Sector Highlights
The Power industry is capital-intensive having long gestation period. Electricity is a commodity that can not be stored in the grid where demand and supply have to be continuously balanced. The Power sector turnover in India is around $35 Billion p.a. with generation ownership of approximately 20% by private participation, 25% Central and the rest by state government involvement. Each stage from Generation to transmission and distribution involves a whole host of parameters.
It is estimated that around $200 billion is required for India's power sector development over the next 10 years. While lst half of this would be for generation projects, the other half is needed for transmission and distribution and rural electrification projects. |
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Strong political commitment and sector reforms are needed to attract such levels of investment and many such reforms are being implemented in earnest.
Generation
Given the legacy of India’s economic policy inadequacy in power generation has characterized power sector operations, with power plants operating at typically 65% load factors. The Government of India has only recently initiated several reform measures to create a favorable environment for addition of new generating capacity in the country. The Electricity Act 2003 has put in place a highly liberal framework for generation, doing away with the requirement of licensing or techno-economic clearance of CEA for generation. Captive generation has also been freed from all controls. To provide availability of over 1000 units of per capita electricity by year 2012 it had been estimated that need based capacity addition of more than 1,00,000 MW would be required during the period 2002-12, providing for a huge opportunity for private participation in this sector.
 
Power Generation Statistics
Hydro Generation
This typically comes from the potential energy of dammed water driving a water turbine and generator. The energy extracted from water depends not only on the volume but on the difference in height between the source and the water’s outflow called the head.
Benefits:
1. Renewable source
2. Ancillary benefits (irrigation, flood control)
Demerits:
1. Large command area required
2. Large displacement involved
3. Capital expenditure high
4. Large scale silting of reservoirs
5. Ecological concerns |
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Thermal Generation
In thermal power plants the fuel is primarily from burning fuels that are Coal, Naphtha and LNG based. While the country has adequate coal deposits are quality is inferior. The projected thermal power generation addition in the XI plan is 53,333 MW. Considering an investment need of Rs 45 million/MW for generation and about 1.3 times this cost for T&D (transmission and distribution), the total funds required for generation and distribution of thermal power alone will be Rs 5,520,000 million. The additional coal requirement for this capacity requirement by 2012 will be 263 million tones.
Benefits:
1. Cheaper Energy source
2. Smaller plant size
3. Sale of carbon credits
Demerits:
1. Low quality Fuel
2. Lack of sufficient fuel
3. Capital expenditure high
4. Green house gas emission problems. |
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Nuclear Power
Nuclear power is the controlled use of nuclear reactions to release energy for the generation of electricity. Nuclear power is used to power 7% of the world’s energy and 15.7% of the world’s electricity. India has a largely indigenous nuclear power program which was patronized by the former Soviet Union. Its fuels sources are modest with mining carried out by the Uranium Corporation of India. The generation of nuclear power has been the exclusive preserve of the government, though it is expected that the nuclear
establishment may be opened up to foreign participants after the signing of the Indo US nuclear deal. Already a host of nuclear power companies like General Electric Co. and Westinghouse Electric Corp had been included in a recent US trade mission to India held in early Nov 2006.
Benefits:
1. Cheaper Energy source
2. Sustainable energy source
Demerits:
1. Low locally mined fuel reserves
2. Environmental issues in radioactive waste disposal
3. Political and social concerns
4. Higher capital expenditure |
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Wind Power & Non-Conventional Energy Sources
Most modern wind power is generated in the form of electricity by converting the rotation of turbine blades into electrical current by means of an electrical generator. Today’s its cost of generation has dropped even below that of thermal power. Other forms of non conventional energy include bio-gas based fuels, solar energy farms etc. Today foreign investors can enter into a joint venture with an Indian partner for financial and/or technical collaboration and also for setting up of renewable energy based power generation projects, aimed at facilitating foreign investment and transfer of technology through joint ventures. It is possible that the system of Power Tax Credits (PTC’s) presently in use in the US and other developed economies could be introduced as an incentive for this sector.
Benefits:
1. Cheap Energy source
2. Sustainable energy source
3. Ecologically friendly
Demerits:
1. Large wind Farms required
2. Sew viable sites available |
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Captive generation
| Captive generation is the generation of electricity by power plants specially set up to cater to a particular category of users. The Electricity Act, 2003 provides for the setting up of captive power plant has made it possible in securing reliable, quality and cost effective power by enabling small and medium industries or other consumers that may not individually be in a position to set up plant of optimal size in a cost effective manner. A large number of captive and standby generating stations in India have surplus capacity that could be supplied to the grid continuously or during certain time periods. These plants offer a sizeable and potentially competitive capacity that could be harnessed for meeting demand for power. Most major industrial hubs already have captive power plants so as to ensure quality and continuous power. |
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Transmission
| In India the Transmission & Distribution losses are in the region of 30%, which is more than double of that in developed countries. Even investment in transmission sector that should have been equal to that in generation but the ratio is 1:3 in favor of generating capacity. The Transmission System requires adequate and timely investments and also efficient and coordinated action to develop a robust and integrated power system for the country. Keeping in view the massive increase planned in generation and also for development of power market, there is ample opportunity for private participants to |
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partake in augmenting transmission capacity. The country’s transmission perspective plan for tenth and eleventh plan focuses on the creation of a National Grid in a phased manner by adding over 60,000 ckm of Transmission Network by 2012. This integrated grid is expected to evacuate additional 1, 00,000 MW by the year 2012 and carry 60% of the power generated in the country. The existing inter-regional power transfer capacity is 9,000 MW, which is to be further enhanced to 30,000 MW by 2012 through creation of “Transmission Super Highways”. For creation of such a grid, an investment of Rs. 71,000 Crore is envisaged, with, Rs. 50,000 Crore to be mobilized by Powergrid and remaining Rs. 21000 Crore through private sector participation.
Distribution
Distribution is the most critical segment of the industry and a shadowed by Electricity boards, which were bled dry on account of under recoveries and un-viable tariff structure, foisted on them. Power theft and waiver of power bills has lead to a precarious balance sheet position, leading to huge losses in the revenues and reduction in the future expansion of capacity by SEBs. For achieving efficiency gains proper restructuring and adequate transition financing support of distribution utilities is essential. Such support should be arranged linked to attainment of predetermined efficiency improvements and reduction in cash losses and putting in place appropriate governance structure for insulating the service providers from extraneous interference while at the same time ensuring transparency and accountability. For ensuring financial viability and sustainability, State Governments would need to restructure the liabilities of the State Electricity Boards to ensure that the successor companies are not burdened with past liabilities. Private participation has only just begun, with a conducive business environment in terms of adequate returns and suitable transitional model with predetermined improvements in efficiency parameters in distribution business attracting investments in distribution. Introduction of a Multi-Year Tariff (MYT) framework is an important structural incentive to minimize risks for utilities and consumers, promote efficiency and rapid reduction of system losses.
It would serve public interest through economic efficiency and improved service quality. It would also bring greater predictability to consumer tariffs by restricting tariff adjustments to known indicators such as power purchase prices and inflation indices.
Top Listed Players Performance: Generation & Distribution
Future Demand
The Indian Railway is planning to electrify the 1800 km route in the tenth plan (which is on track) & 3500 km route in the eleventh plan. Currently Indian Railway electrified 17,800 km of its track which is some of 27% of total railway network.
Over the last 25 years, India’s power capacity has risen at the rate of 5.87% per annum. The total supply of electricity has risen at the rate of 7.14% over the same period. In 2004-05 the average plant load factor (PLF) was 74.8%. Power shortage and low quality of power continue to plague the country. For the country as whole, aggregate technical and commercial losses, which include theft, billing & collection inefficiency, transmission and distribution losses, exceeds 40%. The Ministry of Power has set a target of adding a 100,000 MW of generation capacity by 2012. This capacity addition programme includes the 41,110 MW proposed to be added in the 10th Five Year Plan (2002-07). During 2004-05, the Central Electricity Authority completed preparations of the pre-feasibility reports of schemes with an aggregate installed capacity of over 47000 MW under the 50000 MW hydroelectric initiatives. Nuclear power contributes a very nominal percent of energy to the total energy mix. But the latest deal with the US will help India gain international market access to uranium for its energy programme.
To meet the future demand Indian electricity sector has to grow at a continuous growth rate of over 7% per annum. As per the table given below, if we grow at a continuous growth rate of 7% by the end of 15th plan, the capacity requirement would be 7, 62,000 mw.
Private participation in power sector
Source: Power Ministry
Projection of per capita consumption of electricity under different growth scenario
Source: Economic survey 2004-05 |
Overview 
