PROJECT ON

“ANALYSIS OF POWER SECTOR

IN INDIA”

SUBMITTED BY:-

PARMINDER SINGH 51

AMANDEEP SINGH 02

DILSHER SINGH 20

JASBINDER SINGH 36

SHIVAM JHA 25
 INTRODUCTION TO POWER SECTOR

The power sector has registered significant progress since the process of planned development of
the economy began in 1950. Hydro -power and coal based thermal power have been the main
sources of generating electricity. Nuclear power development is at slower pace, which was
introduced, in late sixties. The concept of operating power systems on a regional basis crossing
the political boundaries of states was introduced in the early sixties. In spite of the overall
development that has taken place, the power supply industry has been under constant pressure to
bridge the gap between supply and demand.

The Power Sector has been receiving adequate priority ever since the process of planned
development began in 1950. The Power Sector has been getting 18-20% of the total Public
Sector outlay in initial plan periods. Remarkable growth and progress have led to extensive use
of electricity in all the sectors of economy in the successive five years plans.

Electricity is one of the most vital infrastructure inputs for economic development of a country.
There is a strong demand for electricity in India and it is steadily growing with the country’s
economic growth and rising consumerism. The Indian electricity market today offers one of the
highest growth potential for private players. Government reforms, e.g. distribution network
Reforms Program, would be the key factor driving the power sector. Reforms such as The
Electricity Act and National Electricity Policy will give impetus to the Indian power sector.

There is a huge demand for power in some Indian states due to rapid urbanization and
industrialization. Besides, opportunities for private players are increasing with high energy
shortage and government support in the form of incentives to set up power plants. We have
found that the number of merchant power plants will increase in the years to come with state
governments inviting private players to invest in the power sector e.g. Gujarat, Maharashtra,
Andhra Pradesh, etc.

It is estimated that the total installed capacity will add around 45000 MW by 2013-14. However,
demand is much higher than supply with deficit is projected to be more than 12% during 2010-
11. We have also found that renewable energy creates huge opportunities for power generators as
the commitment to generate clean energy and environmental obligations have become top
priority for most of the nations around the world. However, coal based power will remain the
dominant source for energy in India.
 Growth of Indian power sector

Power development is the key to the economic development. The power Sector has been
receiving adequate priority ever since the process of planned development began in 1950. The
PowerSector has been getting 18-20% of the total Public Sector outlay in initial plan periods.
Remarkable growth and progress have led to extensive use of electricity in all the sectors of
economy in the successive five years plans.

Over the years (since 1950) the installed capacity of Power Plants (Utilities) has increased to
89090 MW (31.3.98) from meagre 1713 MW in 1950, registering a 52d fold increase in 48 years.
Similarly, the electricity generation increased from about 5.1 billion units to 420 Billion units –
82 fold increase. The per capita consumption of electricity in the country also increased from 15
kWh in 1950 to about 338 kWh in 1997-98, which is about 23 times. In the field of Rural
Electrification and pump set energisation, country has made a tremendous progress. About 85%
of the villages have been electrified except far-flung areas in North Eastern states, where it is
difficult to extend the grid supply.
 REGULATIONS AND POLICIES

The regulation of Indian Electricity Industry commenced from Indian Electricity Act, 1910. It
was a comprehensive piece of legislation to “regulate the generation, supply and use of
electricity and dealt with licensing, regulation and safety”, giving considerable authority to the
provincial governments.

In 1948, the Electricity (Supply) Act, 1948 was passed “to facilitate the establishment of the
regional co-ordination in the development of electricity transcending the geographical limits of
the local bodies”.

Amendments in 1976 enabled generation companies to be set up by the central and state
governments resulting in the establishment of the NTPC, NHPC, NEEPCO, Mysore (now
Karnataka) Power Corporation and the consulting firms WAPCOS.
Ministry of Power (MOP) is the apex body governing the power industry in the country. The
Central Electricity Authority (the ‘CEA’), constituted under the Electricity (Supply) Act, 1948
(the “Supply Act”), is the technical wing of the MOP assisting on technical and economic
matters.

By amendment in 1991 generation was opened to private investment, including foreign

investment. Tariffs in cases of interregional movements and transmission charges were to be
determined by the central government on the advice of the CEA.
Further amendments in 1998 opened transmission to private investment subject to the approval
of the Central Transmission Utility (CTU) with a license to be issued by the CERC.
The Central Electricity Regulatory Commission (the “CERC”) is the regulatory body constituted
under The Electricity Regulatory Commission Act, 1998 (the “ERC ACT”) to bring into effect
rationalization of electricity tariff and transparent policies regarding subsidies for regulation of
interstate transmission of energy and promotion of efficiency and environmentally benign
policies. The ERC Act also provided for formation of State Electricity Regulatory Commission
(“SERC”) in the respective states for the rationalization of electricity tariff and formulation of
policy within each state.
The challenges and opportunities faced by Indian Power sector are:

• Low per-capita consumption of electricity

• Estimated demand growth of Power at 6-7%

• Estimated investment of Rs. 8,00,000 crores in power sector over next 10 years
• Privatization of SEBs

• Rationalization of the tariff structure

• Politically-sensitive issues such as subsidies

Indian Power Sector has some of the major strengths such as abundant coal reserves to support
thermal power generation, huge potential for hydro-electricity generation and abundant
engineering skills to commission and run large-scale projects and a large consumer base.
But at the same time Indian Power Sector has number of weaknesses/problems such as,

• Inadequate power generation capacity

• SEBs’ weak financial health
• Lack of optimum utilization of existing generation capacity
• Inadequate inter regional transmission links

• Alarming level of Transmission and Distribution Losses

• Abysmally low level of collection efficiency

• Inadequate metering of consumers

• Large-scale theft

• Cross subsidization of Power and Skewed tariff structure

• Energy shortage of about 7.3% and peaking demand shortage of 12.5%

• Low PLF of Generating stations

 The proposed reforms/restructuring is aimed at resolving these issues, which will improve sector
health. Power reforms are happening though the pace is slower than desired. The direct financial
implications of most of the changes are not yet visible but as states progress further on reforms,
the investment scenario would improve.

The reform strategy adopted by Ministry of Power comprises of Power Generation Strategy,
Power transmission Strategy, Distribution and supply Strategy, Regulation Strategy, Financing
Strategy, Conservation Strategy, Communication strategy, Legislative Initiatives.
The Chief Ministers met on 16th October and 3rd December, 1996 to discuss and deliberate upon
the issues pertaining to the power sector. A national consensus evolved for improving the
performance of the power sector in a time bound manner covering National Energy Policy,
Setting up of SERCs, CERCs, Rationalisation of Tariffs, and Distribution Privatization etc.

APDRP: Ministry of power launched accelerated power development and reforms program for
the period of 10 years from 2002-2012. The promotion and distribution of the power is done
through two types of support from government:

· Investment based- 25% of the project cost to general states and 90% project cost to special states

· Incentive based- funds to the less loss making State electricity boards

As on 31 October 2007, a total of 571 projects have been implemented under the APDRP in
various states, with the total project cost estimated at Rs 170.34 billion. So far, a total amount of
Rs 71.24 billion has been released, and a counterpart fund of Rs 48.36 billion has been drawn
under the investment component. Nine states, that is, Andhra Pradesh, Gujarat, Haryana, Kerala,
Madhya Pradesh, Maharashtra, Punjab, Rajasthan, and West Bengal, have shown reduction in
cash losses, amounting to Rs 57.53 billion, and have received benefits to the tune of Rs 28.76
billion under the incentive component from the Government of India (MoP 2008).

Rajiv Gandhi Vidyutikaran Yojana: The Government of India launched the RGGVY in April
2005, which aims at electrifying all unelectrified villages and providing access to electricity to
all rural households over a period of four years (MoP 2008).
 Emergence of Regional Power Systems

In order to optimally utilise the dispersed sources for power generation it was decided right at
the beginning of the 1960’s that the country would be divided into 5 regions and the planning
process would aim at achieving regional self sufficiency. The planning was so far based on a
Region as a unit for planning and accordingly the power systems have been developed and
operated on regional basis.

Today, strong integrated grids exist in all the five regions of the country and the energy resources
developed are widely utilised within the regional grids. Presently, the Eastern & North-Eastern
Regions are operating in parallel. With the proposed inter-regional links being developed it is
envisaged that it would be possible for power to flow any where in the country with the concept
of National Grid becoming a reality during 12th Plan Period.

Utilization of Installed Generating Capacity:

The size of the generating unit that has been used in the country in coal based power stations
has progressively increased from about 15 MW prior to the era of planned development to 500
MW at present. With the introduction of new design of generating units, certain difficulties arose
in their efficient operation and maintenance.

The availability of coal in the country is such that the higher grades of coal, which have higher
calorific value, have been exhausted and progressively lower grades of coal are being made
available for electricity generation in the power stations. This had resulted into operational
problems with the boilers designed for higher grades of coal and also put more pressure on coal
handling plants etc. As a result of these technical and managerial problems, the utilisation level
of coal based power stations in the country declined in the late 1970s and early 1980s. The all
India Thermal PLF which was as low as 27% at the beginning of First Plan progressively
increased to 47% by the year 1963-64 and than declined to around 42% by early seventies.

During one year in the seventies i.e. during 1976-77, the PLF touched 55.4% but this could not
be sustained during subsequent years. Several factors such as inadequate maintenance of
generating units, the teething troubles faced in the operation of the newly introduced 200/210
MW units and the deterioration in the quality of coal supplied to power stations led to a gradual
erosion in the PLF of the thermal power plants during 5 th plan period. During the 6th Plan,
Department of Power and Central Electricity Authority undertook a comprehensive programme
to renovate and modernize old units located in different States. The performance of 200/210 MW
units also begin to stabilize. Concerted efforts were made by Ministry of Coal to monitor quality
of coal supplies to power plants.

As a result of all these measures the PLF of thermal plants registered a gradual improvement
during the 7th plan period. The plant load factor of thermal power stations in the country, which
was only 44.2% in 1980-81, increased to 56.5% by the end of the 7th Plan. The all India Average
PLF of the Thermal Power Plants has further increased to 64.4% by the end of eighth plan.
 Private Sector:

The initial response of the domestic and foreign investors to the policy of private participation in
power sector has been extremely encouraging. However, many projects have encountered
unforeseen delays. There have been delays relating to finalization of power purchase agreements,
guarantees and counter-guarantees, environmental clearances, matching transmission networks
and legally enforceable contracts for fuel supplies.

The shortfall in the private sector was due to the emergence of a number of constraints, which
were not anticipated at the time the policy was formulated. The most important is that lenders are
not willing to finance large independent power projects, selling power to a monopoly buyer such
as SEB, which is not financially sound because of the payment risk involved if SEBs do not pay
for electricity generated by the IPP.

Uncertainties about fuel supply arrangements and the difficulty in negotiating arrangements with
public sector fuel suppliers, which concern penalties for non- performance, is another area of
potential difficulty. It is important to resolve these difficulties and evolve a framework of policy
which can ensure a reasonable distribution of risks which make power sector projects financially
attractive.

The capacity addition programme for the 9th Plan envisaged around 17,588 MW to be added by
private generating companies. In order to achieve the targeted private sector capacity addition
during the Ninth Plan, the following additional facilitating measures have recently been
suggested by the promoters. Most of these have been accepted while some of them are under the
consideration of the Government.
 Power Sector Reforms:

The Orissa Government was the first to introduce major reforms in power sector
through enactment of Orissa Reforms Act, 1995. Under this Act, Orissa Generating Company,
Orissa Grid Company and Orissa Electricity Regulatory Commission have been formed.
Similarly, the Haryana Government has also initiated reform programme by unbundling the State
Electricity Board into separate companies and Haryana Electricity Regulatory Commission has
already been constituted.

With a view to improve the functioning of State Electricity Boards, the Government
promulgated the State Electricity Regulatory Commission Act for establishment of Central
Electricity Regulatory Commission at the national level and State Electricity Regulatory
Commission in the States for rationalisation of tariff and the matters related thereto. Subsequent
to the enactment of ERC Act, 1998 more and more States are coming up with an action plan to
undertake the reform programmes. In this respect, Governments of Uttar Pradesh, Rajasthan,
Madhya Pradesh, Goa, Karnataka and Maharashtra have referred their proposals for setting up
independent regulatory mechanism in their States.

The Electricity (Amendment) Act 1998 was passed with a view to make transmission as a
separate activity for inviting greater participation in investment from public and private sectors.
The participation by private sector in the area of transmission is proposed to be limited to
construction and maintenance of transmission lines for operation under the supervision and
control of Central Transmission Utility (CTU)/State Transmission Utility (STU). On selection of
the private company, the CTU/STU would recommend to the CERC/SERC for issue of
transmission license to the private company. In this regard, the Government of Karnataka is the
first to invite private sector participation in transmission by setting up joint-venture company.
Other States are also in the process of introducing the reforms in the transmission sector.
 In view of the urgent need to reduce transmission and distribution losses and to ensure
availability of reliable power supply to the consumers reforms in the distribution sectors are also
been considered by establishing distribution companies in different regions of the State. The
entry of private investors will be encouraged wherever feasible and it is proposed to carry out
these reforms in a phased manner. The Governments of Orissa and Haryana have already
initiated reforms in the distribution sector by setting up distribution companies for each zone
within their States.

With these efforts, it is expected that the performance of power sector will improve
because of rationalisation of tariff structures of SEBs and adequate investment for transmission
and distribution sector.
 Capacity Addition during 9th Plan:

 Power supply position at the beginning of 9th plan:

The total installed capacity at the beginning of 9th Plan i.e. 1.4.97 was 85,795 MW comprising
21,658 MW Hydro, 61,012 MW Thermal including gas and diesel, 2,225 MW Nuclear and 900
MW Wind based power plants.

The actual power supply position at the beginning of the 9th Plan indicates peak shortage of
11,477 MW (18%) and energy shortage of 47,590 MU (11.5%) on All India basis. To meet the
growing demand and shortages encountered, sufficient capacity would need to be added in
subsequent plan periods.

 Ninth plan capacity addition programme:

The Working Group on Power, constituted by Planning Commission, in its report of December
1996 had formulated, a need based capacity addition programme of 57,735 MW for the Ninth
Plan which would by and large meet the power requirements projected in 15th Electric Power
Survey Report. However, it was felt that this capacity addition of 57,735 MW is not feasible and
a target for capacity addition of 40245 MW was fixed for Ninth Five-year plan.

The above target was finalised after considering the status of Sanctioned/ongoing schemes, new
projects in pipeline, likely gestation period for completion of the projects and likely availability
of funds. The Sector-wise/type-wise details are given below:
Sector-wise / type-wise capacity addition programme during ninth plan (Figures in MW)

Sector Hydro Thermal Nuclear Total

Central 3455.0 7475.0 880 11909

State 5814.7 4933.0 0 10747.7

Private 550.0 17038.5 0 17588.5

Total 9819.7 29545.5 880 40245.2

 SWOT ANALYSIS OF POWER SECTOR

Strengths:

 Well established and vast T & D network

An extensive network of T&D lines has been developed in India over the years for withdrawing
the power produced at various generating stations and distributing the same to consumers. Lines
of appropriate voltages are laid, depending on the quantum of power and distance involved. The
state of Andhra Pradesh has the largest T&D network of 803 367 ckt km in the country. Besides,
the states of Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, and
Uttar Pradesh have more than 0.4 million ckt km of T&D lines.

 Non conventional energy resource base

India has substantial non conventional energy resource base and technologies to meet growing
power requirements by tapping this energy. The MNRE (Ministry of New and Renewable
Energy) laid down Guidelines for Promotional and Fiscal Incentives by State Governments for
Power Generation from Non-conventional Energy Sources. To address environmental issues
related to the power sector, the Government of India has started various initiatives, including
promotion of renewable energy sources for power generation through schemes such as RPO
(renewable purchase obligation), wherein certain quantum of electricity distributed must be
purchased from renewable sources. Fifteen states have committed to the RPO. A mechanism for
RECs (renewable energy certificates) is also being evolved, which would provide a platform for
carrying out trading between renewable energy surplus and deficit states.

 Emergence of strong and globally comparable central utilities:

NTPC, POWERGRID. National Thermal Power Corporation) is the largest power generation
company in India. Forbes Global 2000 for 2009 ranked it 317th in the world. It is an Indian
public sector company listed on the Bombay Stock Exchange although at present the
Government of India holds 84.5%(after divestment the stake by Indian government on
19october2009) of its equity.

Weaknesses:

 Persisting shortages

Peaking shortages are about 12% on an all India basis. India’s track record in adding power
generating capacity is poor: in the five years to 2007, the country added 20,950MW of
capacity, against a target of 41,110MW. According to data from CEA, the western region is
the worst affected in the country with around 19% power shortage, with states such as
Maharashtra and Gujarat reeling under a shortage of 23.7% and 23.4%, respectively.
States draw power from a transmission and distribution grid and overdrawing by one state
could hurt the others.

 Power theft

Power theft is an increasing menace; the culprits use the latest in technology: remote
sensing devices, high power electromagnet with capacity to effect recordings of meters.

 Pitfalls in billing and revenue collection:

The free power given to farmers is unmetered, so their consumption is not known.

Opportunities:

 Natural sources. Availability of natural resources like coal, natural oil, gas etc.
 Use of digital technology.
 Rural electrification.
 Untapped hydro power in northeast.
 Huge gap in the demand and supply of electricity, with almost 12% of deficit.
 Not huge number of players.
  Equity Oil
Major oil marketing companies are now venturing into upstream exploration and production
activities so as to secure crude supply. To put things in perspective, IOC and OIL India are likely
to jointly bid for oil fields aboard. At the same time, ONGC's wholly owned subsidiary, ONGC
Videsh (OVL) has acquired stakes in over 9 countries in its quest to attain the 20 MMT (million
metric tonnes) by 2020. This backward integration is an opportunity for IOC to secure at least
25% of its crude oil requirements for the refineries.

 Natural Gas
Natural gas has the potential to be the fuel of the future with demand outpacing supply by more
than two times. Such high scarcity of natural gas provides a big opportunity for oil companies.
The below mentioned table indicates the allocation to the various core sectors and the shortage
faced by them, thereby giving an idea of the potential for growth.Although Petronet LNG has
now started importing natural gas, the future holds promise as Reliance Industries' Krishna
Godavari Basin goes into commercial production in FY06 and Shell commences its terminal at
Hazira. More exploration activities are in the pipeline and this could reduce the
country's dependence on crude in the long term.

Threats:

 Competition

With entry of private players such as Reliance, Essar Oil and Shell (in the waiting), the sector
is likely to witness increased competition going forward. The oil PSUs had hitherto developed
a fortnightly pricing mechanism, which is likely to discontinue. The price of petrol and diesel
is artificially kept high so as to cross-subsidize LPG and kerosene. Since private players will
not be bound to provide for these subsidies, PSU marketing players are likely to suffer from
lower throughput per outlet.
 Environmental Impact of Thermal Power Stations:

Thermal Power Stations in India, where poor quality of coal is used, add to environmental
degradation problems through gaseous emissions, particulate matter, fly ash and bottom ash.
Growth of manufacturing industries, in public sector as well as in private sector has further
aggravated the situation by deteriorating the ambient air quality. Ash content being in abundance
in Indian coal, problem of fly ash and bottom ash disposal increase day by day. The fly ash
generated in thermal power station causes many hazardous diseases like Asthma, Tuberculosis
etc.

Air pollution

Initially, perceptions of objectionable effects of air pollutants were limited to those easily
detected like odour, soiling of surfaces and smoke stacks. Later, it was the concern over long
term/chronic effects that led to the identification of six criteria pollutants. These six criteria
pollutants are sulphur di-oxide (SO2), Carbon Mono-oxide (CO), Nitrogen oxide (NO2), Ozone
(O3), suspended particulates and non-methane hydrocarbons (NMHC) now referred to as volatile
organic compounds (VOC). There is substantial evidence linking them to health effects at high
concentrations. Three of them namely O3, SO2 and NO2 are also known phytotoxicants (toxic to
vegetation). In the later part Lead (Pb) was added to that list.

Nitrogen Oxide (NOx)

Most of the NOx is emitted as NO which is oxidised to NO2 in the atmosphere. All combustion
processes are sources of NOx at the high temperature generated in the combustion process.
Formation of NOX may be due to thermal NOxwhich is the result of oxidation of nitrogen in the
air due to fuel NOx which is due to nitrogen present in the fuel. Some of NO2 will be converted
to NO3 in the presence of 02. In general, higher the combustion temperature the higher NOx is
produced. Some of NOx is oxidised to NO3, an essential ingredient of acid precipitation and fog.
In addition, NO2 absorbs visible light and in high concentrations can contribute to a brownish
discoloration of the atmosphere.

Sulphur Oxide

The combustion of sulphur containing fossil fuels, especially coal is the primary source of SOx.
About 97 to 99% of SOxemitted from combustion sources is in the form of Sulphur Di-oxide
which is a criteria pollutant, the remainder is mostly SO3, which in the presence of atmospheric
water is transformed into Sulphuric Acid at higher concentrations, produce deleterious effects on
the respiratory system. In addition, SO2 is phytotoxicant.

Particulate matter

The terms particulate matter, particulate, particles are used interchangeably and all refer to
finely divided solids and liquids dispersed in the air.

Water pollution

Water pollution refers to any change in natural waters that may impair further use of the water,
caused by the introduction of organic or inorganic substances or a change in temperature of the
water.

In thermal power stations the source of water is either river, lake, pond or sea where
from water is usually taken. There is possibility of water being contaminated from the source
itself. Further contamination or pollution could be added by the pollutants of thermal power plant
waste as inorganic or organic compounds.

Land degradation

The thermal power stations are generally located on the non-forest land and do not involve
much Resettlement and Rehabilitation problems. However it's effects due to stack emission etc,
on flora and fauna, wild life sanctuaries and human life etc. have to be studied for any adverse
effects. One of the serious effects of thermal power stations is land requirement for ash disposal
and hazardous elements percolotation to ground water through ash disposal in ash ponds. Due to
enormous quantity of ash content in India coal, approximately 1 Acre per MW of installed
thermal capacity is required for ash disposal. According to the studies carried out by
International consultants if this trend continues, by the year 2014-2015, 1000 sq. km of land
should be required for ash disposal only.