CHAPTER -11

REVIEW OF RELATED LITERATURE

Electricity is a vital input jfor the development and social

transformation of all developed and developing countries of the world.

Electricity is an absolutely essential component of today's

infrastructure requirement in the world. Without ready availability of

cheaper energy, the great strides taken by the society, industry,

transport and agriculture would.have been unimaginable. Energy is

at the root of civilization and technological upgradation. After

Independence, the Government of India recognized the Importance of

electricity and consequently accorded top priority to electricity. As a

result, substantial sums of money were allocated and spent during the

successive plan periods. The electricity industry has grown

substantially to meet the country's energy requirements. The

significant development of appropriate technology in respect of

improved generation and distribution of electricity h a s helped electric

power to become a key input in the national development process, i

The projected growth of Indian economy depends heavily on the

performance and growth of the power sector. It is the endeavor of the

Government to ensure that agriculture, industry, commercial

establishments and all households receive uninterrupted supply of

electricity at affordable rates.

 TABLE 2.01

SHARE OF ELECTRICITY CONSUMPTION IN PERCENTAGE2

YEAR DOMESTIC INDUSTRIAL AGRICULTURE

1951 12.6 62.6 3.9

1961 10.7 69.4 6.0

1971 8.8 67.6 10.2

1981 11.2 58.4 17.6

1991 16 44.2 26.4

1999 21 33.2 31.4

(Source : Economic Survey various issues)

As such, the importance of energy to the national economy is

now more t h a n its direct contribution to the Gross National Product

(GNP) as it not only serves as a basic input b u t also acts as a catalyst

for economic development. Energy consumption is dependent on

population size, per capita Income, life style, industrialization,

urbanization and public energy policies. Many energy economists

opined that energy is indispensable for economic development and its

consumption will increase with the development of economy. The

stage of economic development attained by a country can be identified

by its pattern of generation of energy and its consumption.^ There

exists a strong causal relationship between economic development

and energy consumption. The two key socio-economic indicators that

drive the pace of energy demand are population and domestic product.

Economic development and a rapidly growing population that has

taken the country from 300 million people in 1947 to over one billion

23
people today is putting a strain on the environment, infrastructure,

and the country's natural resources.

India's economy h a s undergone significant structural changes

since 1991. The annual GDP (gross domestic product) growth rate has

risen from 4.4% in 2000/01 to 8.1% in 2003/04. The high growth rate

of 8.1% in 2 0 0 3 / 0 4 is buoyed by a strong agricultural recovery of

9.1% from the drought-affected previous year. Apart from agriculture,

the industry and service sectors also maintained the momentum with

the GDP from these two sectors accelerating from 6.4% and 7.1%,

respectively, in 2 0 0 2 / 0 3 to 6.5% and 8.4%, respectively, in 2003/04.

In addition, the absolute population of India h a s increased by

180.6 million during 1991-2001. However, the percentage decadal

growth during the same period h a s declined from 23.86% for 1981-91

to 21.34% for 1991-2001. The average annual exponential growth rate

for the corresponding period declined from 2.14% to 1.93% (Census of

India 2001). The cumulative effect of the above has led to an increase

in energy consumption in India.

With an expected GDP growth of 8% by the end of the Tenth

Five-year Plan, the energy demand is expected to grow at 5%. India's

incremental energy demand for the next decade is projected to be

among the highest in the world spurred by sustained economic

growth, rise in income levels, and increased availability of goods and

services. Despite increases in energy use in India, the current per

24
capita commercial primary energy consumption in India is about 350

kgOE (kilograms of oil equivalent)/year, which is well below that of

developed countries. Driven by the rising population, expanding

economy, and a quest for an improved quality of life, energy use in

India is expected to rise to around 450 kgOE/year in 2010 (MoC

2004b).

All over the world, the ability to generate and consume electric

power on per capita basis is used as one of the prosperity assessment

indices. The world average per capita electricity consumption in the

year 2003 is 2548 KWHR/Year. During 2003, the average per capita

electricity consumption of India is 400 KWHR.^

The per capita energy consumption of a country is a key

indicator of its stage of economic development. "Global Energy

perspectives to 2050 and Beyond" - A report by the World Energy

Council and International Institute of systems Analysis shows that the

richest 20 percent of the World's population use 55 percent of the final

and primary energy while the poorest use only 5 percent. "World

Development Report 1997" (Published by the World Bank) reveals

appalling inter-country disparity in per capita energy consumption. ^

In the developing countries the key issues are economic growth,

access to adequate commercial energy supplies and finances to

achieve these.

Based on the demand projections made iir~the 16* Electric

Power Survey (EPS), over 100,000 MW additional generation capacity

25
needs to be added by 2012 (i.e.) by the end of the 11*^ Plan, to bridge

the gap between demand and supply of power. This would necessitate

mobilization of nearly Rs.8,000 billion of investment in the next

decade, for additional generation capacity and associated

transmission and distribution system. This is a daunting challenge

before the power sector. ^

To achieve this, an additional generating capacity of over

100,000 MW needs to be added to the existing capacity of about

100,000 MW. However, mere addition of power generation capacity is

not a solution to this problem, but there m u s t be proper transmission

and distribution.

All these elements are interlinked and indivisible. Hence power

generation capacity addition will have to be backed up by associated

transmission and distribution infrastructure.-^

The importance of electricity as a critical infrastructure input

for economic development of the country h a s been well recognized.

The availability of affordable and quality power is one of the main

determinants of the quality of life.^

ENERGY SOURCES

The long term power sector development would largely depend

on the development of the energy sources and a coordinated and fast

paced development of these sources is a 'sine-qua-non' for power

development. The primary energy sources for generation of electricity

26
in the country are coal, hydro-power, lignite, oil and natural gas and

nuclear power.

COAL

Coal h a s been the major source of energy in India. Coal has an

important advantage as it can be converted into other forms of energy

such as electricity, gas and oil. It is the primary source of electricity in

India. The coal reserves in the country are estimated to be around 234

billion tonnes. About 86 percent of the coal reserves are in the non-

coking coal category.

The power sector is the major coal consuming sector today it

and consumes about 76 per cent of the total coal dug out. With the

continued reliance on thermal power generation, which constitutes

over 70 per cent of the installed capacity in the country, the total

quantity of coal consumed in the power sector is likely to increase

substantially requiring enormous investment of funds in the coal

sector itself. Coal h a s been the most important component of India's

energy matrix for a long time, accounting for nearly 50% of the total

supplies. India holds 84.39 billion tonnes of proven coal reserves

accounting for 8.6% of the world total. However, only 17.96 billion

tonnes of the proven reserves are extractable (Planning Commission

2002). The domestic demand for coal is estimated to grow from 340.1

MT (million tonnes) in 2 0 0 2 / 0 3 to 460.5 MT by 2006/07, and 620 MT

by 2011/12. As against this demand, the availability of Indigenous

coal is estimated to grow from 341.3 MT in 2 0 0 2 / 0 3 to 405 MT in

27
2 0 0 6 / 0 7 and 5 1 5 M T i n 2011/12, thereby leaving a gap of 55 MT In

2 0 0 6 / 0 7 and this gap is expected to increase to 105 MT in 2011/12.

India now ranks third among the coal-producing countries in

the world. Through a sustained progrctrame of investment and greater

thrust on application of modem technologies, it h a s been possible to

raise the production of coal from a level of about 70 MT at the time of

nationalization in the early 1970s to 336.87 MT in 2 0 0 2 / 0 3 to 355.72

MTl in 2003/04, thereby shoviring a growth of about 5.6% from the

previous year. The SEBs have always maintained that generation of

power could have been more, if only the availability of coal had been

better, Indian coal is of inferior quality containing 35 per cent to 40

percent ash content and low Sulphur. ^

Coal is used in almost 60% of Indian Power plants and most of

the coal supplies are from Coal India Limited (CIL) a Govt, of India

undertaking. About 76% of CIL's Coal production (ie.) 290.61 million

tonnes were accounted for by the power sector in year 2002-03 of

which over 30% was taken by NTPC and about 60% by SEB's.io

Coal Reserves

As per the assessment carried out in J a n u a r y 1996, coal

reserves in the country down to the depth of 1200 m stood at 302.95

billion tonnes. Bulk of the coal reserves lie in the non-coking category

and coking coal reserves are rather limited. The coal reserves are also

unevenly distributed in the country. Bulk of the coal reserves

approximately to the extent 7 3 % lie in the Eastern Region in the

28
states of Bihar, Orissa and West Bengal. Other States with sizeable

coal reserves are Madhya Pradesh (17.5%) Andhra Pradesh (6.7%) and

Maharastra (3%).

Projections of extraction of coal from 1997-98 to 2011-12 as per

the Annual Report of Ministry of Coal (1995-96), are given in Table.

TABLE 2.02
PRODUCTION OF COAL
TOTAL COST OF
YEAR
PRODUCTION [M.Ts.l
1997-1998 301.34
1998-1999 313.68
1999-2000 323.56
2000-2001 333.77
2001-2002 346.56
2006-2007 473.00
2011-2012 572.00

In addition, the estimated production from the captive mining blocks

offered /allotted for captive development consequent on the

amendment of the Coal Mines [Nationalization] Act, 1993, with effect

from 09.06.1993 is 53.25 Million Tons. 11

INVENTORY OF COAL RESERVES OF INDIA

As a result of exploration carried out down to a depth of 1200m

by the GSl (Geological Survey of India) and other agencies, a

cumulative total of 240.748 Million tonnes of coal resources in the

country h a s been established as on 01.01.2003. The state-wise

distribution of coal resources and its categorisation are as follows:-

29
 TABLE 2.03

STATE COAL RESOURCES IN MILLION TONNES12

State Proved Indicated Inferred Total

Andhra Pradesh 7944 6122 2518 16584
Arunachal Pradesh 31 40 19 90
Assam 279 27 34 340
Bihar 0 0 160 160
Chhattisgarh 8561 25409 4165 38135
Jharkhand 35265 29552 6326 71143
Madhya Pradesh 7100 7888 3217 18205
Maharashtra 4509 2151 1534 8194
Meghalaya 117 41 301 459
Nagaland 4 1 15 20
Orissa 14302 29516 15286 59104
Uttar Pradesh 766 296 0 1062
West Bengal 11207 11570 4475 27252
Total 90085 112613 38050 240748

COAL PRODUCTION

Coal production increased from 2.9 percent in 2001 to 4.5

percent in 2002 to 5.5 increase recorded in 2003. In volume, coal

production was 78.7 million tonnes during April-June 2003. Coal

India produced 66.8 million tonnes of coal during the period, three

percent more than 64.5 million tonnes produced in the same period of

2002.13

Coal will continue to play a key role in energy development

programme for the next three to four decades contributing more than

70% towards generation of electricity. Existing electricity generation

capacity will be doubled by addition of another 1,00,000 mega watt by

the year 2010. In view of limited known reserves of oil and natural gas

a major part of this additional capacity will have to be coal based. 1*

Demand for coal will grow around 6% per a n n u m and power

sector alone would require about 550 million tonnes of coal by the

30
year 2010. In order to build a coal production capacity of this order,

an additional annual Investment of Rupees 2000-2500 crores would

be required for the next 10 to 12 years A^

In power generation, the share of coal on global basis is 36 per

cent and in the Indian context, it is 60 per cent. The dominant role of

coal in energy consumption and electricity generation is likely to

continue for decades because of huge proven reserves of coal vis-a-vis

the reserves of oil and natural gas. ^^

Technological improvements to achieve a better man-machine

rate have to be introduced. Coal beneficiation for transporting coal

over long distance will also have to be adopted as a policy and Coal

India will have to adopt a more commercial approach to guaranteed

supplies of the required quality and quantity.

The Indian coal obtained from open cast mining is one of the

cheapest in the world. By the time it reaches the consumers it

becomes the costliest. The additions like royalty, cess, railway project

and wastage during long distance transportation make it twice as

costly as the basic price. This calls for revision of the tariff structures

to make Indian coal competitive.

Power grid h a s proposed the creation of 30,000 MW capacity

HVDC on an inter-regional basis by 2012 so as to remove any bottle

neck in long distance power transmission from surplus to deficit areas

at the national level. ^^ In the short term therefore, coal will be

pre-dominant in consideration of option both in cost and availability.

Water and gas will be the next options.

31
 HYDRO-ELECTRICITY

India has a large number of perennial rivers and as these rivers

flow from their sources in mountains and hills, they provide plenty of

scope for large-scale hydro development. A large number of

multipurpose projects have been set up to produce hydro power, to

help irrigation, and to control floods. When the country attained

Independence in 1947 out of the 1,363 MW of installed capacity, 508

M.W., i.e. 37.1 per cent was hydro power. The first few years of

independence saw a great thrust to the generation of hydro-electricity

primarily due to the importance of agriculture. This resulted in hydro-

electricity contributing 50 percent to the total power consumption in

1962-63. Unfortunately this was the last year when it had the

predominant share, i^

But this share of hydro power h a s been declining since then to

25%. The factors responsible for such a decline are Resettlement of

Rehabilitation, Funding Problems, Envirormiental issues, conflict in

polices and resultant interstate disputes. Geological surprises,

inadequate initial preparation and investigations. All these problems

result in long gestation periods, which render the hydroelectric

projects unattractive propositions.^9

A proper hydro-thermal mix in the total generating capacity is

extremely essential for the reliability, and the higher its capacity the

better the system operates. The lowering of the percentage of hydro-

electricity h a s had problems in the smiooth operation of the power

system and besides it led to over reliance on thermal and gas based

32
stations. In fact in some countries in the west, the share of hydro

electricity in the total capacity is quite high.20 Compared to the high

utilization of hydro potential in countries like Norway (58%) Canada

(41%) and Brazil (31%) the utilisation of only 17%) of its hydro

potential by India is extremely low. As against the desirable hydro

share of 40 percent, the current share is only about 25 percent in

India. 21

There are three well defined geomorphological regions in India,

namely, the great miountain remges of the Himalayas, the Indo

Gangetic plain and the Southern Peninsula which offer plenty of scope

for large scale generation of hydro-electricity. The extent of

development varies from region to region and from State to State . The

bulk of untapped potential lies in Northern and North Eastern regions

of the country. The development of this potential in North Eastern

region is only about 2 percent, due to difficult terrain, lack of demand,

and non-availability of bulk transmission corridors inter alia. 22

India is endowed with enormous economically exploitable and

viable potential assessed to be about 84,000MW at 60 percent load

factor (1,48,700 MW installed capacity). In addition, about 15000 MW

in terms of installed capacity from small, mini and micro hydel

schemes h a s been assessed.23 Again, 56 sites for pumped storage

schemes with an aggregate installed capacity of 94,000 MW have been

identified. However, only 15 percent of the hydroelectric potential h a s

been harnessed so far and 7 percent is under various stages of

development. Thus, 78 percent of the potential remains unused.24

33
 TABLE 2.04

THERMAL HYDRO POTENTIAL AT 60 PERCENT LOAD FACTOR2S

Potential developed
Potential as on 0 1 . 1 1 . 2 0 0 1
assessed (MW) %
InMW
30,155 4,590 15.22
5,679 1,858 32.71
10,763 5,797 53.86
5.590 1,369 24.49
31,857 389 1.22
84,044 14,003 16.66

(North-Eastem Regions have the most untapped potential)

The Hydel Policy lays down mechanism for increasing

investment in the sector to harness untapped potential. The 50000

Mw Hydroelectric Initiative of the Ministry of Power for preparation of

pre-feasibility Reports for 162 hydroelectric projects for harnessing

over 50000 MW potential in different river systems in the country.

This is in addition to over 14,000MW of hydroelectric capacity of

around 27,000 MW.

This kind of intiative will pave for creation of a shelf of projects,

which could be implemented. This exercise will be undertaken by

various organizations under overall co-operation of Central Electricity

Authority. Besides a ranking study completed by CEA identifies 399

hydro schemes with a n aggregate capacity of 1,07,000MW, which are

to be developed. The study h a s been conducted basis wise and

category wise. Three-stage clearance system for expediting hydro

schemes has been taken up in Central Sector. 26

34
 If the hydro thermal ratio has to be improved from the present

25.75 ratio, it will be necessary to add at least around 25000 to

30000MW hydro-electricity in the next 10 years.

Hydro-electricity identified for addition during the Tenth Plan

period (2002-07) amounts to 14.393 MW as shown below:-

Central Sector State Sector Private Sector Overall

8742 MW 4481MW 1170MW 14.393MW

The development of hydro electricity in India is likely to remain

in the public sector with recent Government plans and initiatives.

Taking this into account, there are some positive signs. Development

of small units is expected to progressively come through by private

participation. So in the years to come there may be greater incentive

and encouragement for other IPPs to play a significant role in the

hydro power sector. 27

The inherent advantages of hydro-power are high conversion

efficiency, flexibility in operation. It is environmentally benign and

inflation force and h a s the ability to provide reliability and stability to

grid system. It may lead to self reliance as for as energy is

concerned. 28

LIGNITE

Lignite is called the baby of coal family. Lignite popularly known

as Brown Coal, is a fuel probably belonging to the Miscane age.^s

Lignite reserves in the country are estimated to be about 35 billion

tonnes. About 80 percent of the lignite reserves are located in Tamil

35
Nadu and the remaining lignite deposits are located mostly in

Rajasthan, Gujarat and J a m m u and Kashmir.3o

Lignite Deposits in India

In Tamil Nadu, lignite occurrence was first noted in Cuddalore

District in the mid-thirties in one of the bore holes drilled for

agricultural purposes. This resulted in exploration of two mining

blocks in Neyveli field and established the availability of three more

blocks for future exploitation. In the last five years, large potential for

lignite across the state h a s come to light in Bahur block North East of

Neyveli field; in Jayamkondam block South West of Nejrveli field;

Marmargudi block in Nagapattinam District and East of Veeranam in

Cuddalore District.

NLC commenced to explore Rajasthan in 1983, at the instance

of the planning commission and the Ministry of coal. The last decade

has revealed the occurrence of many lignite blocks with considerable

reserves in the districts of Banner and Bikaner in Western Rajasthan.

Besides, lignite occurrence h a s been noticed in Baramula and

Kupwara districts of J u m m u and Kashmir. Five to six lignite blocks

have been identified so far, as a result of the early exploration. The

total estimated lignite reserves in both districts are about 90 million

tonnes. 31

The details of lignite reserves in the Country, State-wise as on

01.01.2002 is as under:-

36
 TABLE 2.05

STATE WISE LIGNITE RESERVES

Geological Reserves [in

State
million tonnes]
Tamilnadu & Pondicherry 30,402.05

Rajasthan 2,954.26

Gujarat 1,769.76

J a m m u & Kashmir 127.84

Kerala 108.30

Total 35.362.21
Table 2.05 shows that Tamilnadu & Pondicherry account for

86% of the total lignite reserves in the Country. In Tamil Nadu, the

lignite fields are found mainly in Mcinnargudi and in the coastal

districts of Nagapattinam/Thiruvarur/Thanjavur. The lignite reserves

are estimated to be 22,776.55 million tonnes in this area alone. About

4,150 million tonnes of reserves are estimated to be found in the

District of Cuddalore.^^

ISSUES AND STRATEGIES

The main issues related to development of lignite based power

stations are:

i) Low boUer efficiency as a result of high moisture and low

calorific value of lignite,

ii) Risk of spontaneous combustion when dried,

iii) High sulphur content in the case of Gujarat Lignite and

iv) Higher capital cost in view of larger boiler size.

37
 In view of the inflammable nature of lignite, it would not be

advisable to transport it over long distances. Thus, lignite-based

stations should be established primarily as pit-head stations.

The problem of sulphur could be combated through use of Fluidized

Bed Combustion (FBC) technology, but this will add to the cost.

Lignite deposits are available in areas which are located at long

distances from the coal mines. The additional cost of lignite based

station on account of lower efficiency and need for larger boilers is

partly off-set by the house expenses in the movement of coal over long

distances. Therefore it appears desirable to develop and utilise lignite

for power development even if it is a little costlier.

There are certain issues relating to the development of lignite

mines especially in view of the fact that lignite is available in different

discrete strata and there are difficulties in mining the deeper ones

economically. The Nej^eli Corporation Limited has developed some

expertise with German assistance in mining technology. With the

prospect of lignite development in other areas, it is necessary to adopt

this technology and try to evolve new methods for mining the deeper

strata.33

• NATURAL GAS AND LNG

India is short of crude, petroleum and natural gas and

h a s to depend on bulk imports of these. The bulk of the natural gas

and oil resources in the country is located in offshore areas where

exploration, drilling, and production are very costly. India's balance

38
recoverable reserves of crude oil and natural gas as on 31 March 2003

were 740 MT and 920 BCM (billion cubic metre), respectively. The

production of crude oil in the country h a s increased marginally from

32.03 MT in 2 0 0 1 / 0 2 to 33.045 MT in 2 0 0 2 / 0 3 , and to 33.38 MT in

2003/04. The production of natural gas h a s increased from 29.71

BCM in 2 0 0 1 / 0 2 to 31.395 BCM in 2 0 0 2 / 0 3 and to 31.95 BCM in

2003/04. The quantity of crude oil imported (including JVC/private

companies) in 2 0 0 2 / 0 3 was 81.99 MT. This increased to 90.434 MT in

2003/04. Besides, 7.90 MT of other petroleum products were

imported during this period. The exports of petroleum products were

14.62 MT during the same period. The refining capacity as on 1 April

2004 was 125.97 MTPA (million tonnes per annum). The production of

petroleum products during 2 0 0 3 / 0 4 was 113.46 MT from domestic

refineries, which was adequate to meet the domestic demand of

106.55 MT except for LPG (liquefied petroleum gas). The import

dependency was over 70% in 2003/04.

Natural gas h a s experienced the fastest rate of increase of any

fuel in India's primary energy supply. It now supplies about 7% of

India's energy, with that share expected to double by 2020. Natural

gas demand is growing at the rate of about 6.5% per year, and it is

forecast to rise to 47.45 BCM by 2 0 0 6 / 0 7 and 64 BCM by 2011/12.

Despite such high growth rate, the Indian natural gas market is still

relatively underdeveloped, accounting for only 8 percent of total

primary energy consumed in the country compared with the

39
international average of 24 percent. The power sector is one of the

primary consumers of natural gas in India, accounting for 39 percent,

of the total consumption. About 5,500 MW of gas-based power plants

are in operation in the country. Consumption of natural gas in India

h a s been constrained by availability of gas and the limited supply

infrastructure. Even considering the most optimistic supply scenario,

the availability of natural gas from domestic sources is insufficient to

meet the demand, and the need for imports is inevitable.34

• NUCLEAR POWER

Nuclear power generation was started in India in 1969 with the

commissioning of the Tarapur Atomic Power Station M t h assistance

from USA, which h a s the capacity of 2 x 210 MW based on boiling

water reactor (BWR). All subsequent projects in India were based on

the pressurized heavy water reactor (PHWR) technology. The first

such power project was set up in Rajasthan with external assistance

from Ccinada and subsequently these reactors have been fully

indigenized and further developed. At present PHWRs cire in operation

in Kalpakkam near Chennai, Narora in Uttar Pradesh, Kakarpara in

Gujarat, Kaiga in Kamataka. All these are the outcome of entirely

indigenous efforts. The projects in the pipeline are expansion of

Tarapur Power Project by 2x500 MW and establishment of 2,000 MW

capacity at Kudankulam. In the second stage of development of

nuclear power the fast breeder test reactors (FBR) will be developed. A

40 MW (Thermal) fast breeder test reactor is already in operation in

40
the country and further improvements are being carried out. The

Nuclear Power Corporation h a s a massive programme to achieve a

total installed capacity of 20,000 MW of nuclear power by the end of

2020.35

STATUTORY FRAME WORK

The Origin of power development in India commenced by the

end of 19*^ Century with the commissioning of electricity supply hydel

power station at Sivasamudram in Kamataka in 1902.In the company

in Darjeeling during 1897, followed by commissioning of pre-

independent era, the power supply was mainly in the h a n d s of Private

Sector, Mainly in the Urban areas. After restructuring electricity

supply industry with a view to nationalizing it, the Electricity

(Supply) Act was enacted in 1948. With the information of State

Electricity Boards in various parts of the country in the early 50s and

with the advent of the Five Year Plans, a significant step was taken in

bringing about systematic growth of power supply industry all over

the country. A number of multi-purpose projects came into being and

with the setting up of thermal, hydro and nuclear power stations,

power generation started increasing significantly. The growth of the

power sector in the country from 1950 to the end of 2003-2004 h a s

been displayed and discussed in the following pages.

The architects of our Five Year Plans recognized the importance

of electric power in the development process and initiated measures to

streamline its development. In 1948, the Electricity (Supply) Act came

41
into force providing for the administrative and legal frame work for the

organization of power sector. This Act paved the way for the formation

of State Electricity Boards which became responsible for the

development of power generation, transmission and distribution

within the respective states.

UNDER THE PLANS

During the First Plan, a number of major river valley projects

like the Bhakra Nangal, DVC, Hirakund and Chambal Valley were

taken up. The emphasis in the Second Plan was on the basic and

heavy industries and the related need to increase power generation.

During the Third Plan the accent was on extending power supply to

rural areas. The significant developments during this phase were the

emergence of inter-state power grid systems. The country was divided

into five regions, each with a regional board to promote integrated

operation of constituent power systems. Setting up of the Rural

Electrification Corporation to promote extension of power supply to

rural areas, particularly for the energisation of pump sets and

electrification of households was initiated in the early fifties as a

planned programme. The three Annual Plans that followed the Third

Five Year Plan aimed at consolidating the programmes initiated during

the Third Plan. The Fourth Plan (1969-74) envisaged the need for

central participation in strategic locations to enable equitable

distribution and removal of regional imbalances in the supply of

power. This period also saw major structural changes in the price of

42
petroleum and crude which were mostly Imported at that time. The

Fourth Plan period also witnessed power and energy shortages

throughout the country as the Electricity Boards were unable to cope

with the surging demand.36

During the Fifth Plan i.e., 1974-79, the Centre got itself involved

in a big way in the generation and bulk transmission of power to

supplement the efforts at the State level and took upon itself the

responsibility of setting up large power projects to develop the coal

and hydro electric resources in the country as a supplementary effort

in meeting the country's power requirements. The National Thermal

Power Corporation (NTPC) and national Hydro/electric Power

Corporation (NHPC) were set up for these purposes in 1975. North-

Eastem Electric Power Corporation (NEEPCO) was set up in 1976 to

implement the regional power projects in the North-East.^^

The Sixth Plan consolidated the process initiated during the

earlier plans to develop central agencies. The Seventh Plan aimed at

reaping the benefits of the process of re-organisation initiated during

the Fifth and Sixth Plans. Moreover, the first half of the Seventh Plan

h a s seen fresh measures to further increase power availability so as to

achieve a 'no shortage' situation during the Nineties. These include

the formation of a Nuclear Power Corporation. Plans are also framed

for the promotion of power finance to various Companies for power

generation and power utilities.^s

In the Seventh Five Year Plan period, the generation capacity

added was about 21,500 MW, while in the Eighth Plan, it came to only

43
about 15,000MW. During the Eighth Plan period, capacity created in

the country for manufacturing and setting up power plants far

exceeded what was actually achieved.

The main reason was the withdrawal of budgetary support for

power projects in the public domain (State and Central) in the

mistaken expectation that IPPs would come u p with the necessary

investments. A side development that took place was the near

bankrupt situation of some SEBs which forced them to seek World

Bank logins. The Bank insisted on reforms such as "unbundling" or

privatisation of distribution.

The need for these changes h a s certainly not come about from

within the SEBs- they are simply being forced on the Boards by the

World Bank.39

The actual addition to capacity during the Eight Plan period was

only 16423MW, or a little over half the target. This was significantly

lower than the 21402 MW of additional Capacity added in the Seventh

Plan Period.4o

In the normal course, this would have resulted in severe power

shortage. While the power shortages in different parts of the country

remained acute during the Eighth Plan, the power supply position did

not deteriorate to the extent warranted by the capacity shortfall,

because the average PLF of the thermal power plants registered a

significant improvement during the Plan period, for example as

44
against a PLF of 55.3% during 1991-92, the average PLF during the

terminal year of the 8** Five Year Plan was 64.4%.4i

There was a qualitative shift in Power Sector programmes with

an amendment in 1991 enabling entry of private enterprise in the

Power Sector. It would appear that there was a virtual 'gold rush' into

the Power Sector, through the capacity addition that eventually came

was no more t h a n a trickle. The installed-capacity as on March 1997

was 84,912MW (Thermal 61,051MW, hydro 21,636MW and Nuclear,

225MW).

The Ninth Plan (1997-2002) proposed a capacity addition of

40,242MW (Thermal 29,545, hydel 9,820MW and Nuclear 880MW)

with total capacity target set at 125, 157MW by 2000-2002.

45
 TABLE 2.06

GENERATION CAPACITY (TARGETS AND ACTUALS IN MW)

Tenth
Seventh Plan Eighth Plan Ninth Plan
Sources Plan
Total Actual Total Actual Total Actual Proposed
Thermal 15,999 17,093 20,156 13,555 29,545 15,477 25,417

Hydro 5,541 3.827 9,282 2,427 9,820 7,952 14,393

Nuclear 705 470 1,100 440 880 880 1,300

Total 22,245 21,401 30,538 16,422 40,245 24,309 41,110

Central 9,320 9,528 12,838 8,157 11,909 6,714 22,832

Nuclear 1,100 440

State 12,925 11,873 14,870 6,835 10,748 9,893 11,157

Private - - 2,810 1,430 17,858 7,702 7,121

Total 22,245 21,401 30,538 16,862 40,245 24,309 41,110

42

Out of 40,245 MW planned in the Ninth Plan the Private sector is

expected to add 17,588 MW which is 43 percent of the total planned

capacity. This is quite substantial in the background of the Eighth

Plan Performance."^3

The capacity additions in the Indian Power sector are not

expected to meet the targets envisaged by the Government in the

Tenth Five Year Plan (2002-2007). Capacity additions during the

period would be around 28000-29000 MW as against the target of

around 41000MW. The estimates are based on the present status of

major public and private sector power projects across the country,

which suggest that the bulk of the capacity additions by the private

46
sector would be constrained due to issues related to payment security,

assured full supply and transport and high tariffs.

TABLE 2.07

SHARE IN CAPACITY ADDITIONS**

(Tenth Five Year Plan)

Fuel % Share Sector % Share

Coal 39.82 Central 51.99
Hydel 29.07 Private 29.62
Gas/Naptha 24.08 State 18.39
Nuclear 4.44
30/LSHS 2.59

India's present installed power generating capacity is nearly

105,000 MW comprising 71 percent Thermal, 25 percent Hydro and 4

percent Nuclear and non-conventional (wind). The blueprint for power

development u p to 2012 prepared by the Government in Aug. 2001

envisages an overall capacity addition of 107,000 MW during this

period as shown below.

47
 TABLE 2.08

OVERALL CAPACITY ADDITION^s

Tenth Eleventh Total

Plan Plan (In M.W)

Ministry of Power 23000 23500 46500

Ministry of Coal 250 1500 1710
Department of Atomic Energy 1220 5160 6380
Ministry of Non-Conventional 4055 6625 10680
Energy sources

28485 36785 65270

Total Central Sector
8300 10600 18900
Total State Sector
9400 13500 22900
Total Private Sector
46000 61000 107000
Overall Capacity
addition(approx)
Note- The X Plan capacity addition h a s since been scaled down

to 41,110 MW. The importance of the Power Sector to the Indian

Economy can be gauged from the fact that substantial resources have

been earmarked for its development since early fifties. From a mere

Rs.260 crores in the First Five Year Plan allocation to this sector it

went upto Rs. 19,265 crores in the Sixth Plan and then to Rs.34,274

crores in the Seventh Plan. The Eighth Plan requirement itself is

placed anywhere around Rs.50,000 crores. While the Power Sector as

a whole h a s experienced a massive growth during the past four

decades the installed capacity in utilities shot up from 1362 MW in

1947 to 42,440 MW in 1984 -85.46

In 1998 Power the generated was 422 billion units, which

increased to 531 billion units in 2003, marking an increase of 25.8%

48
In 1998, it was 89, 167 MW, while in 2003, it was 107, 973MW. The

investment in Power Sector also increased by 90% from Rs. 1,24,526

crores in the 9^^ Plan to Rs.2,36,625 crores during the lO^h Plan.47

PRESENT NATIONAL POWER SCENARIO

The power sector h a s registered significant progress since the

process of plan development of the economy begcin in 1950. Hydro

power and coal based thermal power have been the miain sources of

generating electricity. Nuclear power development is at slower pace

which was introduced in late sixties. The concept of operating power

systems on a regional basis crossing the political boundaries of States

was introduced in the early sixties. Inspite of the overall development

that h a s taken place, the power supply industry has been under

constant pressure to bridge the gap between supply and demand.

A brief overview of the growth of the power industry, and the

trends in the use of electric power to meet the growing demand is

presented.48 The installed capacity, which was 1700 MW (550 MW of

hydro and 1153 MW of thermal) as on 31 December 1950, h a s grown

to 11 2058.42 MW as on 31 March 2004 consisting of 29 500.23 MW

of hydro, 77 968.53 MW of thermal, and 2720 MW of nuclear, and

1869.66 MW of wind. A capacity addition target of 5202.34 MW

consisting of 3765 MW of hydro and 1437.34 MW of thermal was

envisaged for 2003/04. As against the aforesaid capacity addition

target, the capacity of 3951.62 MW consisting of 2590 MW of hydro

and 1361.62 MW of thermal h a s been achieved up to 31 March 2004.

49
 The transmission and distribution net work h a s also increased

substantially covering every part of the country, growth in

transmission lines from 2708km in 1950 to more than 2,00,000km in

2003. "As against 3061 villages electrified by the end of 1950-51

5,87,000 villages accounting for (88% of total villages in the country

have been electrified, in 2003, the balance to be electrified by 2007. 55

percent households have access to electricity, balance to be covered by

2012.51 The annual per capita consumption increased from mere 15

Kwh in 1950 to 400Kwh in 2003. The number of pump sets energized

increased from a meagre 21000 to over 13 million pumpsets in

2003.52

DEMAND AND SUPPLY POSITION OF ELECTRICITY

The demand for electricity in India h a s been growing year by

year. Every Year the demand of electricity is increasing by 6-8 percent

while production is not increasing in the same ratio. Owing to this

reason the gap between demand and supply is constantly increasing.

To reduce this gap there may be two alternative ways. One is to

generate more electricity, which requires huge investment and second

is to conserve electricity. The generation capacity is around. 1,05,000

MW in 2003.53

India is relatively well endowed with both exhaustible and

renewable energy resources. Coal, oil, and natural gas are the three

primary commercial sources of energy. Over the years, there h a s been

50
a significant change in the pattern of supply and consumption of

energy. The share of commercial fuels in the total energy supply in

India h a s risen from 4 1 % in 1970/71 to approximately 70% in

2003/04, despite the dominance of the traditional fuels in the energy

sector in India. The total domestic primary commercial energy supply

in India h a s risen from 147.05 MTOE (million tonnes of oil equivalent)

in 1970/71 to 248 MTOE in 2003. Table I gives the break up of

primary energy supply for various fuels from 1970 onwards.

TABLE 2.09

PRODUCTION OF PRIMARY ENERGY SOURCES OF

CONVENTIONAL ENERGY IN INDIA

Source 1970/71 1980/81 1990/91 2001/02 2002/03

Coal and
76.34 119.02 228.13 352.60 367.29
Ugnite (MT)
Cude oil (MT) 6.82 10.51 33.02 32.03 33.04
Natural gas
1.45 2.36 18.00 29.71 31.40
(BCM)
Nuclear power
2.42 3.00 6.14 19.48 19.39
(BkWh)
Hydro power
25.25 46.54 71.66 73.70 64.10
(BkWh)
Wind power
0.03 1.97 2.1
(BkWh)
MT - million tonnes; BCM - billion cubic metre; BkWh - billion kilowatt hour
Source MoC (2004a) and CEA (2003)

Despite the increasing share of commercial fuels in the energy

mix, non-commercial fuels still hold importance in the energy

portfolio. More than 60% of the Indian households depend on

traditional sources of energy like fuelwood, dung, and crop residue for

their energy requirements. Out of the total rural energy consumption,

about 65% is met through fuelwood. The energy demand for non-

51
commercial fuels is estimated to rise overiiime from 151.3 MTOE in

2006/07 to 170.25 MTOE in 2011/12. Over the years India has done

well in creating new generating capacities but stiU Indian Power Sector

h a s not become power sufficient. Despite the impressive increase in

the installed power capacity, the electric power supply continues to

remain short of demand. The demand projections made in the 16th

Electric Power Survey conducted by the CEA (Central Electricity

Authority) indicate that over 100 000 MW additional generation

capacity needs to be added by 2012 to bridge the gap. The total energy

shortage during 2 0 0 0 / 0 1 was 39 816 million units amounting to 7.8%

of peak demand and the peak shortage was 10 157 MW translating to

12.6% of the peak demand. The peak shortage during April to J u n e

2004 h a s reduced to 1 1 % (CEA 2003). However, it is a matter of

concern that in spite of the burgeoning demand for power, the annual

per capita consumption of India about 350 kWh is among the lowest

in the world. It is a matter of concern that the annual per capita

consumption of electricity in India is much lower than many other

countries with comparable per capita income as decipted in the table.

The current armual per capita consumption of 502.8 Kwh in India, is

less then 5% of the per capita consumption of power in the U.S.^^

52
 TABLE 2.10
PER CAPITA GDP & ELECTRICITY CONSUMPTION OF
DIFFERENT COUNTRIES^s
Per Capita
Per Capita
Elect.
Country GDP(S) PCEC/PCGDP
Consumption
(PCGDP) (PCEC)
Sri Lanka 3250 319.982 0.098
Guatemala 3700 379.511 0.103
Philippines 3800 465.995 0.123
Indonesia 2900 383.012 0.132
Pakistan 2000 411.851 0.206
Swaziland 4000 831.412 0.208
India 2200 502.848 0.229
Egypt 3600 946.767 0.263
China 3600 955.753 0.265
S5nia 3100 1083.734 0.350
Zimbabwe 2500 923. 516 0.369
Jordan 3500 1418.807 0.405
Iraq 2500 1119.661 0.448
Jamaica 3700 2363.639 0.639
Uzbekistan 2400 1692.148 0.705

Inspite of the significant and impressive strides in the

generation of power the growth of demand surpasses the growth of

generation. The severe electricity shortage started to increase from

1994-95. This is mainly because of heavy Slippage in installed

generated capacity, under Integration of power capacities and T and D

(Transmission and Distribution) Losses.

The Government of India sets up, from time to time, power

survey to draw up a programmed action for India's power sector. The

53
gap between the required and the available electricity was

4,17,788MW in 1999-2000 and the gap is expected to be 6,50,919

MW in 2006-2007. It is pointed out that the estimated gap between

the requirement and availability is quite large.^^

In order to bridge the gap between demand & supply and to

improve the reliability and quality of power supply there h a s been

emphasis on capacity additions.57

INDIAN POWER SECTOR - DEMAND SIDE

PRESENT POSITION

• Installed Capacity - ~ 1,05,000 MW.

• Energy deficit - 7.3%

• Peaking deficit - 12.5%

• With buoyancy in Economy, GDP can grow @ ~ 7% p.a.

• Future demand of power Avill go up by 7 - 8% to keep pace

with the associated industrial growth.

• Capacity addition required by 2012 - ~ 1,00,000 MW.

• In fact, demand may grow at a higher pace because of

change in life style of people and very low per capita

consumption of 375 KWh p.a. (compared to 719 KWh p.a. in

China and 8747 KWh p.a. in USA) may also go up.

• Hence the task of achieving 1,00,000 MW over the 10* and

11th Five Year Plans is the minimum desirable.

54
INDIAN POWER SECTOR - SUPPLY SIDE

• The incremental demand can be partly offset by:

• Decreasing AT & C losses (presently ~ 30%) to say ~ 20%

• Improving PLF (presently 68%) to say ~ 75%

• Owing to low efficiency & resultant high cost of generation,

some plants may close down, in line with the recent

decisions in West Bengal.

• Moreover, some Plants have very low PLF, ~ 20%.

• Closure of such plants will even out the benefits of decrease

in AT & C losses and higher PLF, leaving the demand as it is.

• Hence, incremental generation capacity of ~ 1,00,000 MW

shall be required by year 2012.

• Strategies most suited to meet this huge challenge include:

• Demand being price elastic, steps needed to reduce cost of

power.

' Accelerated growth in generation capacity addition.

• Policy framework needed to:

• Attract investment in addition of generation capacity, and

• To produce cheap power, ss

The Power ministry h a s firmed up an action plan to double the

electricity generation capacity in the country to over 2 lakhs Mw by

the end of the 1 1 * Five Year Plan (2012), Projects aggregating to

1,07,000MW generating capacity had been identified by the ministry

of power for completion during 10^^ and the 11^ Five Year Plans while

55
43000MW additional Power generation capacity has been planned for

the IQth plan 64,000MW target h a s been fixed for the 1 l^h plan.

The central sector was slated to add 21,000MW in the 10^^ Plan

and 27000MW in the 111^ Plan. The State sector will ad 8000MW and

llOOOMW respectively during the 10*^ and 11** plans. The target for

the Private Sector has been fixed at 14000MW and 26000MW

respectively for the 10* and the 11** Plans.59

THE FUTURE

The total primary commercial energy supply in India h a s been

projected to grow at an average rate of 3.2% over the period 2002-25

(Energy Information Administration 2003). These growth rates would

mean a doubling of the energy requirement to reach 709 IVfTOE from

the current level of 325 MTOE by 2030 (lEA 2002). Such a growth in

demand is expected to entail significant investments in the capacities

to produce and deliver these energies. In addition, ensuring stability

in supplies will also be an issue of concern.

56
 TABLE 2.11

SHARE OF FUTURE ENERGY SUPPLY IN INDIA(%)

Year Coal Oil Gas Hydel Nuclear

1997/98 55 35 7 2 1

2001/02 50 32 15 2 1

2006/07 50 32 15 2 1

2010/11 53 30 14 2 1

2024/25 50 25 20 2 3

Source Planing Commission (1999)

Fossil fuels are likely to dominate the energy mix worldwide.

India is also expected to follow the same trend. Tlie share of

alternative fuels in India's energy profile in future is shown in Table

2.11. Though the share of coal is expected to decline from 55% to 50%

in 2025, it still remains the largest energy source in India's energy

matrix. The share of natural gas and nuclear source is also expected

to constitute 20% and 3 % of the energy mix, respectively, in 2025.

As per the available projections, India's oil demand is expected

to grow at a compound rate of 4.2% per a n n u m over the period 2 0 0 2 -

25 to reach about 274 MT (Energy Information Administration 2003).

Assuming a refinery loss of 8%, the refinery output would be 295 MT

in 2025. The current indigenous production falls far short of this

demand and India would be importing about 88% of the total

consumption by 2006/07.

57
 Furthermore, going by the estimated energy demand figures

provided in the Tenth Plan document (Table 2.12), the demand for

coal relative to other fuels continues to be the highest in India, by the

end of the Tenth and Eleventh Plans. The demand for coal is expected

to rise from 460.5 MT in 2 0 0 6 / 0 7 to 620 MT in 2011/12. About 80%

of the demand for coal is expected to come from the power sector,

despite the adverse envirormiental impacts. However, the emerging

new clean coal technologies for power generation have made coal a

more appealing fuel for the future.

TABLE 2,12

ESTIMATED ENERGY DEMAND

Primary Demand in original Demand (MTOE)

fuel 2006/07 2011/12 2006/07 2011/12
Coal (MT) 460.50 620.00 190.00 254.93
Legnite (MT) 57.79 81.54 15.51 22.05
Oil (MT) 134.50 172.47 144.58 185.40
Natural gas
47.45 64.00 42.70 57.60
(BCM)
Hydro power
148.08 215.66 12.73 18.54
(BkWh)
Nuclear
power 23.15 54.74 6.04 14.16
(BkWh)
Wind power
4.00 11.62 0.35 1.00
(BkWh)
Total
commercial - - 411.91 553.68
energy
Non-
commercial - - 151.30 170.25
energy
Total energy
- - 563.21 723.93
demand
Source Planning Commission (2002)

58
STRENGTHS AND WEAKNESS OF THE POWER SECTOR

Strengths of the power sector

Abundant coal reserves (enough to last at least 200 years).

Vast hydroelectric potential (1,50,000 MW)

Large Pool of highly skilled technical personnel.

Impressive power development in absolute terms (comparable
in size to those of Germany and UK).
Expertise in integrated and coordinated planning. (CEA and
Planning Commission)
Emergence of strong and globally comparable control utilities
(NTPC Power grid)
Wide reach of state utilities.

Enabling framework for private investors.

Political consensus on reforms.60

ABUNDANT COAL RESERVES

TTie large coal reserves in the country provide a ready and

economic resource, which ensures energy security. Hence, coal would

continue to be mainstay fuel for power generation till 2012.61

India's coal reserves estimated at 212 billion tones, give a sense of

security not for decades b u t for centuries. Proven reserves alone at 84

billion tones can meet the country's coal requirement for 250 years at

the current rate of production. The world Energy outlook h a s forecast

that Indian demand for energy will remain high and coal alone can

meet this. Thus if coal could be produced at reasonable cost on a

sustainable basis the Indian coal industry can hope to flourish for

decades if not centuries. ^2

59
1. VAST HYDRODELECTRIC POTENTIAL

For the past three decades, hydropower has had a sub optimal

existence, plajring second fiddle to thermal generation. Of the total

installed capacity of a little above 1,00,000 MW only 25 percent is

accounted for by hydro. This is beginning to change. India is to tiet

the current lopsided thermal hydro rate of 75:25 to a more balancedO

40:6063 and add about 25,000 Mw each in the Eleventh and Twelth

Plan Periods. This is over and above the target of adding 14,000 MW

during the Tenth Plan Period. A vast hydro potential exists in the

country which remains largely untapped. According to estimates the

country h a s an exploitable hydro. Potential of 84, 044, MW (at 60

percent load factor) at 845 sites, of which only one-fourth h a s been

exploited so far.

TABLE 2.13
UNTAPPED HYDRO POTENTIAL 64
Potential Share in
No. of at 60 total
River basin
schemes percent
PLF(MW) (%)

Indus 190 19.988 23.8

Brahmaputra 226 34.920 41.5
Ganga 142 10.715 12.8
Central Indian
53 2.740 3.3
rivers
West flowing
rivers of 94 6.149 7.3
southern India.
East flowing
rivers of 140 9532 11.3
southern India.
Total 845 84055 100

60
EMERGENCE OF STRONG AND GLOBALLY COMPARABLE
CENTRAL UTILITIES (NTPC POWER GRID)
Over the last Twenty Five Years. National Thermal Power

Corporation, popularly known as NTPC h a s emerged as one of the

largest power utilities in Asia, known for its speedy project execution

and operational excellence. The 'Navratna' public sector unit, with

19.14% of India's operating capacity, generates 25.83% of the

country's electricity. Year after year, NTPC h a s performed excellently

with achieving all targets set for it by the Government of India. In the

Asia week survey for the year 2001, of the top 1000 companies of the

Asia - Pacific Region (including J a p a n and Australia) NTPC h a s in

terms of sales, stands at 289. And with a plan of becoming a 40,000

MW plus company by the year 2012, requiring an investment of

approx Rs. 1,13,000/- crore, NTPC would be no doubt improving its

ranking year by year. 65 National Grid may be perceived as a mesh

interlinked transmission lines, interconnecting different electrical

regions of Northern, Eastern, Western, Southern and North-Eastem

regions of the country. Power Grid a Central transmission utility was

established in 1989 with the mandate of establishment and operation

of regional and national grids to facilitate transfer of power within and

across the regions with reliability security and economy on sound

commercial principles. In view of this, power grid h a s evolved a

perspective transmission plan for short, medium and long term for

strengthening the regional grids with the ultimate objective of

establishment of national grid in a phased manner. 66

61
LARGE POOL OF HIGHLY SKILLED TECHNICAL PERSONNEL

Based on purchasing power parity India, h a s the second largest

GDP among emerging economics and h a s a rich pool of scientific and

technical manpower with excellent engineering and project

management skills. The huge market potential coupled with the

existing pool of h u m a n resources and the wide variety of resources in

the country make India indeed the destination in the new

millennium. 67

EXPERTISE IN INTEGRATED AND CO-ORDINATED PLANNING

(CEA AND PLANNING COMMISSION)

Commensurate with the fast paced changes taking place in the

power sector in India particularly the setting up of CERC at the centre

and SERCs in the states, a strong need h a s been felt to reorient the

role of Central Electricity Authority from a regulatory to a

developmental agency. The expertise and skills available with CEA are

enhanced and updated, particularly in the areas of benchmarking,

facilitating adoption/adaptation of the best Indian and International

practices and providing consultancy services to various entities in the

power sector. 68

The formation of Central Electricity Authority to supervise the

integrated development of the industry, was set in place of regulatory

framework that covered Investment decisions, setting up of projects,

choice of technology and fuel use; tariff determination and norms for

contracts and quality of supply and servicers

62
ENABLING FRAMEWORK FOR PRIVATE INVESTORS

According to Power ministiy, with the new Electricity Act 2003

in place, the sector was bound to have competition hoping to attract

more investments, especially from the private sector. One of the major

initiatives is allowing open access in power trading. This would not

only bring in investments but also would benefit the consumers.^o

POLITICAL CONSENSUS ON REFORMS

Consensus appeared to emerge on what needs to be done to

make the power sector financially viable. The main elements of power

sector reforms include.

a) Power tariff rationalization through state Electricity Regulatory

commissions.
b) Restructuring State electricity boards.
c) Reforms in the distribution segments by privatising distribution
with competitive benchmarks.
d) Metering of all 11 KV substations and moving towards 100
percent metering of all consumers.
e) Providing access for bulk consumers to producers with suitable
wheeling charges for the transmission and distribution
companies.
f) Encouragement for captive power generation with clearly

formulated policies.'^i

WEAKNESS OF THE SECTOR

The end users of electricity like households, farmers.

Commercial establishments, industries are confronted with frequent

power cuts, both scheduled and unscheduled. Power cuts, erratic

63
voltage and Low or high supply frequency have added to the 'power

woes' of the consumer. The major reasons for inadequate erratic and

unreliable power supply are.

• Inadequate power generator capacity.

• Lack of optimum utilization of the existing generator

capacity.

• Inadequate inter - regional transmission links.

• Inadequate and ageing transmission & distribution work

leading to power cuts and local failures/faults.

• Large scale theft and skewed tariff structure.

• Slow pace of rural electrification.

• Inefficient use of electricity by the end consumer.

• lack of grid discipline.''^

INADEQUATE POWER GENERATOR CAPACITY

On account of inadequate generator capacity, the country is

plagued by power shortages. In the 9^ plan actual capacity addition

fell short. As against the target capacity addition 40245 M.W, the

actual addition was only. 19015 M.W (47%). Private sector achieved a

dismal 29% of its target (le.) 5061 M.W against a planned 17589

M.W. 73

The total energy shortage, during 2000-01 was 39,816 million

units amounting to 7, 8 percent and the peak shortage was 10,137

M.W translating to 13 percent of peak demand. Based on the demand

projections made in the 16* Electric Power survey, over 1,00,000 M.W

64
additional generator capacity needs to be added by 2012 to bridge the

gap between demand and supply of power. ^^ To increase the power

generator capacity the Government of India has taken a

comprehensive and realistic review of the power project to prioritise

those which can be commissioned in the 10* and 11*^ plans joining

and fixing a tentative capacity addition target of 46,500 M.W for

central public sector undertakings under Ministry of power and

41,800 M.W for S.E.B.S/State utilities and private sector.^s

Speed breakers to capacity additions

Huge investment, lack of budgetary support and dearth of fund

in the State/Central Sectors, inordinate delay in acquiring statutory

clearances, procedural delays in land acquisition, contractual failures,

inadequate private sector participation, uneven distribution of coal

and hydel resources within the country, inadequacy of transport

infrastructure in coal, lack of long transmission basis and inadequate

transmission infrastructure are some of the factors retarding the

growth of the energy sector. The growth h a s been further retarded due

to poor financial health of State Electricity Board because of high

transmission losses , force power, theft of power. ^6

65
LACK OF OPTIMUM UTILIZATION OF THE EXISTING
GENERATION CAPACITY

Strategies have been formulated to augment power supply in

short/medium run. These are:

• Increased generation through Renovation and Modernisation

(R & M) of old stations.

• Utilisation of the surplus capacity of the captive power plants

into the grid.

• Demand Side Management (DSM) to flatten the demand

curves (introducing time of day tariffs and metering).

Introduction of a new system of matching time and load profiles for

different zones in the country

Energy Conservation (The Ministry) is piloting the Energy

Conservation Bill, Which, when enacted, will provide necessary legal

framework for promoting conservation and efficiency).

• Evacuation of power from the power surplus eastern

region. 77

INADEQUATE INTER - REGIONAL TRANSMISSION LINKS.

Inadequate investments in transmission to distribution

infrastructure have resulted in power evacuation constrains from the

generating stations. The problem h a s been severe in the eastern

region. 78

In eastern India it is below 250 ICWHr. Yet for the last few years

an erroneous conclusion h a s emerged that the eastern region h a s

66
registered power surplus. In all the three states namely Bihar, Orissa,

and West Bengal, the distribution network is so weak that power is

not reaching various consumption centres. Proper management of

distribution will require substantial investments in sub-transmission

and distribution networks.''s Priority h a s to be given for transmission

of surplus power from the eastern region to other power deficit

regions. The total installed capacity in the eastern region is of the

order of 15.000MW, whereas the peak load is around 6500-7500 MW

and off - peak load 4000 - 4500 MW in 2003.

A number of schemes have been completed on priority basis to

facilitate power transfer from the surplus eastern region to other

deficit regions. These include lines. Korla - Budhipadar, Balimea -

Upper Silem, Bopara - Salakati, Dehri, Mughalasam, Bonyargoan -

Malda, Sasaram - Samath - Allahabad and Jaipore - Gayamaka

HVDC Bipole.

Keeping in view the (envisaged) generation addition programme,

the capacity of inter-regional lines by the end of the 11th plan would

be about 30,000 MW. It is estimated that for building over 1,00,000

M.W of additional power capacity and associated transmission and

distribution infrastructure, an investment of Rs.8,00,000/- Crores

would be needed in the next decade.^o

67
INADEQUATE AND AGEING SUB TRANSMISSION AND
DISTRIBUTION NETWORK LEADING TO POWER CUTS AND LOCAL
FAILURES/FAULTS

Quite often the non-availability of sufficient power leads to the

problems of power supply as witnessed through supply disruption,

and poor voltages. A deeper analysis would establish that in a large

number of cases the problem is attributable to technical inadequacies

of the sub-transmission and distribution system. As far as the

problems of poor voltages are concerned, in most cases, the

distribution management h a s suffered from inadequate provision of

capacitors.

Installation of capacitors at the consumers' installation

In respect of agricultural services, the PF is as low as 0.5 to 0.6

and capacitor banks should be installed at the customer's terminals

depending on the motor ratings. Though there were instructions to

this effect, it is not being implemented. This should be accorded top

priority as it will have positive effect on low voltages, line losses and

burning of motors and transformers.^i

LARGE SCALE THEFT AND SKEWED TARIFF STRUCTURE

One of the main problems is energy theft, directly and Indirectly

leading to deteriorating performance of power utilities. Most of the

utilities are facing commercial losses which have to be tackled on

priority basis.82 Between 40 to 50 percent of the electricity supply in

India is either lost or stolen. ^3 Normally any customer may not opt for

theft of energy particularly in domestic and agricultural power

68
services. After regularization of unauthorized services during 1996-

97, this menace h a s started, as the Government is there to regularize

such improper actions of theft of energy.

The officers and staff who also know such cases did not take

initiative to catch such activities, instead they availed themselves of

the opportunity for gain.^* Controlling theft/Pilferage of power

effectively is therefore, not going to be easy for the SEB's. Unless the

State Governments ignore all political pressure and send strong

warnings/signals and against the consumers and the abettors of these

unholy alliances, this menace cannot be controlled effectively and the

financial viability of the power supply companies/SEB's cannot

improve. 85

Transmission and distribution loss

Electricity Boards have been compiling data on consumption by

various sectors as well as on distribution losses. The Planning

Commission [Government of India] have also been publishing an

Annual Report on the working of the Electricity Boards giving

statewise details of distribution losses.

Most of the States with large T and D losses are in the northern

and northeastern region. These regions accounted for over 29 percent

of the total T and D losses in the country. The Western states had the

lowest T and D losses, averaging less t h a n 20 percent, southern

states, which had a low loss level, recorded a n average loss of over 23

69
percent in 1996-97. Among the States, Orissa topped the list with

losses at 50 percent of generation during 1996-97.

J a m m u and Kashmir and Delhi followed closely with losses

slightly lower t h a n 50 percent. Losses in Haiyana, Andhra Pradesh,

Tripura, Arunachal Pradesh and Mizoram crossed 30 percent.

Rajasthan, Uttar Pradesh, Assam and Nagaland had losses averaging

25 percent. Maharashtra and Tamilnadu had the lowest T and D

losses during 1996-97 at 17 percent.^e in some of the states detailed

checks were underiiaken to determine what the real distribution loss

was? It was found out that in most cases rural consumption including

agricultural consumption was non metered, the electricity

consumption in this category was being estimated, on an excessively

high side and the figures of distribution loss for the whole state were

in fact the derived figures on the lower side. ^7

It is therefore for regulators of electricity boards to initiate

appropriate steps to determine the technical and commercial losses

and to insist on metering of agricultural power. A reduction in T & D

losses even by a few percentage point can bring considerable

improvement in the financial position of SEB's.^s Lack of financial

resources to develop the constructive infrastructure for distribution

system, and technological drawbacks are other factors behind the

high T and D losses. Further in a very organized manner electricity is

pilfered by large consumers in industries and high income residential

and commercial groups.^^

70
100 percent metering and management information system for
reduction of t & d losses

Huge T & D losses are a major drain on the revenue stream,

affecting the financial health of the SEB's. In order to reduce T & D

losses, the following measures have been initiated:-

• Static meters on all 11 KV outgoing feeders and HT

consumers have been installed in most of the states.

• In the next phase of the programme, meters, will be installed

in all the distribution transformers and thereafter on the

premises of the consumers. With this, it will be possible to

realize the concept of "cost and profit centre".

• Other measures include (a) installation of capacitors at all

levels,

(b) re-configuration of feeder lines and distribution transforms in

such a way as to reduce the length of low tension (LT) lines, (c)

installation of small size energy efficient distribution transformers,

(d) re-conducting of over-loaded sections, (e) development of digital

mapping of the entire distribution system, and (f) load flow studies

so that investment can be undertaken for long-term strengthening

of the distribution system.

* An effective management information system (MIS) will also be put in

place to ensure effective flow of information in order to facilitate quick

decision-making and improve the operation and management of the

distribution systemt.^o

71
 Setting Tariffs is the key function of the State Electricity

Regulatory Commissions. Under the provisions of the Electricity

Regulatory Commission Act 1998 (ERC Act) and under the State

Electricity Reforms Acts (the State Acts), the SERCs have been given

responsibility of fixation of tariffs for (a) Transmission; and (b) Tariff

for wholesale, bulk, grid and retail supply of electricity within the

State. The determination of tariff in most of the cases is annual

exercise based on annual revenue requirement filed by the licensee as

per Sixth Schedule of Electricity (Supply) act 1948. The tariff setting

procedure is elaborate and requires time and efforts both on the part

of the Licensee and the Regulators.

Cost recovery concept

The prime regulatory mandate of a regulatory authority is to

make sure that, by controlling the level and structure of prices (tariffs)

the utility recovers all costs that are prudently incurred and earn a

fair rate of return on investment. The RoR regulation is cost-plus

pricing approach and the provisions of the sixth schedule of ES Act

have been structured on this premise. RoR regulation attemipts to

prevent the utility from capturing monopoly profits while ensuring the

recovery of cost and reasonable return on investment. 9 ^

Skewed tariff structure

TTie gap between average cost incurred by the State Electricity

boards (SEBs)/State utilities to supply one unit of electricity to the

retail consumer and the average tariff realized is continuously

72
increasing. The Planning Commission, in its latest report on the

working of SEBs, states that the gap during 2000-01 h a s soared to 92

paise per unit and commercial losses of SEBs are of the order of

Rs.26,000/- Crores. Owing to poor financial health, SEBs/State

utilities are not in a position to make full payments to Central power

utilities for purchase of bulk power. This poor financial health of

SEBs/State utilities h a s become a major roadblock to the growth of

the power sector in India. Therefore, to realize the goal set by the

Ministry of Power to double the country's installed capacity by 2012, it

is imiperative to bridge the gap between the cost of supply and retail

tariff of electricity. This gap can obviously be reduced by a multi-

pronged approach consisting of:

• Reduction of transmission & distribution losses;

• Rationalization of retail tariff;

• Reduction of the cost of generation.

73
 TABLE 2.14

COST OF SUPPLY AND RETAIL TABUFF 92

Average cost Average tariff Gap

Year
(Paise/unit) (Paise/unit) (Paise/ Unit)

1995 - 1996 179.6 139.0 40.6

1996 - 1997 215.6 165.3 50.3

1997 - 1998 239.7 180.3 59.4

1998 - 1999 262.5 185.5 77.0

1999-2000 283.6 199.0 84.6

2000-2001 303.8 212.0 91.8

Frequent revisions in the tariffs will not provide long term stable

income to investors, industrialists and farmers etc. Revision of tariff

every year is politically unpopular. Multiyear Tariff can be set by

intelligent combination of RoR and PBR method.93

SLOW PACE OF RURAL ELECTRIFICATION

The Pace of rural electrification in the VIII and IX plans h a s

been declared. Nearly 80,000 villages are to be electrified. Only 31

percent rural and 45 percent urban households have been covered so

far. 94 40 Crore people are not having access to electricity.95

Many pockets of the country do not have access to electricity.

All villages are to be electrified by 2007, and all households by 2012.

Village electrification h a s been included in the Prime Minister's

Gramodaya Yojana. Additional Central assistance of Rs.412 crore was

released during 2003.

74
 For villages and hamlets electrification at 3 percent, and tribal

and Dalit 'bastis' electrification at one percent, which will be waived

off on successful project implementation; States have been allowed to

access 'Rural Infrastructure Development Fund; ' Accelerated Rural

Electrification Programraie' for Tenth Plan with 4 percent interest

subsidy Rs.594 Crore have been provided for the Tenth Plan.

Allocation h a s been enhanced from Rs.l75 crore to Rs.600 crore

under Minimum Needs Programme' Implementation of 'Kutir Jyoti'

programme h a s been intensified - Budget provision of Rs. 100 crore

(for about 5,66,000 single point connections).96

INEFFICIENT USE OF ELECTRICITY BY THE END CONSUMER

The availability of power h a s a vital role in the developmient of

our nation. There is an urgent need to improve the efficiency from

generating point to consumer end to reduce wastage of energy. It is

also necessary to give attention for conservation of energy at all levels.

Electrical energy is very precious and any wastage of it will not

only be a social crime but, also we become answerable to the next

generation. Therefore the Government of India h a s introduced the

Energy Conservation Act 2001, March 1, 2002 to ensure efficient use

of energy. If the energy conservation efforts are not adopted by

everybody in our life then mandatory steps may not be far away.

Conservation means reduction in energy consumption without

making any sacrifice of quantity or quality. It is not very difficult to

75
save energy; only some awareness and little efforts are required.

Energy saving m u s t be a part of our routine life. This Avill help the

people to think over adequate rating of equipments, elimination of

excessive use of equipments, using high efficiency items and change of

our habits which lead to enormous wastage of energy.

To deteraiine the pattern of energy conservation and identifying

areas of possible saving, a separate exercise is required called 'Energy

Audit'. Its implementation can improve the plant efficiency and

thereby reduces the energy wastages.9^

ENERGY ACCOUNTING - NEED AND OBJECTIVES

Energy accounting involves preparation of energy accounts of

the energy flow to various segments of sub-transmission and

distribution system and supply to various categories of consumers

and how it h a s been consumed out of total available quantum over a

specified period. ^^

The benefits of Energy Audit and Accounting are inter-related

and the outcome of a study shall form the basis for detailed and

complete evaluation of the system, which is the need of the hour.^^

Adopting of optimal techniques for operation and maintenance

of distribution system in any SEE/Electricity provider utility is of

paramount importance. The utility has to ensure that reliable, quality

power at proper voltage level is made available to the consumer

uninterruptedly throughout the year, loo

76
 Various innovative and modem techniques have been evolved

under the ambit of modem management for keeping the distribution

system techno-economically operative. Pre-paid digital automatic

metering system is the need of present day's intelligent meter reading

concept. The hi-tech operations on one hand would arrest large-scale

pilferage of power at one hand and also save enormous expenses

incurred on account of meter reading, biil preparation, bill

distribution and bill collection on other hand. Adoption of hi-tech

innovative ideas will allow better cash flow for SEBs, as the consumer

will pay in advance vis-a-vis consumer pays in present billing system

after 70 to 100 days of supply of power by utility. As per famous

dictum - "Prevention is better than cure", should be all time

endeavour for electric service provider to give the best attention to his

consumer as consumer's satisfaction should be the ultimate motto of

electric utility, ^o^

SOME MYTHS AND REALITIES

Over the last 50 years the Indian Power Sector h a s lived with

certain beliefs, many of which are gradually getting disproved and it is

therefore important to distinguish between these perceptions and

realities.

MOST OF THE FINANCIAL PROBLEMS OF THE SEBS ARE DUE TO

SUBSIDY

With about Rs. 14,000/- Crores of annual loss, the Indian Power

Sector is facing a serious financial problem. The country needs US

77
$252 Billion in the next decade to meet the shortfall in the power

sector. The country h a s to add more t h a n 100 GW during the lO^h and

11th Plans (until 2012). To achieve this target, Rs. 11,000/- billion is

needed. But the resources available will be only about a third of this

amount. The poor financial health of state electricity boards and

inadequate private sector investment in the power sector are largely

responsible for the inability to meet the targets of India's total

generation capacity of 90,142 MW, nccirly fifty percent is lost in

transmission, distribution and theft, ^os

Growing deficits of SEBs

Subsidy is given by a Government to prices at desired level. It

affects its performance by resulting in an unrealiable and poor quality

of electricity. The skewed tariff structure, with low tariff for agriculture

contributed to an increasing gap between the average cost of supply

and average realization by SEBs. In 1974-75 the average cost was

22.52 paise per unit, average realization including agriculture 18.82

paise and the gap 3.70 paise. In 1990-91, the average cost was 112.32

paise per unit and the average realization 86.84 paise, leaving a gap of

25.48 paise to be met either by subvention from the State surplus

from other sectors.

By 1998-99, the cost had risen to 236.52 paise, average

realization to 198.96 paise and the gap to 37.56 paise per unit. The

continually increasing gap had its impact on the financial position of

the system. In 1991-92 the gross subsidy involved in sale of electricity

by all SEBs put together was placed at Rs.7,449 Crores [Agriculture

78
Rs.5,938 Crore, domestic consumers Rs. 1,310 Crores and inter-State

sales Rs.201 Crore]. But the subventions received from State

Governments was only Rs.2,045 Crores and the surplus generated by

sale to other sectors Rs.2,173 Crores, creating an uncovered subsidy

of Rs.3,231 Crores. The commercial losses were placed at Rs.4,117

Crores.

Between 1991-92 and 2000-01 gross subsidy involved in

electricity sales increased from Rs.7,449 Crores to Rs.39,962 Crores

with Agriculture's share increasing from Rs.5,938 Crores to Rs.28,217

Crores. The subventions from State Governments rose from Rs.2,045

Crores to Rs.5,562 Crores and surplus from other sectors from

Rs.2,173 Crores to Rs.6,901 Crores with uncovered subsidy

increasing from Rs.3,234 Crores to Rs.25,497 Crores. The commercial

losses of the State Power Sector increased form Rs.4,117 Crores to

Rs.22,346 Crores in the same period.

There is a political dimension to the continuing indifference to

this critical element crippling the power sector. Initially the result of

vote bank policies, power tariff differences did come up for review by a

subcommittee of national development council with Chief Ministers

participating in the discussion as early as 1991. Though a minimum

tariff of 50 paise for agricultural suppliers was recommended this h a s

not materialized and one still hears of free power supply promises by

political parties. 104

79
RESULTS OF SUBSIDY
A hefty subsidy on supplying power free to agriculture, and a

section of domestic consumers, contributed a heavy Einnual loss to

SEBs. Naturally this practice results in levying a hefty tariff on other

segments notably industry. The high price complied with poor quality

of supply h a s prompted a number of industries to establish a captive

power plant resulting in a deteriorating consumer mix for the SEBs.

While cross subsidy may have served a useful purpose initially in

terms of social objectives, it is beyond doubt that these have now

become counter productive, ^os

For ages. States have made people believe that power is for

asking. Free supply of power to the farmers and subsidized supplies to

different industries have meant that energy efficiency is at a discount.

Farmers take pride in installing larger and larger pumps, many of

them with poor levels of efficiency. As they do not have to pay for the

electricity, the input-output ratio of the pumps hardly mattered. In

turn this h a s also led to excessive u s of water and consequent

Increase in salination as is veiy clearly brought out in recent surveys

of Punjab. 106

STEPS TO REVIVE
A Government committee recommended that half the dues be

written off. While the other half settled by way of an issue of interest

bearing bonds by the SEBs to the power companies, ^o^

All consumers should pay for usage, particularly in the minds of

agriculturists since power h a s been free for them and they have

80
become used to this. But how much to pay is a matter that should be

determined after careful analysis of costs and the consumer's capacity

to pay. The problem with subsidies in India is not their mere existence

b u t how they are administered. The process is opaque and allows the

utilities to sweep other inefficiencies with the subsidy bucket. In the

current system, it is impossible to know each consumer's contribution

to cost. The new regime ought to focus on measures to improve data

availability and accounting Just to understand the system and then

design rates and subsidies accordingly, los

The next stage is addressing the people and making them

understand the concept of paid electricity, they have to be mentally

prepared to accept certain tariffs. It is the time to plan and to get

prepared for some major changes in the organizational set up of the

electricity sector.

Only direct subsidies where farmers are issued electricity

coupons through banking channels can work. The Electricity Act,

2003 seeks to provide a legal frcimework for enabling reforms and

restructuring of the power sector. Many of the State Governments

have undertaken crucial reforms and signed MOUs with the Centre to

access funds under the Accelerated Power Development and Reform

Programme. They are t h u s committed to restructuring their State

Electricity Boards. i09

In 2002-03, small farmers were compensated to full extent by

the Government for their power bills. A transparent system of sending

81
the amounts by money orders contributed to the prevention of

leakages. Over 90 percent of the small farmers expressed their

satisfaction over the arrangement and promptly paid the bills raised

on them at the modest rate of 11 paise per unit.

A reform agenda in which fanners are supplied the cheapest

power, from hydro-generation, the households and small consumers

are to be charged a higher level than the farmers and the low tension

and high tension industries get the higher cost bulk supplies from

large power houses.

Thus in the interest of consumers at large and for the long term

growth cind sustenance of the electricity sector, all such actions as

necessary need to be taken no matter these actions, may appear in

short term against the interest of SEBs.ii^

The subsidies should be means to provide power to the needy

consumers who cannot afford the real price. In fact, subsidies are

seldom need-based and are awarded in an ad-hoc manner as a

populist election stunt. Agricultural subsidy h a s always been a sore

point., Though agricultural consumers constitute a third of the total

consumers, they contribute only 2.5% of revenue realization. As a

result, other consumers especially industry pay very high prices which

affect the competitiveness of their products.

Low tariffs for agriculture, like un-metered supply, result in

excessive and wasteful consumption and consumption for

unauthorized uses. Agriculture is the major finance footing for India

b u t it depends mostly on rain. Although Government h a s subsidized

82
power still a lot of work h a s to be done since providing subsidization is

not a permanent long term solution. The subsidies eventually come

from the tax payers ultimately resulting in inflation. If power is made

affordable to all sections of people the subsidy can be withdrawn.

Commercial profit/loss of SEBs with subsidy and without subsidy in

tables below:
TABLE 2.15

COMMERCIAL PROFIT/LOSS (MILLION RUPEES) FOR STATE

ELECTRICITYfBOARDS [WITH SUBJ5IDY): 1997/<98 TO 2001 /02.
S.E.Bs 1997/98 1998/99 1999/2000 2000/01 2001/02
Andhra -13760 -1300 -530 -9320 -11940
Pradesh
Assam -4390 -3220 -2140 -3790 -3700
Bihar -4950 -6050 -5110 -6700 -7530
Delhi (DVB) -7600 -10380 -11030 -10550 -10920
Gujarat 1190 -3660 -25010 -26040 -21350
Haiyana -320 -3400 -8350 -15480 -15370
H.P. -330 -880 -2060 -920 -480
J&K -6610 -8340 -7930 -9900 -11410
Kamataka 580 670 760 760 860
Kerala -1990 -2050 -1810 -3480 -4450
MP -8120 -25340 -27180 -28000 -31830
Maharashtra 2950 5150 6050 -14040 -35270
Meghalaya -170 -410 -430 -3400 -380
Orissa -3860 -5380 -1870 -2120 -2300
Punjab -9430 -13540 -17090 -14770 -16330
Rajasthan 650 -1340 -1330 6150 -24120
Tamil Nadu 2740 3350 -11920 -11970 -22600
U.P.PCL -18530 -18530 -25960 -17340 -18870
West Bengal -4020 -10400 -7930 -10090 -10360
Total -75980 -105090 -150880 -177940 -248370
Source: Planning Commission 2 0 0 2

83
 TABLE 2.16

COMMERCIAL PROFIT/LOSS (MILLION RUPEES) FOR STATE

ELECTRICITY BOARDS (WITHOUT SUBSIDY): 1997-98 TO
2001-2002111

S.E.Bs 97-98 98-99 99/00 00/01 01/02

APSEBAPTRANSCO -13760 -26790 -31170 -25590 ' -28200
Assam -4390 -3220 -2140 -3790 -3700
Bihar -4950 -6050 -5110 -6700 -7530
Delhi (DVB) -7600 -10390 -11030 -10550 -10920
Gujarat -13640 -20390 -37780 -39200 -34910
Haryana -7650 -7040 -12470 -19600 -19490
H.P. -330 -880 -2060 -920 -480
J&K -6610 -8350 -7930 -9900 -11410
Kamataka -3220 -8470 9750 -16750 -23400
Kerala -1990 -4110 -6460 -11290 -13540
MP -10580 -26550 -31510 -32640 -36820
Maharashtra -110 1600 -14790 -14040 -35270
Meghalaya -260 -500 -530 -440 -490
OSEB / GRIDCO -3920 -5380 -1870 -2160 -2300
Punjab -9430 -13540 -21130 -14770 -16330
Rajasthan
6400 -13310 -18990 6150 -24120
(TRANSCO)
Tamil Nadu 2960 -7410 -14420 -14470 -25100
U.P.(Power Corp.) -36920 -36920 -25960 -25340 -26870
WBSEB -4920 -10890 -8420 -10590 -10860
Total -139630 -208600 -263530 -252590 -331770
Source : Plamiing Commission 2002

84
REGULATORY FRAMEWORK WILL ENSURE ACHIEVEMENT OF

THE OBJECTIVE

A major area of the power sector report is the restructuring of

the legal framework which was set by the India Electricity Act of 1910

and the Electricity [Supply] Act of 1948. Some major changes were

brought about by the Amending Act 50 of 1991 the Electricity

Regulatory Commission Act of 1998 and the Central Electricity

Regulatory Commissions [Conduct of Business] Regulation, 1999

obviously under the impression that the deregulation of the industry,

incentives for independent power producers and autonomous tariff

fixation mechanism are not adequate. The Ministry of Power has

embarked upon a n exercise of casting or replacing the entire

regulatory framework with a new bill.

The Electricity Bill 2003, seeks to replace the Indian Electricity

Act, 1910, the Electricity [Supply] Act, 1948 and Electricity Regulation

Commissions Act of 1998 and make generation free from licensing,

provide for mandatory regulatory commissions in sill States, redefine

the role of the Central Electricity Authority, reorganize State

Electricity Boards, progressively reduce cross subsidization, ensure

100% metepng of supplies and provide for stringent penalties against

theft. 112

85
ELECTRICITY ACT - 2 0 0 3

The Electricity Act 2003 seeks to bring about a qualitative

transformation of the electricity sector through a new paradigm. The

Electricity Bill was passed by Lok Sabha on 9^^ April, 2003 and by

Rajya Sabha on 5 * May, 2003 and the Electricity Act came into effect

form 2003. This seeks to create a liberal framework of development of

the power sector by distancing Government from regulation.

It replaces the three existing legislations, namely Indian Electricity

Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity

Regulatory Commissions Act, 1998.

The Electricity Act, 2003 h a s the following declared objectives

of:-

1. Consolidating the laws relating to generation, transmission,

distributing, trading and use of electricity.

2. Developing the electricity industry ensuring:-

a) The promotion of competition

b) Protection of consumer interests

c) Supply to all areas

d) Rationalisation of tariff

e) Transparency of subsidy policies

f) Promotion of efficient and environmentally benign

policies.

3. Establishing a new institutional framework of regulatory

agencies like the Central Electricity Authority, National and

State Power Regulatory Commissions and Appellate Tribunals.

86
 4. integrating technical infrastructure like the Central and State

Transmission utilities and the National and RegionEil load

dispatch centers. ^ ^^

Broadly the following are the salient changes proposed in the power

sector.

• Generation additions require no licensing or techno economic

clearances.

• Multiple entities may be set up for distribution or

transmission businesses.

• Regional trade between distribution companies and

generators is encouraged through open access (use of the

transmission system) and awarding of trade business to third

parties.

• Captive (user-owned) generation is especially encouraged by

broadening the deposition of captive to include remotely

owned units and according a right to open access for use of

these remote units.

• Regulatory Commissions (particularly the CERC) have an

extended role beyond rate setting to include licensing, open

access and market development.

• Institutions will be created to regulate the commissions

including State Selection Committees and an Appellate

Tribunal whose staffing powers reside with the relevant

Governments.

87
 • Explicit directives have been given to eliminate cross-

subsidies, reduce theft and encourage rate setting based on

commercial principles.

• Private sector involvement is encouraged mostly in the

generation and distribution sectors (and less in

transmission) because they eventually can evolve into sellers

and buyers in a competitive market. ^ ^^

The Indian Electricity Industry, a little over hundred years old, has

so far seen four distinct phases, namely:-

1. 1900 - 1948 marked by the emergence of the private electricity

supply companies.

2. 1948 - 1975, the hegemony of State Electricity Boards. The

thrust towards the public sector, in the first two decades after

independence resulted in the establishment of State Electricity

Boards [SEBs] under the Electricity [Supply] Act, 1948. SEBs

were vertically integrated utilities with a commitment to enlarge

the customer base for electric power, particularly in the rural

areas. SEBs functioned well during the period. However, by the

late 1970s, SEBs were not able to generate the required power

to fulfil the growing investment needs of the sector. Direct

investment in generation and transmission, by the Central

Government was the solution to this problem.

3. 1975 - 1990, entry of the Central Public Enterprises. The latter

half of the 1970s and the early part of the 1980s saw the

creation of generation companies like NTPC and NHPC owned by

88
 the Central Government. In 1989, the transmission assets of the

NTPC were transferred to a new Central Government owned

company, known as Power Grid which is entrusted Avith the

task of developing the regional cind national grid. While the

central Government had managed to retain remunerative tariffs

on its companies, the States were not able to mirror this while

imposing retail tariffs. Electric power supply was perceived

almost as a public commodity. Several States supplied free

power to farmers. Most States did not meter small consumers

or control the ever-mounting transmission and distribution

losses. The growing fiscal burden of subsidies and the

constrained budgetary resources set the scene for dilution of

public investment and growth model.

4. 1991 - 2002. The Reform Era emphasizing the restructuring of

the financially debilitated and operationally faltering industry.

The Government identified private investment and management

as being necessary Partners for sustainable and efficient growth

of the power sector. ^ is

5. The Electricity Act, 2003 is a landmark in the history of power

generation in India unveiling the contours of a power policy that

is likely to change the face of the Indian Power Sector, with

significant impact on all state holder groups. An initial element

of the Act is the proposed introduction of open access to

transmission and distribution infrastructure, which would

89
 effectively bring about a competition between private and public

companies on the wholesale as well as retail markets. ^^^

6. The emerging scenario is where select consumer groups (large

and industrial) can choose their supplier, existing power

distribution utilities must understand the changing equations

and quickly adapt to the new business rules that a competitive

environment dictates. This would also signal a shift from a

continuous generation to a customer orientation.

Customers - the key to success

The Open Access System introduced by the Electricity Act 2003

will allow independent power producers (generating stations) to sell

electricity to large industrial customers through non-mandatory

access to the existing transmission and distribution system. The

customer becomes the centre of attraction for all the players.

Customers become contestable and would be attracted by tariff

packages arid responsive services. Attracting and retaining profitable

customers would spell survival and success for the distribution

utilities. N.K.Singh, Member, Planning Commission described the

sector by process of deregulating distribution. More private players are

applying to become power Electricity Act, 2003 as a watershed for

power sector reforms in India. There h a s been a fundamental progress

model in reforming power generators which is a testimony to the fact

that there have been significant reforms at he distribution level. ^^^

90
Distribution

The Act of 2003 opens up the distribution sub-sector for

competition, since Sec. 14 enables the grant of license to two or more

parties for distribution in the same area through their own

distribution systems subject to certain conditions regarding capital

adequacy. Credit-worthiness or code of conduct may be prescribed by

the Central Government. The new Act laid down the various

considerations that should guide the determination of tariff for supply

of electricity by a generating station to a distribution licensee,

transmission of electricity and wheeling charges where transmission

facilities are used by another person for conveyance of electricity and

retail sale.^^^

Buyer side of generation market

Under the new paradigm, distribution licensees purchase energy

directly from the generators based on their needs, without clearances

or planning requirements. These are seen as superfluous because

competitive bidding would allow market forces to determine the choice

of the cheapest alternatives. There is a large gap between the planning

and the market paradigms. The market paradigm requires that

distribution companies have the responsibility and financial incentive

to purchase energy at low cost for their customers. Unfortunately

neither condition holds. Distribution companies buy energy from State

utilities and pass through their purchase costs to consumers. Under

the Act, they have more autonomy in purchase decisions including the

91
ability to trade b u t they still do not have the incentives for least cost

planning as long as their energy costs are a regulated pass-through.

This will change only when they participate in a full fledged wholesale

market for energy. Resource planning is the only way to discipline

buyers' purchasing behaviour. ^19

Subsidies

The Act and the draft NTP have an explicit policy goal to

eliminate cross subsidies. This means that consumers should pay

what it costs to serve them. The primary tcirget is farmers who pay

either little or nothing for their power. The goal is to make the utilities

financially viable. However it is a well propounded fallacy that this

requires subsidies to be completely removed. The utilities' financial ills

also result from technical losses, poor collection, corruption and

operational inefficiencies. The utilities can become financially viable

without making power unaffordable. All consumers should pay for

usage, but how much is a mater that should be determined by the

regulator after a careful analysis of costs and the consumers' capacity

to pay. 120

Tariff

The Appropriate Commission shall specify the terms and

conditions for the determination of tariff and in doing so, shall be

guided by the following:-

92
 a) The principles and methodologies specified by the Central

Commission for determination of the tariff applicable to

generating companies and transmission licenses.

b) The generation, transmission, distribution and supply of

electricity Eire carried out on comimercial principles.

c) The factors, which would encourage competition, efficiency,

economical use of the resources, good performance and

optimum investments.

d) SafegUcirding of consumer's interest and at the same time,

recovery of the cost of electricity in a reasonable manner.

e) The principles rewarding efficiency in performance

f) Multi year tariff principles

g) That the tariff progressively reflects the cost of supply of

electricity and also eliminates cross-subsidies within the period

to be specified by the appropriate commission.

h) The promotion of co-generation and generation of electricity

from renewable sources of energy,

i) The National Electricity Policy and Tariff Policy. 120

Licensing

By far the more significant changes brought about are the area

of licensing. Generation is thrown open while transmission,

distribution and trading will be subject to licensing. As per Sec.7 any

generating company may establish and operate a generating station

without obtaining a license subject to compliance with technical

93
standards of connectivity with the grid. Sec. 14 and 15 stipulate

licensing for transmission, distribution, and trading of electricity.

While a generating company may supply electricity to any licensee or

consumer, a distribution license does not require a license for trading.

The vital areas of choice of technology, fuel mix and plant size which

have economic and ecological implications may not be subjected to

pre-investment scrutiny. A multi-fuel resource scarce economy like

India should have the benefit of appraisal of projects as hydrocarbons

which are the main source of power are depleting assets of the nation

and optimum utilization of scarce resources should have higher

priority than a free market for investors. ^21

Market reform

Amendments to the Indian Electricity Act, 1910, made in 1998

have established the Central Transmission Utility (CTU) at the Center

and the State Transmission Utility (STU) in the States. Any company,

owned by the government, can be the CTU which is charged with the

responsibility of undertaking inter-state transmission of energy,

discharging all functions of planning and coordination and

supervising controlling the inter-state transmission system. Similar

provisions have been made for the States. The Government h a s

designated POWERGRID as the CTU. While private investments in

transmission are possible, these private operators will function under

the supervision and control of the CTU. They will transact with the

CTU and not directly with the consumers. Hence a structure h a s

94
been created which ensures the dominance of a publicly owned

transmission utility. In generation, the dominance of the central

generators continues, b u t is sought to be controlled through the

regulatory process. To reduce the cost of bulk power, to increase the

availability of power in the bulk power market and thereby to

establish a national market for power, the Central Government h a s

incorporated the Power Trading Corporation Limited (PTC) in 1999.

The PTC will assist in the development of mega projects, which will

supply power on a regional or national basis. Economies of scale and

preferential tax treatment are expected to make bulk power available

at economical rates. The projects are insulated from payment risk

since they will sell power directly to the PTC under a composite

scheme for the generation and sale of power in more than one state.

The policy framework is several steps away from competition in bulk

supply. However, there is a clear departure from the past, in that a

simulation of competitive conditions h a s been attempted. 122

AVAILABILITY BASED TARIFF (ABT)

Another major development was the introduction of ABT,

brining all five regions under the new tariff mechanism. It has

brought about greater discipline in grid management, reducing the

incidence of grid collapses and improving the voltage profile. Peak

time pressure h a s been reduced as utilities can draw cheaper power

during off-peak hours. It h a s also given a p u s h to power trading. 123

95
WhyABT
Prior to independence small generating stations used to supply

power to local loads through small haphazard radial transmission

system, which gradually progressed towEirds the formation of State

grids in the 60's and regional grids in the mid 70's. By integration of

the existing regional grids, the power Grid (a central transmission

utility) was established in 1989. It is a mesh of transmission

lines interconnecting different electrical regions (i.e.) Northern,

Eastern, Western, Southern and North-Eastem regions of the

Country. The objective of the power grid is to facilitate transfer of

power Avithin and across the regions with reliability, security and

economy on sound commercial principle.

THE INDIAN GRID CONSISTS OF THE FOLLOWING FIVE

REGIONAL GRIDS.

1. Northern Region 4. Eastern Region

2. Southern Region 5. North Eastern Region
3. Western Region
The supply of power to the above regional grids is from the following
sources as on 31.03.2002.

96
 TABLE 2.17

SOURCES OF POWER SUPPLY

Hydro Thermal Nuclear Wind Total

Source
MW MW MW MW MW

Central 3049 25737 2720 - 31506

State 22627 39588 - 63 62278

Private 576 9046 - 1445 11067

Total 26252 74371 2720 1508 104851

% 25% 71% 2.6% 1.4% 100%

Nuclear Power Corporation of India (NPCIL), National Thermal

Power Corporation (NTPC), Ne5A/^eli Lignite Corporation Ltd. (NLC) and

National Hydro Electric Power Corporation (NHPC) are the major

generating companies owned or controlled by the Govt, of India. These

Corporations are termed as Central Generating Stations (CGS). While

the Centre owns or controls 30% of the nation's installed capacity, the

states own about 60%. The supply of power should be matched with

the demand for it. If supply tends to exceed demand the generating

stations are asked to back down. Conversely, when demand tends to

exceed supply generation must be increased. ^24

TTie status of Power Peak demand/shortage in our nation on

various occasions is tabulated below.

97
 TABLE 2.18

DEMAND/SHORTAGE OF POWER SUPPLYias

Power (MW) 2002-03 2001-02 2000-01 1999-00 1998-99

Peak Demand 81,492 708,441 78,037 72,669 67,905

Peak Demand Met 71,520 69,189 67,880 63,691 58,445

Shortage (%) 12.2 11.8 13.0 12.4 13.9

The above table reflects that the electricity industry in India is

mired in a complex network of problems.

This will lead to the indiscipline in the grid generation. The

following are the major reasons for a grid to trip and collapse (1)

refusal of generating stations to back down. RLDC (Regional Load

Dispatch Center) determines demand and advises plants to generate

power accordingly. If generation is more than demand the grid

frequency rises. If it rises above a critical value the grid trips.

(2) Overdrawal of the Power by states above the day to day directive of

the RLDC when several states turn errant the frequency dips. If

frequency falls below 47.5 HZ (the desirable frequency is 50 HZ) the

grid trips.

Grid frequency increases in generation surplus regions and

decreases in generation deficit regions. These wide frequency

fluctuations tend to cause serious damages both at the generation and

load ends. Though the problems have been identified, no progress h a s

98
been made in solving them. One important reason for this has been

the absence of directive incentives or penalties for the individual

utilities responsible for the problems. In order to improve grid

discipline through commercial incentives/disincentives, frequency and

voltage profiles, the Central Electricity Regulatory Commission (CERC)

had released its order, on the Availability Based Tariff (ABT) for the

first time on 04.01.2000 followed by a revised order on 21.12.2000

applicable to all the regional and inter state generation stations. It

changed the method of computing capacity charges and energy

charges. The ABT norms also entertained the creation of charges

related to unscheduled intercharge (Ul) of power.

Implementation of ABT

ABT h a s come into force in various regions of India as mentioned

below.

Western Region with effect from 1.7.2002

Northern Region with effect from 1.12.2002

Southern Region with effect from 1.1.2003

Eastern Region Avith effect from 1.4.2003

North Eastern Region with effect from 1.11.2003. The Central

Generating Stations which supply power to more than one state come

under ABT, as per CERC. It may be noted that to regulate the tariff of

generating companies in the States, State Electricity Regulatory

Commissions (SERC) are being formed in various states of India.

Thus generators in the states will come under SERC control. After

99
introduction of ABT, the grid discipline has improved and the

frequency is maintaining in the range of 49.0 to 50.5 Hz.^^e

DISTINCTIVE FEATURE OF ABT

The procedure for pa5rment of components of tariff under ABT

consists of capacity charge, Energy charge, unscheduled Interchange

charge (Ul) and incentive/disincentive. The ABT system entitled the

generating stations to the reimbursement of capacity charge based on

the availability of the generating station. Availability means the

readiness of the generating station to deliver ex-bus output. The

components of capacity charge are O&M expenses, depreciation,

interest on loan, return on equity, interest on working capital. Energy

charges shall be worked out on the basis per KW Hr., rate on ex-bus

energy schedule to be sent out from the generating station. Energy

charge is the fuel charge (ex-bus). Apart from the two charges a

charge contemplated in the ABT scheme is for the unscheduled inter

charge of power(Ul)charge.Ul amount= (Scheduled generation - actual

generation) X u l rate. The Ul Charges are Payable/receivable

depending upon who h a s deviated from the schedule and also subject

to the grid conditions at that point of time. This is the demand, which

is expected to bring about discipline in the system. This is stated to be

effective because Ul charges will be payable/recoverable. The

description 'Availability based tariff is appropriate as it reflects all

elements of the tariff(viz.) capacity charges, energy charges and Ul

charges.

100
ABT OPERATION

The day consists of 96 Blocks (i.e.) every 15 minutes is

considered as one time block. Daily by 08.00 Hrs., the generator has

to declare its availability (Declared capacity) for each time block for

next day to RLDC (Regional Load Dispatch Centre) at Bangalore. By

11.00 Hrs., the RLDC will request SEBs (State Electricity Board) to

furnish their next day's requirement. By 15.00 Hrs, SEBs will furnish

their next day's requirement to RLDC. By 17.00 Hrs., RLDC informs

the generator about its required availability (Scheduled Generation)

and to the SEBs about its drawals, for the next day. By 22.00 hrs,

revisions can be given, if necessary. By 23.00 hrs, the Final schedule

is prepared for the next day. From 00.00 hrs, the ABT schedule for

that day takes effect. It h a s to be mentioned here that the declared

capacity of the generator and the schedule requirement furnished by

RLDC need not be one and the same. The generator will get the

capacity charges for its declared capacity. The generator will get the

energy charges for the scheduled generation. Another element of tariff

in ABT system is U l . The difference between actual generation and

scheduled generation will form the basis for U l . The u l rate will be

based on the average frequency of the time block. 127

ANALYSIS OF ABT OPERATION

The implementation of the availability based tariff h a s drawn

maximum attention from generators, transmission companies and

regulators alike. The Central Electricity Regulatory Commission

101
(CERC) has announced the new reform as a panacea for all

operational ills in the power sector, b u t the central sector, generators

and transmission companies claim that the move would hit them

below the belt. ABT in the present form h a s many changes adverse to

the commercial interest of the power generators. It significantly affects

the returns of the power generators. The profit margin is reduced by

reduction in incentive charges. To recover the annual fixed charges,

the target level has been elevated, requiring additional efforts.

Moreover ABT stipulates consistency in generation. If the

consistency is not achieved generator has to pay UI. The reduction of

UI mainly depends on generator's consistency in generation (ie.)

variation of load should be minimum.

Thus ABT reduces profit margin on one hand and on the other

imposes penalty if a generator fails to adhere to the schedule of

generation. Consistency in performance in all fronts alone can lead to

consistency in planned output quantity.

Power trading is also envisaged as part of power reform

measure. In such condition the cheapest power will get first priority

ie. Merit order despatch. The generator which produces power

efficiently alone can survive in future.

Whether ABT is good or not to the central generating station, it

h a s the following distinct merits.

a) facilitates grid discipline.

b) facilitates trading in capacity and energy.

c) facilitates merit order dispatch.

102
 d) It is a new system of more relevant incentives and

disincentives, which would make for better performance.

The availability based tariff (ABT) notified by the CERC-with the

aim of creating incentives for improvement in grid discipline, is now

being implemented all over India. The frequency and voltage profiles

have improved remarkably after ABT implementation. Several states

including Delhi, Punjab, and Haryana are taking advantage of

cheaper power and also the unscheduled interchange (UI) charges as

incentive under the three-part ABT regime. ABT h a s brought about

great discipline in grid management, reducing the incidence of grid

collapses and improving the voltage profile. In ABT everything counts

and gets accounted for. ^^s

ACCELERATED POWER DEVELOPMENT PROGRAMME

The power sector is facing an acute financial problem with

realization of only 41 per cent (Rs.46,000 crores) of the total

generation and the rest being losses. The power theft alone is

estimated to be over Rs.20,000 crores. Commercicd losses of SEBs

have reached an alarming Rs.26,000 crores. The sector therefore

needs immediate reforms, and reforms on the distribution side seem

to be the only answer. Taking into consideration this aspect, the

Government has introduced a massive Accelerated Power

Development Programme (APDP) to improve the commercial viability of

the power sector in a short time. The total outlay under APDP for

2000 - 01 was Rs. 1,000 crores and for 2001-02 Rs. 1,500 crores, with

103
a likely enhancement to over Rs.3,000 crores from 2002-03 onwards.

APDP which will continue till 2012 will offer the States 50 per cent (25

percent grant and 25 loan) of the project cost with the balance 50 per

cent raised by the States from financial institutions/ internal

resources.

The short-term objectives are:

• Revenue realization - billing and collection with a target of 30 per

cent revenue increase.

• Outage reduction with a target of 50 percent cut.

• The time-table fixed for the short-term programme is 3 to 4

months.

• The long-term objectives are:

• Reduction in technical and commercial losses

• Strengthening the entire network through analysis based on

network and load data.

• The time-frame fixed for the long-term programme is two years.

• The expected benefits of the programme are as under:

• Reduction in T & D losses

• Improved revenue realization

• Voltage profile improvement

• Project planning and development possible for each and every

distinct.

• GIS and digitized mapping for each district will ensure quick

response to outages.

• Mounting of DSM possible.

104
• A proper voltage and reliable power supply may result in

agricultural pumpset efficiency and contain groundwater

depletion. ^29

UNBUNDLING OF STATE ELECTRICITY BOARDS WILL SOLVE ALL

THE PROBLEMS
On the recommendations of the Worid Bank, and foreign

consultants during 1990's, the States were asked to break their SEBs

into smaller manageable and more efficient corporations to attract

private investments. Orissa SEB was the first one to be unbundled.

But the results have not been encouraging. Other States where

unbundling has taken place are Andhra Pradesh, Kamataka,

Haryana, Rajasthan, Uttar Pradesh. Tlie results have not been

encouraging, ^^o

The initial response was encouraging but despite high

motivation, private sector participation slackened due to -

• Excessive delay in getting clearances

• Lack of escrow / payment security mechanism
• Non-availability of cheap source of funds for private
investors
• Volatility of globally linked fuel rates
• Poor financial condition of the SEBs who were the sole
buyers of power
• Tussles with the state bodies over high tariff.
The actual capacity addition from private sector agencies during

the Ninth Plan was only a mere 29% of the targeted addition, ^si The

power sector reforms, commencing with the Amending Act 50 of 1991

105
£ind coming up to the more recent Draft Electricity Bill 2003 have

proceeded on the assumption that unbundling of the State Electricity

Boards and privatization of generation, transmissions and distribution

will bring about qualitative movement towards efficient operations and

improve the financial viability of the sector. But into separate entities

may not solve the problems. ^^^

The following are the major attraction of the Indian power industry"

• 100,000 mw of power to be added in the next 12 years.

• 100 per cent foreign direct investment permitted.

• Private participation in transmission and distribution also

invited.

• New Electricity Bill approved by the Cabinet.

• Direct sale of power to be allowed.

• Reduction of T & D loses by high level of metering.

• Proposed subsidies to be paid upfront by the State Governments

to all utilities.

• Penalties for power theft to be very stringent.

• Concessions for mega power projects (more t h a n 1,000 mw) in

import and customs levies.

• New Greenfield projects as well as renovation and modernization

of existing utilities for accelerated power development.

• Development programme where Rs.3,000 crores h a s been

earmarked for up gradation and modernisation.

106
 • The Bureau for Energy Efficiency h a s been setup to lay down

standards for all electrical appliances for energy conservation.

• Introduction of high transparency: all bids and tenders will be

accessible on the Ministry of Power website and will soon be

available for all States.

• Lowering cost of production: least cost technology and

benchmarking proposed.

• Reduction in duty of 20 per cent on import of equipment for

renewable energy (wind, solar, etc.)

• Top priority assigned by the Govemmient for development of the

power sector.

• Total rural electrification to be achieved in the next 7 - 1 0 years.

• Energy audit for companies mandatory.

• Cross subsidies will be reduced.

• The Ministry of Power to focus on:

• Short term : Renovation

• Mid term : Thermal (LNG)

• Long term : Hydel & nuclear

• Renewable energy & co-generation, i^s

A REVIEW OF THERMAL POWER GENERATION SCENARIO IN

INDIA

The significant development of appropriate technology and its

application to generation and distribution of electricity h a s helped

electric power become a key input in the national development

107
process. In the initial years there was a considerable hydel capacity,

which was a cheap source of energy. The total installed capacity of

power plants in India was 2300 MW in 1951 comprising 1741 MW of

thermal plants, and 559 MW of hydro electricity. Even in 1990 the

thermal and hydel ratio continued 69:29. Since then, no major/hydel

power projects have come up. All the subsequent capacity additions

have been thermal. The ratio of hydel: thermal energy stood at 24:74

by the end of 1998-99. This may become 20:80 in the years ahead.

Therefore, the uses of thermal power become higher as compared with

hydel power in the recent era. 1^4

Growth of thermal electricity

Interest in power development began in 1900 with the

commissioning of hydroelectric power at Shivasamudram in

Kamataka. The progress of power development was not impressive in

the pre-independence era as the installed capacity was as low as 19

Icikhs kWh in 1947 and the activity was mainly concentrated around

urban areas. Tlie electricity industry witnessed a phenomenal

progress in the post independence period. The electricity generation,

which was only 6,578 MU in 1951, had increased to 4,48,406 MU in

1999, recording a substantial growth of 67 times. As on Sl^t March

1999, the total electricity generating capacity in he country stood at

1,05,300 MW. This includes 93,249 MW of capacity in the utilities and

around 12,000 MW in captive generation. The state sector owned 67

per cent of the capacity in the utilities while the central sector

108
accounted for 27 percent. The rest was owned by private sector. In the

utilities, he thermal-hydro proportion stood at 73:24 and the rest was

accounted for by unclear plants.

Power generating capacity increased impressively at a rate of

over 12 percent per a n n u m during the 1960's. However, the 1970's

could not maintain this momentum and recorded an annual increase

of only 7.5 percent during the decade. The Sixth and Seventh Five-

year Plans laid a greater emphasis on the power sector. Capacity

expansion expansion during the 1980's increased at a higher rate of

(8.1 percent) per annum. The 1990's showed a poor growth in capacity

addition. In the period from 1990-91 to 1998-99, capacity increased at

4.4 percent per ctnnum. The installed capacity in all the three sources

put together was 59,040 MW in 1988-89 which had increased to

93,249 MW in 1998-99. In the case of installed capacity of hydro

electricity, it had gone up from 17,798 MW in 1998-89 to 22,438 MW

in 1998-99. In other words, during the decade the installed capacity

had increased by 4,640 MW. In the case of thermal, the installed

capacity had gone up form 39,677 MW to 68,586 MW during the same

period (increased by 28,909 MW). The installed capacity of nuclear

power source had gone up from 1,565 MW in 1988-89 to 2,225 MW in

1998-99 (increase of only 660MW).

Out of the total installed generating capacity, the share of hydro

electric source varied between 30.15 percent and 23.97 percent,

thermcJ electric generation capacity between 67.20 percent and 73.55

109
percent and nuclear power generation capacity between 2.39 percent

and 2.77 percent.^35

A peak demand of 1,15,705 MW at the end of IQth Plan is the

forecast in the 16*^ EPS report. To meet the demand as per the

Working Group Report, a need based capacity addition of 56836 MW

would be required during the 10th Plan period out of which 28328 MW

h a s been envisaged in thermal sector during the lO^h Plan, 22291 MW

is identified with coal as fuel. Gas/LNG/Liquid Fuel-Based stations

constitutes 5952 MW subject to availability of Gas at competitive

prices, in the long r u n which may emerge as a preferred fuel in the

ll^h pl£in. The important factor in planning for thermal power

development is the choice of fuel so as to provide power at affordable

tariff to the consumers and also ensure overall energy security of the

country on a long term basis. Coal reserves in India is expected to last

nearly 200 years at the present consumption rate.i^e

It can be inferred that India depends more on thermal power

generation than on nuclear and hydel. This is mainly because of the

abundant availability of sources of thermal electric power in India.

India cannot depend much on hydro electric power generation

because most of its rivers dry up during summer. Further, the

international restrictions on the supply of certain ingredients like rich

uranium, heavy water, etc., and oppositions from many quarters to

go for new nuclear plants forced the country to depend on and expand

the thermal sources. ^37

110
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20. Ibid 9.

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22. Ibid 9.

23. Ibid 9.

112
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30. The Lignite Legend of Tamil Nadu-A chronology

31. Ibid 9.

32. Lignite Deposits in India, Centrestage NLC, Neyveli Lignite

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33. Annual Report-NLC, 2001-02, P. 16.

34. Ibid 11.

35. Ibid 9.

36. Ibid 9.

37. S.Perumalsamy, Power Economic Development of Tamil Nadu,

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38. Ibid 11.

39. Ibid 36.

113
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47. H.L.BaJaJ, "Growth in demand for Power for exceeds generation

capacity augmentation Industrial Herald, Vol. 38, No.8

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48. National News Government Committed towards Rural

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44 No.3 March 2004 P. 12

49. Ibid 11.

50. Ibid 9.

51. Ibid 4.

114
52. S.Viswanthan and G.Balachandar cover stoiy Industrial

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53. Ibid 11.

54. Abhay J a i n How to achieve Energy Conservation, Electrical India

vol. 44 No.2, Issn.0972 - 3277, Feb. 2004 P-48

55. RN.Singh: Regulation of inputs for power Generation, The 2004,

India Power Conclave, New Delhi.

56. Kasthurirangaian, India's wind energy Sector Offers Scope for

huge investment. Industrial Herald, No.8, Issn.0377-in

0036,Aug.2003, P.34

57. G.Sudarsana Rao, A Review of Thermal Power Generation

scenario in India, India Power, Vol. .X, No.2 July - Sep.2002,

P.31.

58. V.Raghuraman, Financing Beyond Sovereign Central Power

Sector in India, The 2004, India Power Conclave, New Delhi 2004

59. M.D.Mundhra, success of IPPS is essential for Power Sector

Reforms, The 2004 India Power Conclave, New Delhi, 2004

60. The Business Standard, July 26.2001, Plan to Double Power

Generation Capacity, Fair and near in Water & Energy vol.11

No.3, Oct.2001,P.8.

61. IbidP.8

62. Blue Print for power Sector Development Ministry of Govt, of

India. P. 10.

63. Emerging challenges N.K.Sharma & S.Kumar, The Hindu survey

of India industry 2003.P.219.

115
64. In force Hydro Power. Initiatives in Hydro, Power Line Volume 8-

No.4, Jan.2004, P.44

65. National Grid - For Betterment of people - contributed by NTPC

- India Power. Vol x No.3, July - Sep - 2002. P.24

66. NTPC Powering the Nation - Cover Story - lEEMA Journal,

VoLXXII, No.6, J u n e 2002, Issn 0970-2946, P.8

67. Ibid 66.

68. A.K.Akuja, A special feature on Power Industry, Industrial Herald,

Vol.37,No.3, Issn-0037-0036, March 2002, P. 13

69. Ibid 68.

70. Ibid 43.

71. Power Sector looks up. Many states reduce losses -

S.Viswanathan & G.Balachandar-Industrial Economist - Annual

- 15-29,Jan.30, J a n 14- Feb.2004, P.35.

72. Recamping for viability - V.K.Sriniavasan, The Hindu Survey of

Indian Industry 2003, P. 136.

73. Executive summary - Blue Print on Power Sector Development

Ministry of Power, New Delhi. P. 1.

74. M.D.Mundhra Success of IPPs is essential for Power Sector

Reforms, The 2004 India Power Conclave, New Delhi, Jan.2004,

P.3

75. Ibid 72.

76. SH.M.Jha, IPGEN Co., Regulation of Inputs for power Generation,

The 2004 India Power Conclave, New Delhi, Jan.2004.

77. Ibid 55.

116
78. Ibid 73.

79. Ibid 73.

80. R.V.Shahi, Management, of Electricity Distribution in India -

Some M 5 ^ s and Realities

81. Jiyran Painkh, Transmission Sector in India: An Overview,

Industrial Herald, Vol.38, No.6, Issn.0377-0036-June, 2003,

P.30.

82. Er.Ch.Venkateswarlu, Distribution Management and Guidelines

for Distribution Sector, Electrical India, Issn.0972 - 3277,Vol.44,

No.3, March - 2004, P.40.

83. The Energy Times, 2002 Centre to reward best over utilities. Fair

and Near in Water & Energy, Vol. 12, No.4, Jan.2003, P.35

84. J a m e s Griffin, Electricity international ICOM publication Vol.13,

No. 10, Oct.2001, P. 13 W.W.W.electricity int.com.

85. Ibid 82.

86. S.K.Agarwal, Power Reforms - some crucial issues, India Power

Vol.IX, No.3, J u l y - S e p . 2 0 0 1 , P.21.

87. Dr.G.Sudarasana Rao, A Review of Thermal Power generation

Scenario in India, India Power, Vol.x, No.2, July-Sep.2002, P.34.

88. Ibid 80.

89. Ibid 76.

90. Ibid 80.

91. Sonali Dutta, Roadmap for Distribution Reforms-Power Line

Vol.6, No.4, Jan.2002, P. 17

117
92. RL.Chechani, Mulki year Tariff setting, India Power, Vol.IX, No.3,

J u l y - S e p . 2 0 0 1 , P.27.

93. A.K.Ahuja, Criticality of fuel prices for power sector reforms,

Vol.37, No.3, Issn.0037-0036, March 2002, P. 14.

94. Ibid 93.

95. Op. Cit - Electrification of villages and households, Blue Print -

Ministry of Power. P.4

96. Om Prakash G.Kulkami, capture Generation, An effective

Solution to Power shortage, Electrical No.3, Vol.45, March 2005,

P.30.

97. Blue Print for power sector development. Electrical India March

2004, P.37

98. AhaJ Jain, How to achieve Energy conservation. Electrical India,

Vol.44, No.7, Issn.0972-0277, Feb.2004, P.48

99. Ashok Bajpai, Key Role of electrical India Vol.44, No.4 Issn.0972-

3277, April 2004, p.39.

100. Ibid 99.

101.Ashok Kumar Bajpai, Emerging Trends in Modem Management

Techniques of O & M of Distribution System of Power Utilities.

lEEMA Journal, Vol.XXIII, No.6, J u n e 2003, Issn.0970-2946,

P.44

102.Ashok Bajpai, Emerging Trends in Modem Management

Techniques using Hi-tech. State of the art Meters - Electrical

India, Vol.45, No.2, Feb. 2005, P.59.

103. Ibid 102.

118
104. News Brief:-Power Sector Needs US $252 Billion, India Power

Vol.IX, No.l, Issn-0971-9814, Jan.-Mar.2001, P. 19.

105. V.K.Srinivasan, Revamping for viability-The Indian Survey of

Indian Industry, 2003, P. 135.

106. S.Viswanathan Power - a Vanishing trick. Industrial Economist

No.l7Vol.XXXIV, 15-29, Nov.2001.

107.Rajandra Prabhu & K.N.Gupta, Power for all Industrial

Economist, No.3, VoLXXXV, 15-29, April 2002, P. 10.

108. Power failure (Busines Standard - July 30,2003) Fair & Near,

No.3, Vol.11, Oct.2001, P.37.

109.D.Narasemha Rao, Entering a twilight zone. The Hindu Survey of

Indian Industry 2004, P. 109.

llO.Sh.M.Jha, IPGENCO, Regulation of Inputs for power Generation,

The 2004 India Power Conclave, New Delhi.

111.Ibid 110.

112. Ibid 110.

113.V.K,Srinivasan, Rearranging for Viability, The Hindu Survey of

Indian Industry, 2003, P. 137.

114.V.K.Srinivasan, Competition Main Objective, The Hindu Survey of

Indian Industry, 2004, P. 113.

llS.D.Narasimha Rao, Entering a twilight zone. The Hindu Survey of

Indian Industry, 2004, P. 107.

116.The Policy Framework-Programme on Availability Based Tariffs

Selected Readings, Training Complex, NLC Ltd., Block-20,

Neyveli, P . l l to 18.

119
117.G.S.Murali Krishna, Impact of the Electricity Act, Power Line, .8,

No.4, Jan.2004, P.36.

118.National News Planning Commission Member funds turning point

in Electricity Act, 2003, Electrical India, Vol.43, No. 13, Issn.

0972-3277-Dec.2003, P. 14.

119.Srinivasan, Competition Main Objective, The Hindu Survey of

Indian Industry, 2004, 0,115.

120. Ibid 114.

121.The Electricity Bill, 2003-As passed by Lok Sabha/Rajya Sabha,

Part VII, Tariff P.30

122.V.K.Srinivasan, Completion Main Objective, Hindu survey of

Indian Industry, 2004, P. 114.

123.1bid 116.

124. Ibid 116.

125.16th Electrical Power Survey Report, News Bulletin, Vol.-l, Issue-

1, ABTinNLC.

126.Statistical Outline of India, 2003-2004, Tata Services Ltd., Dept.

of Economics and Statistics, P. 70.

127. Ibid 116

128. Ibid 116

129.1bidll6

130.Shashi Shekhar, Accelerated Power development Programmes,

Industrial Herald, No.7, Vol.37, Issn.0377-0036, 2002, P.6

131.Dr.K.H.Goiel, lA Electricity Bill 2003 the solution? lEEMA

Journal, No.3, Vol.XXIIl, Issue 0970-2946, March 2003, P.27.

120
132.R.N.Singh Regulation of inputs for power generation. The 2004

India Power conclave, New Delhi.

133. Ibid 132.

134.A.K.Ahuja, A special feature on Vol.No.3, Power Industry,

Industrial Herbal Issn.0037-0036-March 2002.

135.G.Sudarsana Rao, A Review of Thermal Power Generation

Scenario in India, India Power, VoLX, No.2, July-Sep.2002,P.30.
136. Ibid 134.
137.SH.M.Jha, IPGENCO, Regulation of Inputs for Power Generation,
The 2004 India Power Conclave (Paper preparation).
138. Ibid 112.

121