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Can India SolveCan India Solve
its Power Crisisits Power Crisis
88thth May 2007May 2007
The findings and opinions expressed in this paper are the sole rThe findings and opinions expressed in this paper are the sole responsibility of esponsibility of
the author. The findings and opinions expressed in this paper althe author. The findings and opinions expressed in this paper also do not so do not
necessarily reflect the views of the World Bank, its executive dnecessarily reflect the views of the World Bank, its executive directors, or irectors, or
the countries they represent.the countries they represent.
The beginning...The beginning...
The first
generating station
set up in the
Darjeeling hills in
1880s
Electricity
generation and
distribution
largely localised
Most of the
capacity result of
private or
municipal
initiative
Current situationCurrent situation
�� Approx 105,000MW Approx 105,000MW ––
�� Produce 659 Produce 659 bnbn kWh pakWh pa
�� +/+/-- 44thth largest power system in the worldlargest power system in the world
�� Coal Coal –– main fuel (55%)main fuel (55%)
�� Per capita consumption approx 600kWhPer capita consumption approx 600kWh
�� 80% villages electrified 80% villages electrified
�� but < 44% houses connectedbut < 44% houses connected
�� 1010--15,000 MW annual growth required15,000 MW annual growth required
Traditional structureTraditional structure
Ministry of Power Government of India
Planning Commission Government of India
Central Electricity Authority
Central public sector Power companies
Such as NTPC, POWERGRID
State Electricity Boards
State Ministry of Power
IssuesIssues
�� Not enough power (10% deficit, 13% at peak Not enough power (10% deficit, 13% at peak demand)demand)
�� Not enough paying customersNot enough paying customers
•• Av Av realisationrealisation Rs 2.4/kWh against Rs 2.4/kWh against avav cost of Rs 3.5/kWhcost of Rs 3.5/kWh
�� High Technical and commercial losses >30%High Technical and commercial losses >30%
�� Utility financial losses Utility financial losses –– approx Rs 4 approx Rs 4 BnBn(excluding Rs 1.5 (excluding Rs 1.5 BnBn subsidy) subsidy) -- >1% GSDP>1% GSDP
�� Agriculture consumes 30% of the power and pays Agriculture consumes 30% of the power and pays 5% of the cost (often not metered)5% of the cost (often not metered)
Drivers for ChangeDrivers for Change
Reduced Investment not matching demand
growth
Skewed Investment in favour of Generation
Overloaded lines -Technical losses
Theft & Pilferage -Commercial losses
• Electricity access as basic need• Middle-class growth
• Increase in pump irrigation
• Industrial Expansion
Economic Factors:
• Govt. interference in operations & mgmt.
• Uneconomic tariff setting
Political Factors
Weakened SEB
Finances
Reform process began in earnest Reform process began in earnest
in the late 80s early 90sin the late 80s early 90s
Cash crunch
Subsequent stepsSubsequent steps
1975
NHPC established
1989
PGCIL established
1975
NTPC established
1995
OER Act
1998
CERC Act
1991
IPP policy
1999
Orissa privatisation
• To encourage private participation in energy
generation (Fast Track Projects)
• Ushering reforms in the State Power Sector
• Establishment of CERC
• Allows private investment in power transmission
• To encourage large power projects catering to
multiple States
• Removal of capacity limit on liquid fuel projects
shifting emphasis from naphtha to LNG
• To purchase power directly from Mega projects
and selling it to multiple SEBs to improve
bankability of Mega projects
• Provides operational code for regional grids and
defines role of private investors in Transmission
IPP Policy 1991
ERC Bill 1998
Power 1998
Transmission Bill
New Liquid 1998
Fuel Policy
Indian Electricity 1999
Grid Code
Mega Power Policy 1998
Power Trading Corporation 1999
Orissa ER Act 1995
Impetus to private investmentsImpetus to private investments
DistributionDistribution
Reform of the state electricity boards Reform of the state electricity boards
(SEBs)(SEBs)
State Electricity Board (SEB) ReformsState Electricity Board (SEB) Reforms
Policy Decisions : STATE GOVT.
Regulation : Autonomous REGULATOR (E.R.C.)
Operation : Unbundled entities - corporatised &
commercialised
GENCO TRANSCO
Generation Transmission & distribution
TRANSCO DISCOMS
Tariff: Dis-aggregation,
Inter-utility commercial arrangements : PPA; BSA
Commercialisation: metering; reading; billing; collection; disconnection
State Govt.
& SEB
SEB
Distribution
Orissa Orissa –– ground breaking reformground breaking reform
�� Orissa passed an electricity reform act in 1996, aimed at Orissa passed an electricity reform act in 1996, aimed at unbundling and unbundling and privatisationprivatisation –– one of the poorest states in one of the poorest states in the countrythe country
�� Did Did privatiseprivatise discomsdiscoms and generating companyand generating company•• But one But one discomdiscom investor walked awayinvestor walked away
�� Considered a failure as costs and losses continued to Considered a failure as costs and losses continued to increaseincrease
�� UNREALISTIC assumptions (by regulator et al)UNREALISTIC assumptions (by regulator et al)
�� LACK of Government support LACK of Government support –– thought they could thought they could privatiseprivatiseand walk awayand walk away
�� Other states learnt a lot of lessons but it dampened Other states learnt a lot of lessons but it dampened enthusiasm for enthusiasm for privatisationprivatisation
Distribution
Andhra PradeshAndhra Pradesh
�� 1999 Reform Act1999 Reform Act
�� Unbundled only (Unbundled only (privatisationprivatisation ““laterlater””))
�� Improved efficiency Improved efficiency –– and seen as successfuland seen as successful
�� BUT Government then announced free power to BUT Government then announced free power to farmers farmers –– paying subsidy and subsidy bill paying subsidy and subsidy bill gradually reducing as efficiency improvesgradually reducing as efficiency improves
�� Subsidy was 3% of GSDP (FY04) now 1.4% Subsidy was 3% of GSDP (FY04) now 1.4% (FY07)(FY07)
Distribution
Other states followedOther states followed……....
Delhi power Delhi power privatisationprivatisation (2002)(2002)
�� Learnt from other statesLearnt from other states
�� PrivatisationPrivatisation based on loss reduction bids based on loss reduction bids (clear benchmarking)(clear benchmarking)
�� Investors were existing Indian companiesInvestors were existing Indian companies
�� Large fund set up to pay for subsidy bill Large fund set up to pay for subsidy bill during transition (during transition ( -- not replicable for not replicable for other parts of Indiaother parts of India))
�� Initially seen as not very successful, now Initially seen as not very successful, now starting to show efficiency improvementsstarting to show efficiency improvements
Distribution
Generation Generation –– the push for private the push for private
powerpower
Fast Track ProjectsFast Track Projects
� Promote private sector investments
� Provide incentives under IPP Policy, 1991 within
reasonable time
� High Powered Board set up to serve as a single window
to expedite implementation with GoI and state
government representation
� GoI Counter Guarantee & Tariff in Forex
FAILED TO BEAR FRUIT : ENRON, COGENTRIX, etc.
Generation
Mega Power PolicyMega Power Policy
� Began in 1995 – min 1000 MW – big role for
POWERGRID, NTPC and CEA
� 1997: Offer projects after all clearances are in
place + GoI appointed Standing Independent
Group (SIG) to oversee + Power Trading
Corporation to provide security of offtake
� Little success…..
Generation
Encouraging signsEncouraging signs�� MORE POWERMORE POWER -- Mega power projects now appear to be reaching Mega power projects now appear to be reaching
closure (although gas shortage constraining other closure (although gas shortage constraining other IPPsIPPs). ). Hydropower also getting a strong push as a clean alternative to Hydropower also getting a strong push as a clean alternative to coalcoal
�� MORE REGULATION MORE REGULATION -- Increasingly effective regulation at central Increasingly effective regulation at central level CEA, CERC and level CEA, CERC and SERCsSERCs (independence issues at state level (independence issues at state level in some cases?) in some cases?)
�� MORE REFORM MORE REFORM -- Electricity Act 2003 has started a process which Electricity Act 2003 has started a process which now looks difficult to reversenow looks difficult to reverse
�� MORE GRID STABILITY MORE GRID STABILITY -- Bulk Supply tariff Bulk Supply tariff –– (Availability based (Availability based tariff) has done much to improve grid stabilitytariff) has done much to improve grid stability
�� MORE TRANSPARENCY MORE TRANSPARENCY -- Subsidy is becoming more transparentSubsidy is becoming more transparent
�� MORE FINANCIAL CONTROL MORE FINANCIAL CONTROL -- Payments to central power Payments to central power suppliers improvedsuppliers improved
CERC
SERC
Central
Generating
stations
Mega Power
ProjectsIPP/ Captive
Licensee
ownedGeneration State
Owned
Transmission POWERGRID (Central Transmission Utility) REB/RLDC
SEB / State Transmission Utility
SEBs Distribution Distribution
Company/
Licensees
Snapshot of the present sector Snapshot of the present sector
structurestructure
REB – regional electricity board RLDC – regional load dispatch centre
More powerMore power
Mega PowerMega Power
�� Recently pit head plants bid out with Recently pit head plants bid out with
associated coal mines (bid on tariff) associated coal mines (bid on tariff) –– first first
two 4000MW eachtwo 4000MW each
�� Bids came in for one plant at 2.7 US Bids came in for one plant at 2.7 US
cents/kWh (cents/kWh (levelisedlevelised over the life of the over the life of the
plant) plant) –– much below India hurdle rate of 5 much below India hurdle rate of 5
US cents/kWh (other plant was 5.2 US US cents/kWh (other plant was 5.2 US
cents)cents)
�� But But –– can they reach financial closure...?can they reach financial closure...?
Encouraging signs: Encouraging signs: -- More PowerMore Power
Push to add hydropowerPush to add hydropower50,000 MW Hydro initiative launched
• Draft pre-feasibility reports received for 132 schemes (37,378 MW)
• Pre-Feasbiliity Reports finalized for 103 schemes (31,150 MW)
• Private player entering for smaller plants
Encouraging signs: Encouraging signs: -- More PowerMore Power
More regulationMore regulation
More regulation More regulation
seems to suit Indiaseems to suit India�� Central Electricity Authority Central Electricity Authority –– for Technofor Techno--economic clearances; Generation and T&D economic clearances; Generation and T&D planning standardsplanning standards
�� Central Electricity Regulatory Commission Central Electricity Regulatory Commission –– for for Grid Code; Availability Based tariffs; Tariff norms Grid Code; Availability Based tariffs; Tariff norms for Central Generating stationsfor Central Generating stations
�� State Electricity Regulatory Commissions for State Electricity Regulatory Commissions for ––Licenses; tariff orders; Captive power policy and Licenses; tariff orders; Captive power policy and related ordersrelated orders
�� New appellate tribunalNew appellate tribunal
Encouraging signs: Encouraging signs: -- More RegulationMore Regulation
More reformMore reform
Electricity Act 2003 main actionsElectricity Act 2003 main actions
�� All states must have regulators in placeAll states must have regulators in place
�� Trading must be separated from Trading must be separated from
transmissiontransmission
�� Appellate tribunal to appeal regulatory Appellate tribunal to appeal regulatory
decisionsdecisions
�� Open access in transmission, phased open Open access in transmission, phased open
access in distributionaccess in distribution
�� Secondary distribution licensesSecondary distribution licenses
�� Special courts and penalties for theftSpecial courts and penalties for theft
Encouraging signs: Encouraging signs: -- More ReformMore Reform
More stabilityMore stability
Bulk Supply Tariff Bulk Supply Tariff –– ““Availability Based Tariff (ABT)Availability Based Tariff (ABT)””
�To provide incentives and to secure
grid discipline
� History of low frequency in peak hours vs.
High frequency in off-peak hours
� Rapid & wide frequency fluctuations : up to 1
Hz. In 5/10 minutes
� Frequent grid disturbances : tripping,
interruption & disintegration
� Generators incentive on Plant Load Factor -
generate regardless of grid circumstances
Encouraging signs: Encouraging signs: -- More StabilityMore Stability
Availability Based Tariff (ABT) continuedAvailability Based Tariff (ABT) continued
� Scheduling of Availability of Generation by
Generating Stations.
� Load forecasting by SEBs – scheduled on 15
minute basis
� Allocation and energy accounting by Regional
Electricity Board
� Dispatch carefully monitored & controlled
� “Unscheduled interchange” Charges for deviation
& penalties for non-compliance
� Phased in by region
Encouraging signs: Encouraging signs: -- More StabilityMore Stability
�� Unscheduled interchange charges related to Unscheduled interchange charges related to frequency frequency –– improved grid discipline and thus improved grid discipline and thus frequency profile.frequency profile.
�� Overall impact of ABT Overall impact of ABT -- reduced frequency reduced frequency variation variation –– improved equipment function improved equipment function ––significantly for irrigation pumpssignificantly for irrigation pumps•• Use of pump storageUse of pump storage
•• OptimisationOptimisation of hydropowerof hydropower
•• OptimisationOptimisation of use of captiveof use of captive
�� States States ““gaminggaming”” system system –– leads to leads to optimisationoptimisation
Encouraging signs: Encouraging signs: -- More StabilityMore Stability
Availability Based Tariff (ABT) continuedAvailability Based Tariff (ABT) continued
Impact of ABT Impact of ABT -- frequency variationfrequency variation
Encouraging signs: Encouraging signs: -- More StabilityMore Stability
Impact of ABT Impact of ABT –– peak demand metpeak demand met
Encouraging signs: Encouraging signs: -- More StabilityMore Stability
More transparencyMore transparency
Increasing transparency of subsidiesIncreasing transparency of subsidies
�� Huge bills to Government Huge bills to Government –– but has increased but has increased transparency transparency –– (cost was always there but not (cost was always there but not transparent)transparent)
�� Andhra Pradesh and Tamil Nadu Andhra Pradesh and Tamil Nadu –– paying for paying for ““free power to farmersfree power to farmers””
�� Cross subsidy no longer increasingCross subsidy no longer increasing
�� ALSO more transparency from ALSO more transparency from ““Right to Right to information actinformation act””
�� BUTBUT……. Subsidy still a MAJOR political issue. Subsidy still a MAJOR political issue
Encouraging signs: Encouraging signs: -- More transparencyMore transparency
More financial controlMore financial control
Payments to central power suppliersPayments to central power suppliers
�� States used to avoid their financial troubles by States used to avoid their financial troubles by not paying the centre for power (NTPC, Coal not paying the centre for power (NTPC, Coal India, India, PowergridPowergrid etc.)etc.)
�� Under Under ““tripartite agreementtripartite agreement”” -- Past debts Past debts converted into bonds and incentives provided for converted into bonds and incentives provided for prompt payment in the futureprompt payment in the future
�� Amounts deducted from central plan allocations if Amounts deducted from central plan allocations if not paidnot paid
�� Dramatic improvement in payments Dramatic improvement in payments –– and hard and hard budget constraint on states.budget constraint on states.
�� AlSOAlSO SOME TRADING EMERGINGSOME TRADING EMERGING
Encouraging signs: Encouraging signs: -- More financial controlMore financial control
�� Power Trading Corporation set up in 1999Power Trading Corporation set up in 1999
�� Others have followed (NTPC etc.)Others have followed (NTPC etc.)
�� India is now considering setting up a India is now considering setting up a
market/exchangemarket/exchange
Emergence of tradingEmergence of trading
Encouraging signs: Encouraging signs: -- More financial controlMore financial control
Power Traded by PTC (MUs)
28.35 5601617
4178
11029
0
2000
4000
6000
8000
10000
12000
99-00 00-01 01-02 02-03 03-04
Power Traded by PTC as a Percentage of
Total Power Generated
0.01% 0.11%0.31%
0.79%
1.99%
0.00%
1.00%
2.00%
3.00%
99-00 00-01 01-02 02-03 03-04
BUT BUT –– problems still aboundproblems still abound
�� Power heavily Power heavily politicisedpoliticised and and ““Free Free
powerpower”” haunts the sectorhaunts the sector
�� Technical and commercial losses are not Technical and commercial losses are not
coming down coming down
�� Generation is taking time to build upGeneration is taking time to build up
�� Distribution companies have only limited Distribution companies have only limited
independence in some statesindependence in some states
�� Payments between state companies often Payments between state companies often
fudged to avoid hard budget issuesfudged to avoid hard budget issues
So can India Solve its Power So can India Solve its Power
Crisis?Crisis?
�� If continue on current track If continue on current track --•• The increase in megaThe increase in mega--projects projects –– including including large Government owned thermal and hydro large Government owned thermal and hydro --will improve supplywill improve supply
•• The implementation of Electricity Act 2003 The implementation of Electricity Act 2003 ––will bring about reform will bring about reform –– particularly open particularly open accessaccess
•• Regulation and payment regime are tighter so Regulation and payment regime are tighter so subsidy is more transparentsubsidy is more transparent
•• Current Government emphasis on rural Current Government emphasis on rural connectionsconnections
�� BUTBUT…….. Can so easily be derailed by Can so easily be derailed by --Political imperatives Political imperatives –– particularly with particularly with respect to respect to ““free power for agriculturefree power for agriculture””