Indian Power Sector | Challenges and Opportunities

by | Jun 30, 2019

India has come a long way since Independence, and the power sector is not an exclusion. From a mere 1.3 GW (Gigawatt) of generation capacity in 1947, the country boasts of the single grid with a generation capacity of about 350 GW as of the end of February 2019. Electricity Act 2003 laid the foundation for the transformation of the sector, opening the doors for competition and facilitating increased private sector participation in generation, transmission and distribution functions. While private sector contribution across the three functions continues to increase, its role in enhancing generation capacity has been most critical. It is perhaps for the first time that the country has excess generation capacity, so much that it has become more of a problem than an achievement.

As per the 19th Electric Power Survey unveiled by the Central Electricity Authority (CEA), India’s electricity demand has been projected to grow at the compound annual growth rate of 7.1% between FY17 and FY22. However, the demand for electricity had grown at a much slower pace. Also, the peak demand grew at a compound annual growth rate of just 2.6% between FY15 and FY18 against the CEA’s estimate of 9.3% growth. The 19th electric power survey also mentioned about Aggregate Technical and Commercial (AT&C) losses coming down to 13% by FY22, on the basis of different government programmes and schemes like Ujwal DISCOM Assurance Yojana (UDAY), Deen Dayal Upadhyay Grameen Jyoti Yojana, and the Integrated Power Development Scheme. The AT&C losses at a pan-India level came down to 19.1% at the end of FY18, from 20.3% a year ago.

As per the Ministry of Power, the Plant Load Factor (PLF) has significantly dropped over the past 10 years from 77.5% in 2009-10 to 61.06% in 2018-19 with private power plants having the much lower PLFs of 55.69% which they blame on poor coal supplies. At least 31 GW of potential coal power is currently idle due to lack of supply or purchasing agreements with state distribution companies. This paradigm shift is one of the reasons for the reduction in demand for thermal assets. Rating agency CRISIL in a report last year notified of 60% fall in capacity addition in thermal power generation over the next five years. The government has to be more realistic while establishing more coal plants. It should ensure adequate coal supplies and 100% Plant Load Factor.

With India heading towards 100% electrification, the per capita energy consumption of India is expected to grow 2-3 folds from the current figure of over 1200 units. However, there is no significant change in the per capita power consumption.

A 100% village electrification does not mean 100% household electrification. The last mile connectivity has been a major challenge considering the cost incurred in setting up energy infrastructure in remote areas and return on investment.

Even after setting up electricity infrastructure in the villages, not all households have been electrified and those who have been electrified,  are given connection to use a single LED. It is very important that connected households receive an adequate level of services because the size of the benefits of electrification depends on the reliability of electricity supply. Universal electrification without ensuring reliability is a wasted opportunity. The government must look at ensuring a steady power supply to households for its electrification drive to be truly successful.

The fact that India is the fastest growing economy with GDP growing at more than 7% remains unbelievable considering the growth rate of energy demand as one of the economic indicators for GDP. The farm sector and Industrial sector that account for a major chunk of total energy consumption in the country are growing faster. However, the erratic and uneven power supply along with the issues faced at the transmission and distribution level have led to reliability issues for the Industrial sector. Therefore, they are investing in secondary power source such as Diesel Gen-set as power backup. The agricultural sector is highly underserved with unreliable and poor supply. Getting an electricity connection under the agricultural category takes years. Also, the supply is only available during a short duration per day. The farmers are forced to use diesel-run pumps to water their crops. The power sector has clearly failed to serve the current as well as the rising demands of these sectors.

There is a strong need to improve power sector health. This can only be done by strengthening the state electricity regulatory commission (SERC). The subsidies and policies announced by the government in the past few years had left the power sector with stranded losses. The SERCs should be given free hand to decide the state level interventions to improve power sector health without being influenced by the ruling government. The SERC should make stricter regulations for transmissions and distribution companies to follow and maintain the stringent Standards of Performance (SOP) and compliances. Using a consumer-centric approach, the SERC should ensure the rights of consumers and guard their interests, and make provision for better supply and services to consumers. It should engage consumer interest to bring transparency in the system and achieve greater public accountability through technology for improving the performance of the supply quality.

Another way to improve electricity supply services is by introducing competition in the distribution segment. This will not only give more decision making power to consumers, but will provide them with more choices, lower costs, enhanced quality, and expanded access to items.

The business will change in accordance with supply and demand and will benefit the producers. It will also give incentives to diminish expenses and upgrading development through innovation. With private players coming in, it will reduce government monopoly over the power distribution.

The emergence of distributed renewable energy resources technologies has changed the power generation sector by disrupting power markets and distribution models. Electric Vehicles (EV) straddle the automotive and the retail power sectors. Smart cities blend Internet of Things (IoT), micro-grids, renewable power, self-driving vehicles, energy management, and battery storage, among other technologies. These technologies have benefits that include cost saving to customers, a reduction in carbon emissions, and increased control of consumers. However, these have also been considered as a threat by utilities as it will result in reductions in revenue. Rather than attempting to construct barriers against inevitable energy transition, they should look at ways to capture these opportunities with their own products and services. Utilities ought to consider broadening their innovation programs in order to compete with new market entrants and business models.

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1 Comment

  1. Anupama Pain

    Loved reading this Vishal and even lovely that you chose to write :-). Always awesome to see an alumni share insight


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