Following the independence of India in 1947 the decades of economic planning placed significant emphasis on the development of the power sector in the country. India has the fifth largest generation capacity in the world with an installed capacity of 152 GW as on 30 September 2009, which is about 4 percent of global power generation. The top four countries, viz., the US, Japan, China and Russia together consume about 49 percent of the total power generated globally.
The average per capita consumption of electricity in India is estimated to be 704kWh during 2008-09. However, this is fairly low when compared to that of some of the developed and emerging nations such as the US (~15,000 kWh) and China (~1,800 kWh). The world average stands at 2,300 kWh2. The Indian government has set ambitious goals in the 11th five-year plan for power sector owing to which it is poised for significant expansion. Electricity generation capacity with utilities in India had grown from 1713 MW in December 1950 to over 124,287 MW by March 2006 (CEA, 2006a). However, per capita electricity consumption remains much lower than the world average and even lower than some of the developing Asian economies. Total installed capacity for power in India as on 31.12.06 was 127,753 MW and Government of India plans to add capacity of 100,000 MW by 2012.
India had been traditionally depending on thermal power as a major source of power generation, which constitutes about 65% of current capacity. Balance is contributed by Hydel power (26%), Nuclear (3 %) and Renewable energy (6%). Some of the major sectors of power generation are :
Coal : At 51%, Coal is the single-largest source of energy at the disposal of the power sector. By 2011– 12, demand for coal is expected to increase to 730 MMT p.a., creating a supply shortage of over 50 MMT. India has the fourth largest proven coal reserves in the world, pegged at 96 billion tones, creating an investment opportunity of USD 10 – 15 billion over the next 5 years.
Oil : The demand for oil which is currently the second most important source of energy – is expected to grow from 119 MTOE in 2004 to 250 MTOE in 2025 at an annual growth rate of 3.6%. However, domestic production for the corresponding period is expected to increase at approximately 2.6% only. As a result, our reliance on oil imports is likely to increase from its present level of 72% to 90% by 2025. To combat this issue, the government has opened up the domestic oil sector for private participation under the New Exploration Licensing Policy (NELP). Under the competitive bidding process prescribed under the NELP, investment commitments of USD 8 billion towards oil exploration projects have already been received.
Natural Gas : India has vast reserves of natural gas. More than 700 billion cubic meters of natural gas have been discovered in the last decade alone. Demand for Natural Gas is expected to grow at a CAGR of 12% over the next 5 years to reach 279 MMSCMD by 2012. It is mainly because of three reasons: Rising popularity of compressed natural gas (CNG) as an alternative source of automotive fuel; increased penetration through availability of “piped gas” at residences; and imminent depletion of traditional energy sources such as coal and oil.
Hydro Power : With its intricate network of rivers, substantial opportunities for generation of hydro-power exist in India. Only 22% of the 150 GW hydroelectric potential in the country has been harnessed so far. Private participation will play a key role in meeting the target requirement of an additional 45 GW over the next 10 years.
Wind Energy : India is the 4th largest country in the world in terms of installed wind energy. India’s potential of wind power is pegged at 45,000 MW while its current capacity stands at only 7,660MW. Tax incentives, including availability of accelerated depreciation @ 80% under WDV method on cost incurred on setting up of wind turbine generators have resulted in significant private investment in this area
Solar Energy : Despite the prevalence of an inherent advantage in the form of solar insulation, the potential for solar energy is virtually untapped in India. India’s installed solar – based capacity stands at a mere 100MW compared to its present potential of 50,000MW. Based on the substantial investment opportunities that exist in this sector, it is estimated that by 2031–32, solar power would be the single largest source of energy, contributing 1,200 MTOE i.e. more than 30% of our total expected requirements.
Nuclear Energy : By 2032, the government plans to raise the contribution of nuclear energy from the current level of less than 3% to around 10% of the country’s installed capacity. The signing of the Indo-US nuclear deal has created significant opportunities for several players across the entire power supply chain, with an estimated investment opportunity of USD 10 billion over the next five years.
Further, India has among the world’s largest reserves of alternative nuclear fuel – thorium. Accordingly, substantial investment opportunities are also likely to arise once commercial production based on thorium becomes feasible. Over 87% of the current installed capacity in the country is by the government; with the state governments having lion’s share of over 52% and the balance by central (federal) government. Due to the initiative of government of India to encourage Public Private Partnerships in power sector, share of private companies’ power generation capacity has gone up to steadily to 17,112.62 MW, about 13 % of the installed capacity.
With Government of India opening up Ultra Mega Power Projects (UMPP) for private investments, a number of private companies, including overseas companies, have been increasingly showing interest in investing in power projects. State-owned Power Finance Corporation, which is the nodal agency for the UMPP, has set up nine Special Purpose Vehicles (SPVs) to conduct preliminary studies and obtain government approval for the planned projects. Once these SPVs will become operational it will generate a capacity of 36,000 MW power. Renewable energy offers a huge potential as a physical target of 15,000 MW with an outlay of Rs.39, 250 million is proposed for grid interactive / distributed renewable power generation during 2007-12. The total investment required would be about Rs. 600 billion.
In the Constitution of India “Electricity” is a subject that falls within the concurrent jurisdiction of the Centre and the States. The Electricity (Supply) Act, 1948, provides an elaborate institutional frame work and financing norms of the performance of the electricity industry in the country. The Act envisaged creation of State Electricity Boards (SEBs) for planning and implementing the power development programmes in their respective States.
The Act also provided for creation of central generation companies for setting up and operating generating facilities in the Central Sector. The Central Electricity Authority constituted under the Act is responsible for power planning at the national level. In addition the Electricity (Supply) Act also allowed from the beginning the private licensees to distribute and/or generate electricity in the specified areas designated by the concerned State Government/SEB. During the post independence period, most of the States have established State Electricity Boards. In some of these States separate corporations have also been established to install and operate generation facilities. In the rest of the smaller States and UTs the power systems are managed and operated by the respective electricity departments. In a few States private licenses are also operating in certain urban areas.
It is evident that the deficit in power availability in India is a significant impediment to the smooth development of the economy. In this context, bridging the gap in demand and supply has become critical and consequently, large projects are being undertaken in different segments of the sector i.e.
- Generation : In order to provide availability of over 1000 units of per capita electricity by year 2012, it has been estimated that need-based capacity addition of more than 100,000 MW would be required.
- Transmission : The current installed transmission capacity is only 13 percent of the total installed generation capacity. With focus on increasing generation capacity over the next 8-10years, the corresponding investments in the transmission sector is also expected to augment. The Ministry of Power plans to establish an integrated National Power Grid in the country by 2012 with close to 200,000 MW generation capacities and 37,700 MW of inter-regional power transfer capacity.
- Distribution : While some progress has been made at reducing the Transmission and Distribution (T&D) losses, these still remain substantially higher than the global benchmarks, at approximately 33 percent. In order to address some of the issues in this segment, reforms have been undertaken through unbundling the State Electricity Boards into separate Generation, Transmission and Distribution units and privatization of power distribution has been initiated either through the outright privatization or the franchisee route; results of these initiatives have been somewhat mixed.
While there has been a slow and gradual improvement in metering, billing and collection efficiency, the current loss levels still pose a significant challenge for distribution companies going forward. The story remains pretty much the same in power transmission and distribution space. The central and the state utilities own nearly 40 percent and 60 percent, respectively of the total transmission lines of 2.7 million circuit kilometers (ckm). Power Grid Corporation of India Ltd (PGCIL), the central transmission utility (CTU), is the largest transmission company in India. Similarly, in distribution, the SEBs own nearly 95 percent of the distribution network.
However, there are some challenges facing the Indian power sector which is expected to grow at 10 per cent but is currently going through a critical phase as the existing capacity is ageing very fast. The most important cause of the problems being faced in the power sector is the irrational and not remunerative tariff structure. Although the tariff is fixed and realized by SEBs, the State Governments have constantly interfered in tariff setting without subsidizing SEBs for the losses arising out of State Governments desire to provide power at concessional rates to certain sectors, especially agriculture.
If the SEBs were to continue to operate on the same lines, their internal resources generation during the next ten years will be negative, being of the order of Rs.(-) 77,000 crore. This raises serious doubts about the ability of the States to contribute their share to capacity addition during the Ninth Plan and thereafter. This highlights the importance of initiating power sector reforms at the earliest and the need for tariff rationalization.
The power sector was predominantly dominated by the thermal power plants, whose share was expected to rise up to 75 per cent from the current 64 per cent in the coming years. But after 2013, there might be some shortage due to capacity addition. As India has not witnessed such a large scale of implementation before, there is a need to review and enhance project execution capabilities to help ensure targets are met.
This strongly necessitates employing a comprehensive project management structure to address the major challenges of the power sector projects and to be able to deliver them as per the planned targets. Historical records also indicate the presence of a weak project management structure which does not assess all the key project aspects.