POWER

The power sector is high on India's priority as it offers tremendous potential for investing companies based on the sheer size of the market and the returns available on investment capital. In the past few years, there has been considerable growth in power plants based on renewable sources of energy.

The Government of India has an ambitious mission of ‘POWER FOR ALL BY 2012’. This mission would require that our installed generation capacity should be at least 2,00,000 MW by 2012. In order to ensure that the generated power reaches the entire country, an expansion of the regional transmission network and inter regional capacity to transmit power would be essential.

Overview of Power Sector

Generation

Electricity generation by power utilities during 2009-10 has been targeted to go up by 9.1 per cent to 789.5 billion KWh. The growth of power generation during April–December 2009 was about 6.0 per cent as compared to about 2.7 per cent during April-December 2008.

* Upto December 2009

Source: Ministry of Power,Government of India

Power Supply Position

The power supply position of the country over the years is as follows:

* Upto December 2009

Source: Ministry of Power,Government of India

The deficit in power supply in terms of peak availability and total energy availability rose continuously from 2002-03 to 2007-08, a period characterized by high growth in peak demand and total energy requirement. Despite modest growth in electricity generation, the peak deficit came down significantly in 2008-09 on account of a slowdown in growth of peak demand. During April-December 2009, the peak and total energy deficits came down considerably to 12.6 per cent and 9.8 per cent respectively from 13.8 per cent and 10.9 per cent during the corresponding period in the previous year. This happened mainly on account of the increase in growth of electricity generation.

* Upto December 2009

Source: Ministry of Power,Government of India

Plant Load Factor (PLF)

The PLF of generating plants has improved consistently over the last few years.The comparative sector-wise PLF in percentage over the years are as under:

* Upto December 2009

Source: Ministry of Power,Government of India

Transmission

The transmission system planning in the country, in the past, had traditionally been linked to generation projects as part of the evacuation system. Ability of the power system to safely withstand a contingency without generation rescheduling or load-shedding was the main criteria for planning the transmission system. However, due to various reasons such as spatial development of load in the network, non-commissioning of load centre generating units originally planned and deficit in reactive compensation, certain pockets in the power system could not safely operate even under normal conditions. This had necessitated backing down of generation and operating at a lower load generation balance in the past. Transmission planning has therefore moved away from the earlier generation evacuation system planning to integrated system planning.

While the predominant technology for electricity transmission and distribution has been Alternating Current (AC) technology, High Voltage Direct Current (HVDC) technology has also been used for interconnection of all regional grids across the country and for bulk transmission of power over long distances.

Progress of Transmission Sector in the Country at the end of March-09

1. TRANSMISSION LINES:

(All fig. in CKM)

2. SUB-STATION:

Distribution

Distribution despite being of crucial importance in the entire electricity supply chain, remained neglected area and thus, resulting in huge Aggregate Technical and Commercial (AT&C) losses.

High technical losses in the system are primarily due to inadequate investments over the years for system improvement works, which has resulted in unplanned extensions of the distribution lines, overloading of the system elements like transformers and conductors, and lack of adequate reactive power support.

The commercial losses are mainly due to low metering efficiency, theft & pilferages. This may be eliminated by improving metering efficiency, proper energy accounting & auditing and improved billing & collection efficiency. Fixing of accountability of the personnel / feeder managers may help considerably in reduction of AT&C loss.

With the initiative of the Government of India and of the States, the Accelerated Power Development Programme (APDP) was launched in 2001, for the strengthening of Sub Transmission and Distribution network and reduction in AT&C losses.

Accelerated Power Development Programme (APDP)

Accelerated Power Development Programme had been undertaken from the year 2000-01 as a last means for restoring the commercial viability of the Distribution Sector.

Since incentive financing is proposed to be integrated with the existing investment programme to achieve commercial viability of SEBs / Utilities and link it to the reform process, the original APDP was rechristened to Accelerated Power Development & Reforms Programme (APDRP) during 2002-03 for 10th five year plan.

The objectives of APDRP are:

• Improving financial viability of State Power Utilities
• Reduction of AT & C losses
• Improving customer satisfaction
• Increasing reliability &quality of power supply

The scheme has two components:-

• Investment component – Government of India provides Additional Central Assistance for strengthening and up gradation of sub-transmission and distribution network. 25% of the project cost is provided as Additional central plan assistance in form of Grant to the state utilities.
• Incentive component - An incentive equivalent to 50% of the actual cash loss reduction by SEBs/ Utilities, is provided as grant. The year 2000-01 is the base year for the calculation of loss reduction, in subsequent years. The cash losses are calculated net of subsidy and receivables.
  

Creation of National Grid

POWERGRID is working towards achieving its mission of establishment and operation of Regional and National Power Grids to facilitate transfer of power within and across the regions with reliability, security and economy, on sound commercial principles.

The exploitable energy resources in our country are unevenly distributed, like Coal resources are abundant in Bihar/Jharkhand, Orissa, West Bengal and Hydro Resources are mainly concentrated in Northern and North-Eastern Regions. As a result, some regions do not have adequate natural resources for setting power plants to meet their future requirements whereas others have abundant natural resources. Demand for power continues to grow unabated. This calls for optimal utilization of generating resources for sustainable development. Thus, formation of National Power Grid is an effective tool to achieve this as various countries have adopted the model of interconnecting power grid not only at national level but also at international level.

Power Grid Corporation of India limited (POWERGRID)

Power Grid Corporation of India limited was incorporated on October 23, 1989 with an authorized share capital of Rs. 5,000 Crore as a public limited company, wholly owned by the Government of India. POWERGRID started functioning on management basis with effect from August, 1991 and it took over transmission assets from NTPC, NHPC, NEEPCO and other Central/Joint Sector Organizations during 1992-93 in a phased manner. In addition to this, it also took over the operation of existing Regional Load Despatch Centers from CEA, in a phased manner, which have been upgraded with State of-the-art Unified Load Despatch and Communication (ULDC) schemes. According to its mandate, the Corporation, apart from providing transmission system for evacuation of central sector power, is also responsible for Establishment and Operation of Regional and National Power Grids to facilitate transfer of power within and across the Regions with Reliability, Security and Economy on sound commercial principles. Based on its performance POWERGRID was recognized as a Mini-ratna company by the Government of India in October 1998. POWERGRID, notified as the Central Transmission Utility of the country, is playing a major role in Indian Power Sector and is also providing Open Access on its inter-State transmission system.

Rural Electrification Programme

Rural Electrification is a vital programme for socio-economic development of the rural areas. The objectives are to trigger economic development and generate employment by providing electricity as an input for productive uses in agriculture and rural industries and improve the quality of life of the rural people by supplying electricity for lighting of homes, shops, community centres and public places in all villages.

Rural Electricity involves supply of energy for two types of programmes:-

• Production oriented activities like minor irrigation, rural industries etc.;
• Electrification of villages.

While the emphasis is laid on exploration of ground water potential and energisation of pumpsets/tube wells, which has a bearing on agricultural production, the accent in respect of areas covered under the Revised Minimum Needs Programme (RMN P), is on village electrification.

According to the earlier definition, a village is classified as electrified if electricity is being used within its revenue area for any purpose what so-ever.

This definition of village electrification was reviewed in consultation with the State Governments and State Electricity Boards and the following new definition was adopted:-

1. The basic infrastructure such as distribution transformer and or distribution lines is made available in the inhabited locality within the revenue boundary of the village including at least one hamlet/Dalit Basti as applicable and
2. Any of the public places like Schools, Panchayat Office, Health Centres, Dispensaries, Community centers etc. avail power supply on demand and
3. The ratings of distribution transformer and LT lines to be provided in the village would be finalized as per the anticipated number of connections decided in consultation with the Panchayat/Zila Parishad/District Administration who will also issue the necessary certificate of village electrification on completion of the works.
4. The number of household electrified should be minimum 10% for villages which are unelectrified, before the village is declared electrified. The revision of definition would be prospective.

Progress Report of Village Electrification as on 31-01-2010

(#) Inclusive of 738 number of villages electrified during last three years.
Note: Andman & Nicobar authority stated that Out of 501 total inhabited villages, 81 villages are under encroachement forest area and 72 villages washed out during Tsunami.

Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY)

Ministry of Power introduced the scheme Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY) in April 2005 with the objective of providing access to electricity to all households and improving rural electricity infrastructure.

Salient Features

• Scheme is for the attainment of the goal set for providing access to electricity to all households in five years.
• Ninety per cent capital subsidy is provided for overall cost of the projects under the scheme.
• States must make adequate arrangements for supply of electricity and there should be no discrimination in the hours of supply between rural and urban households.
• For projects to be eligible for capital subsidy under the scheme, prior commitment of the States has been obtained before sanction of projects under the scheme for : -
  • deployment of franchisees for the management of rural distribution in projects financed under the scheme, and
  • the provision of requisite revenue subsidies to the State Utilities as required under the Electricity Act, 2003.
• The scheme is being implemented through the Rural Electrification Corporation (REC).
  

Under the scheme, projects could be financed with capital subsidy for provision of:-

• Rural Electricity Distribution Backbone (REDB)
• Creation of Village Electrification Infrastructure (VEI)
• Decentralised Distributed Generation (DDG) and Supply
• REDB, VEI and DDG would indirectly facilitate power to the requirement of agriculture and other activities including irrigation pumpsets; small and medium industries; khadi and village industries; cold chains; healthcare; education and IT
• Rural Household Electrification of Below Poverty Line Households
• The scheme covers the entire country

Implementation Methodology and conditions under RGGVY : -

• Preparation of District based detailed project reports for execution on turnkey basis.
• Involvement of central public sector undertakings of power ministry in implementation of some projects.
• Certification of electrified village by the concerned Gram Panchayat.
• Deployment of franchisee for the management of rural distribution for better consumer service and reduction in losses.
• Undertaking by States for supply of electricity with minimum daily supply of 6- 8 hours of electricity in the RGGVY network.
• Making provision of requisite revenue subsidy by the state.
• Determination of Bulk Supply Tariff (BST) for franchisee in a manner that ensures commercial viability.
• Three tier quality monitoring Mechanism for XI Plan Schemes made mandatory.
• Web based monitoring of progress.
• Release of funds linked to achievement of pre-determined milestones.
• Electronic transfer of funds right up to the contractor level.
• Notification of Rural Electrification Plans by the state governments.
  
  

Project Outlay, Coverage and Progress of Rajiv Gandhi Grameen Vidhyutikaran Yojana

Investment Opportunities and Potential

According to Central Electricity Authority's sixteenth electric power survey, peak demand is expected to increase by a staggering 77 percent to 157,107 MW by 2012. Similarly, the energy requirement is also expected to increase by 274 percent to 975,222 MU by 2012. It is estimated that a capacity addition of over 100,000 MW units by 2012 to bridge the supply deficit and keep up with the increasing demand. The total investment required in capacity creation, along with necessary investments in transmission and distribution segments is estimated at US$ 200 billion.This quantum of investment calls forth public-private partnerships in the sector.

• Hydro Projects
  
  
  • Sixty eight percent, i.e., 101,454 MW of potential capacity is still not developed.
    
  • Seventy-seven schemes with a cumulative total of 33,000 MW have been identified.
    
    
• Captive Power
  
  
  • At present, CPP accounts only for fifteen percent, i.e., 22,100 MW of total combined capacity. Government plans to bring further 5000 MW into mainstream.
    
  • "Open Access" and "Group Captive" allowed under recent policy initiatives.
    
    
• Ultra Mega Power Projects
  
  
  • Seven projects with an individual capacity of 4000 MW, requiring an investment of approximately US$ 3.26 billion (INR 15,000 crore) each have been identified.
    
    
• Nuclear Power
  
  
• In the post indo-US agreement period, there is scope for private -public partnership in this sector.
  
  
• National Grid Program
  
  
  • The program envisages addition of over 60,000 ckm of transmission network in a phased manner by 2012 with an estimated investment of about US$ 15.18 billion. Of this about US$ 4.33 billion is ought to be mobilized through private participation.
    
    
• Distribution: with respect to distribution, the following opportunities exist
  
  
  • Rural Electrification
    
  • Privatization of Discoms
    
  • Participation under Franchise Model
    
    
• Trading
  
  
  • "Power Pools" system has been established to facilitate trading opportunities for licenses.
    
    
• Renewables
  
  
  • Existing untapped wind energy potential of 45,000 MW
    
  • Untapped Bio-power potential of 52,000 MW.
    
  • Untapped Cogeneration- bagasse based potential of 5000 MW.

Private Sector Participation in Power Sector

Ministry of Power recognizes the fact that private investors have an important role to play in the growth of power sector in India. The stipulation under section 63 of Electricity Act 2003 has provided impetus to the participation of private sector in generation and transmission. Provision of open access and tariff framework under tariff policy has been put in place to create an enabling environment for the private investors.

The private investors have responded to the policy initiatives very positively. As a result, out of 20897 MW envisaged under private sector during 11th Plan (2007-12), work on the addition of 19897 MW is actively progressing and 1000 MW has already been added to the energy basket of the country. In addition, a large number of IPPs have applied for coal linkage totaling to nearly 1,87,000 MW. They are in simultaneous coordination with states for acquiring land, water and other inputs for setting up these projects.

Major Policy Initiatives to Streamline the Process of Project Development

To accelerate capacity addition several policy initiatives have been undertaken by the Ministry of Power. Some of the prominent policies which have boosted the private player's confidence in the sector are:

• National Electricity Policy
• Ultra Mega Power Project Policy
• Mega Power Policy
• Tariff Policy

Public Sector Companies in Power Sector

• NTPC Limited
• Power Grid Corporation of India Limited
• National Hydroelectric Power Corporation
• PTC India Limited
• Power Finance Corporation

Private Sector Companies in Power Sector

• Tata Power Company
• Reliance Energy Limited
• Adani Power Ltd.
• India Bulls Power
• Essar Power
• Jindal Power Limited

Foreign Direct Investment Policy

• Automatic approval (RBI route) for 100% foreign equity is permitted in generation, transmission, and distribution and trading in power sector without any upper ceiling on the quantum of investment.
• During the period April 2000 to April 2009, Power Sector has been able to attract FDI amounting to US $ 3.23 billion.

Policy Framework

Electricity Act 2003

Electricity Act 2003 has been enacted. The objective is to introduce competition, protect consumer's interests and provide power for all. The Act provides for National Electricity Policy, Rural Electrification, Open access in transmission phased open access in distribution, mandatory SERCs, license free generation and distribution, power trading, mandatory metering and stringent penalties for theft of electricity.

It is a comprehensive legislation replacing Electricity Act 1910, Electricity Supply Act 1948 and Electricity Regulatory Commission Act 1998. The aim is to push the sector onto a trajectory of sound commercial growth and to enable the States and the Centre to move in harmony and coordination.

The Electricity Act 2003 has had a positive effect on the entire sector, including generation. Overall, this legislation has liberalized generation and freed it from licensing. The requirement of techno - economic clearance has also been removed. In addition, the recently announced National Tariff Policy makes it mandatory that all future requirements of power should be produced through a competitive bidding mechanism instead of cost-plus route.

The positive environment created by the electricity act and the proactive role-played by the Ministry of power in helping private projects achieve financial closure have led to a revival of the IPP model.

Seven ultra mega coal based power projects with a capacity of 4000 MW each in the first phase are on the anvil. These projects will be set up at Sasan in Madhya Pradesh, Mundra in Gujarat, Akaltara in Chhattisgarh, Karvar in Karnataka, Ratnagiri in Maharashtra, Krishnapatnam in Karnataka, and in Orissa. For the Orissa project, three sites- Hirma, Derabahai and Bhashma have been short-listed.

The initial development work (land acquisition, water linkage, EIA studies, preparation of project report, etc.) is being done through SPV companies, with initial funding provided by the Power Finance Corporation (PWC). Each company will be a fully owned subsidiary of PFC. These projects will be awarded on the basis of competitive bidding. The bidding will be based on the first year of tariff quoted. The projects will be transferred to the investors by the end of 2006. These projects will entail a total cost of Rs. 750 billion. They are likely to be financed at debt-equity ratios of 70:30. The cost of power from these projects is estimated to be about Rs. 2.50- 2.75 per unit.

The recent Indo-US nuclear deal makes nuclear deal makes nuclear power a much more realistic option for the future. The centre has given approval for the construction of eight new nuclear reactors with a combined capacity about 6,800 MW.

The Government plans to add 32,000MW in the tenth plan and an additional 67,500 MW in the eleventh plan. The capacity addition target for the twelfth plan stands at 66,500 MW.

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National Electricity Policy

Objectives

The National Electricity Policy aims at achieving the following objectives:

• Access to Electricity - Available for all households in next five years.
• Availability of Power - Demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available.
• Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates.
• Per capita availability of electricity to be increased to over 1000 units by 2012.
• Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
• Financial Turnaround and Commercial Viability of Electricity Sector.
• Protection of consumers’ interests.

Issues Addressed

The policy seeks to address the following issues:

• Rural Electrification
• Generation
• Transmission
• Distribution
• Recovery of Cost of services & Targetted Subsidies
• Technology Development and Research and Development (R&D)
• Competition aimed at Consumer Benefits
• Financing Power Sector Programmes Including Private Sector Participation
• Energy Conservation
• Environmental Issues
• Training and Human Resource Development
• Cogeneration and Non-Conventional Energy Sources
• Protection of Consumer interests and Quality Standards
  

Full text of the policy

Useful Web Links

Ministry of Power, Government of India

Central Electricity Authority

Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY)

Power Grid Corporation of India limited (POWERGRID)