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					                                                                     POWER
•  With the coming of Electricity Act 2003, the power sector,          CURRENT SCENARIO AND PROSPECTS
   which was highly regulated with lot of licensing requirements,
   is in the throes of a long awaited change. The licensing           • Recognising that electricity is one of the key drivers for rapid
   requirements have been reduced, as the generation company            economic growth and poverty alleviation, the industry has set
   will be free to enter distribution business and vice-a-versa.        itself the target of providing access to all households over the
                                                                        next few years. As per Census 2001, about 44% of the
• The generating capacity in India stood at 147,965 MW (1,296           households did not have access to electricity. Hence, meeting
   bn units). Out of this, the total generation was only about 724      the target of providing universal access is a daunting task
   bn units, due to lack of fuel sufficiency. As a result, it has       requiring significant addition to generation capacity and
   become necessary to resort to power cuts and other                   expansion of the transmission and distribution network.
   regulatory measures to ration power supply.
                                                                      • Restoration of the financial health of SEBs and improvement in
• Currently central institutions like National Thermal Power            their operating performance continue to remain a critical issue
   Corporation (NTPC) and the State Electricity Boards (SEBs)           in the power sector. The Electricity Act of 2003 contains
   dominate the power scene in India. India has adopted a blend         provision for securitisation of accumulated SEB dues.
   of thermal, hydel and nuclear sources with a view to increasing
   the availability of electricity. Thermal plants at present account • On overall basis, power distribution has been loss-making
   for 63% (93,725 MW) of the total power generation, hydro-            business in India. But with the privatization coming in, the
   electricity plants contribute 25% (36,878 MW) and the rest           investment in transmission and distribution networking is
   comes from nuclear and wind.                                         expected to improve. Distribution business has already been
                                                                        privatized in Delhi and a five years target has been set to
• Average transmission and distribution losses (T&D) exceed             bring down its T&D losses from around 50% to 30%. Following
   25% of total power generation compared to less than 15% for          Delhi's example, many states like Uttar Pradesh, Gujarat and
   developing economies. The T&D losses are due to a variety of         Maharashtra are looking at corporatising their distribution
   reasons, viz., substantial energy sold at low voltage, sparsely      circles.
   distributed loads over large rural areas, inadequate investment
   in distribution system, improper billing, and high pilferage.      • Trading in electricity has brought a sea change in the structure
                                                                        of the industry because some parts of country are power
 FY09                                                                   surplus and some are deficient. A power trading company
                                                                        buys power from surplus area and sells it in a power deficit
• In FY09, the total power generation figure for the country            area through transmission lines. While the potential for power
   stood at 724 bn units as compared to 704 bn units in FY08,           trading is huge, the regulator has to play a key role in removing
   thus representing a growth of 2.8% YoY. This was largely on          all discrepancies that occur in terms of electricity pricing
   the back of higher capacity addition and improved plant load         across trading regions.
                         factor. However, owing to sustenance in strong demand for
                         electricity, the shortages remained high, with FY09 recording        KEY POINTS
                         a power deficit of 11.1%. It may be noted that this is the highest
                         in the last five years. Key reasons for the same were shortage       Supply: Many projects have been planned but due to slow
                         of fuel supplies and adequate liquidity.                             regulatory processes, especially in the distribution segment,
                                                                                              the supply is far lesser than demand. Currently, India needs
                                                                                              to double its generation capacity over the next decade or so
                         POWER SHORTAGE INCREASES IN FY09
                                                                                              to meet the potential demand.
                         16
                                                                                              Demand: The long-term average demand growth rate is 6%
                                             FY08        FY09                                 to 7% per annum and is expected to grow at faster rate in
                         13
    Power shortage (%)




                                                                                              the future.
                                                                                              Barriers to entry: Barriers to entry are high, especially in
                         10
                                                                                              the transmission and distribution segments, which are
                                                                                              largely state monopolies. Also, entering the power generation
                          7                                                                   business requires heavy investment initially. The other
                                                                                              barriers are fuel linkages, payment guarantees from state
                          4                                                                   governments that buy power and retail distribution license.
                              April May June July Aug Sep Oct Nov Dec Jan Feb Mar             Bargaining power of suppliers: Not very high as
                                                                                              government controls tariff structure. However, this may
Data source: CMIE
                                                                                              change in the future.
•                        The average PLF in the Central Public Sector Undertakings
                                                                                              Bargaining power of customers: Bargaining power of
                         and private sector companies was much higher than that
                                                                                              retail customers is low, as power is in short supply. However
                         achieved by the SEBs as a whole in FY09. Wide inter-state
                                                                                              government is a big buyer and payment by government can
                         variations are noticed in the average PLF of thermal power
                                                                                              be erratic, as has been seen in the past.
                         plants with southern and northern zones having better
                         performances.                                                        Competition: Not high currently. The Electricity Act 2003
                                                                                              aims to encourage investments, thereby increasing
•                        As far as T&D segments of the sector are concerned, there
                                                                                              competition.
                         was little that actually happened in FY09. The country
                         continues to reel under the pressure of higher T&D losses
                         and with the government running very slow with the reforms
                         in these segments, the long-term sustainable growth of the
                         sector seems doubtful.

				
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posted:11/6/2010
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