INDIAN POWER SECTOR

Power Consumption Growth


Electricity consumption in India has shown consistent growth in recent years, but the growth rate has been slower than the country's economic growth. Over 2001 and 2002 the annual growth in total electricity generation reported by the Ministry of Power was only 3%, though this increased to around 5% in subsequent years. As real GDP growth has been running at around 7% since 2003, there has clearly been an increasing gap between the growth in electricity supply and general growth.

Demand Growth Outstrips Supply

Shortfalls in electricity supply and power cuts remain a problem in many areas of India. Increases in capacity, through additional generation, transmission and distribution facilities, continue to lag behind growth in demand. Over the period April to October 2006 national peak demand was 98.5 GW, but peak supply was 86.5 MW, a shortfall of 12%. There has been a similar shortfall of supply against peak demand in all recent years. Power generation in India is dominated by coal-fired power stations (54% of total generating capacity). Hydro-electric resources are mainly located in mountainous northern India, requiring long transmission lines to reach the most important areas of consumption.

Power Consumption Well Behind China


According to international data reported by the EIA for 2004, Indian electricity consumption in 2004 was 588 billion kWh, compared to 1927 billion kWh in China. Average electricity consumption in India is low compared to China, with an annual average of 550 kWh per person, compared to 1471 kWh per person in China. The gap between India and China in terms of per capita power consumption has widened over the past couple of decades. The difference is explained partly by the greatly increased industrial output in China in the last fifteen years, but also by China’s greater success in extending power supplies to its rural areas.

Village Electrification Not Complete


Access to electricity supplies in rural areas of India is still relatively low, with 74% of villages (439,000 of the Indian total 594,000) having electricity, but with only 44% of rural households being connected. Increasing the availability of electricity supply is a key priority for the Indian government. This extension will involve massive investment in power transmission and distribution infrastructure. In China, as a result of rural electrification programmes that have already been implemented, nearly 100% of villages have electricity supplies.


Infrastructure Development weak


Development of energy infrastructure in India has been weak.  Past limitations on investment in transmission and distribution infrastructure means that losses due to technical reasons are high. The Ministry of Power says that aggregate technical and commercial losses are around 50% - and losses are even higher than this in some Indian states. Over many years there has been a lack of investment in fundamental improvements to the electricity system, with only lowest cost incremental investments being undertaken. For example, power distribution lines at lower voltages may have been extended in stages, and now reach to much longer lengths than originally planned, resulting in excessively high resistive losses.

Very High Electricity Losses


The overall level of electricity losses in India is much higher than in most other countries. In addition to the losses that occur for technical reasons (e.g. resistive losses in power lines and transformers), the main reason for the exceptionally high losses in the Indian network is power usage that has not traditionally been metered. Theft of power is everywhere in the world a potential problem, especially in poorer countries, but in India the situation has been made worse by concessions that have been made to encourage development of rural areas.

Unmetered Power for Farmers


For many years, power utilities were required to supply electricity to farmers free of charge, so as to encourage farmers to use electric pumps for irrigation and improve agricultural production. Hence there was little incentive for utilities to meter power usage by these consumers near the point-of-use. Why install equipment to measure power usage when no bills were issued to consumers?  Without proper metering near the point-of-use it was difficult for utilities to monitor power usage, so electricity intended for agricultural use could be illicitly switched to other applications, such as small industrial premises.

Financial Impact on Utilities


As power companies in the past did not get paid for electricity supplied to farmers, in many cases their finances were in poor shape and they lacked resources for investment. Furthermore, in many sectors electricity prices were controlled by the state. In recent years the problem has been recognised, so the policy has changed. More meters have been introduced into distribution networks and unmetered power losses have begun to decrease. Rather than simply supplying power free to farmers, the power utility will measure usage and recover the cost from the state government, which will continue to provide the politically important subsidy.

Distribution Reforms


A key element in achieving the turnaround of the distribution sector is the APDRP (Accelerated Power Development and Reforms Programme). Projects covered by this programme provide investment assistance to power utilities (e.g. for installation of meters) and gives incentives to help the utilities achieve better financial performance. The Indian states are being encouraged by the central government to unbundle their power utilities and to establish these operations as separate corporations.

Long Term Growth Plans


Substantial capacity is being added to the Indian power system. The growth targets for generation capacity and transmission networks in the central / state sector are set out by the Central Electricity Authority in a series of five-year plans. Over the period 2007 to 2012 (the 11th Plan) a tentative generating capacity addition of 66 GW is planned. During the following five years (2012 to 2017, the 12th Plan) a further generating capacity addition of 86 GW is planned. The current total generating capacity in India, including the central / state and private sectors, is 128 GW, so these capacity additions are substantial, and much higher than what has been achieved during the period of the 10th Plan.

Transmission Expansion


In 2004/05 3,494 circuit-km of 400 kV lines were added (mainly in the national Powergrid system) and 3,554 circuit-km of 220 kV lines (mainly in the State Electricity Boards). The programme for 2006/07 totals 8,058 circuit-km of 400 kV lines and 3,643 circuit-km of 220 kV lines, compared to 5,331 circuit-km of 400 kV lines and 7,618 circuit-km of 220 kV lines in the 2005/06 programme.

Private Investment in Power Sector


To give access to additional sources of finance there has been some private investment in the power sector, mainly through independent power producers, though this contribution is relatively small. Of total installed generating capacity of 128 GW, only 15 GW is in the private sector. Involvement of private investors (e.g. Tata Power) in transmission projects is also beginning.  Setting the finances of the state-owned power distribution companies on a sounder footing through reforms, such as the ADPRP, should make these more attractive to investors, but there has been only limited progress on privatisation so far.