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CHAPTER 5 ENERGY SCENARIO IN FIVE

DEVELOPING COUNTRIES AND KARNATAKA

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CHAPTER 5

ENERGY SCENARIO IN FIVE DEVELOPING COUNTRIES

AND KARNATAKA

This chapter is related to first objective and empirically explains about long

run and short run relationship between energy and economic indicators in selected

five developing countries and brief account of energy scenario status of each country.

Further this chapter explains about trends on electricity generation source, pattern of

energy consumption, import and export of electricity, shortage of energy and energy

loss in India and Karnataka and various electricity programmes and their critical

evaluations an can be in this chapter.

5.1 Introduction:

The global Energy is one of the major and important of physical infrastructure

sector. Nowadays, the global Energy sector is facing three major challenges. The first

one is the security of supply to keep up with ever mounting demand, second is the

fight against climate change and third is the global trend toward massive urbanization.

Energy is very scarce commodity particularly in developing countries. The cost of

energy is spirally increasing day-by-day and consumption is also increasing but

developing countries do not manage supply and demand of the energy efficiently.

Most of developing countries depend on primary energy sources, because of the

adopting inefficient technology.

To understand the energy scenario is developing countries of the world an

attempt is made to study is status of energy in the countries like china, Indonesia,

Philippines, Thailand and India

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5.2 Economic and Energy Scenario Profile of Five Developing Countries

5.2a China’s Energy Scenario:

China is the world's first populous country in and is a rapidly growing

economy, population in china stood at 1,349,585,792 people and its GDP was 7.7%

in 2013, which has driven the country's high overall energy demand and the quest for

securing energy resources and has a largest energy consumer in the world. Now,

rapidly increasing energy demand has made china and extremely influential in world

energy markets. According to IEA, China is the world's second largest oil consumer and net

importer behind the United States, and the largest global energy consumer. Natural gas usage

in China has also increased rapidly in recent years, and China has looked to raise natural gas

imports via pipeline and liquefied natural gas (LNG). China is also the world's largest top coal

producer and consumer and an important factor in world energy-related CO2 emissions (EIA

reports 2013).

China’s Energy generation is dominated by fossil fuel sources, particularly

coal. The Chinese government has made the expansion of natural gas-fired and

renewable power plants as well as electricity transmission a priority. According to

FACTS Global Energy, “China is the world’s second largest power generator and has

an estimated total installed electricity generating capacity of 1,073GW in 2011, giving

it the largest power capacity in the world”. China’s capacity over 9 percent from

2010 and doubled in capacity from the 2005 level of 519 GW. Installed capacity is

expected to grow over the next decade to meet rising demand, particularly from main

urban areas in the east and south of the country. China’s Energy demand growth has

rapidly increased and investment in new power stations, but china still struggles with

insufficient investment particularly in fossil fuel-fired capacity. Although, much of

the new investment was earmarked to alleviate electricity supply shortages, the

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economic crisis of late 2008 resulted in a lower demand for electricity. Power

demand typically follows economic cycles and began to rebound in 2010 as the

Chinese economy recovered. However, china’s power industry reports indicated a

weaker power demand. Therefore, the government is investing in further development

of the transmission network, integration of regional networks and generating capacity.

The Chinese government dismantled the monopoly State Power Corporation

(SPC) into separate generation, transmission, and services units in 2002. Since the

reform, China's electricity generation sector has been dominated by five state-owned

holding companies, namely China Huaneng Group, China Datang Group, China

Huandian, Guodian Power, and China Power Investment and electricity generate both

partnership with the private and public of the state-owned companies. Therefore,

during the 2002 electricity reforms, SPC divested all of its electricity transmission and

distribution assets into two new companies, the Southern Power Company and the

State Power Grid Company, which operate the 7 nation's power grids. The State

Power Grid operates power transmission grids in the north while the Southern Power

Company handles those in the south. Also in 2002, the State Electricity Regulatory

Commission (SERC) was established, which is responsible for the overall regulation

of the electricity sector and improving investment and competition in order to

alleviate power shortages. China is seeking to improve system efficiency and the

interconnections between the grids through ultra high-voltage lines, as well as

implement a smart grid plan.

According to FACTS Global Energy, coal has dominated the fuel feedstock

for the power capacity and generation, even as other cleaner fuels increase market

share. As with coal mining, the Chinese government is looking to shut down or

modernize many small and inefficient power plants in favor of medium-sized (300 to

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600 MW) and large (1000 MW and higher) units. Natural gas currently plays a very

small role in the power generation mix and consists of only 33 GW of installed

capacity; however, the government plans to invest in more gas-fired power plants as a

growing marginal fuel source. In China, Hydroelectric is the largest hydroelectric

project in the world and is the largest producer. According to global energy

hydroelectric power in 2010, generated 714 TWh of electricity from hydroelectric

sources. Installed hydroelectric generating capacity was 231 GW in 2011. According

to China’s energy report, renewable sector of wind is the second leading renewable

source for power generation, and China is the world's second largest wind producer,

generating 48 TWh in 2010. China is also investing in solar power and hoping to

increase capacity from a mere 2 GW in 2011 to 25 GW by 2020 (EIA report, 2013).

5.2b Indonesia’s Energy Scenario:

Indonesia is reorienting energy production away from exports to serve its

growing domestic consumption. Indonesia is the most populous country in Southeast

Asia and the fourth most populous country in the world. Population in Indonesia was

250,775,664 people and its GDP was 6.8% in 2013. Indonesia struggles to attract

sufficient investment to meet growing domestic energy consumption because of

inadequate infrastructure and a complex regulatory environment. However Indonesia

was the world’s largest exporter of coal, natural gas, oil in 2011.

Indonesia’s Energy Generation capacity growth has rapidity increased of

Energy demand growth, leading to power shortages and a low electrification ratio.

According to electric utility PLN, around 70 percent of Indonesia's population had

access to electricity in 2011, Eastern Indonesia covers behind the west of the country,

with some provinces only providing electricity to a third of the population. Because

capacity growth has not kept up with the pace of electricity demand growth, grid-

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connected areas have also suffered from power shortages. Inadequate supporting

infrastructure, difficulty obtaining land-use permissions, subsidized tariffs, and an

uncertain regulatory environment all contribute to the insufficient generation.

According to EIA estimated that in Indonesia, 86 percent of the power came from

conventional thermal sources, with the rest coming from hydroelectric (9 percent),

geothermal (5 percent), and other renewable sources. Coal accounted for just over half

of conventional thermal power.

Indonesia was the third largest geothermal generator in the world in 2011.

Indonesia's power sector is notable for significant levels of geothermal power.

However, Indonesia's 2011, capacity of approximately 1.2 GW falls substantially

below its available resources, which the Ministry of Energy and Mineral Resources

estimated to be capable of generating 28 GW. According to the Ministry of Energy

and Mineral Resources, the second phase of the "fast track plan" includes additional

geothermal capacity of nearly 4 GW by 2014, most of which will be operated by

independent power producers. To this end, Indonesia and New Zealand signed a

cooperation agreement in April 2012 on geothermal energy joint development and

regulation. Indonesia is also a significant consumer of traditional biomass in its

residential sector, particularly in the more remote areas that lack connection to the

country's energy transmission networks. In 2011, Indonesia consumed over 2

quadrillion British thermal units (BTUs) of biomass energy, and the government

hopes to increase renewable energy production for the purpose of generating

electricity for domestic consumption (EIA report, 2013).

5.2c Philippines’s Energy Scenario:

The Philippines has been among the emerging markets in the region given its

sound economic fundamentals and highly-skilled workforce. Growth in the

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Philippines has 7.2 percent and population was 105,720,640 people in 2013. In 2004

the Philippines derived 42 percent of its energy from oil; 30 percent from biomass,

solar, and wind; 12 percent from coal; 7 percent from geothermal; 5 percent from

hydropower; and 4 percent from natural gas. The Energy Development Plan for 2005–

14 calls for the country to work toward energy independence by boosting domestic

production of oil, gas, coal and doubling the use of renewable sources of energy.

Consumption of oil has remained relatively stable so far this decade as the Philippines

has met growing energy demand with energy generated from natural gas produced by

the Malampaya field in the South China Sea beginning in 2001. The Malampaya field,

which has about 2.6 trillion cubic feet of natural gas reserves, produces about 25,000

barrels per day of natural gas. A deep-water pipeline carries natural gas to an onshore

power station. Eventually, three such stations will have a combined capacity of 2,700

megawatts. In 2003 the Philippines consumed 9.6 million short tons of coal, of which

7.4 million tons (77 percent) were imported.

The Philippines is the second largest producer of geothermal power in the

world after the United States, and geothermal power accounts for about 50 percent of

domestic power generation, followed by hydropower, which accounts for about 33

percent. The development of hydropower through the construction of large dams,

however, has been controversial. Its proponents argue that the dams provide flood

control, irrigation, and more self-sufficiency in energy. Its opponents argue that the

dams destroy valuable natural habitat and displace thousands of local people without

adequate compensation. Other power sources are natural gas, coal, and oil. There are

no operational nuclear power plants in the Philippines. The Bataan Nuclear Power

Plant, completed in 1985, had its operations suspended in 1986 because of corruption

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charges, and in 1997 the government decided to convert the idle plant to a natural gas

power plant.

The Philippines continues to pursue the privatization of the state-owned

National Power Company known as Napocor, but so far the initiative has been

plagued by delays. Possible reasons include poor infrastructure and inflated valuations

(EIA reports, 2013).

5.2d Thailand’s Energy Scenario:

Thailand is a net importer of oil and natural gas, although the country is a

growing producer of natural gas. Thailand has limited domestic oil production and

reserves, and imports make up a significant portion of the country's oil consumption.

Thailand holds large proven reserves of natural gas, and natural gas production has

increased. However, the country still remains dependent on imports of natural gas to

meet growing domestic demand for the fuel.

Thailand's gross domestic product (GDP) grew 3.5 percent and population was

67,448,120people over year in 2013. Thailand's primary energy consumption is

mostly from fossil fuels, accounting for over 80 percent of the country's total energy

consumption. Oil was 39 percent of total energy consumption in 2010, down from

nearly half in 2000. As the economy expanded and industrialized, Thailand consumed

more oil for transportation and industrial uses. Natural gas has replaced some oil

demand and is the next largest fuel, growing to nearly a third of total consumption

mix. Solid biomass and waste have played a strong role as an energy source in

Thailand and comprise roughly 16 percent of energy consumption. Most biomass

feedstock is from sugarcane, rice husk, bagasse, wood waste, and oil palm residue and

is used in residential and manufacturing sectors. Thailand has promoted biomass for

heat and electricity, though growth has been very gradual due to industry

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inefficiencies and environmental concerns. Thailand implemented Alternative Energy

Development Plan calls for renewable energy to increase its share to 25 percent of

total energy consumption by 2022 in efforts to reduce dependence on fossil fuels.

However, this is an ambitious target requiring significant resource development and

subsidies. As Thailand continues to expand economically, it will place greater

emphasis on energy supply security by diversifying its fuel slate and promoting

upstream development of hydrocarbons including alternatives to conventional fuels

(EIA reports, 2013).

Thailand's steadily growing energy generation is highly dependent on natural

gas, so the government is seeking ways to diversify fuel sources to include more

renewable energy and potentially nuclear capacity in the long-term. Thailand's

rapidly expanding economy over the past two decades has spurred the need for

building more generation capacity to keep pace with higher electricity demand. So far,

Thailand's installed capacity growth has exceeded its rate of power consumption

growth which averaged about 5 percent a year over the past decade. Thailand now has

one of the highest electrification rates in Southeast Asia and delivers electricity to

nearly all of its population. Concern for electricity supply security and grid reliability

has prompted the Thai government to create policies that promote planned capacity

expansion, diversification of fuel sources and increase of alternative fuel use,

demand-side management, and management of electricity import dependence

Sector organization

The Electricity Generating Authority of Thailand (EGAT), the state-owned

electricity generating company and sole electricity transmission provider. Thailand

awards licenses to private companies to promote competition and attract more

investment in renewable energy generation and advanced technology of fossil fuel

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plants. Independent power producers (IPPs) make up over 35 percent of the

generation mix, with GDF Suez as one of the main investors. Other small Thai state

power producers or manufacturers that generate less than 300 megawatts account for

the remaining portion. EGAT sells and transmits wholesale electricity to Thailand's

two distribution authorities, the Metropolitan Electricity Authority and the Provincial

Electricity Authority.

Thailand's net electricity generation increased from around 90 terawatt-hours

(TWh) in 2000 to over 152 TWh in 2011. The industrial sector is the primary

consumer of electricity and accounts for 46 percent of the market. Conventional

thermal fuels, particularly natural gas, meet nearly all of Thailand's power

requirements. Natural gas-fired generation consisted of 108 TWhor 71 percent of the

total electricity supply in 2011 according to EPPO, followed by imported coal and

lignite as the second largest feedstock with a 21 percent share. Oil-fired generation,

mostly comprised of fuel oil, makes up only 1 percent of the power mix. Thailand

plans to reduce dependence on natural gas for generation in favor of renewable

sources and nuclear power. However, the outlook for ramping up these sources is

highly tentative (EIA reports, 2013).

Thailand's electricity imports have more than tripled in the past decade as the

country's electricity demand growth continues and as grid interconnections expand.

Thailand imported 10.8 GWh of electricity in 2011 from neighboring countries

Malaysia and Laos. EGAT currently imports electricity through a 300-Megawatt

interconnector with Malaysia to serve the southern provinces of Thailand. The

Association of Southeast Asian Nations (ASEAN) has proposed a regional power grid

to enhance electric generation efficiencies across its member countries, increase

supplies to meet the region's growing demand, and promote generation from

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renewable sources. Thailand is strategically located within Southeast Asia to be a

conduit for electricity trade in the region.

5.2e India’s Energy Scenario:

India is the fourth largest energy consumer in the world after the United

States, China, and Russia. In 2011, India's economy grew at an annual rate of 4.9

percent and with 1,220,800,384 populations in 2013. India's energy policy above all

focuses on securing energy sources to meet the needs of its growing economy.

Primary energy consumption has more than doubled between 1990 and 2011. At the

same time, India's per capita energy consumption remains lower than that of

developed countries, according to the International Energy Agency (IEA). Given that

the service industry accounts for more than half of India's output, further economic

growth could remain relatively non-energy intense (EIA reports, 2013).

The government is not being able to deliver secure supplies to meet demand

because of fuel subsidies, increasing import dependency, and inconsistent energy

sector reform. Some parts of the energy sector, such as coal production, remain

relatively closed to private and foreign investment. Despite having large coal reserves

and a healthy growth in natural gas production over the past two decades, India

remains very dependent on imported crude oil. India's largest energy source is coal,

followed by petroleum and traditional biomass (e.g., burning firewood and waste).

Since the beginning of the New Economic Policy in 1991, India's population

increasingly has moved to cities, and urban households have shifted away from

traditional biomass to other energy sources. The industrial sector is the largest energy

consumer, representing over 40 percent of India's total primary energy demand in

2009, and is mostly fueled by traditional biomass, according to the International

Energy Agency (IEA). The power sector is the fastest growing area of energy

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demand, increasing from 23 percent to 38 percent of total energy consumption

between 1990 and 2009. According to India's Central Electricity Authority in 2012,

India’s Electricity has 211 gigawatts of installed electricity capacity, mostly in coal-

fired powered plants. Because of insufficient fuel supply, the country suffers from

shortage of electricity generation, leading to rolling blackouts. India suffers from

severe shortages of electricity because of Utilization rates in Indian power plants have

fallen steadily since 2004 because of insufficient fuel supplies. The 2005 India

Human Development Survey reported overall household electrification in India to be

70 percent. While 94 percent of urban households had electricity, only 60 percent of

rural households had access. The government began a program in 2005 called Rajiv

Gandhi Grameena Vidyutikaran Yojana to provide villages electricity within 5 years

through significant investments in rural electrification. While the program has

succeeded in electrifying many rural areas, power supply is unreliable and frequent

blackouts persist.

Sector organization

The Ministry of Power is responsible for planning and implementing India's

power sector policy, with various subunits handling different parts of the sector,

including thermal, hydropower, and distribution. The Central Electricity Authority

(CEA) advises the central government on long- and short-term policy planning. The

Central Electricity Regulatory Commission and State Electricity Regulatory

Commissions set generation and transmission policies.

The source of India's current electricity regulatory framework is the 2003

Electricity Act, which attempted to reform the state electricity boards, open access to

transmission and distribution networks, and create state electricity regulatory

commissions (SERCs) to manage electricity on a regional basis. The government has

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not fully implemented many parts of the Act, and India's electricity sector continues to

face challenges in distribution and getting sufficient fuels for generation. In order to

reduce supply risk from energy sources with high price volatility, such as oil, the

government has encouraged more generation from renewable energy sources, such as

hydropower and solar.

The government established the Power Grid Corporation of India (POWER

GRID) to operate five regional electricity grids, while state transmission utilities (with

some private sector participation) run most transmission and distribution segments.

Although the central government finances electricity development projects, delivering

electricity to customers falls on state governments. Therefore, more efficient states

such as Maharashtra tend to have better energy viability.

Thermal generation, mostly from coal, accounted for more than 80 percent of

total electricity generation in the country, according to India's Central Electricity

Authority (CEA). Coal-fired power plants dominate India's electricity generation

sector and account for more than 50 percent of installed capacity. Disruptions to a

steady supply of fossil fuels to power plants are the main reason for power outages in

India. According to CEA, the loss of generation from forced outages during 2011

decreased the country's actual generating capacity by over 11 percent, because of coal

supply shortages and situations when plants could not transmit power to demand

centers (e.g., equipment failure).

India was the world's 7th largest producer of hydroelectric power in 2010 with

113 billion kilowatt hours generated, which is about 3 percent of the world's total.

Total installed capacity of hydropower in 2012 was 39,300 megawatts (MW),

(according to the Indian Ministry of Power.) India benefits from a tropical climate,

which gives the country increased hydropower potential. In particular, states with

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significant river systems such as Himachal Pradesh, Jammu, Kashmir, and

Uttarakhand benefit from energy surpluses in the monsoon period. However, coal and

gas generation is related inversely to hydropower capacity; when hydropower

utilization falls, for example with a weak monsoon season, coal-fired power plants

will generate more electricity to compensate for the shortfall.

India has 20 operational nuclear reactors in six nuclear power plants with a

capacity of 4.4 gigawatts (electric). As of September 2012, seven reactors totaling 5.3

gigawatts (electric) are under construction and expected to come online by 2016. In

September 2008, India became a party to the Nuclear Suppliers' Group agreement,

which opened access to nuclear technology and expertise through several cooperative

agreements. The government has signed several such agreements with countries

including the United States, Russia, France, and the United Kingdom. In addition, via

these agreements, India gained access to reactor parts and fuel from other countries.

CSO (2013) reported that, in 2011-2012, India was the fourth largest

consumer in the world of crude oil and natural gas; after the United States, China and

Russia. In India, total energy consumption in 2010 was 21.91QBtu which became

23.61 in 2011. There is increased energy consumption at 1.7QBtu. Because effect of

population growth. Then, total energy production in 2010 was 15.29QBtu which

became 16.014QBtu in 2011(International Statistical Data). There is shortage of

energy, the gap between the consumption and production (Shortage of production) in

2010 was 6.62QBtu which became 7.6QBtu. Therefore, the shortage of production in

India is increased year to year. That purpose Govt. of India to promoting to

Renewable Energy Sources (EIA reports, 2013).

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Table 2: Energy Installed Capacity, Generation, Pattern of Energy Consumption

and Export & Import of Energy in India (1995-96 to 2011-12)

Sl.no Total CGR Percent

1 Installation capacity(Thousand MW) Sources

Hydro power 502.8 3.9% 24.2 Thermal+RES* 1517.9 -5.7% 73.2 Nuclear 55 -4.7% 2.6 Total installed capacity 2075.7 2 Generation(Billion MW) Sources Hydro power 1545.9 4.0% 15.14 Thermal+RES* 8327 59% 82 Nuclear 289.1 9% 2.86 Total generated 10162 3 Pattern of Energy

Consumption (in percentage)

Patterns

Domestic 372.3 2% 23 Commercial 127.2 3% 8 Industry 572.6 -0.3% 36 Traction 38.4 -0.2% 2 Agriculture 402.4 -2.6% 25 Others 87.3 1.6% 6 4 Export and Import of

Energy(in percentage) Import Export

48.30 2.94

8.5% 1.4%

98.93 1.07

Source: Economic Survey 2012-13 and IEA report 2013(export and imports) RES*: Renewable Energy Sources includes Small Hydro Projects, Wind Power, Biomass Power, Biomass Gasifier, Urban and Industrial Waste and Solar Power.

Table 2 shows that, energy installed capacity, generation, pattern of energy

consumption, and import & export of energy in India, for the period 1995-96 to 2011-12.

The, first component of the table 2, explains about Energy Installed Capacity

in India, from the sources are Hydro energy, Thermal energy, Renewable energy

sources, and Nuclear energy. During these periods total energy installed capacity was

2075.7 thousand MW. The more energy installed capacity from the sources is thermal

and renewable energy was generated was1517 thousand MW and compound growth

rate was increased -0.057 and 73.2%, to compare other sources are hydro and nuclear.

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The second component explains about Energy Generation in India, from the

sources are Hydro energy, Thermal energy, Renewable energy sources, and Nuclear

energy. During these periods total energy generated was 10162billionMW. More

energy is generated from the sources is thermal and renewable energy that generated

was 8327billion MW and the compound growth rate has increased from 0.59 and

82%, when to compared other sources are hydro and nuclear. Because, the hydro

power energy generated is seasonally and nuclear energy is insufficient in India. But,

thermal energy is generated more because, coal, gas, oil source are available then also

shortage is faced in the country, when import of the conventional sources of energy,

taken place. Therefore, the given energy sources, energy generated is insufficient and

faces the problem of shortage.

The third component in this table shows that, Pattern of Electricity

Consumption in India. Energy consumption is an important measure as well as

determinant of economic development. In India, electricity consumption patterns are

Domestic, Commercial, Industry, Traction, Agriculture and Others. The consumption

of power by Domestic Sector in the total utilization of power has increased (6.5%)

from the period of 18.7% in 1995-96 to 25.2% in 2011-12. Because, growth in

electronic goods and availability of various electronic goods for a quality living in

considered be the main reason for growth in consumption of power by Domestic

Sector.

The consumption of power by industries in the total utilization of power has

declined of (-1.3%) from 37.8% in 1995-96 to 36.5% in 2011-2012. This does not

imply that industrialization and industrial units are shifting to other sources of fuel,

large industries are setting up their own captive power plants, instead of depending

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upon the inadequate and undependable public utilities. Therefore consumption of

power by industries has declined to -1.3%.

However, in the agriculture sector power consumption, in the total utilization

of power has declined (-10.4%) over the years from 30.9% in 1995-96 to 20.5% in

2011-2012. Because farmers are faced with lot of agricultural problems, so

consumption of power has declined in agricultural sector.

The consumption of power by commercial sector has increased (4.3%).

Consumption of power by commercial sector was 6.1% in the total utilization of

power in 1995-96 and it has increased to 10.4% in 2011-2012. Another sector is

traction and others; growth of consumption is very marginal difference in the

consumption power by traction. Traction was declined only 0.1%, from 2.3% in

1995-96 to 2.2% in 2011-2012. Then others consumption growth was increased

1.2%, from 4.2% in 1995-96 to 5.4% in 2011-2012

Chart 5: Pattern of Electricity Consumption in India

Table 2 in third part and Chart 5 shows, the Pattern of Electricity consumption

by industry, agriculture, domestic, commercial, traction and others in over the periods.

Industry had dominated consumes 36% electricity, compound growth rate was less,

that is -0.003. Agriculture utilized 25%, it compound growth rate was -0.026, because

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of insufficient rural electrification. Domestic had consumed 23%, it compound growth

rate is 0.02. Commercial electricity utility was 8%, with compound growth rate of

0.04. Traction utilized 2%, with compound growth rate of -0.002, the remaining

pattern of consumption is other at 6% electricity consumed, and compound growth

rate is 0.016. This clearly understands that, industry has consumed more electricity

when compare to the remaining sector. Commercial sector compound growth rate had

increased because of development of commercial sector like institutions, hostels,

hospitals etc.

Fourth component, of table 2 explains the export and import of Energy in

India, its mean shortage of energy. This table depicts that, during this periods India

had very less amount of energy export in other countries ie., 2.943MU total exported,

compound growth rate was 0.014% exported and only 1.07% exported over these

periods.

In India, during this period, India imported more energy for other countries

during this period like china, Nepal, Pakistan etc. The total imports were 48,301MU,

with a compound growth rate was 0.085 and 98.93 percent imports to exports.

Because, the demand for energy power has been rising continuously, the generation

and distribution of power has not risen proportionately. The performance of power

sector, in the generation of hydro power has been fluctuating year to year, depending

upon the natural and intensity of monsoons. Failure of monsoons adversely affects

the generation of Hydropower, and the plant load factor in capacity utilization of

thermal power plants have been low, because of deficiencies in management and

operation. Lack of proper this maintenance and non-availability of coal of

appropriate quality. Then also power shortage has very critical problem in India.

Because, lot of transmission problem, peak demand problem, etc. And also

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consumption of electricity was very high. Therefore, India was imported electric

power.

5.3 Long run and Short run Relationship between Energy Consumption (EC) to

Economic indicators are GDP, Capital (K), Labor force (L)

The long run and short run relationship empirical evidence is explained is

second chapter of Review of Literature where it used co-integration and VECM and

Granger causality relationship between the energy consumption, GDP, capital and

labor force, energy price, employment etc. They found bidirectional causality and

unidirectional causality between the variables. However, using the co-integration and

VECM tests, they found long-run relationship between the variables and Granger

causality tests indicated short-run causal relationship between the variables.

The main purpose of this empirical study explained (Akarca and Long 1979)

the direction of causation between EC and economic growth has significant policy

implications. If, for example, there exits unidirectional Granger causality running

from EC to GDP, it may be implied that energy conservation policies may be

implemented. If no causation, no effect for EC to GDP. In the case of causation

running from EC to Labor force, there is no effect on energy conservation policy were

to be implemented. If negative causality running from EC to Labor force, total labor

force could rise if energy conservation policy. On the other hand, if unidirectional

causality runs from EC to GDP, reducing energy consumption could lead to a fall in

income and labor force.

If the finding is no causality in unidirectional or bidirectional is called as

“neutrality hypothesis” (Yu & Jin, 1992), would imply that energy conservation

policies do not affect economic growth.

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The first objective tries to examine the energy consumption relationship

between the GDP, Capital and Labor force in five selected Asian developing

countries, like India, China, Indonesia, Philippines and Thailand. It shows how

shifting resources is towards expanding energy supply is found due to the problem of

energy shortage, how an economy has maintained its natural resources environment is

the question. In order to investigate the central issue in developing countries the

choice of this particular sample was governed by the mix of energy resource

endowments and dependencies. For example, Indonesia is a net energy exporter, India

has moderate energy dependence. China has largest energy consumers in the world.

Philippines is importer and production of energy. Thailand is a net energy importer.

Therefore, LDCs are trying to curtail the association between economic growth and

energy consumption. These countries were chosen because they represent energy

dependent LDCs which are poised for take-off into a phase of industrialization.

Hypothesis testing 1:

To examine Long run and Short run Relationship between Energy Consumption and

GDP in developing countries

H0: There is no relationship between the variables EC and GDP in Developing

Countries

H1: There is positive relationship between the variables EC and GDP in Developing

Countries

Empirical Results and Discussion:

The empirical results are based on the methodology and data. It is explained

in the 3rd chapter.

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Test of the Unit Root Hypothesis:

Table 3 reports the results for both the ADF and PP test. The first step is to

verify the order and test for stationary. Its means, the investigated data is non-

stationary or not. If the data is always non-stationary in level test, but in different

order [d (1) order or d (2)] will become or convert to stationary. The condition for co-

integration is that each of the variables should be integrated of the same order. In

order to verify whether this preliminary condition was fulfilled of energy

consumption and other variables for each country were tested for a unit root via

various testing procedures ADF and PP test. This test is used to investigate the degree

of integration of the variables used in the empirical analysis.

Table 3: Results of Unit Root Tests*

Country/ Variable year Augmented Dickey-

Fuller(ADF) Phillips-Perron(PP)

Level

First differences

Level First Difference

1 India 1979-2010 EC -2.33 -4.92 -0.33 -3.48 GDP -5.40 -4.10 -1.76 -3.92 K -2.15 -1.15 -1.54 -5.23 L -3.55 -3.89 -2.36 -6.60

2 China 1981-2010 EC -0.78 -3.44 -1.48 -6.24 GDP -1.35 -2.99 -1.79 -4.16 K -2.55 -3.78 -2.93 -6.51 L -3.49 -4.33 -3.09 -5.33

3 Indonesia 1980-2010 EC -0.12 -4.35 -1.82 -3.98 GDP -2.36 -2.13 -2.53 -4.73 K -3.58 -3.78 -1.76 -3.65 L -0.91 -3.01 -2.16 -3.28

4 Philippines 1975-2010 EC -2.37 -3.75 -1.48 -3.48 GDP -1.93 -3.51 -2.92 -4.19 K -1.23 -2.25 -1.94 -3.63 L -0.84 -2.98 -1.58 -3.27

5 Thailand 1975-2010 EC -1.63 -2.11 -1.68 -3.71 GDP -0.87 -1.32 -1.03 -3.19 K -0.95 -2.79 -2.10 -3.12 L -2.13 -0.01 -1.96 -3.48 *Note: the optimal lags for the ADF tests were selected based on optimizing Akaike’s information Criteria (AIC), the PP test were function of the first differenced series. A critical value at 5% level of significance

105

Table 3, shows that, the ADF statistic suggest, it can be seen mixed results for

the 1st difference. In Indian labor force, Indonesian GDP and labor force, Philippines

capital and labor, China GDP and Thailand EC, GDP, K and L are non-stationary at

5% level of significance in 1st difference for in ADF statistic test. Therefore, null

hypothesis is non-stationary. It means cannot be rejected by the ADF test.

Table 3, In PP test shows that, all variables converted non-stationary to

stationary in 1st difference at same order at 5% level of significance. Therefore, in

this study PP unit root test has been used. Because, all variables are EC, GDP, K and

L are not stationary in level test but, in 1st difference become stationary. Therefore,

the null hypothesis rejected at 1st difference at 5% level of significance.

Co-integration Test:

Given that all of the variables are integrated of the same order. The next step

was to test for long-run relationship or co-integration test by using Johansen’s co-

integration procedure, consider VAR and the corresponding VECM. The test for

VAR is not getting co-integrated all variables at 5% level of significance. Therefore,

the corresponding model using that is Vector Error Correction Model has all variables

co-integrated at 5% level. While, the test results are reported in table 4, it can be seen

that, in selected multi-countries and multi-variables are co-integrated at 5% level of

significance. It means null hypothesis is rejected.

Table 4: Results of Johansen’s Co-integration tests (Long-run) for multiple

co-integrating relationships (intercept, no trend)

Country Eigen Value

Trace Statistics

5% Critical Value Prob** Log

likelihood China 0.648 64.19 44.49 0.0007 -357.52 Indonesia 0.610 72.09 47.85 0.001 -257.77 India 0.836 88.90 47.85 0.000 -381.53 Philippines 0.683 62.44 48.76 0.005 -285.49 Thailand 0.789 72.02 51.57 0.009 -312.12 Note: the variables (EC, GDP, K & L) are co-integrated at 5% level of significance

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Table 4 based is on that John Asafu-Adjaye( 2000) investigated that, he has

taken to interpret at the values of Test statistics and Critical value. Therefore, based

on investigation, table 4 depicts that, multi-variables and multi-countries value is

empirically explains about, trace statistic is greater than the critical value. It means

that null hypothesis is rejected at 5% level of significance with intercept, no trend.

Table 5: VAR and VECM results for India

Results of VAR

Unrestricted Cointegration Rank Test (Trace)

Hypothesized Trace 0.05 No. of CE(s) Eigenvalue Statistic Critical Value Prob.**

None * 0.836835 88.90969 47.85613 0.0000 At most 1 * 0.451144 34.51992 29.79707 0.0133 At most 2 * 0.328535 16.52233 15.49471 0.0349 At most 3 * 0.141399 4.573528 3.841466 0.0325

1 Cointegrating Equation(s): Log likelihood -381.5318

Normalized cointegrating coefficients (standard error in parentheses) EC GDP K L

1.000000 -40.63635 18.38931 -2.656717 (8.19927) (2.46301) (0.16445)

Trace test indicates 4 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values

In India ‘Trace statistic’ value is 88.90, critical value is 47.85 and Eigen value

is 0.8368. It means, ‘Trace statistics’ value is greater than critical value so, in this

case reject the null hypothesis and all variables are co-integrated at 5% level.

It has been found from the Co-integration test that EC and GDP, K, L has long

run relationship at five percent level. Therefore, The VAR value is -40.63, 18.38, -

2.65 and the variables are GDP, K and L respectively. Hence, the VAR values are not

get co-integrated at 5% level of significance, but there has been significant positive

impact of EC, GDP, K and L.

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Results of VECM

Error Correction: D(EC) D(GDP) D(K) D(L)

CointEq1 -0.027963 0.006524 -0.020918 0.131448 (0.01908) (0.00527) (0.01894) (0.02338) [-1.46581] [ 1.23724] [-1.10457] [ 5.62265]

C 6.870416 0.435776 3.396939 21.54094 (3.69841) (1.02233) (3.67145) (4.53228) [ 1.85767] [ 0.42626] [ 0.92523] [ 4.75279]

R-squared 0.552952 0.295710 0.488116 0.655065 Adj. R-squared 0.459817 0.148983 0.381474 0.583203 Sum sq. resids 2348.183 179.4261 2314.079 3526.432 S.E. equation 9.891459 2.734244 9.819367 12.12166 F-statistic 5.937098 2.015373 4.577128 9.115663 Log likelihood -107.9712 -69.39665 -107.7517 -114.0708 Mean dependent 19.75683 0.183333 0.140000 10.46667 S.D. dependent 13.45829 2.963931 12.48546 18.77587

The VAR correspond model is VECM has been used to find the short term

disturbance in the long-run relationship and time could be taken to restore the

relationship between EC, GDP, K & L. The VECM value of EC is -0.027, GDP is

0.006, K is -0.02 and L is 0.13.

Table 5a: VAR and VECM results for China

In China, ‘Trace statistic’ value is 64.19, critical value is 44.49 and Eigen

value is 0.64. It means, ‘Trace statistics’ value is greater than critical value so in this


It has been found from the long-run relationship variables are EC and GDP, K,

L has co-integrated at five percent level. Therefore, VAR value is -503.54, 149.80, -




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Results of VAR





1.000000 -503.5438 149.8013 -4.818758 (83.7206) (31.0328) (3.33053)


Results of VECM


CointEq1 0.042018 0.002409 0.000718 -0.001019 (0.01306) (0.00062) (0.00215) (0.00091) [ 3.21665] [ 3.89369] [ 0.33320] [-1.12491]

C 30.60302 1.298735 5.571285 10.45714 (30.2291) (1.43170) (4.98517) (2.09610) [ 1.01237] [ 0.90713] [ 1.11757] [ 4.98885]


The VECM has been used to find the short term disturbance in the long-run

relationship and time could be taken to restore the relationship between EC, GDP, K

and L. The VECM value of EC is 0.042, GDP is 0.002, K is 0.0007 and L is -0.001.

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Table 5b: VAR and VECM results for Indonesia

In Indonesia, ‘Trace statistic’ value is 72.09, critical value is 47.85 and Eigen

value is 0.61. It means, ‘Trace statistics’ value is greater than critical value so in this


It has been found from the co-integrated variables are EC and GDP, K, L has

long run relationship at five percent level. Therefore, VAR value is -7.25, -3.64, -




Results of VAR

The VAR correspondence model of VECM has been used to find the short

term disturbance in the long-run relationship and time could be taken to restore the

relationship between EC, GDP, K and L. The VECM value of EC is -0.03, GDP is

-0.008, K is 0.05 and L is 0.019.






1.000000 -7.251418 -3.644833 -4.270714 (3.90979) (1.69508) (0.50764)


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Results of VECM


CointEq1 -0.033125 -0.008770 0.054348 0.019438 (0.01381) (0.01262) (0.04136) (0.00433) [-2.39813] [-0.69495] [ 1.31389] [ 4.49205]

C 1.368616 -1.620670 -2.155913 3.998125 (1.90729) (1.74248) (5.71163) (0.59752) [ 0.71757] [-0.93009] [-0.37746] [ 6.69119]

R-squared 0.363699 0.287337 0.313358 0.695736 Adj. R-squared 0.225373 0.132410 0.164088 0.629592 Sum sq. resids 165.0548 137.7617 1480.176 16.19941 S.E. equation 2.678861 2.447374 8.022185 0.839239 F-statistic 2.629283 1.854661 2.099270 10.51847 Log likelihood -66.36445 -63.74355 -98.17221 -32.70556 Mean dependent 4.542544 -0.065517 -0.124138 2.482759 S.D. dependent 3.043714 2.627502 8.774299 1.378941

Table 5c: VAR and VECM results for Philippines

In Philippine, the results show that, ‘Trace statistic’ value is 62.44, critical

value is 48.76 and Eigen value is 0.68. Its mean, the results ‘Trace statistics’ value is

greater than critical value so in this case reject the null hypothesis and all variables are

co-integrated at 5%.


long run relationship at five percent level. Therefore, VAR value is -73.56, 21.96, -

17.98 and the variables are GDP, K and L respectively. Hence, the VAR values are

not get co-integrated at 5% level of significance, but there has been significant

positive impact of EC, GDP, K and L.




0.009, K is -0.04 and L is 0.06.

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Results of VAR



None * 0.683748 62.44668 48.76359 0.0005 At most 1 * 0.422244 29.98635 27.06695 0.0197

At most 2 0.317237 18.62542 13.42878 0.0393 At most 3 0.166953 4.940403 2.005545 0.0136



1.000000 -73.5681 21.9638 -17.9853 (17.01639) (4.25775) (2.25727)


Results of VECM


CointEq1 -0.034798 0.009529 -0.044841 0.064433 (0.02620) (0.04040) (0.20105) (0.00983) [-1.32804] [ -0.23588] [0.22303] [ 3.55480]

C 18.319150 5.868631 2.355722 1.248837 (0.53752) (0.82870) (4.12433) (0.20165) [ 2.45416] [ 2.25489] [ 0.57118] [ 2.19318]


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Table 5d: VAR and VECM results for Thailand

Results of VAR



None * 0.789372 72.02679 51.57359 0.0014 At most 1 * 0.562068 34.23095 27.06695 0.0058 At most 2 * 0.372283 21.11158 13.42878 0.0199

At most 3 0.037594 13.072938 8.705545 0.0203



1.000000 -33.9722 -89.4319 31.0232 (12.51664) (25.92687) (9.03188)


In Thailand, the results reveal that, ‘Trace statistics’ value is 72.02, critical

value is 51.57 and Eigen value is 0.78. It means, the results ‘Trace statistics’ value is

greater than critical value so in this case reject the null hypothesis and all variables are

co-integrated at 5% level.


long run relationship at five percent level. Therefore, VAR value is -33.97, -89.43,

31.02 and the variables are GDP, K and L respectively. Hence, the VAR values are

not get co-integrated at 5% level of significance, but there has been significant

positive impact of EC, GDP, K and L.

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Results of VECM


CointEq1 -0.021764 -0.020711 0.001034 -0.09481 (0.02903) (0.02571) (0.10799) (0.00805) [-0.74970] [-0.80562] [ 0.93561] [ 4.90502]

C 3.644908 3.270952 5.95459 1.156420 (1.24598) (1.10343) (4.63486) (0.34547) [ 2.92533] [ 2.96436] [ 2.57928] [ 3.34742]





-0.020, K is 0.001 and L is -0.09.

Granger-Causality Results:

The existence of Co-integrating relationships among energy consumption,

GDP, capital and labor force suggests that there must be Granger causality in at least

on direction that is unidirectional causality test. The study examined the

Unidirectional Granger Causality between the variables. To determined, the direction

of causation, must examine the VECM for the countries, where could find the

evidence in favor of Co-integration, to providing an indication of the direction of

causality the VECM enables us to distinguish between short run and long run Granger

Causality.

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Table 6: Unidirectional Granger-Causality results (Short run) for multivariable

for India, China, Indonesia, Philippines and Thailand

Country Period lags Null Hypothesis F-value P-value India 1979-2010 4 EC→GDP 2.6424* 0.0671 EC→K 4.3875** 0.0113 EC→L 2.60531* 0.0685China 1981-2010 5 EC→GDP 5.8745** 0.0226 EC→K 4.7158** 0.0320 EC→L 3.0652** 0.0448Indonesia 1980-2010 5 EC→GDP 2.7830* 0.0568 EC→K 3.2363** 0.0352 EC→L 0.517 0.7593Philippines 1975-2010 6 EC→GDP 2.7669* 0.0838 EC→K 0.1301 0.8787 EC→L 3.5249** 0.0462Thailand 1975-2010 8 EC→GDP 1.5353 0.2756 EC→K 1.7461 0.2278 EC→L 1.4295 0.3195Note: The based on lag, VECM term in error correction model. Significance at the **5% level and *10% level

According to Song Zan Chiou-Wei and et.al (2008), has investigated Granger

causality test. He has rejected at 1% level, 5% level and 10% level of significance.

Therefore, table 6 shows that, the significance of short run causal effects. A

unidirectional causality running from energy consumption to GDP, Capital and Labor

force. It also provided F-statistics of the lagged explanatory variables and rejects the

null hypothesis based on the P-value (Probability value) at 5% level and 10% level of

significance.

The short-run results for India, it can be seen that, the used at lag 4 and F-

statistics for EC to GDP is significant at the 10% level. The unidirectional causation

running from EC to GDP, F-value is 2.6424 and P-value is 0.0671. Therefore, at 10%

level can be rejected null hypothesis. These results imply that, in the short run,

unidirectional Granger causality effects. The results suggest that energy conservation

policy would be implementing. The Unidirectional Granger causation running from

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EC to K is statistically significant at 5% level, the F-value is 4.3875 and P-value is

0.0113. It implies that, it is necessary for increase capital can be implemented the

energy conservation policy. Then the next one is Unidirectional Granger causation

running from EC to L is statistically significant at 10% level, the F value is 2.60531

and P-value is 0.0685. It implies, energy conservation policy could not rise the labor

force.

The results for China is empirically investigated that, Granger causal

relationship among EC, GDP, Capital and Labor force. However, these variables are

unidirectional caused at 5% level of significance and lag 5. In the short-run, causation

running from EC to GDP, the F-value is 5.8745 and P-value is 0.0226. The next one is

Unidirectional Granger causation running from EC to K is statistically significant at

5% level, the F- value is 4.7158 and P-value is 0.0320. The Unidirectional Granger

causation running from EC to L is statistically significant at 5% level, the F-value is

3.06502 and P-value is 0.0448. The results suggest that, energy conservation policy

would be implementing in China.

The result shows for Indonesia is different to china and India. Empirically

explains that, unidirectional causal relationship only two variables like running from

EC to GDP, EC to k, these are significance at 5% and 10%, at lag 5. In short run,

running from EC to GDP caused at 10% level and F-value is 2.7830 and P-value is

0.0568. It means, energy conservation policy implement is necessary. The causation

running from EC to K caused at 5% level and F-value is 3.2363and P-value is 0.0352.

Unidirectional Granger causation running from EC to L is statistically insignificant,

the causation values are F-value is 0.517 and P-value 0.7593. It implies energy

conservation policy could rise the labor force.

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For the Philippines, there exists a unidirectional causality running from EC to

GDP is caused at 10% and Lag 6. F-value is 2.7669 and P-value is 0.0838. It means

energy conservation policy would be implementing. The Unidirectional Granger

causation running from EC to L is statistically significant at 5%, the causation values

are F-value is 3.5249 and P-value is 0.0462. It implies energy conservation policy

could not rise the labor force. But, EC to K is insignificant.

In case of Thailand, it can be seen that, there is no causality in unidirectional

between the EC to GDP, K, L can be identified. The results indicated that, the

“Neutrality Hypothesis”. In other words, the energy conservation policies may not

effect economic growth, capital and labor force under the neutrality hypothesis.

5.4 Energy Scenario in Karnataka

Karnataka has always given a high priority to the development of the power

sector and has faced the problem of meeting the demand of energy. The difficulty is

particularly acute during hours of peak demand, especially during the summer. The

energy generation capacity is 13,934MW, per capita availability in 953MU, peak

deficit is 14% and energy deficit 15% as on 31-03-2013. The energy sources in the

state are thermal power, diesel plant, non-conventional energy etc. The State of

Karnataka is located in the southern region of India with installed electricity

generation capacity of 13,596 MW (As on 31st January 2013). Karnataka constitutes

6% of the total installed electricity generation capacity of India which is mainly from

fossil fuels such as coal and natural gas. Private sector has a 35% share in the total

installed capacity, implying a healthy investment environment. Renewable power

forms 24% of the total installed capacity.

Institutional structure of the power sector in Karnataka is order to improve the

performance of the power sector in the state, the Karnataka Legislature (Government

117

of Karnataka) passed the Karnataka Electricity Reforms Act (KERA) in 1999. It

mandated unbundling of the Karnataka Electricity Board (KEB). Therefore, the

government of Karnataka formed four new independent distribution companies in

year 2002. These are Bangalore Electricity Supply Company (BESC), Mangalore

Electricity Supply Company (MESC), Hubli Electricity Supply Company (HESC) and

Gulbarga Electricity Supply Company (GESC). In the year 2005, Chamundeshwari

Electricity Supply Corporation Limited (CESC) carved out of MESCOM and is

managing distribution of electric power for the five districts. CESC is functional from

the year 2005 having its headquarters at Mysore. Karnataka Electricity Regulatory

Commission (KERC) forms regulations in the state and also look after all other

regulatory matters related to electricity generation, transmission and distribution.

Karnataka Power Transmission Corporation Limited (KPTCL) incorporated in year

1999 and wholly owned by the Government of Karnataka. KPTCL is engaged in

power transmission in the State of Karnataka and also constructs transmission lines.

Chart 6: Institutional structure of Power Sector in Karnataka

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5.4a Energy Installation, Generation, Imports, T&D Losses and Consumption of

Power in Karnataka

Table 7: Energy Installation, Generation, Imports, T&D Losses and

Consumption of Power in Karnataka

Power Generation Electricity Import Transmission Power Year installed capacity Generation in MUs & Distribution Consumption

(MWs) in MUs Loss (%) in MUs 1997-98 3637.4 17145 5239 18.4 17586 1998-99 4052.25 17245 6389 29.94 15906 1999-00 4423.87 21.92 6056 38 16151 2000-01 4525.14 21119 6621 35.5 17867 2001-02 4411.54 19214 7609 35.86 18639 2002-03 4699.03 18105 9043 31.95 19888 2003-04 4713.9 18032 13178 30.88 21526 2004-05 5836 22677 14375 29.44 23173 2005-06 6278.71 24070 11453 29.38 24463 2006-07 6563.08 30719 11174 29.68 28454 2007-08 7278.94 30344 11634 25.16 29988 2008-09 8524.28 30188 11600 24.03 32020 2009-10 8685.91 31566 11009 22.07 33810 2010-11 11366 30474 16798 21.27 37216 2011-12 12051 43726 13202 16.6 42356 2012-13 13467 22098 7945 15.6 22667

Total 110514.1 376743.9 163325 433.76 401710

CGR 9.1% 1.7% 2.8% -1.1% 1.7%

Note: Karnataka Economic Survey 2013-14

Table 7 shows that power installed capacity, electricity generation, import of

electricity, transmission and distribution of electricity and energy consumption in

Karnataka during 1997 -2013. This table clearly displays that power energy has

increased year to year. The CGR for power generation installed capacity is 9.1percent,

compound growth rate of electricity generated was 1.7percentage, and energy

consumption was 1.7%, but Karnataka facing the problem of energy shortage.

Therefore, Karnataka government is importing a power from neighboring states such

as Tamilnadu, Kerala, Andrapradesh. Karnataka’s imported electricity was with a

compound growth rate of 2.8percent, it indicate that Karnataka’s power generation is

unsatisfactory electricity generation and also consumers demand has increased for

119

these reasons Karnataka is facing the problem of power shortage. In Karnataka loss of

power is also through transmission and distribution when compared to the past and

present with a CGR -1.1%. Due to the improvement of the technology the loss has

decreased the transmission distribution loss.

5.4b Power Demand- Supply Position of Karnataka

Table 8: Power Demand- Supply Position of Karnataka

Year Energy demand in MW

Supply requirement in MU

Energy availability in MU Deficit

2004-05 5,927 35,156 33,687 4%

2005-06 5,949 34,601 34,349 1%

2006-07 6,253 40,797 39,948 2%

2007-08 6,583 40,320 39,230 3%

2008-09 6,892 43,168 40,578 6%

2009-10 7,942 45,550 42,041 8%

2010-11 8,430 50,474 46,624 8%

2011-12 10,545 50,030 54,023 11%

CGR 8.50% 8.10% 6.90% 12.30% Note: Ministry of Power in Karnataka

Chart – 7 Power Demand- Supply Position of Karnataka

120

Table 8 and chart 7 depicts that, Karnataka has been facing both energy

demand and energy deficits over the last few years. Between 2004-05 and 2011-12,

electricity demand grew at a compound growth rate (CGR) of 8.50%, energy

requirement grew at a compound growth rate 8.10%, energy availability grew at

compound growth rate 6.90% and deficit of energy grew at CGR 12.30%. Electricity

requirement grew at a compound annual growth rate (CGR) of 8%, while availability

only grew at around 7% leading to increasing electricity deficits in the state has

increased from 4% in 2004-05 to 11% in 2011-12. The reason for the increasing

deficits can be mainly traced to the inability of the state to increase electricity

generation. Based on the data the electricity availability against the demand is low and

the deficit is increasing in each year. It is expected that the power deficit will continue

to increase as the demand for power is continuously surplus supply. Increasing coal

supply shortages and unfavorable climatic conditions resulting in reduced water

(hydro power energy) levels have been the main causes of energy deficits.

5.5 Energy Programmes and Policy for Power Generation in India and

Karnataka

Indian government has introduced several policies for promoting power

generation. The government’s liberalization policies of 1991 and the consequent

amendment in the electricity supply act have given way for a new framework of the

industry that involves private efforts and investment. Further, the government has

taken measures to improve investment in the power sector, especially from private

players. Energy pricing has been one of the most ticklish issues is the Indian

economy. Agricultural and domestic sectors are heavily taxed. Therefore, the

Government of India is initiated some policy in power generation. They are,

121

∗ Private Power Policy (1991): Under this policy only private company can set

up thermal project, hydro projects and wind or solar projects of any size.

Foreign investors are also allowed to invest in projects with ownership upto

100% with government approval, due to this policy, many private players

entered the power generation business during this period and set up generation

plants.

∗ Liquid Fuel Power Policy (1995): This policy permitted private players to

setup short gestation power projects using fuels like fuel oil. The policy has in

a way aided quick capacity addition from these liquid fuel-based power plants

and encouraged the use of liquid fuel in power plants, under this policy,

capacity addition of 12,000MW was planned based on liquid fuel.

∗ Policy for Renovation and Modernization of Existing Plants (1995): The

government decided that renovation and modernization of generating stations

was beneficial and efforts were taken to realize these benefits. Both public

and private investment were made the funds were raised through traditional

funding like loans from financial institution and external agencies.

∗ Hydropower Policy (1998): Hydropower is economic, non-polluting and

environment friendly, due to all these benefits, the government announced a

policy on hydropower development for exploiting the vast hydropower

potential available in India. Several initiatives were taken to provide

incentives to hydropower projects that is, tariff was rationalized for hydro

projects, the procedures of tech-economic clearance, small hydro projects etc.

∗ Mega Power Policy (1998): This policy focused on the development of power

projects with capacity of 1,000MW and more, those catering power to more

than one state and considered them as a mega power projects. This policy was

122

revised in 1998 and the revised policy offered some fiscal incentives. The

incentive given to these projects were zero customs duty, rapid clearances,

income-tax holiday regime, exemption from sales tax and local levies etc.

∗ Electricity Act (2003): This act has reforms both at central and state power

sector. The main provisions and activities impacting the power sectors are

elimination of ceiling on foreign equity participation, streamlining the

procedure for clearance of power project, establishment of central electricity

regulatory commission and formulating an action plan to setup the national

grid. Then the state reforms impacting the power sectors are making tariff

reforms by state government, unbundling the state electricity board in to

separate generation, transmission and distribution companies and also

privatizing this companies.

∗ National Electricity Policy (2005): This policy is an important milestone as it

lays the guidelines and provides direction to the evolution of the power sector.

The main objective of this policy is to make electricity accessible to all

households in next five years (20100 and to facilitate demand to be fully met

by2012.

∗ Rajiv Gandhi GramenVidyutikarnyojana (2005): This yojana provided access

to electricity to all has been approved for continuance during the 11th plan for

electricity of about 1.15lakh unelectrified villages and electricity connectio0n

to 2.34 crore BPL households by 2009.

∗ Integrated Energy Policy (2005): This policy deals with various sources and

forms of energy (electricity, coal, oil, gas, nuclear, hydel energy, renewable

including wind, solar, biofuels, and wood plantations). The policy salient

features cover all the desirable elements of an enlightened policy, including

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moving to full cost pricing, consistent tax, public sector autonomy,

competitive operations and targeted subsidies.

∗ New Hydel Policy (2008): The new hydro policy addresses different issues

pertaining to development of hydro potential. The provision to award projects

to developers through tariff base bidding up to 2011 will give private players

flexibility to tie up with states for setting up projects. This policy aims for the

welfare creation and creation of infrastructure and common facilities to

achieve 1% additional power above the existing 12% free power provided

exclusively for local area development.

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