New government, several new policies and promising private investments, yet the thermal power needs new rays of shining light
India has been experiencing rapid economic growth, but the power sector continues to lag behind. The policy makers have introduced several progressive measures, but the growth isn’t still progressive. Tariffs and the dependence on imported fuels are on the rise and the poor health of T&D continues to inhibit the inflow of investments. The nor-so-powerful sector needs to fix these challenges in pursuit of becoming powerful.
In the next 10 years, India’s power demand is likely to cross 300 GW. Meeting this demand means, we need a fivefold to tenfold increase in the capacity addition, and coal contributes 69 percent of India’s primary commercial energy. Coal is considered as the best option for commercial use.
Though the Power Ministry is working hard to increase the share of renewable energy, the coal-based power is likely to remain India’s most important source of energy for the coming decade or two.
Coal-based thermal powerCoal-based thermal power generation is the best option for India due to the supposedly abundant indigenous availability of coal with proved reserves of about 123 billion tonnes. The installed capacity in India has increased from 756 MW in 1947 to about 125,000 MW in 2012, with coal-based capacity contributing 58 per cent of India’s power generation capacity and 71 per cent of total electricity generation in 2012.
However, India’s per-capita electricity consumption — 900 kWh per year — is very low. It is one-third of world’s average. Then there are about 32 per cent of the population without electricity access and poor quality of supply in rural areas. In the 12th Plan, the government has proposed about 63GW of coal based-capacity added by 2017.
ChallengesThe Indian thermal power sector is facing a gamut of challenges like inefficient planning, lack of private investments, inadequate maintenance, low plant load factor and erratic supply to consumers. The biggest challenge in power sector is transmission and distribution losses. There are some states like Bihar lose almost half of its power even before it reaches to the consumers.
These losses are due to inefficiency in transmission sector and have mainly occurred due to feeder metering in the past. Then there is theft of electricity which primarily gets attributed to agricultural consumption.
Coal and present scenarioThe coal production in India in the recent years has slowed down due to planning and governance issues, inefficiency of coal mining and issues with environmental clearances, to name a few. Then last August, the Supreme Court has cancelled all but four of 218 coal block allocations. These all have forced the power players to import coal with higher price. Total coal imports increased by about 2.7 times in last 5 years from 50 tonnes in 2007-08 to 137 tonnes in 2012-13.
Coal block e-auctionOn December 24, a day after the conclusion of the winter session of Parliament, the Union Cabinet had approved re-promulgation of the Coal Ordinance. The re-promulgation of ordinance on coal will facilitate e-auction of coal blocks for private companies for captive use and allot mines directly to state and central PSUs.
Though the existing allottees needed to pay an additional levy of ` 295 per tonne by December 31 for the coal they mined till September 24, 2014. They are also supposed to pay, the additional levy for the coal mined between September 2014 and March 2015, irrespective of their success in bidding process. On January 21, the coal ministry has kick-started the offering de-allocated coal blocks to state-owned entities. The companies will need to pay a fixed reserve price of Rs 100 per tonne, payable as per the actual production. The yearly escalation of the reserve price will be based on the formula spelt out in the Standard Bid Documents.
In addition, the PSUs will also be required to pay the statutory royalty and the upfront payment (to compensate the previous allocattee) as per the allotment document.In the first phase, 41 producing mines are being offered for allocation and auctions. On February 15, the Centre will put 24 blocks on auction. In that round, both public and private sector players can participate.
The industry is hoping that e-auction most of the 214 coal mines will boost investor confidence due to transparency in the process and reduce fuel availability risks. According to Kameswara Rao, Partner and Energy, Utilities and Mining Leader, PricewaterhouseCoopers India, “The auction process and the legislative framework, however, provide a robust foundation for deregulation of the sector at least in terms of permitting new private investments, implementing optimisation measures for better use of resources, and potentially permitting commercial trade for domestic use. This will help deploy technology and mining practices of economic scale, improve safety and working conditions, and ensure conservation in extraction of our natural resources.”
The futureIndia continues to grow at an average rate of 8 per cent for the next 10 years. India’s demand for power is likely to rise to 315-335 GW by 2017. In order to fulfil the power requirement of 315 to 335 GW by 2017, India needs a generation capacity of 415 to 440 GW. Not only that, India needs an investment of $600 billion across the value chain. About $300 billion will be necessary for generation, about $110 billion for transmission, and the rest $190 billion for distribution.
In order to have am efficient and profitable power sector, the government needs look at reducing AT&C losses which should be come down to 15 per cent by 2017. The government should implement a series of distribution reforms, including separating agricultural feeders that allow SEBs to distinguish agricultural from non-agricultural supply. The ministry can also privatise distribution circles in Tier-1 and Tier-2 cities. Above all, the state electricity boards need to learn to be disciplined in raising tariffs and curbing transmission and distribution losses. Added to that, all the state boards should modernise their facility and equipment. Together, the sector is surely going shine like never before.
