Its All About Power Sector

Overview of Indian Power Sector

Generation

As on 28th February 2013, India's Installed Capacity stood at 214630.02 MW. Thermal sources continued to have a dominant share accounting for two-thirds of the capacity at 144544.48 MW, followed by hydro- power with 19% or 39449.4 MW, renewable energy with 12.1% or 25856.14 MW and nuclear power with 2.3% or 4780 MW. Overall, the capacity addition during the Eleventh Plan stood at 54,964 MW. This accounted for 88 per cent of the revised target of 62,374 MW set by the Planning Commission in its midterm appraisal and 70 per cent of the original target of 78,700 MW. Also, 14,660 MW of grid-connected renewable capacity was added against the target of 14,000 MW.

The proposed targets are higher than those suggested by the Working Group on Power for Twelfth Plan. It has suggested a capacity addition target of 75,785 MW of conventional capacity, 18,500 MW of renewable capacity and 13,000 MW of captive capacity. The conventional capacity addition includes 62,695 MW of coal-based projects, 9,204 MW of hydro capacity, 2,800 MW of nuclear capacity and 1,086 MW of gas- based capacity. The private sector is expected to contribute the maximum at 42,131 MW accounting for 56 per cent of the total capacity addition while the central sector is expected to account for 26 per cent (19,858 MW) and the state sector, which currently has the highest installed capacity, will contribute only about 18 per cent (13,796 MW).

In terms of power generation the achievement by the end of February 2013 has been 831435.46 MU which is 98.23% against the targeted value of 846398.00 MU, the sector recorded a growth of 8.1 per cent in 2011-12 to reach 876,888 MU's from 765,832 MU's in 2010-11. In comparison, it recorded a growth of only about 5.2 per cent in 2010-11 over the previous year.

Source: Central Electricity Authority

The private sector's contribution in the total installed capacity has been increasing consistently from 8.66 per cent in March 2003 to 27 per cent in March 2012 since the passage of the Electricity Act, 2003. This share is expected to increase further to 40 per cent by 2017 if all the targets proposed by the working group are met. The private sector contributed about 42 per cent of the total addition during the Eleventh Plan period, over 10 times more than its contribution in the Tenth Plan period.

Energy and Peak Shortages

Improving the PLF's of existing plants is crucial, particularly in light of the high average and peak shortages in the country, and also because greenfield projects. The plant load factor (PLF) of thermal plants stood at 69.97 during 2012-13 (up to February 2013) while that of 73.32 per cent during 2011-12. The availability of power from new baseload capacities led to a fall in average shortages in the past two to three years, these continue to be significant in absolute terms. The peak shortage recorded during 2012-13(up to February 2013) stood at 9.0% while that of 10.6% during 2011-12 was higher than that in the previous year (9.8 per cent) due to severe coal shortages during September-December 2011.

Source: Central Electricity Authority

Coal Consumption by Thermal Power Plants

Thermal power generation suffered a shortfall of 20 BUs during 2011-12 - 9 BUs and 11 BUs due to a shortage of coal and gas respectively. The coal consumption in the year 2011-12 has been 417.56 MT and 387 MT in the year 2010-11. almost all new thermal capacity added during the Thirteenth Plan is expected to be supercritical, given that the gov­ernment has decided to grant coal link­ages only to such projects.

Source: Central Electricity Authority

Transmission

The recent grid failure, which resulted in the world's biggest blackout, plunging 21 states and 600 million people into darkness, reaffirms the need to establish a strong and resilient power transmission network in the country. While 88 GW of generation capacity is proposed to be added in the Twelfth Plan (2012-17) to meet the rising demand for power, a reliable and efficient transmission network is critical to leverage the new capacity.

There have been several positive developments in the transmission segment. Private investments, which increased to 14 per cent of the total transmission investments in 2010-11, became more attractive with tariff-based competitive bidding for all interstate transmission projects being made mandatory from 2011. The implementation of a new direction- and quantum- sensitive transmission pricing mechanism in July 2011 is beginning to pro- age lines, and 425,866 MVA of transformer capacity at the 220 kV and above voltage levels. The ±500 kVhigh voltage direct current (HVDC) links had a capacity of 14,200 MW. The transmission line length grew at a CAGR of 7 per cent between 2007-08 and 2011-12. This growth was mainly driven by the addition of 765 kV and 400 kV lines, with the length of 765 kV lines doubling between 2009-10 and 2011-12.

Source: Central Electricity Authority

The transmission target has been set at 109,440 ckt. km of line length and 270,000 MVA of substation capacity. About 27,000 ckt. km will be constructed at the 765 kV voltage level. The HVDC capacity is expected to almost double from 13,500 MW to 26,500 MW by the end of the Thirteenth Plan period. The interregional transfer capacity addition target is 37,800 MW, or one and a half times the existing transfer capacity. Further, the 765 kV transmission system associated with the Krishnapatnam UMPP, which will be commissioned in 2013-14, will facilitate synchronisation of the southern regional grid with the north-east-west grid, marking the creation of a synchronous national grid.

Powergrid is constructing 11 high capacity transmission corridors at an estimated cost of Rs 580 billion to evacuate around 80 GW of power, which is scheduled to be commissioned over the next five to seven years. The generation projects comprise six ultra mega power projects (UMPPs) aggregating 28 GW and independent power plants with a combined capacity of 55 GW concentrated in the coal belts of the country's eastern regions and coastal areas.

These entail the construction of 23,000 ckt. km of transmission lines, of which more than 70 per cent will be at the 765 kV level; 29 substations of more than 60,000 MVA capacity; and four HVDC terminals of 7,000 MW capacity. Powergrid plans to start commission- by the states were the key reasons for the grid collapse in July 2012, as per the Central Electricity Regulatory Commission's (CERC) panel report on the grid failure. To prevent this in future, the power ministry plans to amend the existing legislations pertaining to the sector. These amendments will aim at vesting powers in the CERC to prevent states from overdrawing beyond their allotted quota. The ministry is also looking at amending the existing Indian Electricity Grid Code (IEGC) for putting in place a defence mechanism to prevent future blackouts as well as ensuring that states adhere strictly to the IEGC norms.

To effectively implement the new transmission tariff structure based on the point-of-connection (PoC) methodology, the CERC amended the existing regulations in November 2011 and March 2012. This new transmission pricing mechanism not only allows for the sharing of transmission costs among emerge as the main transmission network voltage in the future. Technologies like gas-insulated switchgear substations and supervisory control and data acquisition for substation automation, compact tower designs, and aluminium conductor steel reinforced conductors are witnessing faster adoption at both the central and state levels.

Distribution

Renewed efforts are being made to reform the power distribution segment. Long-delayed tariff revisions are being undertaken due to both regulatory and lender pressure. The latter has also driven debt restructuring to address the issue of weak utility finances. At the operational level, there is a greater acceptance of information technology (IT) as utilities try to reduce losses and improve business processes. The challenge, however, lies in sustaining these reforms. AT&C Losses in the country have been very high and is the major concern that the country's utilities face. The losses according to the PFC report on distribution utilities for the year 2010-11 has been 26.2% and the T&D losses during the same year has been 24.0%. Both these have reduced by a value close to 8% from the year 2003-04 which were 34.8 and 32.5 respectively.

Source: Central Electricity Authority

Investments worth Rs 300 billion have been planned by the distribution utilities during the Twelfth Plan period. The key focus areas are loss reduction and network upgradation. Some of the major initiatives in this regard are feeder segregation schemes, improvement of metering practices and increasing IT penetration. Utilities in Andhra Pradesh and Gujarat have undertaken feeder segregation to improve the quality of power supplied to rural and agricultural consumers. This has been complemented with high voltage distribution systems. IT deployment has increased in the power distribution segment, partly due to government support. For several utilities, it has enabled a target-based loss reduction. Enterprise resource planning has been among the leading IT applications. Other key applications include supervisory control and data acquisition, customer relationship management and distribution line maintenance systems. Also, utilities with an already established IT infrastructure base are now deploying key functionalities such as outage management systems, geographic information system (GIS) and asset management systems.

At the financial level, the utilities' debt position has been a cause of concern. Industry estimates put their accumulated debt at over Rs 1 trillion. This has adversely impacted their creditworthiness and, in some cases, led to the rejection of short-term loan proposals by banks. To avoid an impending financial crisis, comprehensive debt restructuring has been undertaken. For the second time in about a decade, the government has approved a debt restructuring package to clean up the discoms' books of accounts. This package involves half of the loans being transferred to the state governments, for which bonds will be issued. Financial institutions will restructure the remaining half of the outstanding loans.

The emerging business environment of power distribution involves rising power purchase costs, stringent finan­cial scrutiny as well as regulatory focus on performance and consumer satisfac­tion. The key areas of cost pressure are thermal power generation costs, slip­pages in generation capacity addition, higher capital costs of new generation projects and debt servicing costs. This necessitates tariff revisions and explains the increasing number of utilities adopting multi-year tariffs to recover fuel cost escalations.

The long-pending issue of open access at the distribution level is now being taken up. The MoP recently noti­fied that all industrial consumers (1 MW and above) will be deemed "open access consumers". These consumers can buy power from another supplier or from the open market by issuing a notice to the discom and the discom is obligated to provide network access. While this benefits industrial consumers, it has ramifications for the utilities' business. The risk lies in the migration of high- value consumers, that is, the industries that often cross-subsidise other consumer categories.