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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