There are two aspects of reduced share of generation in future investments in power sector.
Firstly, the demand of electricity in the economy is not growing at a pace as expected by everyone. Various policy measures were taken since 2014 based on assumption that demand of electricity, in a sustainable manner, will be in alignment to economic growth. However, this has not been the case because of subdued activity in manufacturing sector and other reasons. So, the lack of power demand is leading to a decreased share of generation in future investments.
Also, in line with Paris Agreement, the government is inclined to increase the share of renewable sources in generation, which is also leading to a reduced share of generation from the conventional resources.
The fall in share of generation to 30 per cent should not be a cause for concern at all, as it signifies the government’s focus on upgrading the hitherto neglected transmission and distribution (T&D) segment. Ideally, every rupee spent on generation should be met with a matching amount on transmission, as is the practice in many countries. But in comparison to generation, India spends only one-fourth on transmission. While our installed power generation capacity has grown by 50 per cent over the past five years, the growth in transmission capacity has been just 30 per cent.
To correct this anomaly, the government is finally trying to cover lost ground by targeting an investment of $50 billion in the T&D segment. As a result, the share of generation, excluding renewables, is expected to fall from 51 to 30 per cent, while the share of transmission and distribution segments is likely to go up to 36 per cent and 34 per cent, respectively, driven by large-scale private investments. Though it’s a shot in the arm for the country’s T&D network, it will not be enough. A lot of ground still remains to be covered. The government should work on footing to strengthen and expand the regional and intra-state grids and improve the rural electrification so as to ease grid congestion and supply constraints.