Can Energy starved India arise?

Thomas Alva Edison once said I shall make electricity so cheap that only the rich can afford to burn candles. And, it became a reality. So much so most of the advanced nations today thrive almost entirely on electricity. And, in the modern world electricity has become the main fuel to spur innovation and ensure economic progress.

India’s erstwhile British rulers laid basic foundation in India to generate and distribute electricity and India has done well since independence to expand the Installed capacity to approx 210,000MW including 22,000MW from Renewable Energy Sources.  India successfully added 55,000MW during 11^th Five year plan and currently stands 5^th in the pecking order for installed capacity behind US, China, Japan and Russia. Coal-fired plants account for 57% of India’s installed electricity capacity (compared to South Africa’s 92%, China’s 77%, and Australia’s 76%). After coal, hydropower accounts for 19%, renewable energy for 12% and natural gas for about 9%. Nuclear plants produce just around 3% of total electricity in India.

That said, 300+ million Indians continue to be deprived of access to electricity! So what plagues the industry?

a.       Fuel supply and poor management:

The Plant Load Factor was 70, 78, 43 for Thermal, Nuclear and Gas respectively during the period Apr’12-Jan’13. Lack of fuel security, Shortage of coal Supply and unallocated gas is hard hitting the operation of power plants and coal shortage was around 83MM tonnes in 2012. A Central Electricity Authority report says that the peak power shortage that India may face this fiscal, as it grapples with acute dearth of coal and gas supplies, is estimated to be 10.6% or over 15,000MW.

Fuel supply risks and precarious financial health of electricity distribution companies continue to pose challenges for the power sector, whose slow progress could impact the country’s economic growth, says a report from India Ratings & Research, part of global major Fitch Group.

The state owned giant Coal India Ltd, the world’s largest coal miner is the primary coal supplier to the thermal plants and not managed very well. Thirty four thermal plants had severe fuel scarcity mainly on account of inadequate availability of domestic coal as of end 2012 despite India having the world’s fifth largest coal reserves. The long pending issue of signing of the Fuel Supply Agreements between power companies and Coal India owing to differences between Coal & Power ministries could ease the situation to an extent and will enable better utilization of installed capacity.

Oil imports for power generation owing to shortage of power supply from Electricity Boards have become a big contributor to current account deficit putting downward pressure on exchange rate. A Government report pegs 1/3^rd of the oil imports are currently used for power generation which is not sustainable.

Subsidies and Transmission & Distribution losses are pushing power generation & distribution companies to the financial precipice. The Government pegs the national T&D losses at around 24% for the year 2011 compared to world average of less than 15% and has set a target of reducing it to 17% by 2017 & to 14% by 2022. In India, the average tariff charged is eight US cents per unit compared to 12-15 cents in Canada, South Africa and the US and 19-20 cents in much of Europe and the developing world. While the T&D loss targets are laudable, we will need the political will to review tariffs and implement necessary reforms to curb T&D loss.

b.      Pace of capacity expansion:

The Planning Commission has set a target of 88,000MW additional capacity in the 12^th and 93,000MW in the 13^th Five year plan. Out of the target for 12^th Five year plan, 60,000MW is expected to be thermal, 9,000MW from hydro, 3,000MW from nuclear and 16,000MW from non-conventional renewable sources such as Wind and Solar energy. However, delays in order placement for main plant in thermal projects, civil works for thermal & hydro projects, order placement by PSUs such as BHEL and Land acquisition & environmental clearances have seriously impacted new projects.

The Economist estimates $130Billion to have been plowed into the Power sector in the past 5 years of which $60 billion or so has come from the private sector—probably the largest-ever private-sector investment India has seen.

India’s share of nuclear power plant generation capacity is mere 1.2% of worldwide nuclear power production capacity, making it the 15th largest nuclear power producer. India at present has 20 nuclear reactors in 6 nuclear power plants and generates approx 4,800MW while seven other reactors are under construction and are expected to generate an additional 5,300 MW. A country like France relies heavily on Nuclear Power which contributes around 78% of production. With 59 power plants and excess power, the country has been successfully exporting power to countries such as Germany. France’s nuclear power industry has been called “a success story” that has put the nation “ahead of the world” in terms of providing cheap, CO₂-free energy. India’s attitude has long been hyperbolic on paper and ambivalent in practice, despite striking a civilian nuclear deal with USA way back in 2005. And, it is time we had a definite plan to leverage the deal struck with USA and conclude negotiations with other nations, to augment power generation.

c.       Reforms to attract capital:

The Planning commission expects 56% capacity addition by private players, 26% by Central and 18% by State Governments during the 12^th Five year plan.  And, the International Energy Agency estimates India needs an investment of at least $135 billion to provide universal access of electricity to its population.

Power projects are very capital intensive and we cannot have the Government to be the only investor. We need urgent reforms to be able to attract capital from private players be it for clearances from ministries such as Environment for land acquisition & mining or fiscal reforms & incentives to attract foreign capital.

To surmise, the recent Financial Budget though balanced, was a disappointment from Power Sector stand point. Incentive for investments in Plant & Machinery and many new trains announced in the Railway Budget are indeed nice measures to kindle the economy however, the vital need of the hour are measures to ensure adequate and uninterrupted supply of electricity which is the key fuel that runs an economy. While the plans sound good, we need to develop mastery over execution of large projects and management of power plants to ensure sustained delivery.

The author believes that India in time, will realise the dream of Electricity to every Indian and also adequately fuel the expanding economy as it emerges to become a leader. Until then the onus is on each of us to do our bit to conserve Electricity.

L S Ram