the heavy load carried by the existing transmission lines. Against the global average of 50% to 60%, transmission lines in India carry loads of 90% of their capacity. Consequently, even a minor disturbance in a section of the transmission line causes a cascading grid failure and loss of power.

Existing transmission infrastructure
Based on actual progress achieved during the first three years of the tenth five-year plan (2002-07) and updated targets for the balance two years, the cumulative transmission lines at the end of the plan period are projected to be nearly 194,000 circuit kilometers (ckm). This is an increase of 43,500 ckm during the 10th plan period. Strong addition is also expected in substations and high voltage transmission capacities (see table below Source: CEA).

Transmission assets
Unit 9th Plan (as in 2001-02) 2004-05 10th Plan est. (2006-07)
Transmission lines ckm 150,463 169,229 193,949
Substations MVA 177,688 212,897 248,467
HVDC capacity MW 5,200 8,200 8,700

During the 10th and 11th plan periods, a total investment of Rs 1,265 bn (US$ 27.5 bn) is envisaged for the transmission sector. The central and state sectors are expected to contribute almost 84% of this investment. While the planned investment is huge and would certainly mean better times for the overall power sector in the country, execution will be a key risk, as has been the case with planned investments in the past.

Bearing in mind the scale of investment and the volume of expansion required in the transmission sector, the panel delved on the issue of attracting large-scale private sector investment. The guidelines, as outlined by the Ministry of Power, envisage two distinct routes for private sector participation in transmission

  1. Joint venture (JV) route, wherein the Central and State Transmission Utilities shall own at least 26% equity and the balance shall be contributed by the JV partner Tala transmission project involving development of 1,200 km of transmission lines and associated substation facilities

  2. Independent Power Transmission Company (IPTC), wherein 100% equity shall be owned by the private entity 400 kV Bina-Nagda-Dehgam double circuit line.

We believe that with ultra mega power projects (UMPP) being contemplated seriously to bridge the electricity demand-supply gap in the country, a significant quantum of resources will be required to be mobilised by the concerned authorities to strengthen the existing transmission infrastructure in the country. Availability of adequate transmission capacity will also enable a better implementation of the open access regime (discussed in the first article of this series) and promote trading of power from surplus to deficit regions.

Our next article on the India Power Summit 2006 will delve deeper into the funding requirements for the power sector as a whole.

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