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India’s Energy Sector

Preface | Foreword | Executive Summary | Overview | Oil & Gas | Power | Interview | Company Profiles | Partners | Launch Event | Editorial Team

The Indian power sector has made significant progress over the years. The installed capacity of the industry grew manifold from 1,361 MW in 1947 to 156.8 GW in January 2010. The sector has also undergone substantial structural changes. Regulatory policies have played a predominant role in changing the landscape of the Indian power sector. Though the sector has come a long way from its humble beginnings, it is still lagging on several fronts, such as power shortages, T&D losses, among others, and has a long way to go. This chapter traces the evolution of the industry and how the policies and measures adopted by the government at various intervals have changed the industry’s structure. This chapter lays emphasis on the developments that took place in the sector since 1991; this was the watershed year for the Indian power sector, as a number of measures adopted in this year altered the functioning of the power sector. The industry has been regulated for almost a century and the Electricity Act 1910 was the first act that was introduced to govern the Indian power sector. The Electricity (Supply) Act 1948 was introduced after independence, but it did not achieve the desired results, as the power sector’s performance started to deteriorate and a need was felt to restructure the sector. Several regulatory changes were made since 1991, which transformed the industry’s performance. Based on the government’s regulations and policies, the evolution of the Indian power industry can be divided into two broad phases, pre-reform and post-reform phases. The pre-reform phase (up to 1991) can be divided into preindependence phase (prior to 1947) and post-independence phase (1947-1990) and post-reform phase can be broken down into three phases.

Pre–Reform Framework (before 1991) Pre-Independence Era (upto 1947) The first instance of commercial generation of electricity in India dates back to 1879 in Kolkata (then C alcutta). In 1897, the government of Bengal granted an exclusive 21-year license to the C alcutta Electricity Supply C orporation to supply electricity to C alcutta. Mumbai (then Bombay) was the second city to get electricity and as time progressed, private companies set up power supply systems in major urban areas under franchises, which allowed them a reasonable rate of return. The demand for electricity during this phase was driven by demand from industries, commercial enterprises (including tramways) and also domestic use. Most of the earlier private companies in the power sector cease to exist today as they were amalgamated into state-owned enterprises; however, a few of them continue to exist as private players. The Electricity Act 1910 was the first act (one of the earliest regulation) in the power industry, which was introduced before independence in 1910. The Act provided the basic framework for supply of electricity in India. The sector was at a nascent stage during this time and there was a huge investment requirement for laying down basic infrastructure. The Act encouraged the growth of the industry by issuing licenses to private companies. Thus, during this phase, electricity generation was mainly in the private sector and power generation was largely based on coal and hydropower. Tata Power (formerly known as Tata Electric), which is the country’s largest private sector utility, commissioned its first hydro electric station with a capacity of 72 MW at Khopoli.

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In its attempt to assist the states. lot of emphasis was laid on setting up hydropower plants. as a result of these losses. Post-Independence Era (1947-1990) At the time of independence. The SEBs took over the private companies in their respective states and the newly-created state electricity boards were interconnected to enhance system reliability and to ensure wider geographical coverage. In the meanwhile coal-based power plants continued to grow and the share of thermal power capacity increased in the total capacity. and distribution in their respective states. The SEBs were able to generate the minimum returns for many years. electricity generation and supply was concentrated in the hands of private electricity suppliers. adequate. it opened up the power sector (liberalise) and invited foreign private companies to get funds and technology into the Indian power sector. to fund power projects through budgetary support. there were delays in civil works. These circumstances forced the government to restructure the sector in a phased manner. the Electricity (Supply) Act 1948. hence. the SEBs were required to generate a minimum return of 3% on their net fixed assets in service after meeting the financial charges and depreciation. The post-reform phase can be divided into three phases: www.4/9/13 India’s Energy Sector The power industry suffered from huge costs and wide variation in power voltage during this period. The demand-supply gap was increasing and many states were facing electricity crisis. Furthermore the government set up the Power Finance C orporation (PFC ) in 1986 as a financial institution dedicated to power sector financing to supplement planned expenditure on power plants. Due to these events. the SEBs’ performance was satisfactory and they played a vital role in the development of the sector. specifically new power plants. and over the years.dnb. In 1981. as both AC and DC forms were used. The installed capacity in the hydropower sector did witness significant growth up to 1970. cross subsidies and SEB staff’s inefficiencies were the main reasons for their losses). During this phase. In the initial period. and development. consequently. NTPC . the public sector gained prominence in the power sector. this entity was renamed as Power Grid C orporation of India Ltd and all the transmission assets of the three above mentioned generating companies were transferred to it under an ordinance. and the infrastructure additions in terms of transmission and distribution were also not adequate. later on their performance faltered and they had to seek financial aid from the state in the form of grants. delays in the supply of power plant equipment. transmission. but in 1992. these efforts led to the incorporation of the National Power Transmission C orporation in 1981. NHPC and North-Eastern Electric Power C orporation. NTPC built its own transmission network to transmit electricity to different SEBs. while the C EA was responsible for planning at the national level and it provided the SEBs with broad guidance. The objective of the C EA was to develop a sound. was introduced. According to the Electricity (Supply) Act 1948. During this period. which was based on the UK Electricity Supply Act 1926. SEBs became integrated utilities with presence in generation. Moreover. the lesser-thanexpected growth rate and longer gestation period decreased its share in total power generation capacity. the government decided to restructure the power sector in a phased manner in 1991. subsidies. Post–Reform Phase (after 1991) The deteriorating health of the SEBs made it impossible for them to infuse fresh investments into the sector. poor metering and energy accounting. both the C entral and state governments. by the end of the phase under review. however. they provided poor electricity service to end consumers because the stateowned corporation power plants were running at low plant load factor (PLF) and the SEBs did not have enough funds for renovation and modernisation of their plants. Moreover. as the government planned to develop the irrigation and power sectors simultaneously. Initially the company was engaged in managing the transmission assets of the central generating companies. etc. soft loans. Hydropower generation suffered especially. electricity theft.asp 2/7 . Also. Electricity supply was a must across the country to promote overall growth and development. they suffered huge financial and technical losses (poor revenue collection and billing. there was a wide variation in electricity voltage that was supplied during this period. and uniform national power policy to coordinate development of the power sector in India. The Act also elaborated the financing norms and institutional framework for the electricity industry in India. planning. The C entral government amended the Electricity (Supply) Act 1948 and established the National Hydropower C orporation (NHPC ) in 1975 to build hydropower plants and the National Thermal Power C orporation (NTPC ) to set up coal-based power plants to supplement the generation capacities of the SEBs and private companies. the country was facing a macroeconomic financial crisis that made it difficult for the governments. the government decided to integrate operations of the central and state transmission systems to form a national power grid to facilitate transmission of power generated by non-SEB generators. While the SEBs aided the growth in the Indian electricity sector. The electricity sector moved into the public sector domain from the private hands. and this paved way for meting out electricity reforms in 1991.co. the C entral government established a few private companies that could cater to more than one state. The early seventies were marked by incidents of power blackouts and grid collapses. As the technical knowledge in the domestic industry was not well-developed. and largely in urban areas. the development and planning was done by the SEBs at the state level. as availability of water resources was heavily dependent on the monsoon season. Under this Act the C entral Electricity Authority (C EA) was established at the central level and the State Electricity Boards (SEBs) at the state level.in/IndiasEnergySector/Regu_Power. most of the projects were based on imported technology and thus entailed huge costs. but.

The annual commercial losses of the SEBs increased consistently from Rs 45.84 bn in 1997-98. Foreign ownership up to 100% was allowed. with an expected capacity of 75 GW. The first phase of the reform failed as the objective of attracting private players did not achieve the desired results. Introduction of Mega Power Policy 1995 In 1995. Private players were uncertain about their returns due to poor financial health of the SEBs.in/IndiasEnergySector/Regu_Power. The SEBs were under huge losses and it was perceived that unbundling the SEBs and segregating generation. as the SEBs. C EA was to provide assistance in identifying potential sites for setting up the plants. the name mega power projects. respectively. and distribution in their respective states. The power plants continued to work at low PLF. The amendment allowed private participation in thermal. transmission. who were to transmit and distribute the power generated by the private players. The main objective of reforms was to ensure reliable and quality power supply at an economic cost. full repatriation of profits. It was essential to ensure that the sector was financially viable and attractive enough for private investors to put in their money.000-MW generation projects that would supply electricity to more than one state. and solar power projects. The SEBs were integrated utilities with presence in generation. the government made an amendment to the Electricity Act 1910 and the Electricity (Supply) Act 1948 through the Electricity Laws (Amendment) Act of 1991. Private players did not enter the sector. Many states initiated the restructuring process. Power Grid. the revised Mega Power Policy 1998 included these concessions.4/9/13 India’s Energy Sector First Phase (Started in 1991) Independent Power Producers (IPP) Investments were a must in the power sector to enable it to produce electricity in line with the expected economic growth. The rest were either stalled in the approval process or did not reach financial closure. the government introduced the Mega Power Policy to increase private investments in over 1. Tariff for agriculture sector was to be not less than 50 paise per unit and the tariff was brought to 50% of the average cost of supply within 3 years. and had Memoranda of Understanding (MoUs) and Letters of Intent. Second Phase (started in1996) The 1995 Mega Power Policy did not propose any fiscal concession. Establishing regulatory commissions and privatising electricity distribution in cities (with population of more than 1 mn) were the pre-conditions included in the revised policy. The government liberalised the sector and opened it for foreign and private investments to increase the availability of funds for the power sector. Orissa was the first state to undertake restructuring of the power sector in 1996. The experiences of the first phase were not great and the Enron debacle is a reflection of this statement. IPPs were to operate on a costs-plus model wherein the tariff was determined by the C entral government and the IPPs were guaranteed a 16% post-tax return on equity. In addition to envisaging setting up of regulatory commissions.dnb. only a few of these projects cleared the approval process. www. In December 1996 the C ommon Minimum National Action Programme (C MNAP) was structured in consultation with the state governments. the results were.60 bn in 1992-93 to Rs 106. Around 189 projects. hence in 1998.co. among others. the C MNAP reiterated the need for rationalisation of tariff and that no sector was to pay less than 50% of the average cost of supply. hydro.asp 3/7 . not significant as the losses (theft. however. were still running in losses. transmission and distribution into different corporations could make it possible to monitor efficiency levels in each of the areas. and also allowed them to operate as IPPs. The projects were to be awarded on the basis of competitive bidding and the C EA. The government also put on fast track 8 projects with offers of counter guarantees. hence. technological and financial) did not come down. and guidelines were established to hasten the sector’s progress. however. wind. In the Enron Dabhol Power Project priority was given to FDI rather than the cost of generating electricity. The operators and the SEBs entered into power purchase agreements (PPAs) as the SEBs were responsible for transmission and distribution of power generated by private players. and NTPC were to provide support to these projects. were proposed. The Power Trading C orporation (PTC ) was also set up after this revision to purchase power from identified projects and to sell to identified-SEBs. while Power Grid and NTPC were to provide assistance for transmission of power and preparation of feasibility report. For allowing independent power producers to operate in the sector.

Power Grid. the generation capacity from private players did not reach the desired level. The measures meted out included more than one distribution licenses permitted in the same area.in/IndiasEnergySector/Regu_Power. the three distribution companies. namely. Electricity Act 2003 The Act sought to create a liberal framework for development of the power industry. industries could set up captive power generation units and the right to open access allowed them to sell electricity to any consumer using the transmission network. which was the central transmission utility. fines. open access in transmission and distribution and some other provisions. which lay more emphasis on the power generation segment instead. The Bill became an Act with effect from June 10. The open access customers are categorised as short-term customers (up to one year) and long-term customers (for 5 years). C aptive units could thus sell their surplus power to the customers of their choice. the Indian Electricity Act 1910. The C ERC issued the first Indian Electricity Grid C ode (IEGC ) in January 2000 to ensure grid discipline and to set operation and governance parameters for players in the transmission and distribution (T&D) sectors. consequently. and BRPL. 2003 and replaced the earlier laws governing the power sector. These utilities also recommended regulatory commissions on allotment of licences to different players. which paved way for entry of more players in thermal generation. Third Phase (2003 onwards) The Electricity Act 2003. Due to these changes. which resulted in improved operational performance. It mandated the regulatory commissions to regulate the tariff and issues of license. however. The Act came out with the National Electricity Policy. The bill sought to provide a legal framework for enabling reforms and restructuring the power sector. the Electricity Laws (Amendment) Act was passed in 1998 to enable private participation in the power transmission sector. and ensured better services for the end consumer. The opening up of the transmission network is likely to induce competition among generators as well as buyers. The risk of defaults from the SEBs worried generators and hindered new players from entering the industry. could provide open access. the Electricity (Supply) Act 1948 and the Electricity Regulatory C ommissions Act 1998. It was considered that by increasing power generation. came into existence and took charge of power distribution in different areas of Delhi. were in bad financial shape. The government introduced certain policy measures in generation in the Electricity Act 2003 to ensure more private participation and to reduce the demand-supply gap. but the industry suffered huge losses (T&D and financial) on the distribution side. the demand for power could be met to some extent. Generation of power was de-licensed and the requirement of techno-economic clearance for thermal power generating plants by C EA was dispensed with. and uses of electricity. Generation The generation segment was opened for private players in 1991.4/9/13 India’s Energy Sector During this phase the sector’s performance improved as compared with the first phase as the PLF reached around 70%. commercial losses continued to pose a major hurdle in the sector’s development. the Electricity (Supply) Act 1948. even over the years. The best case of multiple licenses was noticed in Delhi after privatisation in 2002. rationalisation of electricity tariff and ensuring transparent policies and promotion of efficiency. At the national level. the Indian Electricity Act 1910. the state transmission utilities could provide open access. which came into effect from June 10. which gave the right to private power producers or any other generating utility to sell its power to any entity using transmission network (without any discrimination).dnb. which increased competition among the distribution licensees.co. 2007 and the Electricity Act 2003 was enacted with stronger power and clarity and with greater emphasis on assessment. Distribution The distribution segment was not given more consideration in the earlier regulations. protecting interests of consumers and supply of electricity to all areas. which enabled the generators to sell power to any customer and gave the buyer the option to choose the generator using the transmission network. The central transmission utility (C TU) and the state transmission utility (STU) were set up under this Act. However. the main bodies involved in power distribution segment. acts governing the Indian power sector. replaced the earlier laws. The Act was amended on May 28. promoting competition.asp 4/7 . namely. reduction in AT&C losses. The transmission utility was not allowed to refuse use of its transmission network except in instances of capacity limitation. This Act focused on laws relating to generation. SEBs. and reduction in incidences of load shedding. During this period private sector investments were already being made for capacity addition in generation but the need was felt for private participation in transmission as well. The Electricity Act 2003 came up with measures that could improve the performance of the distribution sector on almost all fronts. The Act also removed restrictions on captive power generation and simplified the procedures. The maintenance and construction activity of transmission network was supervised by C TU at the inter-state level and by the state transmission utility (STU) at the intra-state level. The Bhiwandi circle (near Mumbai) reported the first instance of distribution franchise that was granted to Torrent Power by Mahavitaran (distribution license in Maharashtra). www. In 2002 only 11% of generation capacity was from private players and the public sector generators capacity was not enough (as running at low PLF) to meet the growing demand of electricity. 2003. emphasis on rural electrification. NDPL. under which a distribution licensee could distribute electricity through another player within the distribution area. trading. among others. and legal framework to check the commercial losses due to theft and unauthorised use of electricity. and the Electricity Regulatory C ommission Act 1998. mandatory creation of SERC s. this Bill sought to provide a legal framework for enabling reforms and restructuring of the power sector. The concept of distribution franchisees was introduced under the Electricity Act 2003. transmission. The Electricity Bill was passed by the Parliament in 2003. which made it difficult for them to pay the generator for the electricity supply. and at the state level. Open access was allowed immediately in transmission. Transmission The Electricity Act 2003 introduced a non-discriminatory open access in the transmission segment. The anti-theft provisions under the Act lowered the commercial losses of utilities as electricity losses arising from theft decreased continuously and investors started to show renewed interest. distribution. BSES.

Even though SEBs are handling the regulatory operations. transparency. It also takes care of training and manpower development of the power sector and is responsible for administration of the Electricity Act 2003 and the Energy C onservation Act 2001 and to make amendments to these Acts. Regulatory commissions passed numerous regulations and provided a legal framework for players to conduct their business in the industry. which would regulate the sector efficiently.in/IndiasEnergySector/Regu_Power. Madhya Pradesh. The generator could sell power to any buyer using the open access provision in transmission and users had the choice to choose their supplier. formulating policies. The main functions of the MOP is planning. power is a concurrent subject and hence its development is the joint responsibility of the central and provincial state governments. which had departments for power. the structure is more regulated.4/9/13 India’s Energy Sector In the distribution segment. Ever since the Electricity Act 2003 was introduced. the market structure in the power sector changed from the old single buyer structure to a multi-buyer model. so far these bodies have an established arrangement for protection and promotion of consumer interest. The SEBs performance was not satisfactory.dnb. C urrently many states. the Act amended by the Electricity Act 2003. they were suffering from huge financial and commercial losses. have reported improvements in their operational efficiency and are able to ensure reliable power supply to consumers.asp 5/7 . The regulatory bodies set up transparent procedures for tariff fixation keeping in view the interest of both the supplier and the beneficiary and carried out the tariff plans in a successful manner. and Punjab have issued guidelines for open access and allowed it up to 1 MW capacity and above. The respective commissions took over the role of a regulatory body for the sector. coal and nonconventional energy resources. the power sector was governed by the Ministry of Energy. Earlier. the Act has mandated the creation of regulatory commissions in each state. administration and enactment of legislation for thermal and hydropower generation. open access was introduced. Thus. The Ministry also looks after processing of projects for investment decision as also monitoring the implementation of power projects. www. transmission and distribution. The sector was facing an urgent need of regulatory bodies. Ministry of Power (MOP): The MOP is responsible for development of the electrical energy sector in India. and for providing a level-playing-field for all players in the sector. in order to make competitive. Few of the state regulatory bodies have set targets for their utilities. these commissions have played a significant role in passing different regulations and monitoring performances of the state utilities. It started functioning as an independent entity from July 1992. to maintain accordance with the government’s policy objectives. Contribution of Regulatory Bodies The regulatory system was not effective in the power sector in India before 1997.co. there was increased competition among generators and suppliers. which opened up a new era of choice for consumers to choose their supplier. which improved the sector’s performance. The functions of C EA are described under Sec 73 of the Electricity Act 2003 Regulatory Bodies: The C ERC and the SERC are the two main regulatory bodies that govern the power sector. These regulatory bodies were formed in 1998 when the Electricity Regulatory C ommission Act 1998 came into force. there was no regulatory body to regulate the functioning of SEBs and regulations were not addressing core issues like consumer interest. The market structure. fair competition. an independent C ERC at the C entre and independent SERC at the state level were considered as the need of the hour for regulating the power sector. Under the Indian C onstitution. Many SERC s like Jharkhand. which have unbundled the SEBs. transparent. and achievement of these targets before the scheduled time which fetches them incentives and any delay gets them penalised. which has taken shape after the Electricity Act 2003. supply of reasonable power. looks promising as it gives the right of choice to the supplier as well as buyer while attempting to ensure quality and regular supply of power. Therefore. Changing Market Structure after Electricity Act 2003 With the enactment of the Electricity Act 2003 and implementation of open access. and quality of power. and consumer-friendly environment. The Parliament and state legislature are both empowered to make laws. C entral Electricity Authority (C EA): The C EA was constituted under the Electricity (Supply) Act 1948.

natural gas. The MYT was set to reduce the regulatory risk and incentivise efficient performance of utility. from time to time. in spite of clear norms and regulations. These codes ensured the efficient functioning of power system and penalised the user for avoiding the rules. Later on Orissa privatised into different entities. Andhra Pradesh. nuclear substances or materials. the concern that is still prevailing in the sector is government dominance over the regulatory commission. www. and Orissa and Delhi have privatised their respective distribution segments. An independent regulatory commission. The MYT framework was designed in such a way that if the utility achieved the target set-up under MYT framework it would get an incentive. The reforms in the sector have progressed well so far. technology available to exploit these resources. and Open Access in InterState Transmission (2008). it has been unwilling to transfer the power to regulatory commissions.co. The terms and conditions of tariff were introduced in 2004. NRLDC (Northern RLDC ) situated at Delhi. the most important ones being Availability–Based Tariff Order (2002). commercial viability of tariff remains a question mark. C ERC is the regulatory body that monitors these codes at the central level while SERC monitors it at the state level.” National Electricity Policy (NEP) This policy. Under the ABT regime. “the C entral government shall. hydro and renewable sources of energy. The mechanism helps in maintaining grid discipline and aids the grid operate at optimal efficiency. and energy security issues. which acts as the NLDC . de-licensing of thermal and captive power generation and generation in rural areas has allowed private players to invest in power generation.dnb. was also set up in the state. Haryana. as per which many norms were laid down to determine the tariff for generation. however. The government has regulated the sector for more than 50 years and many a times.4/9/13 India’s Energy Sector System Operators: There are five different regional load dispatch centres (RLDC ).asp 6/7 . Orissa Electricity Regulatory C ommission.in/IndiasEnergySector/Regu_Power. WRLDC (Western RLDC ) situated at Mumbai. Electricity Grid C ode (2006). reforms were initiated in the power sector in Orissa. In the generation segment. Tariff setting still has a component of subsidies that is given by the government. which was introduced in February 2005. Terms and C onditions of Tariff (2004). economics of generation using different resources. Karnataka. Accordingly. Power Grid is the central transmission utility. In Delhi the AT&C losses reduction target for BRPL and NDPL is 17% whereas for BYPL it is 22%. fixed charges remain unchanged while energy charges change. Orissa was the first state to unbundle its SEB into five corporatised entities: generation. aims at laying guidelines for accelerated development of the power sector. transmission and the three distribution zones in the state. In 2006 the Electricity Grid C odes laid down technical rules covering all the utilities connected through grid or using inter-state transmission system. Karnataka. reforms have to be more intensive and come out with more measures in removing odds of the sector. After the establishment of regulatory commissions. It was set up for a fix number of years called the control period (Delhi’s MYT period is 3 years) during which. some small states of the North-Eastern region have joint regulatory commissions. and distribution. The policy was prepared in consultation with the state governments. hence. 14 states have unbundled their SEBs. Multi-Year Tariff (MYT) Norms (2004). Further. Around 25 states have state regulatory commissions. Delhi. Government of India Policy The Electricity Act 2003 states that. The Regulatory C ommission Act 1998 made a provision for setting up regulatory commissions. The government made distribution a separate segment to improve the segment’s performance. Status of Reforms Reforms have played a crucial role in each segment of the power sector. NLDC monitors the different load dispatch centres. Maharashtra. If beneficiary overdraws power it has to pay unscheduled interchange (UI) charges and if generator overfeeds to the grid it will have to pay the UI charges. several regulations have been passed. etc have implemented intra-state ABT and have optimised their power purchase cost. SRLDC (Southern RLDC ) situated at Bangalore. on the basis of other countries’ experiences in restructuring. and many other states also followed the process of unbundling and regulatory reforms. in consultation with the state governments and the authority of development of power system based on optional utilisation of resources such as coal. Many states like Gujarat. transmission. The main function of these load dispatch centres is to look after the operation of power system in their respective regions and report to the National Load Dispatch C entre (NLDC ). NERLDC (North-Eastern RLDC ) situated at Shillong (Meghalaya). C EA and other stakeholders. providing electricity to all areas and protecting interests of consumers keeping in view the availability of energy resources. ERLDC (Eastern RLDC ) situated at Kolkata. the generator and the beneficiary (buyer) set up PPAs on the basis of which generators feed power to the grid and the beneficiary draws the power. prepare the national electricity policy and tariff policy.

co. for instance. energy security. Market efficiency has been improved over time as many laws and regulations have achieved the desired result. It includes: short-term and long-term demand forecast for different regions. suggested areas/locations for capacity additions in generation and transmission keeping in view the economics of generation and transmission. which in future will bring open market in power sector. This plan works out as the standard reference document for different players in the sector.4/9/13 India’s Energy Sector In accordance with the National Electricity P olicy. fuel choices based on economy. Features of NTP Tariff by bidding process: Under this process. load centre requirements.dnb. Peak and off-peak hour’s tariff: Tariff of peak hours and off-peak hours is the function of ABT. the C EA formulates the NEP once in 5 years. These guidelines stress on competitive procurement of power. security of supply. new projects are allowed to disburse power to SEBs on the basis of competitive bidding but expansion projects are an exception as they already have tie ups for their supply. quality of power including voltage profile etc and environmental considerations including rehabilitation and resettlement.000 units per capita of consumption. 50. The plan carries out the programme in short term and prospective periods. the regulation has created a competitive market place. for which purpose 100. Mobility has increased in the power market and so have the number of players. which is implemented in all regions. in thermal generation. grid stability.000 MW would be added by the end of the plan (2012). transmission and distribution. and environmental considerations. The rates are different for peak and off-peak hours and are decided by the C ERC . losses in the system. This tariff is beneficial for both generator and the buyer as generator gets higher rates of peak hours while the buyer tries to shift towards off-peak hours to pay less. Regulatory bodies are guided by tariff policy in framing the tariff regulation. Returns to attract new investment: This policy ensures attractive returns so that investment in power sector is higher than other sectors.asp 7/7 .in/IndiasEnergySector/Regu_Power. The reforms in the sector have restructured the vertically-integrated market structure to a competitive structure.000-MW project were some of the initiatives. mega power projects and merchant power plants are some initiatives while in the hydropower. National Tariff Policy (NTP) The policy lays down the guidelines for attracting adequate investments to the sector and ensuring reasonable charges for the consumers. and different technologies available for efficient generation. The policy covers all the segments of the power sector and plans have been laid down for achieving the objectives of the policy.000-MW hydro initiative launched in 2003 and preparation of a project feasibility report for 48. This method gives right to buyers and sellers to set tariff of their price range. Generation plans have set a target of 1. www. Many programmes and initiatives have been taken for meeting the capacity addition challenge. The C entral government formulated this policy in consultation with regulatory commissions and C EA. integration of such possible locations with transmission system and development of national grid including type of transmission systems and requirement of redundancies. super critical technology for rapid capacity addition.