The real problem with India's power sector: Distribution companies

Discussion in 'Economy & Infrastructure' started by ejazr, Jul 1, 2012.

  1. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    While GoI has improved in its capapcity addition adding 20GW last year, the distribution companies are failing to take advantage of power that is available due to state govt. control

    Ajay Shankar: The odd conundrum of India's power sector

    India’s power sector today presents a truly paradoxical situation. The country experienced a paradigm shift when, in 2011-12, it added new capacity of over 20,000 Mw. This capacity addition is of the same order as India used to achieve in a whole Plan period over the last few Five-Year Plans. Over the coming months, this capacity would stabilise and be ready for commercial operation.

    This should be cause for celebration, as one should expect a substantial reduction in power shortages and easing of the power supply position. A major constraint for small and medium enterprises would be mitigated. Use of captive diesel generation should fall sharply.

    Unfortunately, those who follow the power sector do not expect this to happen, and regrettably, they are right.

    In the same year 2011-12, when record capacity addition was taking place, the largest power company — the National Thermal Power Corporation of India — reported a decline in its plant load factor, or PLF, from 92 per cent to 85 per cent. While there have been difficulties with coal supply, the real reason for the decline in PLF has been lack of dispatch.

    This means that at the margin, when electricity has been available, there have been no buyers. As India has a national grid where all the states are interconnected, this means that there have been usually no buyers across the entire country. There have been no buyers because the distribution companies which supply electricity to consumers cannot afford to buy more electricity — because they do not earn enough to pay for what they have been buying.

    In 2009-10, for the country as a whole, they took Rs 30,000 crore as subsidy from state governments — and still had losses of Rs 27,000 crore. At their tariff levels they lose money at the margin, so they need to restrict purchase and supply. This was dramatically highlighted in the front-page stories last week on power cuts in the sweltering heat in areas around Delhi even as power was actually available on the grid — and that too at prices which were not too high.

    Here is the real irony. In electricity the distribution business is regulated to take care of the consumer and to protect him; the supply of electricity being a natural monopoly. From state regulation, India went in for independent Regulatory Commissions with great hopes as a part of power sector reforms.

    But the dominant populist mindset nurtured over a generation whose natural response is that prices/user charges must not be raised — and that accounting, linguistic ingenuity, or diktats can somehow generate a “free lunch” (or free electricity, in this case) — has led to a situation in which the poor consumer cannot get the electricity that is available, and that too at fairly reasonable rates, but must suffer power cuts.

    Instead, the consumer is forced to spend far more for back-up personal arrangements through captive highly polluting and noisy diesel generation — or, more likely, to suffer the sweltering heat. India’s small and medium enterprises, the natural engines of growth and employment generation, are unthinkingly prevented from achieving their full potential and put to great competitive disadvantage. In the guise of protection, the consumer is actually denied choice.
     
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  3. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Good to hear the addition of 20GW in one year, very impressive. What is the addition target set out for the current 5year plan?

    If the domestic consumer is not willing to pay, then deliver it to the corporate and industries who are willing to pay, and then the excess be exported. Pakistan would be more than happy to have the excess.

    If I am not mistaken, the electricity rates have been nearly doubled if not more in Himachal, and people don’t complain because there is largely uninterrupted supply of electricity, and well, there is no concept of invertors/generators to chip-in in case of an outage, that is how uninterrupted the supply is.
     
  4. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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  5. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    prs legislative has some vital stats on the power sector.

    PRS | Parliament Track | Vital Stats | Some Data on Power Supply

    Again power generation capacity looks to be increasing well. Even transmission and distribution losses (T&D) have gone down from 31% to 25% between 04-05 to 09-10. However, a big gap remains with the finances of state distribution boards with agriculture paying very low rates and industry paying higher. Unless the free electricity for framers is not resolved, it will continue to be a drain on state electricity boards.
     
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  6. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Correct me if I am wrong.

    The installed capacity is 202GW, the demand is 130GW, the supply struggles at 115GW, the T&D loss limits the actual supply to end consumer who gets billed at around 90GW, but because there is subsidy being added, the actual billing is happening for just 70GW. Wow! What are we doing? We have this sector seriously messed up, and yes, the struggle is not about capacity addition but making the already existent processes efficient, and no, the fault doesn't entirely lie with the end consumer, as sighted in the first article, though they have definite role to play.

    Structural problems that come across, our electricity generation houses are working at a near 58% of the installed capacity largely because the CIL is struggling with coal mining targets, and our gas procurement contracts when done lack the requisite foresight.

    Then there is the politics over pricing, as usual the agri sector is heavily subsidised, at times, as happened in Punjab, electricity gets distributed free of cost, which only adds to the fiscal mismanagement, and of course the T&D losses.

    Yes, 20GW capacity addition in a fiscal was impressivebut that is not where the real focus has to be, though capacity addition needn't be over looked at all.

    Most importantly, and this is criminal if not done, the industry pays over the costing and are indirectly subsidising everyone else to whatever little extent, the supply to the industry and to people with commercial connections should be uninterrupted irrespective of what the rest have to go through.
     

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