Challenges of Power Sector in India

One of the prime harbingers for the economic growth and industrial development of any country is Power. So is it for India. The Indian Power Sector since the days electricity generation started in India in 1897 in Darjeeling, followed by the hydropower station at Sivasamudram in Karnataka in 1902, has made phenomenal progress and today, we stand at an installed capacity of around 265 GW as on 31st March 2015.  The mix of the installed capacity being approx. 59% – coal , 9% – natural gas, hydel – 17% , nuclear-2%, oil – 1% and renewable energy -12%.  However, the moot question that lingers in the mind is it meeting the needs of the common man, has it improved the standard of living of the cross-sections of people residing in the nation and aided in improving their basic comforts  , is it meeting the demands of industry and commerce ? Surely not!! We are quite afar from “Electric Power for All and All the Time”. Though India stands at world’s fifth largest producer of electricity, the per capita consumption is very low thereby pointing to the policy makers and the captains of the industry that a lot is to be done in this sector.

The power sector in India is currently plagued with many challenges to be overcome in order to fructify the realizable vision of availability of reliable electric power to one and all living in the country. Though, this should not be doled out as charity or a philanthropic activity, which is promised by some during the hustings.  Post the Electricity Act 2003, the sector has seen lot many reforms and activities but as we stand today, it is not in a state where we as a nation can be proud of. India’s power sector is in a state of fear psychosis for any entrepreneur in the private arena because of lot many impediments strewn in the path for successful, viable running of a power plant. The new government at the centre is paying attention to but a lot more thrust needs to be done to improve the climate and morale of power producers and distributors.

Availability of land and its acquisition is as before a humongous task. The Land Acquisition Bill is in for a see-saw battle and the industry; entrepreneurs and public at large are waiting to see what happens to this much awaited bill which should catalyse the infrastructural advancement of the country in a balanced manner. As things stand today, whether it is for mining or for setting up / expanding the power plant, there are hurdles galore making the investor scuttle between the state government and the land sellers and other lobbies. At the spur of a moment, there is agitation with earnest as well as garbed intentions, putting the proposer of the power plant on tenterhooks. Over the years, the matter is getting knotty on this subject.  However, there is a good amount of optimism as the Narendra Modi led Government is going whole hog through the joint parliamentary committee to see that the differences amongst various political parties and interested stakeholders are justifiably met , to see that the legislation on Land Acquisition sees the bright light of the day. Akin and closely linked to this is the power plants facing the hurdle of environmental clearances and also tightening the noose now and then by various state governments in terms of stricter environment norms. It is though useful as it makes the industry look for ways which enable in better utilization and installation of efficient technologies or site alteration which enable in green clean power. There needs to be a single window clearance-cum-facilitating body at the state level which comprises central and state representatives to look into and address the issues of land acquisition, water and environmental clearances.

For the fossil based power plant, primarily, the coal, enough is said, discussed and deliberated in various media about its shortage, auctioning, quality, source, etc. This is a constant worry for any coal based power plant producer whether he has an allocated mine or a linkage coal or whatever source. There is a constant bugging for a power producer for adequate supply, justified pricing, transportation, logistics, pilferage, meeting the required calorific value, working capital for purchase of coal obtained through various sources.   There is a challenge before the nation of fully auctioning the coal blocks for the power and the allied core sector industries like, steel, cement , fertilizers , and developing these mines to their full potential overcoming impediments in land acquisition, permit delays, infrastructure problem, coal transportation facility , development of freight corridor projects, etc. In case of the imported coal, unloading capacity at ports is required to be enhanced , building of dedicated unloading bays , etc. are required. The bottom line is that every coal based power plant should be able to have its share of assured coal by the government, whether in the private or public, and not idle for want of coal, which was witnessed in 2012-13.

Coupled with the adequate availability of coal, the big imperative is to rely on generation of power through both renewable and non-renewable sources. Fortunately, there is a lot of emphasis being placed on renewable power since the BJP led government came to power with a big thrust on solar. The share of solar power with the perspective of making it more cost viable for the end consumer, driven by technology advancements, large sized solar parks, fully integrated manufacturing will drive the demand for solar power. Further, there is a great impetus for the Central Government and various State Governments too such as the one recently by TN Government granting a green signal to Adani Power for setting up a 1000 MW solar park. Such things would greatly benefit the orientation towards the renewable energy side and also the power sector as a whole. The Government needs to see that the transmission network for evacuation of power from these renewable energy sources is done in the most effective way.

Going forward, the shortages or delays felt on account of main plant equipment’s and BOP needs to be given special care by favouring the domestic manufacturers and making the playing field more levelized vis-à-vis the international market, particularly, Chinese, Korean. Concomitant to this is the dearth of experienced and competent professionals with project management and execution capabilities who are capable of executing the schedules timely without cost overruns. This runs across the value chain of the power industry across the different sources of energy. Even in the available talent, there is a huge age gap in the workforce wherein there is a huge paucity of middle level sturdy and sterling professionals with proven project management abilities. The way forward with respect to this challenge is to stake bet on the youngsters by the different organizations and develop them on-the-job as well as occasionally expose to international working pattern and technologies. The industry needs a strong and concrete collaboration between project owners, contractors and governments to attract the young professional, vocational and other generic degree holders to this field. Companies to need to thoroughly look into their HR practices in respect of these employee types in this realm and make it meaningful and rewarding keeping in mind the changing employee aspirations.

Another big challenge faced by this sector as with other domains in the infrastructure is the availability of reliable , safe and quality driven EPC players who are conscious of project cost , time and world standards. There are many construction players who are good at the second rung as sub-contractors but comprehensive, turnkey players who are ace executors of international repute and standard are few. The game gets twisted because of second rung players who alter the cost parameters and hence, the market dynamics. The government needs to seriously re-open the tax incentives, dividend distribution tax and other financial sops to make this project infrastructure institutional activity attractive and interesting. It has to ensure that the private sector is involved in a big way in this kind of infrastructure building including constructing renewable and non-renewable power projects.

One of the greatest bottle necks faced today is that on one side there is unutilized, idle generating capacity with the claim of the state utilities, discoms that there is surplus power, power being traded on exchange at discounted rates and on the other hand is non-availability of round the clock power to the end consumer. Or there is an industrial scenario, in which they have diesel generators running at high cost and on the other hand unutilized generation capacities. This is a real paradox. The issue lies as stated in following lines by Gurudeo Sinha, a senior fellow at TERI, New Delhi. “The major infrastructure issue lies in distribution, what with weak distributions network and large parts of India not yet covered by the distribution system”. “Also, the distribution system is owned mostly by government owned companies. Hence, investment in this sector is mostly by the government. The poor financial health of most of the distribution companies is another factor which impacts generation, as distribution companies do not draw power at higher rates even when it is available.”  The poor distribution infrastructure is resulting in ‘artificial surpluses’ are dragging down the power rates in the exchange affecting the generating stations very badly. Added to this, are the financial woes of the ailing discoms, the inefficiencies in the system like theft, corruption, political interferences and system deficiencies are compounding the problem. The discoms are avoiding purchase of power from long term power purchase agreements, shutting down the loads and reducing the power demand artificially to reduce their losses.

The demand measured by CEA is the measured demand which ignores the ‘latent demand’ and the areas uncovered due to inadequacies in distribution system. The areas which do not have proper T&D network even today and the likely demand in those areas ,the power demand met through uneconomical sources like diesel generation are not getting properly reflected in CEA statistics.

For these, the government needs to usher in a system in the distribution network and power generation arena:

A clear accountability earmarked at the state, urban, sub-urban and rural level discoms with its branches included – a complete monitoring system for checking whether power is being 24 x 7, as per the service obligations, as provisioned under the Electricity Act, 2003.

Obtaining of undiluted and unaltered data of online generation abilities, actual, back down and unmet demand data, starting from low voltage transmission lines in the state to the highest state grid levels– on real time basis – by the law makers, policy framers and regulatory bodies so that the gap between the actual demand and actual ability to generate can be matched.

To start with , a few districts in the state can be chosen in each discoms and execute the points mentioned in a) & b) and the results examined before scaling up to the entire state and regional level

For the stalled power generation projects , examine closely the project financing terms including the repayment terms ,  soften rate of interests and examine / re-examine the unviable PPAs , tariffs and wherever, necessary also re-examine the debt-equity ratio.

There should be a concerted effort from the government side to see that there is a sustained financing facility by different funding agencies such as World Bank, IMF, and ADB in all the different value chain of the power sector.

It is indeed a great welcome step that the NDA led Government is laying thrust through the state-owned Power Grid Corporation of India Ltd. (PGCIL) plans to construct transmission links for 10,000 MW solar capacity that may involve an investment of Rs.9000/- crores.  The transmission corridors of the country need to be thoroughly revamped to remove the kinks and drains in the supply of reliable power and install / augment wherever required transmission lines and links.

Some of the other measures that the new government can bring are by amending the EA, 2003 to do away with blanket subsidy for the agricultural sector and instead bring about subsidies at the end-user level of farmers who are the actual intended beneficiaries. This can mitigate the theft losses, leakages in the transmission network.

By principle, in the power generation, the variable cost of coal based plants shall be reimbursed. The norms being set for the coal based power stations are becoming very stringent to achieve the recovery of variable cost. Primarily, the efficiency of a power plant not only depends on the design technology but also on the loading factor at which the plant is operating. This loading factor is dependent on the coal availability (in quantity & quality) and the schedule given by the customer for power. These two primarily are not under the control of the power producer. These norms need to be re-examined and suitable corrections are needed to be done for financial viability and profitability for the coal based power generation

No idling of any capacity and every single unit should contribute to upliftment of the people of India.