A journey through the byzantine world of Indian power sector and how to turn around
The Indian power sector has witnessed a transformation over the past couple of decades. The electricity generation touched the historic 1 trillion units mark during 2014-15, showing a growth of 8.4 per cent over the previous year. Further, to meet the country’s increasing demand, the government has set a goal to provide uninterrupted power for all by 2019. In this objective, an investment worth $ 250 billion over the next five has been announced.
However, several unfavourable or uncertain factors have stalled the growth of the sector. Here we will discuss on the major bottlenecks and how to revitalise the sector.
T&D networksA robust and efficient power T&D infrastructure is imperative for effective transfer of power from generation source to the consumption points or demand centres. If the country needs to realise its dream of providing uninterrupted power for all, the sector needs to upgrade and equip its T&D networks. There is the dire need to improve the quality of power delivery to existing customers by replacing and refurbishing T&D assets, to connect new power plants and to accommodate the increasing contribution of variable renewable sources. According to Manish Agarwal, Vice President, Business Head, Power Products and Solution, Sterlite Technologies, “Transmission projects get staled due to land issues, slow clearances, Right of Way (RoW). Using existing infrastructure and RoW is strategic imperative to mitigate slackness in the growth in transmission capacity.”
He also points out that there are certain issues cables and conductor manufacturer’s face which directly or indirectly impact demand, uptake of new technologies and advancements, incentive for quality products, competitiveness of cable and conductor manufacturers.
Transmission congestion on power exchangesAccording to Rajesh K Mediratta, Director Business Development at Indian Energy Exchange (IEX), due to absence of adequate distribution infrastructure (last-mile infrastructure) to support the capacity, more than 50 per cent of households in the country remain un-electrified.
The lack of adequate capacity available in the inter-state transmission system networks manifests in the form of transmission congestion on power exchanges. Development of transmission and distribution system within the state has to be taken care of by the state power utilities, but nothing much has been done on this front by most of the states, resulting in severe congestion on the networks. Such congestion bottles up surplus generation at one end and increases the cost of power and creating shortage of power for end consumers on other end. As of today, even with the installed capacity in the country being double of the peak load of 145 GW, there is demand for electricity that remains un-served. This adversely impacts the generators who have made huge investments but lack the opportunity to sell the power so generated. Therefore, power plants are running at sub-optimal PLF, which was at 65 per cent in FY’15 for coal based plants.
Mediratta also points out that the other big policy level wrong is only plants with long-term PPA are given coal linkage. “It has been observed that most of the private sector plants with long-term PPA have disputes since risk allocation between buyers and generators are normally not rightly balanced and it raises disputes,” he says.
It is observed that states in a rush to manage its power system, over-do their long-term PPA. Gujarat, Punjab, Delhi and Haryana are found to have done PPA for its peak demand which exists only for 4 months in a year and they have to bear cost of those PPAs for 8 months and their consumers are paying fixed costs of PPAs.
Ailing financial health of state discomsThe ailing financial health of state discoms is another area of grave concern for the sector. It has been observed that the state government and state discoms are not working with in tandem to reduce theft more eulogistically called as commercial losses. Discoms need to cut their losses and SERCs need to pursue aggressively and hand-hold state utilities to reduce losses and engage in tariff rationalisation, enabling discoms recover their costs.
Also, discoms need to be in a financial position to procure adequate power and meet the demand of consumers. Therefore, lot of impetus should be given to reduction in losses which will allow distribution companies to earn more and invest in transmission and distribution infrastructure as well.
Increased the open access chargesThe Electricity Act 2003 was enacted to ensure increase private participation and to reduce the demand-supply gap in the power sector. Generation of power was de-licensed and the requirement of techno-economic clearance for thermal power generating plants by CEA was dispensed with.
The Act also removed restrictions on captive power generation and simplified the procedures. Open access was allowed in transmission, which gave the right to private power producers or any other generating utility to sell its power to any entity using transmission network without any discrimination. Industries are allowed to set up captive power generation units and they also have the right to open access allowed them to sell electricity to any consumer using the transmission network. Captive units could thus sell their surplus power to the customers of their choice.
However, there are certain open access related issues plaguing the power market today. Many states have significantly increased the open access charges, just to deter them opt for cheaper options from the market. Many states are losing their industries while industries lose their competitive edge in the market. Experts say that open access fosters true competition in the sector and to curb open access is surely a move in the backward direction.
Effective implementation of open access and removal of adverse procedural and operational issues will truly encourage participation in the sector.
Complexities in obtaining approvalsThe complexities in acquiring multiple approvals for primary resources like infrastructure, land acquisition, construction power and disproportionate level of details sought with applications are among the major difficulties in the implementation of projects. According to Babu Babel, President IEEMA, these delays have a cascading effect on the capacity utilisation and growth of the BTG and T&D equipment industries.
Successful implementation of the single-window clearance for setting up projects will deliver much-needed thrust to the entire power sector.
Threat of cheap importsThe electrical equipment manufacturing technology is witnessing significant modernisation while new technology is also being adopted in the manufacturing processes. Technological advancements like smart grids and policies on emission reduction are expected to influence the future direction taken by the power sector and electrical equipment industry in various countries. However, the domestic electric equipment manufacturing industry is facing acute threat primarily because of cheap imports based on unethical practices. Indian Electrical & Electronics Manufacturers’ Association (IEEMA), the apex association of the Indian electrical equipment manufacturing industry,
Creating competitive edge over the global players in terms of technology, product quality, process innovation, and value engineering is the need of the hour.
Lack of restriction on import of panels from Chinese manufacturers is a major threat for the domestic manufacturers. According to Jimmi Desai, Director, PV Power Technologies Pvt Ltd, the Chinese manufacturers enjoy cheaper financing and export rebates which make it easier for them to dump panels at lower rates.
IEEMA suggests framing of model procurement guidelines for utilities with standardised and fair contract terms and conditions. It demands that, due weightage should be given to the entire lifecycle cost of a product while evaluating the bids.
Power evacuation, intermittency in RE sectorIndia is pushing renewable energy to top of energy security ?agenda. The government has set an ambitious plan of generating 175 GW from renewable by 2022. Experts believe that the same can be achieved easily if some of the key issues faced by the private sector are addressed. According to Tulsi Tanti, Chairman and Managing Director, Suzlon Group, power evacuation and intermittency are major obstacles for renewable industry growth. “We need to speed up the execution of green energy corridor and encourage massive investments in upgradation and creation of new transmission and grid infrastructure. The land regulations and power evacuation issues have to be addressed expeditiously,” Tanti suggests.
The project development cycle of solar and wind power projects are six to eight months. However while the projects are ready to be commissioned, the corresponding power evacuation architecture lags behind. Developers in most states are facing this issue wherein they lose revenues because the evacuation infrastructure has not been developed in time. Therefore based on the solar potential in the state the respective state government should develop evacuation architecture. For developing the green corridor, a priority lending status should be given, demands Vineet Mittal, Vice Chairman at Welspun Renewables. He says, “This will ensure that as soon as the green energy projects are commissioned the evacuation infrastructure is already in place and they are able to transmit the energy generated to the state grid.”
Renewable energy sector also needs large-scale funding. Industry demands that banks and financial institutions should earmark at least 20 per cent finance for renewable energy projects and finance should be available for longer period of 20-25 years. This will ensure lower cost of energy which will benefit the end consumer.
Kailash Lal Tarachandani, CEO of Inox Wind recommends that to fully take advantage of India’s renewable energy potential the sector will need new initiatives from central and state governments — beyond policy and programs currently in place — to support the engagement, participation, and new behaviours of power sector stakeholders including renewable energy industry and developers, grid operators, public and private finance, consumers, and others.
Whereas, Hitesh Doshi, CMD, Waaree Energies says points out that the Indian power sector is facing the challenges in terms of procurement of Indian solar cells.
Concerns over CNLDIndia plans to double its nuclear power generation capacity to more than 10,000 MW over the next five years. However, clauses in the Civil Liability for Nuclear Damage (CLND) Act (2010), which gives the operator the Right to Recourse and allow it to sue the suppliers in case of any accident, are being seen as a major hindrance to the growth of the nuclear industry. Commenting on this aspect, Shah Nawaz Ahmad, Senior Advisor, India, Middle-East and South-East Asia, World Nuclear Association says, “The law governing CLND, particularly the liability of vendors, has been the subject of much debate and concern.”
However, Union Minister Jitendra Singh has recently termed these concerns as ‘misplaced’ and ‘unwarranted’. He says, “The concerns raised about the CLND are misplaced and unwarranted. It is not only in the interest of foreign investors but also in the interest of India and nobody has to actually worry for that.”
ConclusionThe Indian power sector is on the verge of historic transformation. Empowering the power sector is imperative for the country’s socio-economic development. India will truly command over its desired development agenda, once the roadblocks for power sector are removed.
A journey through the byzantine world of Indian power sector and how to turn around