REPOSITIONING BUSINESS STRATEGY IN THE INDIAN POWER SECTOR

A Study on the Impact of Power Sector Reforms.

ABSTRACT:
This research paper gives a brief History of Indian power sector and focuses on the issues
like our inability to meet the growing demand of power and functional problems faced by
the Indian power sector. The development of electric power in India commenced at the
end of the 19th century. Over period of hundred years now, there are lot of developments
took place. Due to overall developments and growth in human needs, like rapid
urbanization, industrialization and improvement in agricultural sector, the growing
demand for electricity surpassed its availability on supply side. Therefore the Indian
power sector has been facing serious functional problems during the past few decades. In
order to re-vitalize the sector and to improve its techno-economic performance, the
Government of India has initiated restructuring process in 1991. This paper investigates
the rationale and implications of the steps of adapting various facets of the power sector
like energy resources, technology availability, Reforms initiatives or processes and its
impact on the power sector. This paper dwells at length on the aspects of energy resource,
available technology, reform process and the impact of Electricity Act 2003 on the Indian
power sector. After dealing with the generation of Electricity through various resources,
highlights the comparative viability of the sources from the perspective of cost of
generation of power. This paper evaluates by examining the demand and supply and the
experience of Indian power sector so far. The results of the study in this paper concludes
by suggesting strategic decisions and the benefits of reform which are not automatic, but
depend on the existence of an enabling structural, pubic-private partnership, conducive
institutional and regulatory framework in tune with the emerging trends in the global
scenario. .

Key words: Power sector; Electricity Act; Deregulation; Generation Technology, Environmental Issues.
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1. OVERVIEW
Basically, the power sector in India falls in the Concurrent List under the Article
246(2) of the Constitution of India, 1950 and thus, both the Union and the States of India
have jurisdiction over this sector. Hence, the State Legislature has full power to legislate
regarding the power sector, subject to the provision that the State enactment does not
conflict with any Central enactment. The Indian economy is predominately agrarian and
as much as 72 % of the population resides in the rural area (5.76 lakhs villages as per
Census, 2001). India is hovering around 6-7 percent GDP growth as against 10-11 percent
in China. However, the investment in power remained fairly steady at 2.4% of GDP
during 1981 to 1991 but declined later to 2% of GDP in the Eighth Plan (1992-97).
Fortunately for us, 89% of energy used for power generation today is indigenous, from
coal (56%), hydroelectricity (25%), nuclear power (3%) and Renewable (5%). Solar
energy just 0.2% of our energy production. It cab be seen that only 11% of electric power

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generation is dependent on oil and natural gas which is mostly imported at enormous
cost.

The consumption of electrical energy per capita in universally accepted as a tool

for measuring the living standard of the country. Indeed there is a direct correlation exists
between the level of economic development and the consumption of energy. Therefore,
the growth of power industry plays most important role in the economic development
across the world. The power generation has touched to 583 billion by FY 2005, a growth
of 6.5 percent over the last year. The Ministry of Power has set an objective of providing
"Power for all by 2012". This will entail electrification of all villages by 2007 and of all
households by 2012. To meet the objective of rapid economic growth and “power for all”
including household electrification, it is estimated that an investment of the order of
Rs.9,00,000 crores (at 2002-03 price level) would be required to finance generation,
transmission, sub-transmission, distribution and rural electrification projects. With this
challenge, the growth potential of the Indian economy is perceived to be high for the
next 25 years.

2. OBJECTIVES OF THE STUDY

i. To review the overall power sector status, industry structure, reform process
and general performance of the Indian power sector.
ii. To analyze the energy resources, financial impact, availability of power
generation technology and to identify the factors influencing on the
development of Indian power sector,
iii. To find out the problems faced by the sector and suggest ways and means for
better performance of the sector.

3. METHODOLOGY
The study has been based on both primary and secondary data. The data were collected
with the help of an interview schedule with industry experts to collect first hand
information form various sources. And various peer reviewed journals have been

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referred. The secondary data were gathered from published sources such as Annual
reports, research working papers, books, websites etc.,

4. POWER INFRASTRUCTURE IN INDIA

The history of power development in India dates back to 1897 when 200 KW
hydro station was first commissioned at Darjeeling. It reached to 1400 MW in 1947. By
March 1951, the total installed capacity grew to 1,710 MW. The efforts for organizing
the power supply industry in a rational manner began only after independence. The
installed capacity and power generation increased annually at the rate of 9 percent and
10 percent (compounded) respectively during the period 1950-51 to 1996-97. Thus,
Indian Electricity sector remained a complete State monopoly with social objectives till
the year 1991 especially for underprivileged domestic and the agricultural class. Reform
process introduced in 1991 but did not result in significant improvement in the financial
creditworthiness of the SEB’s. The prices of electricity in industrial sector by 1999-2000
became 15 times of that in the agriculture sector and 2.1 times that in the domestic
segment, thereby forcing the industry sector to set up its own captive power plants. This
resulted in dwindling power sales to the industrial sector The industrial consumption
from 67% in 1960 to 40% in 1991 and nearly 30% by the 19991.

Till 1995, the investment in energy sector have been almost exclusively reserved
for the public sector which controlled about 90% of the capacity. The share of energy in
public outlays has varied between 27-30% of budget over the period 1980 to 1995.
Public investments in electric power alone had a share of around 25% in the total public
investment. During the period from 1992 to 2004 in India, the power generation capacity
grew at an annual rate of 4.16 percent while GDP grew at an annual rate of 6.4 percent.
Therefore, the development of adequate and reliable infrastructure services at reasonable
cost and with sustainable financing and pricing policies play an important role in the
economic development. The electric Power being the most crucial infrastructure, public
sector investments, both at the Central Government and State Governments, will have to
be stepped up.

5. INSTALLED CAPACITIES FROM FISCAL 2000 TO 2005.

Table: 1 (in MW)
As of Installed Thermal Installed Hydro Installed Wind Installed Nuclea Total
March Capacity ( % of Capacity ( % of Capacity (% of Capacity r (% of ( MW)
31, ( MW) Total ) ( MW) Total ) (MW) Total) ( MW) Total)
2000 70,493 71.8 23,857 24.3 1,154 1.2 2,680 2.7 98,184

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2001 72,355 71.2 25,142 24.7 1,269 1.3 2,860 2.8 101,626
2002 74,550 71.0 26,269 25.0 1,507 1.4 2,720 2.6 105,046
2003 76,607 71.0 26,910 24.9 1,736 1.6 2,720 2.5 107,973
2004 77,968 69.6 29,500 26.3 1,870 1.7 2,720 2.4 112,058
2005 80,902 68.2 31,135 26.2 3,811 3.2 2,770 2.3 118,619
[Source: http://.cea.nic.in

The installed power generation capacity in the country has increased from 1400
MW in 1947 to 1,18,619 MW as on April 30, 2005. Thermal capacity of 80,902 MW
consisted of coal 67,791 MW, from Gas 11,910 MW and from diesel 1,202 MW. Wind
is at 2,980 MW excluding 831 MW from renewable energy sources. The Ministry of
Power estimates that the additional capacity requirement to meet these shortages is about
10,000 MW every year. The country is adding close to 3600 MW annually in terms of
capacity. Therefore, India would need capacity addition of nearly 1,00,000 MW in
coming 10-12 years. This translate into an investment of about US$ 10 billion per annum.
To bridge this gap between investment requirements and available public resources, the
active and large-scale participation of the private sector and Foreign Direct Investment is
necessary. The financial support from the governments need not be in the form of direct
expenditures on energy projects. The support is needed to domestic Developmental
Financial Institutions through the provision of sovereign guarantees, equity capital and
preferential tax regimes etc. Considering the magnitude of the expansion of the sector
required a sizeable part of the investments will also need to be brought in from the private
sector.
Capacity Addition Programme, Tenth Plan (2002-2007)

Table:2 ( in MW )
Type/Sector Central State Private Total
Thermal 12,790 6,676 5,951 25,417
Hydro 8,742 4,481 1,170 14,393
Nuclear 1,300 0 0 1,300
Total 22,832 11,157 7,121 41,110
[Source: Ministry of Power, GoI, Annual Report 2002-2003]

India’s per capita consumption in 1947 was only 12 kWh. It has reached to is 380
kWh in 2002. the Norway has highest at 23,855 kWh per capita power consumption and
Ethiopia is the least with 25 kWh whereas Finland has lowest transmission and
distribution losses at 4% of output and highest in Benin 1. The 16th Electric Power Survey

1
World Development Indicators 2005, Washington DC, The World Bank.

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carried out by the Central Electricity Authority has projected a peak demand of 1,15,705
MW and energy requirement of 71,9097 MU by the end of the 10th Five year Plan(2002-
2007). The government of India has targeted capacity additions of about 41,110 MW
during the plan(Table-2). Further, in order to provide power on demand to all consumers
by 2012. For future, the peak demand and energy requirement by the end of the 11 th Five
Year Plan(2007-2012) has been projected at 1,57,107 MW and 9,75,222 MU respectively.
The Government of India plans around 1,00,000 MW of additional capacities during the
10th and 11th Five Year Plan periods.

6. POWER SECTOR REFORMS IN INDIA

Electricity supply industry worldwide has been undergoing radical transformation
in the 1990s. the restructuring has been driven by ideological considerations in some
developed countries and by a fiscal crisis and power shortages. It has usually succeeded
in increasing supply and stabilizing or reducing prices. Indian experiments with reform
have found consumers are willing to pay economic prices for power. Therefore, the
reform process in the power sector is making steady progress, but due to the sheer
magnitude of the problems it will take a lot of time to deliver results that are visible at the
bottom-line. However, the signals are positive. Generation statistics look good. The
Ministry of Power has overall responsibility of power sector development. The
Government of India has announced major policy reforms in October 1991 by widening
the scope to mobilize the required resources. The World Bank had also stopped lending to
SEBs. To enhance the supply and increase the efficiency of the sector through
competition and private sector participation in power generation. When the power
sector was opened up for the private investment in 1991, the MoU route with a cost plus
approach was adopted to attract investment. RBI has further simplified procedures for
FDI. Indian companies/entrepreneurs have been given general permission for this
purposes. In the reform process, Mostly all the states have set up regulatory commissions,
vertically integrated utilities have been unbundled and thrown up on competition and
efficiency improvement mode. For power generation side, many avenues have been
offered for private sector. Distribution channel have been opened to privatization. Open
access mechanism introduced at transmission side. However, a major observation of the
attitude of governments is that they are reluctant to forgo a direct hold on utilities. In
future, proposals from Indian companies which conform to the FDI policy as laid down

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by the Government of India will no longer require case-by-case approval from the
Reserve Bank of India. The Indian experience of private sector participation is too new
to gain any insights on the major issue of privatization, efficiency and competition. The
reform process is intended to contribute to an understating of how the public interest can
best be served in the ongoing effort to reshape the power sector. The energy use has been
growing rapidly in low and middle-income countries, but high-income countries still use
more than five times as much on a per capita basis. The quality of an economy’s
infrastructure, including power and communications, is an important element in
investment decisions for both domestic and foreign investors. Government effort alone is
not enough to the need for investments in modern infrastructure. Public-private
partnership is critical developing economy.

7. THE IMPACT OF THE ELECTRICITY ACT, 2003

The Central government has enacted the Electricity Act,2003 as a comprehensive

legislation governing various aspects of the power sector to consolidate, the laws relating
to generation, transmission, distribution, trading and use of electricity and generally for
taking measures conducive to development of electricity industry, promoting
competition, ensuring transparent policies regarding subsidies etc. the Act aims to
provide paradigm shift by progressive introduction to competition and choice. The intent
of Act is to provide complete commercial autonomy to buy and sell power. It also takes
care of rationalization of electricity tariff ensuring transparent policies regarding
subsidies, promotion of efficient environmentally benign policies, constitution of Central
Electricity Authority and Regulatory Commission, establishment of Appellate Tribunals
etc.,
This Act consolidates and augments the previous Acts such as The Indian
Electricity Act,1910. The electricity (Supply) Act, 1948 and the Electricity Regulatory
Commission (ERC) Act, 1998. Provisions in the Act will finally change the present
Single-Buyer Model to Multi-Buyer Model. Hence, there would be several players
operating at all the different stages of the power industry. This Act states that any
generating company may establish, operate and maintain a generating station without
obtaining a licenses under the Act so long as it complies with the technical standards
relating to connectivity with the grid. However, a generating company intending to
establish hydro generating station must submit a scheme estimated to involve a capital

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expenditure exceeding such as specified by the Central Government from time to time to
CEA for concurrence. The CEA shall before concurring in any scheme, opine on whether
the scheme would prejudice the prospects for the best ultimate development of the river
or its tributaries for various purposes and also whether the scheme meets the norms on
dam design and safety.

The duties of generating company shall be to establish, operate and maintain

generating stations, timelines, sub-stations and dedicated transmission lines connected
therewith in accordance with the provisions of the Act or the rules or regulations made
there under. A generating company may supply electricity to licensee or even directly to
consumers, subject to certain requirements prescribed in the Act and the rules and
regulations made there under. In addition, every generating company must submit
technical details to the Appropriate Central/State Electricity Regulatory Commission and
the Central Electricity Authority (CEA) and co-ordinate with the Central/State
transmission utility of electricity generated by it. The Act empowers the Central/State
Government to give directions for operation and maintenance of the generating stations,
in the event of any security threat to the State or lack of public order or a natural calamity
or any other extraordinary circumstances. Thus, Open access to transmission and
distribution system will create market for power and will provide tremendous potential
for investment in power sector and eventually may lead to declining electricity prices in
line with the international experiences. For example, electricity prices in UK have fallen
by over 30% over the last decade and similar trends have been observed in USA and
European countries. There is very chances of that prices may fall gradually once,
private investors start producing more power and are able to sell it directly to the
consumers.

Another area in which the Act is likely to have impact is the Captive Power
Generation. The installed captive power plant capacity in India at 14,636 MW as on
April, 2005 was also connected to the grid. A captive plant may be set up by any person
to generate electricity primarily for his own and includes a power plant set up by any co-
operative society or association of persons for generating electricity primarily for use of
members of such co-operative society or association.

To strengthen the sector, The Electricity Act 2003 creates a conducive

environment for investments in all segments of the industry, both for public sector and

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private sector, by removing barrier to entry in different segments. Section 63 of the Act
provides for participation of suppliers on competitive basis in different segments which
will further encourage private sector investment. Public service obligations like
increasing access to electricity to rural households and small and marginal farmers have
highest priority over public finances. The introduction of privatization have set the scene
for major cultural change. From being an engineering dominated one. Experience in
different countries have shown that there is very little economic difference between well
managed nationalized and privatized utilities. Yet privatization is sweeping the electricity
utility industry in many countries. Wholesale power markets, where producers trade
electricity among themselves and with power-marketing and power-distribution
companies, have grown rapidly in recent years worldwide especially in US and UK. Spot
power prices are volatile because electricity cannot be economically stored and
inventories cannot be used to smooth supply or demand shocks. Power prices for
daytime delivery are typically more than twice as high as for nighttime delivery,
Preliminary empirical evidences indicates that the premium in forward power prices is
greatest during the summer months. The U.S Department of Energy(2000) reported that
U.S wholesale power transactions during 1999 amounted to approximately 2.6 billion
megawatt hours (MWh) of about $ 85 billion.

This Act brings into effect many measures, which will impact all the players in the
power sector, including the consumers in a very fundamental way. Among other changes,
the Act mandates non-discriminatory open access to transmission networks under
regulatory supervision with immediate effect. Open access will be effected at the
distribution and consumer level too. The provision regarding tariff determination through
competitive bidding will encourage competition and may attract new investments.
Trading has been enabled as a separate activity and this has already activated new power
trading enterprises and has helped establish a platform to have a market driven pricing
mechanism. Another very important development is the implementation of the new terms
and conditions of tariff issued by the Central Electricity Regulatory Commission (CERC)
for the period 2004-09. This order allows for a post tax return on equity at the rate of
14%. Further, advance against depreciation shall be allowed to meet debt-servicing
obligations by considering the repayment of loan in 10 years. The CERC order has
discontinued the levy of development surcharge. Frequency linked Unscheduled
Interchange (UI) rate for deviation from the generation or energy drawal schedules have

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been first revised upward and then modified. It has been done to infuse better frequency
management and commercial prudence by utilities.

With a view to kick-start power generation, the Government in November 1995

announced a policy to establish ‘Mega’ Power Projects of over 1000 MW for thermal and
over 500 MW capacity for Hydro Projects in the various states (the Government has been
vacillating on threshold capacity between 1000 MW & 1500 MW for thermal Mega
projects). Initially it was envisaged that these Mega projects could mostly be composite
projects including development of the linked coal mines through the private sector. Later
on the policy was amended to include power plants to be set up both in the public and
private sectors. Attractive financial incentives like complete waiver of import duty on
plant & equipment and a tax holiday for 10 years (instead of 5 years as at present) etc.
have been offered on the premise that these projects would supply power at cheaper rates.

Though power cannot be stored, potential energy can be stored in the form of fuel
stockpiles or water behind dams. The capacity to quickly convert potential energy to
power remains limited. Whole sale power markets have grown rapidly in recent years
world over like California Power Exchanges in US, the Amsterdam Power
Exchange(APX) in Europe and the Power next; the France’s electricity exchange. In
India, the Power Trading Corporation(PTC) has been set up to purchase power from the
proposed Mega projects & supply to the SEBs and other power supply entities. The
concept of power Trading Corp. seems to have been evolved only to reduce the financial
risks of Mega Power producers, who otherwise would have to sell power directly to the
various SEBs whose financial capacity to pay is doubtful. The fate of the Mega projects
is intimately inter-linked with the financial viability of PTC. As per present Govt. policy,
power from the Mega projects would be given to only those states which agree to set up
State Regulatory Commission with full powers to fix tariff, undertake to privatize
distribution in all the cities having a population of more than a million within a given
time and agree to provide resource to the state's share of Central Plan allocations and
other devolutions towards outstanding payments for purchase of power etc. from these
projects.

The overall impact of power sector reform and improvement initiatives will be
critically dependent on the ability of the sector to attract investments, especially private
investments. The existing state utilities have resource constraints. The massive
investments required in the sector cannot be met by the public sector alone. Further, there

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has to be adequate generation of resources by the existing power enterprises. It is
reiterating the need to balance the imperatives of providing benefit to the consumer and
providing incentive to the investors. Only with a good climate for investment within the
sector, it will be possible to more effectively address the priorities of (i) rural
electrification, (ii) reliable power supply to farmers and (iii) providing of effective thrust
by the power sector to overall industrial-economic growth. Further, the subsidies
provided to the specified consumer categories by the Government(s) should be supported
by adequate and timely subventions to the utilities

The country has in the recent past, been experiencing chronic peak shortages of
power availability. While the peak shortages have come down from 20.5% in 1992-93 to
12.2% in 2002-03. The overall power shortages have firmed up to 8.8% in 2002-03 from
7.3% in 1992-93. In the context of the requirement of the new capacity of about 1,25,000
MW during ninth and Tenth plan. State Electricity Boards(SEBs), regarding their poor
financial health due to continued subsidies(currently 1.5% of GDP) resulting in yawning
gap between the national average cost of generation of Rs.3.50 per unit and an average
realization of Rs.2.50 per unit. The industrial and commercial sector s have been bearing
the burnt of the subsidies provided to the domestic and agriculture sector. This is due to
mainly of political compulsions and as a rational for serving the underprivileged through
universal provisioning. At the international level it is now a well recognized fact that
cross-subsidy regimes prove counter-productive in the long run and that such regimes are
sub-optimal.

8. THE PATH OF DEREGULATION IN THE POWER SECTOR

The change in the electricity sector has occurred across two dimensions, industry
structure and ownership. On the industry structure dimension, the difference between
the various models is in terms of the extent of competition introduced. Figure 2 shows
the various models.

Figure 1. POWER INDUSTRY STRUCTURE MODELS

Generator Wholesaler/ Distri.Co/ Customer

Aggregator Retailer

G D C Model - 1

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 G
W D C Model - 2

G D C
Model - 3
G W D C

G D C
Model - 4
G W D C

Model-1:- shows that the vertically integrated natural monopoly structure that most
countries are trying to move away from this structure. In this case, there exists a
monopoly at all levels with a single company involved in generation, transmission and
distribution of electricity to its customers. The main advantage of this model was in the
ease in accommodating the various social obligations such as providing subsidies to
certain classes of customers. However, due to globalization of economies and irrupt of
competition, this is becoming unviable.

Model-2:- is the single buyer model which provides room for competition in generation.
The generators entering into power purchase agreements (PPA) with the purchasing
agency. The purchasing agency continues to maintain a monopoly on the transmission
and distribution networks. This model has the advantage of ease in accommodating
social obligations. However, due to the existence of PPAs, the generators are insulated
from market risk and hence do not have sufficient incentives for innovation. Further, the
single buyer entity is usually the existing state owned utility company, which is already
inefficient. It also postpones an essential element of reform for developing countries,
the need to rationalize tariffs by allowing the purchasing agency to pursue its social
obligations. This gives rise to a complicated situation of counter guarantees, escrow
cover, etc., offered by the Government, which the Government ultimately cannot bear.

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Model-3:- This structure involves is the multi buyer and seller channels. Power generator
can directly sell to distributor or through a wholesaler. Here the competition is created at
distribution level so as to improve efficiency and reduce transmission ad distribution
losses in the system. India moved into this process. As in the case of Delhi power
distribution was privatized but due to initial teething problems, it has faced many
problems recently. Other States are also tend to moving.

Model-4:- This structure is made for full competition at all level of generation,
transmission and distribution. Many players are involved. This leads to stiff competition
and helps to bring down the power tariff to the consumers. This can be noticed in UK and
USA.

Figure 2. INDUSTRY STRUCTURE – OWNERSHIP MATRIX

Ownership Model 1 Model 2 Model 3 Model 4

Government India
Ownership NZ

Public NZ
Corporation UK

1990-98
Private
Corporation USA
1978 1992

On the ownership dimension, the shift was from government ownership to

publicly held corporations to private corporations. Figure 3 shows the paths taken by

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some of the countries in their reform process on the industry structure and ownership
dimensions. India is under transition from model 1 to model 2.

9. POWER GENERATION RESOURCES:

In 2000, coal-fired power accounted for the single largest share of the world
generated output at 39 percent. The remainder was taken up by natural-gas-fired power,
nuclear power and hydropower. Therefore, Coal continues to be predominating source of
commercial energy in India accounting for about 67% of its energy needs. As on 1
January, 2004 coal reserves of India have been estimated by the Geological Survey of
India at 246 billion tones. Coal consumption by power sector has increased eightfold
from a level of 20 million tonne (mt) in 1974 -75 to 185 mt in 1995-96 and 265 mt in
2003-04 registering an average annual growth rate of about 10%. This is likely to
increase to 351 mt in 2006-07 and 435 mt in 2011-12. A Standing Linkage Committee,
an inter-ministerial body in the department of coal which considers coal demand from
various sectors has recommended to the government for coal supply. Power and cement
sector including captive power plants have been allocated 87 million tonne (mt) of coal
for the first quarter of 2005-06 in India. Power sector has been given a linkage of 75.15
mt, while the cement sector 4 mt in the first quarter of 2005-06. the Cement sector has
consumed 12.22 mt during April 2004 to February 2005 as against 10.96 mt during the
corresponding period of last year 2003-04. The dispatch of coal to power sector during
2004-05 is estimated at 274 mt. For the 2003-04 and 2004-05, coal dispatches to power
sector mark an increase of 27 mt over the target.

In view of the prevailing coal shortage, The Standing Linkage Committee has
recommended that power houses should import 10 to12 million tones of coal in 2005-06.
There are 35 thermal power stations in India falling under the purview of environmental
stipulation requiring to use coal with less than 34% of ash have been allocated 29 mt coal
for the first quarter. There are certain bottlenecks like inadequate availability of railway
wagons, delay in loading of wagons, inadequate infrastructure at the loading points for
taking necessary corrective measures by the Railways and thermal power stations.
However, the share of coal in total generation capacity gone down from a little over 60
percent in 1995 to about 50 percent by the end of the century. Whereas the share of oil
and gas increases steadily from 12 percent in 1995 to about 25 percent in the year 2100.
The coal consumption of 100 million tones(mt) in 2004-05 and proposing to import 2 mt

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in 2005-06. However, the Coal is expected to be the main stay for power generation in
the base scenario.

There is a approximate potential from renewable energy at 81,200 MW but only

6% is achieved. It would be important to review the gross resources for power generation
availability in India as under.

1. Hydro Potential - 1,50,000 MW at 60% PLF

2. Pumped Storage Hydro - 94,000 MW
3 Coal Reserve - 246 Billion Tonnes
4 Lignite - 35,636 Million Tonnes
5 Crude Oil - 779 Million Tonnes
6 Natural Gas - 735 Billion Tonnes
7 Uranium - 25 million Tonnes
8 Thorium - 3,63,000 Tonnes
9 Non-conventional Sources - Biomass - 6,000 MW
Wind - 45,000 MW
Tidal - 9,000 MW
Waste – 2,500 MW

10. LOGISTICS OF LOCATION OF PIT-HEAD COAL BASED POWER

STATIONS:

India has endowed with nearly 246 billion tonnes of coal (up to depth of 1200 metres and
coal seems of thickness 0.9 mtr and above) which is likely to last for more than 200 years
compared to 765 million tones of oil and 707 billion cu.mtr of natural gas. There is need
for integrated energy planning covering exploitation and utilization of resources to its
ultimate use. The distant power stations suffers from various operational problems such
as coal quality, pilferage, disruption in rail movements etc. performance of pit-head
power stations have been found to be much better than distant power stations from the
point of view of PLF, lower cost of generation, consistency in performance etc. Pit-head
power stations have also been observed to be cost effective on the basis of various
techno-economic studies. The issues related to long distance transmission of power to
multiple States need to be sorted out so that more pit-head power stations could come up
in future near the potential coalfields.

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 Use of gas as a fuel for power generation would depend upon its availability at
reasonable prices. Natural gas is being used in Gas Turbine/Combined Cycle Gas Turbine
(GT/CCGT) stations, which currently accounts for about 10 % of total capacity. Power
sector consumes about 40% of the total gas in the country. New power generation
capacity could come up based on indigenous gas findings, which can emerge as a major
source of power generation if prices are reasonable. A national gas grid covering various
parts of the country could facilitate development of such capacities.

11. ASSESSMENT OF POWER GENERATION TECHNOLOGIES.

The key driving forces for structural changes in the economic growth are;
population, domestic energy resources supply, energy prices, local environmental
concerns and global climate change regimes. This would drive the future technology-fuel
mis for the Indian energy and environment systems. There are spatial variations in the
technological competitiveness due to factors like location of technology installation, scale
of production and utilization levels. Location specific factors like land and labour prices
also affect their relative costs. In the base case, the technological progress is represented
through autonomous efficiency improvements in the stock of existing plants. There are
myriad characteristics of electricity generation technologies depending upon the type of
fuel used , investment requirements, operating and maintenance costs, conversion
efficiencies, scale economies, suitability to meet peaking loads, environmental
characteristics, etc. The non-linear distribution in the costs of technologies across the
country and the diversity in technological characteristics are represented by grades of
technologies. Penetration of advanced technologies due to certain policy interventions,
retrofitting of existing technologies into improved ones, retirement of old and inefficient
technologies and better environmental performance of technologies.

Within coal technologies, there exists a number of technological choices ranging

from the conventional sub-critical Pulverized coal technology to very advanced
technologies like integrated Gasification Combined Cycle(IGCC). Open cycle Gas
turbine and combined cycle Gas Turbine use natural gas for power generation. It includes
coal based, liquid based and gas based technologies. Other renewable technologies
include small hydro, wind, biomass based, cogeneration and solar technologies. For
example, large hydro technologies are characterized by investment costs, large
construction periods, long life times, but low operating and maintenance costs, some of
the advanced technologies like IGCC are not yet widely in commercial operation

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throughout the world and there are various uncertainties associated with their use. The
technologies vary in terms of their investment costs, lifetimes, construction periods,
operating and maintenance costs, their conversion efficiencies and environmental
characteristics. There are variations in terms of suitability of the technologies to meet
base and peak load requirements. Characteristics of coal technologies make them more
suitable for meeting base load while open cycle gas turbine technologies are suitable for
meeting peak load. Some of the technologies like wind and small hydro are location
specific depending upon the availability of potential . The performance of the
technologies are dependent to a large extent on the fuel characteristics like price and
quality.

i. ATMOSPHERIC FLUIDIZED BED COMBUSTION (AFBC)

TECHNOLOGIES:
It has high flexibility to burn low grade coals effectively and meets emission
limits at reasonable efficiency. The thermal efficiency is commonly 3-4 percent
lower than that for equivalent sized PC units. It is of two types–bubbling fluidized
bed combustors and circulating fluidized combustors, with the latter having
higher conversion efficiency.

ii. PULVERIZED COAL(PC) TECHNOLOGIES: In PC combustion, the major

thrust for development work has been to increase plant thermal efficiency by
raising the stem temperature and pressure at the boiler outlet before it enters the
steam turbine. Sub critical Pulverized coal technology is the most commonly
used electricity generation technology in India. The present overall conversion
efficiency of this technology is around 33 to 35 percent.

iii. PRESSURIZED FLUIDIZED BED COMBUSTION (PFBC): These operate

at pressures ten times or more above atmospheric pressure. High efficiency, good
environmental performance and wide fuel flexibility are the characteristics of this
technology. These operates at efficiencies of around 40-45 percent. There is
almost a 90 percent removal of sulphur dioxide.

iv. INTEGRATED GASIFICATION COMBINED CYCLE (IGCC):

The prime advantages of IGCC are its high thermal efficiency and environmental
performance, which are expected to be the best of any clean coal technology. It is

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 suitable for burning high ash Indian coal. This is most advanced clean coal
technology with little experience of operating plants under commercial
conditions.

v. NATURAL GAS COMBUSTION TURBINES: The genuine electric power by

expanding a hot gas through a series of turbine blades connected to an axis that
turns generator. Combustion Turbines operating in single cycles have efficiencies
up to 42%. Simple cycle combustion turbines have efficiencies of low capital
costs and play an important role in meeting peak power requirements.

vi. COMBINES CYCLE GAS TURBINE (CCGT): This technology involves

expanding very hot combustion gases through a gas turbine with the waste heat in
the exhaust gases used to generate steam in a steam turbine. The gas turbine can
withstand much higher inlet temperature than a steam turbine, allowing
considerable increases in overall efficiencies. A benefit of the CCGT system is
that economies of scale are not dependent on a large system; even small units
have relatively low capital costs.

With the advent of the Combined Cycle Gas Turbine (CCGT) plants around 1990 in the
power sector, the generation was longer a natural monopoly, i.e., generating costs came
down to the level at which the conditions for natural monopoly no longer held over the
relevant capacity. Thus, a number of countries moved to introduce competition in their
generation segments, in order to eliminate the high costs and inefficiencies arising out of
integrating this function with transmission and distribution, while retaining control over
the distribution and transmission segments.

12. HYDRO ELECTRIC PROJECTS:

Hydro power is renewable economic, non polluting and environmentally benign
source of energy. Hydro stations are the best choice for meeting the peak demand.
Hydropower is ideally suited to meet peak power requirements. They have high
investment costs and long gestation periods. Hydro projects in India are constructed for
dual purposes; augmenting irrigation water supply and electricity generation. As hydro
plants are used for peak power, their utilization is generally around 40 percent. If it is
constructed for base load operation, their capacity utilization can be 50 percent. But in
India, large hydro projects involving huge dam constructions have been facing numerous

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barriers in their development due to which the hydro to thermal ratio has been declining.
The main impediments have been increasing opposition to large hydro projects on social
and environmental grounds and higher political risks of hydro projects due to inter-state
disputes on power and water sharing. Out of 84,000 MW hydro potential assessed, only
15% of the hydroelectric has been harnessed so far and 7% is under various stages of
development. Thus, 78% of the potential remains without may plan for exploitation. it
has dream plan to hike its presence in the hydro power by adding 5,000 MW in 11 th Five
Year Plan(2007-2012). i.e., 3000 MW in Arunachal Pradesh and 2,000 MW in Himachal
Pradesh and West Bengal.

The Techno-economic examination of the project reports of hydro electric

/multipurpose project is an interactive and complex process and involves various
disciplines like hydrology, civil design, electrical and mechanical design , geology et.
Detailed Project Reports are examined in specialized formations in CEA and CWC with a
view to finalize the features of the project based on the optimal plan development of
water resources and also considering techno-economic feasibility and requirements of
system. All the multi-purposes project proposals are first appraised by CWC, then by
Advisory Committee, CEA examines and clears the power component of the scheme.
DPRs received in CEA are circulated in various specialized formations of CEA, CWC
and GSI which act as a single agency for detailed techno-economic examination of the
project.

The considerable experience and capabilities now exist on renewable technologies such
as wind power including the development of indigenous biomass gasifier technology and
manufacturing base for wind power and solar photovoltaic. The renewable technologies
though small, the capabilities promise the flexibilities to respond to emerging
environmental and sustainable developmental needs for the future.

The power sector has always posed special financing problems for developing
countries. The power projects have had to be financed from retained earnings within the
utility, from aid, or from commercial sources(often against government guarantees). In
recent years developing countries have accounted for nearly 50% of world power plant
sales. Andrew Barnett in 1992 concluded that the prospects for developing countries
power sectors are extremely bleak, and that significant areas of the world will have to
build their future development on the assumption that electrical energy will not be

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available. The developing countries face a buyer’s market for power plant, but they face a
seller’s market in negotiations to obtain the related finance. He explored the relationship
of the factors that may strengthen or weaken the common interest that the buyers and
sellers of power technology have in seeking project finance. Finance will continue to
form the main constraint to the power sector’s development in developing countries. The
only counter balance to the worsening financial trends may be the concern in the North
for the environment in general and global warming in particular. Northern countries
investment could produce a higher return to saving the global environment by reducing
global emissions in inefficient plant in certain parts of the third world than by investing
in the reduction of emissions from the relatively efficient power plant in the north.

13. ISSIONS FROM ENERGY USE and ENVIRONMENTAL CONCERNS IN

INDIA:

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 Use of energy in general, and access to electricity in particular, are important in
improving people’s standard of living, but electricity generation also can damage the
environment. Carbon dioxide emissions, largely a by-product of energy production and
use, which account for the largest share of greenhouse gases, which are associated with
global warming. India, the second most populated country, contributes nearly 5% of
global CO2 emissions and there are possibilities of increasing this share in future. The
power sector is amongst the greatest contributors to the emissions. Two major threats on
the earth are Global warming and Depletion of Ozone(O 3) layer. India is the world’s
third largest produces of coal and this coal has high ash and low calorific value (EIA,
2002). Impact of economic development on the environment is apparent from the
increased emissions of pollutants, deterioration in the air quality especially in cities,
deforestation and land degradation. In recent years, contribution of refined oil and gas to
the energy consumption has increased but coal and biomass still remain the major energy
source. The electric power generation contributed almost 45 percent of India’s carbon
emissions for 1995 and the majority of its came from coal and lignite consumption. The
next largest share was that of the industrial sector which contributed 35 percent. The
electric power generation also contributed 46 percent of all India SO2 emissions in 1995
and power generation contributed about 28 percent in NOX of emissions in India. Indian
emitted 778 mt of CO2(212 mt of Carbon) in 1995-96 and had a compounded annual
growth of 6.4 percent during 1985-95. The scientists suggest that by doubling the
green house gases consists of CO2 and Chlorofluoro Carbons(CFCs) can increase the
earth temperature by 0.5 to 5˚C by trapping global heat which is enough to cause serious
climate and social problems. Higher concentration of CO2 produces respiratory problems
and carboxyhimoglobin in blood and deprives from CO2. The water level may go up by
3 meter in New York, Los angles, Mumbai and Bangladesh. It is likely that
environmental concerns may take a back-seat, more so because the government is
preoccupied with the challenge of providing reliable and affordable power supply to all as
a matter of priority.

As per base case results2, in the baseline scenario the Indian power generation
capacity increases about nine times from 96 GW to 912 GW between 1995 to 2100..
Faster penetration of gas technologies takes place in earlier periods(2005 to 2040).
Penetration slows down in later years because of increasing competitiveness of coal
technologies and higher generation cost from gas due to rise in natural gas price with

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increasing demand requirements. In the accelerated renewable technology development
scenario the share of renewable in power generation capacity increases from an
insignificant 0.9 percent in 1995 to 14 percent by the end of the century.

14. WHAT INDIA SHOULD DO FOR FUTURE DEVELOPMENT?

Strategic decisions are to be taken to increase the installed capacity or to improve
performance level on the Supply and Demand side to;
► accelerate nuclear power development to create at least 10,000 MW by 2006-07
► reduce T&D losses to at least 18% from the present level of 23 %.
► double the present pace of hydro power development to add 52,000 MW of hydel
capacity (1992-2007)
► continue Renovation and Modernization programme of thermal and hydro units
► flatten regional power system load curves to achieve system load factors above 70
percent at least.
► ensure benefits of at least 15000 MW from non-conventional sources of energy
namely Wind, Biomass, Small Hydel,
► achieve energy conservation target of at least 10 percent in domestic, 10 percent
in agriculture and 15 percent in industrial sectors respectively would result in
capacity benefit of about 30,000 MW.
► ensure formulation and operation of National Power Grid by the end of Tenth
Plan(benefits about 10,000 MW)
► Innovative financing and restructuring options, including regulatory reforms,
more decentralization and greater private participation.
► Improved demand management including efficient power pricing and end-use.
► investment planning under uncertain conditions – identify and strengthen
analytical tools and approaches to determine robust investment policy decisions in
changing external circumstances.

15. CONCLUSIONS AND RECOMMENDATIONS.

Electricity industry has worked for over 100 years with a set of framework of
regulation. Excessive government involvement has had its effect. The industry needs to
be reformed and restructured to achieve technical, commercial and financial soundness,
growth, competition and efficiency have to be secured to take care of larger interest of

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consumers. Over the past decade new financing and technology along with privatization
and liberalization, have shown dramatic growth in telecommunications but not in power
sector owning to its own peculiarity such as huge investment with long gestation period,
shortage of energy resources, socio-economic issues etc. During the period of high
growth, power utilities have had to weather oil price increases and high inflation and
have been hampered in their efforts to attain financial targets because governments have
been slow in responding to changing conditions and in granting tariff increases. Thus, an
urgent need has arisen to arrest deteriorating trends in the power sector. It is troubling that
international donor agencies that are largely unaccountable to the Indian public should
play a shaping role in the future of the power sector. Yet, domestic policy–makers,
intellectuals and technocrats have failed to independently break the logjam in the sector.
No the dramatic restructuring of the SEBs has been placed on the political agenda.
Developing Asian countries have immense potential for energy conservation, and offer
enormous margin for technical assistance through the Clean Development
Mechanism(CDM). The power sector reform process initiated during 1991 has not
succeeded in improving technical efficiency or in improving financial position of the
power sector. Also it could not reduce the losses or improve customer satisfaction. The
social objectives of the power sector also could not be fulfilled effectively in the reform
process. It is appropriate that serious review be made on the past performance of the
power sector and effective steps taken. Learning from the past decade’s experience of
reforms, an integrated approach to redefine the objectives and methodologies are
imperative to realize development. On the benefit side, a competitive generation market
can significantly reduce many of the medium and long term inefficiencies. For the
economic feasibility and commercial viability of the power projects, many initiatives
have to be taken on the supply side management and demand side management. The
initiatives on control of theft of electricity, free power issues, cross subsidy, energy
conservation and encourage captive generation capacity to connect to grid.

******

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