Despite several significant achievements like increased power generation, an integrated one nation one grid, introduction of Smart Grid, and diversification into renewable energy sources et al, Indian power sector is still a long way to go in terms of meeting the power demand, rural electrification and countering power outages, power thefts, and tackling the poor financial health of the utilities.
The Indian power sector is at the threshold of a new era with unprecedented headways and challenges. It has to increase its power generation by three to four times of its current capacity to bridge the wide demand-supply gap; rapidly adopt state-of-the-art technology in generation, transmission, and distribution systems to resolve several issues like power thefts, poor access to electricity in rural areas, etc; counter new complexities arising out of new technology and climatic changes; balance the demands of traditional system of power generation as against new energy sources, etc. The most significant achievement would of course be the implementation of Smart Grid, described as the ´Energy Internet´ and considered the panacea for resolving majority of the issues plaguing the industry.
India is the fifth largest in terms of power generation, but it is also home to the world´s largest un-electrified population with around 300 million having no access to electricity. In the last five years, the demand for power has been increasing at a compounded annual growth rate of eight per cent but the supply has not kept pace. As a result large parts of the country are experiencing daily power outage of around 30,000 MW for various reasons including breakdown of old units. Electricity losses during transmission and distribution are extremely high, about 29 per cent. The financial condition of many utilities is not good either. So, Indian power industry has a long agenda of issues to be tackled.
Even globally the energy sector is undergoing transformation and witnessing several challenges in terms of utilising renewable energy sources, technology adoption, and environment protection, aver industry professionals. ¨A significant change in the energy management sector is the primacy being given to protecting the environment from the damaging effects of excessive use of fossil fuels. Though nuclear energy is seen as a clean source, the hazards due to radiation, however remote, have led to discouraging its use,¨ reveals Latish Babu, Director - Utilities and Power Generation, Schneider Electric India.
Distribution companies turning to smart grid technologies is another major change. ¨Factors driving energy management are higher demand, lower supplies, rising input costs, and demographic pressures, all of which have increased the risks and cost for power producers. With long-term investment cycles being the norm, the industry needs stable and conducive policies to mitigate the problems of producers and reduce energy costs,¨ Babu adds.
RK Chugh, Vice President - Energy Automation, Smart Grid Solutions and Services, Siemens India Ltd, lists out some more: ¨The utilities are struggling to meet the major challenges through increasing invest¡ments in their grids by modernising of networks and newer technologies such as Distribution Automation, integrated Supervisory Control and Data Acquisition, (SCADA) Outage Management Systems, and Smart Metering systems, etc.¨ According to Chugh, Indian utilities are also investing in upgrading their technologies to meet the rising demand and aspirations of the consumers.
No doubt, Indian power industry, albeit slowly, has been adopting new technologies, and energy management practices, along with tapping other sources of energy like solar, wind, hydro, biomass, geothermal, nuclear, etc. Today about 10 per cent of electricity consumed in India is generated by renewable sources, 22 per cent by hydro power plants, 3 per cent by nuclear plants, and 65 per cent by thermal power plants. Apart from reducing the demand supply gap, renewable energy sources are set to play a major role in improving energy access in remote areas and reducing the carbon footprint.
Indian Government is also planning to take measures to boost nuclear energy production including setting up of nuclear energy parks. As of now, under the Atomic Energy Act 1962, only government-owned enterprises can be operators of nuclear power plants. However, the Act permits private participation in the construction of nuclear plants, manufacture and supply of nuclear equipment, etc. Several measures have also been initiated by the government for moving towards Smart Grid like the formation of National Power Grid, Power Grid Corporation of India Ltd, introduction of the Restructured Accelerated Power Development and Reforms Programme (R-APDRP) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), and setting up of India Smart Grid Forum (ISGF). A National Smart Grid Mission (NSGM) is also on the cards, which will drive policy and project formulations on fast track.
With several new avenues being explored and old ones being reinvented, opportunities for power manufacturers, vendors, equipment manufacturers, technology providers, consultants and others have been mounting. The advent of Smart Grid has further widened the opportunities for all the stakeholders. The Indian power sector is going to see exciting times due to factors like the growth in average and peak consumption, massive influx of renewable energy, and new types of loads such as electric vehicles. ¨Local technology solution providers will play a key role as utilities move to manage these challenges, which will be to supply and support the cutting edge technology with maximum local value addition, and meet the Indian market price expectations,¨ points out Chugh. And all these opportunities have their own barriers and challenges too.
Apart from 14 Smart Grid pilot projects identified for implementation, very little has been delivered till date. Not surprising, Smart Grid implementation requires substantial capital investment, which is a major stumbling block to its implementation. Naturally, the cash strapped utilities find it difficult to raise the money.
The major barriers to Smart Grid adoption are lack of proper awareness and constraints of capital for investment. ¨Smart Grids cannot be adopted in a piecemeal manner and require an overhaul of the entire system. Luckily some of the early adopters in some pockets of the country have realised the benefits of Smart Grid, which is sure to encourage the doubtful starters to cross the barrier and have a positive approach. The cost barrier would also be scaled down when stakeholders realise that there is almost 30 per cent savings in energy costs,¨ avers Babu.
To this, Anoop Mondal, Sr Executive Vice President - Mumbai Distribution Business, Reliance Infrastructure Ltd, says, ¨The fundamental purpose of this technology is to lower the carbon emissions and this can be achievable if implementing agencies tie-up with coal-based thermal power producers.¨
He also suggested that, at the same time, the use of electricity by consumers required to be monitored in an automatic way, which will suffice the existence of a smart grid technology in the Indian arena.
The financial health of state distributing companies (discoms) is no good either. ¨Several factors have contributed to losses in the distribution segment--the cost of purchasing power to discoms has risen faster than their revenues, primarily due to fuel (coal) shortages and the need for expensive fuel imports by generators. Other reasons for high cost generation are generation ineff¡ciencies and low capacity utilisation of power stations,¨ explains Mohua Mukherjee, Senior Energy Specialist, World Bank. Tariffs have not kept pace with cost increa¡ses over the years leading to increased borrowings by discoms, resulting in increases in interest costs, she adds.
In addition, the electricity losses, both technical and commercial, during transmission and distribution are extremely high. ¨A large quantum of it is due to ineffi¡ciencies in the metering, billing, payment, and collection for which technical intervention through Smart Metering, AMI (Advanced Metering Infrastructure), MDM (Meter Data Management) solutions will be beneficial. The technical electrical loss is due to inade¡quate electrical components like conductors, trans¡formers, switches, breakers etc.,¨ maintains Chugh.
Replacement of these components with the right sized and right technology equipment will minimize the losses. ¨A strong electrical network coupled with increased visibility of the network´s real-time information through SCADA, DMS (Distribution Management System) will help the utility to limit its losses and provide uninterrupted power to its customers,¨ adds Chugh.
A major road block to rural electrification has been the lack of basic power infrastructure. Jharkhand, Bihar, Uttar Pradesh, Orissa, Uttaranchal, Madhya Pradesh, etc., are some of the states where more than 10 per cent of villages are yet to be electrified. ¨The lack of proper infrastructure for power transmission and distribution makes it an uphill task to provide electricity in highly dispersed villages, requiring immense outlays. Creation of any new infrastructure needs considerable financial resources. With power utilities already under pressure to reduce costs, supplying power to rural zones is more difficult and unviable for them,¨ avers Babu. The renewable energy sector has its own barriers too including non-availability of evacuation infrastructure and grid integration, poor enforcement of RPOs (Renewable Purchase Obligations) leading to low REC (Renewable Energy Certificate) price and over supply, lack of priority sector lending, etc. The sector currently requires an investment of USD 40 billion, but it gets only USD 6 billion. Apart from sector specific issues, there are several common impediments like delays in obtaining clear¡ances, land acquisition problems, environment and forest issues, resettlement and rehabilitation, unavail¡ability of long-term finance, law and order situation, inter-state disputes, and skilled manpower shortage, all of which often result in time and cost over-runs.
Evidently, substantial reforms are required to bring forth the essential radical transformation in the power sector. While focussing on increasing generation capacity by setting up new plants, capacity addition should also be attained through renovation and modernisation of the old power plants, which can be achieved with just one-third of the investment required for establishing a new plant. In fact, the Report of The Working Group on Power for Twelfth Plan (2012-17) has emphasised this point: ¨Optimisation of generation from the existing generation capacity is of utmost importance in the resource crunch environment. The installation of new power projects involves large investment and long gestation period. Therefore, renovation & modernization of power plants, energy audits, and better operation and maintenance practices are recommended,¨ says the report.
The development of a dynamic regulatory environ¡ment is a pre-requisite to fast tracking Smart Grids in India. This will provide the green signal to investors, and technology providers and will attract large investments and new technologies. In addition, efficient power management, improved integration of renewable power generation and conventional generation, IT skill upgrade in utility operations to successfully implement and sustain the smart grid interventions are some of the measures put forward by industry professionals.
¨The Smart Grid firstly needs a strong electrical grid. This is still being developed in many utilities in India and needs to be expedited. There are other issues like the right type of communication and protocols between the various equipment which are being addressed by the various arms of the Ministry of Power,¨ says Chugh. ¨India has been some years behind in adapting to changes in technology and energy management happening around the world. Energy reforms need to be speeded up so that it becomes more viable for companies to enter power production and its allied sectors, including transmission and distribution¨ opines Babu.
Evidently, the Indian power industry needs sweeping reforms to support the country´s economic growth and realise the vision of providing electricity to all by 2019.
India Power: Facts & Figures
¨Financial health of the sector is fragile¨
Mohua Mukherjee, Senior Energy Specialist, World Bank shares her perspective on Indian power sector.
What are the highlights of the study ´More Power to India: The Challenge of Electricity Distribution´ conducted by the World Bank (WB)?
The study recommends freeing utilities and regulators from political interference, increasing accountability and enhancing competition in the sector in order to move it to a higher level of service delivery. In short, it calls for a transition from administratively run to commercially run utilities. The study also recognises the many impressive strides that the Indian power sector has made over the years. Generation capacity has tripled since 1991 and a state-of-the-art integrated transmission grid now serves the entire country. Grid connected renewable capacity has risen from 18 MW in 1990 to 25,856 MW in 2013. And more than 28 million Indians have annually gained access to electricity between 2000 and 2010. However, the financial health of the sector is fragile, limiting its ability to invest in delivering better services. Total accumulated losses in the sector stood at Rs 2.88 trillion or 3 percent of GDP in 2013. These losses are overwhelmingly concentrated in the distribution sector.
How many power projects are being currently funded by WB in India?
The World Bank at present has eight assignments in the power sector - four at the national level and four at the state level. The projects at the national level are : ongoing lending to Powergrid Corporation for strengthening the National Grid; discussions underway for a new lending program with Solar Energy Corporation; ongoing lending to Tehri Hydro Development Corporation for supporting the development of Vishnugad Pipalkoti Hydroelectric Project in Uttarakhand and institutional strengthening of the organization; and a recently approved Partial Risk Sharing Facility for Energy Efficiency project, with Small Industries Development Bank of India and Energy Efficiency Services aimed at helping enterprises and Energy Service Companies to mobilise commercial finance for investments in energy efficiency initiatives.
At the state level following are the projects: ongoing lending to transmission and distribution (T&D) utilities of Haryana to augment or strengthen their T&D network; proposed lending across six states (Assam, Mizoram, Manipur, Meghalaya, Tripura and Nagaland) of North-East region to augment or strengthen the intra-state transmission and sub-transmission network; ongoing technical assistance to T&D utility in Bihar to strengthen the state´s capacity towards network planning, managing or implementing a large capital investment program aimed at strengthening the T&D network and feeder segregation in rural areas to improve power supply; Coal Fired Generation Rehabilitation Project for demonstrating improvement in energy efficiency of selected existing coal-fired power generation units (Bandel in West Bengal and Koradi in Mahrashtra) through renovation & modernisation and improved operations & maintenance.
What are the challenges in funding projects in India ?
There are far fewer challenges in transmission than in distribution. High levels of losses in distribution (both due to poor state of the network as well as due to theft) are the biggest challenge in terms of financial solvency of the power sector. They deter investment from the private sector due to high off-taker risk of financially strapped distribution companies.
Regulatory risk is another challenge, e.g. lack of enforcement of renewable purchase obligations for solar power, and lack of enforcement of renewable energy certificates have all depressed the market size for renewable energy. Part of the reason for lack of enforcement is also the financial weakness of discoms who are unable to pay for purchasing the renewable energy quantum that is part of their renewable purchase obligation.
What are the reasons behind poor financial health of discoms and how can they be resolved?
Several factors have contributed to losses in the distribution segment--the cost of purchasing power to discoms has risen faster than their revenues have, primarily due to fuel (coal) shortages and the need for expensive fuel imports by generators. Other reasons for high cost generation are linked to generation inefficiencies and low capacity utilization of power stations that have pushed up the power prices. Also, tariffs have not kept pace with cost increases over the years, which in turn has led to an increase in borrowings by discoms and increased interest costs. There are factors which are well within the control of utilities and if they are addressed, it will reduce the scale of the problem. These include under-collection and delayed collection of payments. In addition more than one-fifth of electricity purchased is collectively ¨lost¨ or ¨unaccounted for¨ by utilities, which does not generate revenues for them. Most of all, introducing accountability for all utility staff and management, and reducing political interference and enabling the sector to operate on commercial principles, will help. States where electricity has been removed from the list of items subject to political patronage, have been able to operate on commercial principles--even under 100 percent public ownership.
- JANAKI KRISHNAMOORTHI