Power for All: The National Dream

The National Electricity Policy envisages “Power for all by 2012” and per capita availability of power to be increased to over 1,000 units by 2011-12. To achieve this, it is proposed to add over 78,000 MW in the 11th Plan, during the first two years of which we have added only 14,000 MW.  Again, officially, power has reached 82 per cent of India’s villages. But power cuts averaging 12-16 hours are the reality that most households experience on a daily basis.

The energy-development para-digm is a well-debated one: lack of access to electricity has significant impact on health, natural resources and environment, the burden of which is borne disproportionately by women, children and other vulnerable groups. “Provide urban amenities in rural areas” is what former President APJ Abdul Kalam advocated in his vision for rural India. And this, he said, could be done if road connectivity and electricity reached every nook and corner of the country.

But as Surya P Sethi, Principal Adviser, Planning Commission, recently said “Anybody who says that they know what the demand for power in this country is, simply does not understand the power sector, because like in many other areas we do not have a good clue on what the demand is. And the reason for this is because 600 million Indians even today continue to live without power.”

The supply of electricity across India currently lacks both quality and quantity with an extensive shortfall in supply, a poor record for outages, high levels of transmission and distribution (T&D) losses and an overall need for extended and improved infrastructure, both in terms of plant and equipment as also of transmission networks.

Projected Capacity Addition

In a study released late last year, global consultancy giant, McKinsey & Company noted that “India was gradually progressing towards a service-led economy from an agrarian economy. Supply and production of power have increased but demand has doubled.” According to the study, this demand can only be met through a five to 10-fold rise in power production.

This implies that India needs to more than double its current generation capacity in the next 10 years, which will require huge efforts and investments from both national and state governments as well as the private sector, including international investors. It is expected that India needs to add about 160,000 MW in generation capacity in the next 10 years in order to sustain its current GDP growth rate. A tall task since only 40,185 MW of capacity has been created in the last 10 years.

Power Secretary VS Sampath is optimistic that capacity addition targets can be met. “Today, equipment, construction and engineering capac-ities have been substantially tied up, and we are now in a position to meet annual capacity addition targets,” he said at a recent seminar.  The only area of concern was meeting the overall resource requirement of the sector, which he put at over Rs 30 billion. 

Similarly, an analysis by KPMG reveals that the private sector’s response to the 11th Plan target has been encouraging. Thermal plants are expected to account for 76 per cent of the total capacity addition before 2012. With an inadequate quantity of gas in India and given the prevailing price uncertainty, 90 per cent of the new thermal plants are expected to be coal-based. Interestingly, if the recently concluded rates for long-term sale of power by private plants are any indication, the average cost of generation under ‘competitive conditions’ is now around 40-50 per cent lower than the country has previously seen.

The Challenges

But Sethi disagrees. According to him, “we simply do not have the capacity or the engineering capabilities either to deliver the equipment or construct the plants. We had the capacity to deliver about 4,000-5,000 MW at the end of the 10th Plan. Hopefully, that capacity would be doubled by the end of the 11th Plan. That means by the end of the 11th Plan, we may have the physical capacity and the technical skill capacity to deliver only something like 9,000-10,000 MW per annum.”

His views find an echo in the McKinsey study, which points out that resource constraints are only one of the problems of stepping up capacity addition. Yet another problem the sector is facing is the lack of skilled and semi-skilled manpower.

“About 1.5 million skilled workers are required in the next five years and around 2.7 million between 2012 and 2017. In addition, thousands of highly skilled managers will be required in as diverse areas as project management, network operations, equipment maintenance, autom-ation, monitoring and review.”

Pointing out that water and land were also major areas of concern for power companies seeking to expand capacity, RS Sharma, CMD, NTPC Ltd, says that the only way this can be tackled is “if more efficiencies are devel-oped in equipment and plant layout. This will reduce the need of power companies for greater storage space, especially in the case of water.”  He says efficiencies also have to be built into the system to cut down the aggregate transm-ission and commercial (AT&C) losses.

Clearly there is need to promote capacity in manufacturing, engineering, construction and commissioning. There is also the need to promote technical skills and last, but not the least, there is need to create a market for long-term debt in the country. Infrastructure cannot be delivered based on 10-year financing.

The world over, infrast-ructure requires 20-25 year financing and today there is no market for that kind of financing in the country. For this to happen, it is important that the government allows a suitable long-term debt market to develop. Such a market will also help private investors keep tariffs under check and prevent further cross-subsidisation.

Dispelling all concerns about resource mobilisation, Satnam Singh, Chairman & Managing Director, Power Finance Corporation, says “We have set up a new unit to fund capital equipment manufacturing for the power sector. And we are hopeful of meeting any fund needs of interested players. We have even started giving long-term credit lines and have only recently sanctioned a loan of Rs 100 billion to NTPC.

The Way Forward

But while the challenges are known, what is the way forward. For noted economist Atanu Dey, the way forward is to ‘think solar’. “We need to think outside of the fossil fuel model. We need to think in terms of what we need to do so that there can be sustained economic growth and development over the next century and India has to become a solar superpower for it to be anything at all in the future,” he says.

For Sethi, the first and the foremost way, which is the most difficult to deliver in the present governance structure, is to place sectors like power and energy, in the hands of professionals. This will ensure a continuum in planning and implementation.

Analysts also point to the need to rethink the development paradigm, which is currently driven by capacity creation from top to down. As in any other development context, we need to have a demand-driven scenario. In other words, a bottoms-up approach is required. “Ideally, knowing about how much power the consumer will need and then working towards building capacities to meet them should be the right approach,” says an industry expert.

The third thing going forward is that we need to get energy pricing right. The energy prices in this country are the highest in the world. Nobody else in the world pays more for energy than we do. There are no net subsidies in the energy sector, there are some subsidies in the power sector and those need to be rationalised if we need to move forward and give the sector some semblance of commercial viability.  One reason for this distorted pricing is that power utilities have huge unaccounted AT&C losses. Says Kirit S Parikh, Member, Planning Commission, “power utilities must benchmark their AT&C losses at different distribution points. This will present a real picture of the actual losses as also the results of the measures being taken to check them.”

Role of IT

Already, the government has already reworked the Accelerated Power Development and Reform Programme (APDRP). The programme, first unveiled in 2003, was reworked last year and in its new avatar envisages to bring the AT&C losses to less than 15 per cent by the end of 11th Plan in the urban and high population density areas.

Seeing an attractive role for information technology in the distribution reforms project, Mr Karan Bajwa, Country Head, Public Sector, Microsoft Corporation (India), says there is a clear realisation in the government  that IT can be used as an optimisation tool, which is what the APDRP scheme is all about. “The consumers are getting more and more aware and more and more demanding, and as a result of the push by the regulatory commissions and the consumers for greater efficiency, utilities will need to bring in smart grids, smart metering, more accountability, customer relation-ship management, and other such options.

For, Sidhartha Mathur of KPMG distribution remains the weakest link in the country’s power sector. Emphasising the need for putting in place a suitable energy auditing system, he said that before this it was essential to have in place a suitable measurement and metering system. This will enable the authorities to suitably monitor the transmission and distribution losses.

In fact, it is unbundling of the State Electricity Boards that has resulted in the true picture emerging about the losses they were carrying on their books. This is because unbundling led to increased metering and verification of actual consumption. Says Bajwa, nearly Rs 100 billion of the Rs 500-billion budget earmarked for the APDRP scheme will be spent on improving IT readiness of the system.

The next thing that we need is to create power and energy markets.   Contrary to the belief that there are markets being created; in reality, there is no market either for power or for any other form of energy.

There is also need to craft a fair deal between the resource rich states and the centre, because there are tensions between states which are resource rich, be it in coal, or be it in hydro. We have unbundled the sector into distribution, generation and transmission but have failed to separate the content from carriage. What this really means is that we must have a regulated wheeling charge at each voltage level and the person who is transmitting or distributing that has no control over the content which is the power. Only then we will be fully able to maximise the efficiencies that were desired out of the unbundling exercise.

The Efficiency Factor

Importantly, there is need to improve end-use efficiency. There is room to improve our efficiency by about 20-25 per cent. If we can reduce our needs, our requirement would reduce and then we may be able to deliver that lower requirement. To address power crisis concerns in states and the larger threat of global warming, the Centre has come up with a unique scheme of making energy-saving compact fluorescent lamps (CFLs) as cheap as Rs 15. More innovations like the Bachat Lamp Yojana need to be thought up urgently. However, Sharma says “here, either the government must extend some subsidy to enable the commercial exploitation of this technology or we will have to wait until technology itself leads to a reduction in costs.”

The government is also focusing on utilisation of renewable energy sources to generate electricity and to reduce the dependence of power sector on coal. For this, the government has already launched several programmes, such as Green Initiative for Power Generation and Remote Village Electrification.

Additionally, organisations such as DESI Power in India are advocating the decentralisation of power supply and the switch to renewable, locally available energy sources. Another example is the Malavalli Biomass Power Plant in rural Karnataka which has helped resolve local problems of electricity supply, while making use of locally available resources in a more environmentally sound way than burning coal, which is also produced locally. The plant benefits the local community, local agriculture and local industry.

The compulsion of reducing the cost of power while adding to supply means that planners will have to move beyond conventional boundaries. They will have to adopt new approaches even as they pay attention to the changing development models. The next step lies in seeking answers to the question: ‘what exactly is power or energy required for?’ Or, in other words, ‘what exactly is development?’ Today, planners cannot overlook these issues.

Ultimately, ‘power for all’ will become a reality in India only if the policies make economic sense to all stakeholders — the generator, the transmitter, the distributor and the consumers.