Experts from Feedback Business Consulting Services investigate the happenings in the Indian power sector.
It has been more than two years into the term of a new government that had swept into power with absolute majority. This was achieved with the help of grand vision laid out for the country which promised all-round development. We are at a point in time, where we can pause and take stock of how far along we are into the process of fulfilling this vision. Here, we investigate the happenings in the power sector that have occurred under the new leadership.
DDUGJY and IPDSDeen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) was one of the first initiatives taken by the new government to enhance the reach and capability of the power sector in India. The programme was carved out of the existing schemes like the R-APDRP (Restructured Accelerated Power Development & Reforms Programme) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). DDUGJY involved steps to beef up the distribution infrastructure by bifurcation of agricultural and non-agricultural feeders, strengthening and augmentation of sub-transmission and distribution infrastructure in rural areas and electrification of the rural areas.
Around the same time, the Integrated Power Development Scheme (IPDS) was launched to strengthen the sub-transmission and distribution network, to ensure metering of distribution transformers/feeders/consumers in the urban areas, and weave IT systems into the distribution sector. These objectives have been carried forward from the earlier R-APDRP scheme, with the aim of AT&C loss reduction, establishment of IT-enabled energy accounting/auditing system, improvement in billed energy based on metered consumption and improvement in collection efficiency.
Both these programmes were floated with a net expenditure estimate of close to ` 1,20,000 crore, of which an amount of about ` 53,000 crore was financed from the budgets sanctioned for the parent schemes, R-APDRP and RGGVY. This expenditure was to result into a reinforced skeleton for the power system in the country in the form of a robust and sophisticated transmission and distribution (T&D) network.
100% rural electrificationThe ambition of 100 per cent rural electrification has been long held by all the policymakers, with the last major target of achieving power for all by the year 2012. But, as of August 2013, more than 32,000 villages remained to be electrified. By August 2015, this number had fallen to 18,500.
Under DDUGJY’s rural electrification package, measures were taken up in mission mode starting August 2015 with a target to electrify un-electrified villages of the country by May 2018, to fit into the grander plans of providing ’24 × 7 Power for All’ by the year 2019. Grassroots level work on this programme is being tracked through a network of 409 ‘Gram Vidyut Abhiyantas’ (GVAs) and supervisors at District and Block level. Data from the ground is being monitored through an interactive portal which has been made available for the perusal of the public. Of these 18,500 villages that were in the line to be electrified, separate focus is being given to naxal-affected areas and villages that would be electrified using off-grid systems.
These efforts have borne fruit in the form of reduction of number of un-electrified villages to a little over 8,800 within a period of close to 2 years. The process has been so efficient that the target of 100 per cent village electrification is being expected to be achieved a year early, i.e. by March 2017.
This effort has been commendable, but there is a lack of clarity regarding what happens once 100 per cent village electrification is done? On paper, an electrified village does not mean supply of electricity to all within the village. This dichotomy springs up a question of how the government would go about from 100 per cent electrification to 24 × 7 Power for All? As of now there are no clear guidelines available on how the subsequent steps of 100 per cent household electrification, and 24 × 7 power supply would be made a reality.
Annual coal production of 1.5 bn tonnes by 2019-20For many years till 2014, the coal production in the country was acting as a huge bottleneck for the whole power sector. The increase in coal production was not able to keep up with the increasing demand for coal. The result was that there was a huge shortage of coal at power plants. The power plants were forced to keep a coal stock of about 7 days, which further dropped to a stock of less than 3 days during the rainy seasons.These shortages had forced power plant developers to look at costly coal imports to ensure a reliable supply of fuel. Even the power plants being set up under government programmes, like the Ultra Mega Power Projects (UMPPs) were being designed to be run on imported coal.
In response to this, Coal India came out with a road map to attain the 1 billion tonne annual coal production mark by 2019-20. The projected annual coal demand of the country is estimated to be around 1.2 billion tonnes around that time, by growing at an average rate of 7 per cent. Mahanadi Coalfields Ltd (MCL) and the South Eastern Coalfields Ltd (SECL) are expected to play a pivotal role in attaining the 1 billion tonne production with 250 MTs and 240 MTs respectively. This move was expected to cost an investment of anywhere from ` 50,000 crore to ` 10,00,000 crore in the next five years.
This strategy of increasing coal production is already bearing fruits. Coal production has grown at a CAGR of 7.9 per cent within the last 2 years, and the country is staring at an annual coal production target of 590 million tonne this year. Meanwhile, the country is expected to import only about 160 million tonnes of coal this fiscal, down from 200 million tonnes in 2015-16 and 218 million tonnes in 2014-15. The thermal power plants have been able to maintain a decent coal stock of about 23 days, against a stock of 7 days during the same period in 2014. Accompanying this, there has also been a substantial build-up of coal stock at pitheads. This has spurred the coal producer to conduct e-auction for the surplus coal.
Plans are being formulated to bring in private participation in a much bigger way to cater to the additional demand. 500 million tonnes of annual coal production is being expected from the private sector by 2019-20.
However, for some time, there has been a slowdown in investments in the thermal power generation space in the country. As of now, about 73 GW of thermal power generation capacity is under construction, which does not require an additional 1 billion tonnes of coal to function. Additionally, under the constant pressure from international peers to move away from fossil fuels, to what extent does India bank on this coal needs to be seen.
175 GW of renewable installed capacityPrior to 2014, renewable energy, especially solar energy, was treated as a niche segment. There were only a couple of gigawatts of installed solar power, and a target for the year 2022 of 20 GW.
Under the new government, these targets for renewable energy capacity were scaled up to 175 GW, of which 100 GW of capacity is to come from solar energy, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power.
The target for solar energy principally comprises of 40 GW rooftop and 60 GW large and medium scale ground-mounted grid connected solar power projects, amounting to a total investment of around ` 6,00,000 crore.
Within a year of this move, the installed capacity of solar power has almost doubled with equal emphasis on both rooftop and ground-mounted solar power systems. At close to 7.8 GW in May 2016, the installed capacity of solar power systems is close to triple of where it stood in March 2014 of 2.6 GW.
Although, such an overwhelming target sure has worked in the case of solar energy, but it has not had a similar effect on the capacity addition of other renewable energy sources. Wind power addition in the last fiscal was slightly greater than 3.4 GW, small hydro power capacity increased by slightly more than 200 MW and bio-mass by about 400 MW.
On the other hand, if things go as planned and 160 GW of solar and wind energy, both of which are highly variable in nature, gets synchronised with the grid, instability issues may arise due to the frequent fluctuation in renewable power generation. It is still unclear on how this challenge of stabilising the grid in a renewable-rich environment would be overcome.
UDAYThe Ujwal DISCOM Assurance Yojana (UDAY) has been one of the most talked about schemes related to the Indian power sector. The scheme has been designed in such a way so as to strike at the heart of the issues bugging the whole sector – the inefficient operation of the power distribution companies.
The first step envisaged towards this the elimination of debts that are dragging down the DISCOMs. For this the state governments will take over 75 per cent of the DISCOM’s debts which may be financed by issuing bonds, and the remaining 25 per cent would be adjusted by the DISCOM by issuing bonds. This step will reduce the effective interest cost on the debt to around 8-9 per cent, from as high as 14-15 per cent; thus improving overall efficiency.
In the next step, a permanent solution to the problem of DISCOM losses is achieved by States taking over and funding at least 50 per cent of the future losses (if any) of DISCOMs in a graded manner. In return, the DISCOMs would be pressured into incorporating efficiency measures including accelerated implementation of DDUGJY and IPDS schemes, cost cutting and timely tariff revisions.
Even though the plan looks brilliant on paper, but in the backdrop of a similar scheme of debt restructuring orchestrated in 2012 – the Financial Restructuring Plan (FRP), the UDAY’s success may appear questionable. FRP was implemented along similar lines of UDAY with 50 per cent of the debt to be taken up by the state government, and the rest to be restructured by the DISCOM, and performance enhancement was to pay for these restructured debts.
FRP was mainly targeted at some of the largest loss-making state DISCOMs. The plan, however, failed to take off at a considerable scale. There is no guarantee that UDAY would not follow a similar path. This uncertainty stemming from past experience is one of the largest doubts that cast shadow on the outcome of UDAY.
UJALAThe long-running Domestic Efficient Lighting Programme (DELP), which focused on making LED-based light bulbs available to the masses at affordable prices, was rebranded as Unnat Jyoti by Affordable LEDs for All (UJALA). The re-branding exercise goes hand-in-hand with the National LED programme which was launched in January 2015, with a target of replacing 77 crore incandescent lamps with LED bulbs.
Against this target, close to 14 crore LED bulbs have already been distributed. Energy Efficiency Services Ltd’s (EESL) estimates suggest that these LED bulbs are saving about 50 million units of energy daily, which in monetary terms amount to close to ` 20 crore. This energy efficiency measure saves about 3.6 GW of peak power demand, and a reduction of CO2 emission per day close to 40,000 tonnes.
Although the UJALA scheme is the flagship of EESL, there are many other energy efficient products that the agency is pushing out into the market in a similar manner in order to cultivate a culture of energy saving. However, accusations have been rife against EESL on the way the organisation is manipulating the markets with low prices, essentially disrupting the competition of a fair market.
All-in-all the schemes and programmes that have been put into action by the government in the past 2 years have been well orchestrated to cure the symptoms of the disease that had been plaguing the sector. In addition to the immaculate formulation of these plans, a great deal of transparency has also been incorporated through numerous dashboards and frequent media outreach programmes that emphasise the actions being implemented. However, true victory of these measures would be marked when these schemes would proceed to work in synergy to rid the industry of the past troubles and set it running on a track towards financial and operational success.
Decoding the ‘Power Surplus’ scenario India is expected to have power supply surplus in financial year 2016-17. We have to examine this statement from various angles:a. It is true that country’s peak power deficit has drastically gone down in last 5 years from close to 10 per cent to now less than 2 per cent. But what is the reason for such turnaround? On one hand, our installed power generation capacity has gone up significantly from approx. 199 GW by end of 11th five year plan to 300 GW before the end of 12th five year plan. However, on the other hand, our reported peak demand has remained stagnant at approx. 145 – 150 GW. The reasons for stagnant peak demand are manifold. However this mismatched trend between generation and demand has created huge amount of surplus power in the system due to which peak power deficit has drastically gone down in the recent past and we may see power supply surplus scenario in 2016 -17. Huge amount of surplus power is available at the exchange and at a very affordable price.b. To give this discussion another angle, Vidyut Pravah app shows the surplus power available at the exchange and the price at which it is available. It also shows the peak power deficit which is currently at about 1.3 – 1.5 per cent level. States report this peak power deficit to the centre. For example, it has been reported that there is no shortage of power in the state of Uttar Pradesh and hence they are not buying from the exchange, however another app URJA shows the ground level reality in UP – extent of frequent power cuts and load shedding in the state. So, centre may be reporting that there is no power shortage in UP, however ground level situation is quite different. So, at one level when we are saying there is very low peak power deficit, the ground level situation is quite different – frequent power cuts and load shedding scenarios are prevailing in many states. This raises a very important question – whether the so called ‘Peak Demand’ is the reported peak demand by the DISCOMs or is it the true peak demand of the country. A little more scrutiny will reveal the fact that it is the first one and hence whether India will be a power surplus country in true sense by FY 2016 – 17 remains a question.c. This leads to third angle of unlocking true power demand of the country. India’s per capita power consumption is approximately 1,000 KWH / Year which is approx. one third of the global average. This indicates lack of electrification, infrastructure and industrialisation in the country. Present Govt. has already taken various initiatives (Rural electrification, UDAY, Make in India etc.) to boost the country’s energy requirement and there are talks in the public domain regarding doubling of the country’s energy requirement by 2022. It is a debatable topic, whether such increase in power demand will actually be a reality and are there enough initiatives on ground to make that happen? However, if it happens, it will be interesting to see whether we are adequately placed to meet this additional demand and if we can, calling India a power surplus nation will not be an overstatement.
Rudranil Roysharma, Senior Consultant – Energy Vertical, Feedback Business Consulting Services Pvt Ltd
Aditya Ravindran, Consultant – Energy VerticalFeedback Business Consulting Services Pvt Ltd
Experts from Feedback Business Consulting Services investigate the happenings in the Indian power sector.