The Economic Survey 2010-11 highlights that India has some of the lowest and most uneconomic average electricity tariffs at retail levels, which are 50-80% lower than tariffs in countries better endowed with coal or gas energy (like Canada, South Africa, the US) and 135-150% lower than most European and developing countries'. The report also highlights that India has very high unmetered and unaccounted sales of around 35%, among the highest in the world.
Today the world is consuming more of every fuel. Emerging economies are increasingly producing and consuming more energy. In 2000, China accounted for just under a third of world coal use while in 2010 it accounted for around 48%. With the emerging economies expected to grow more, the pressure on fossil fuels is expected to increase.
Even as the bulk of the country’s electricity comes from thermal plants, concerns remain over output from domestic coal mines and gas reserves and availability of water. This calls for a unified and integrated approach to the power sector.
To make optimal use of the country's natural resources, for projects that require fossil fuel allocations, bankability and tariff competitiveness might also be included as selection criteria so that the risk of the power project being stranded for want of funds or marketability of power is avoided. Also, to ensure that no generating station is stranded for want of on fuel, fuel allocation should be done only to the extent of capacity that fuel production can sustain. For example, if the capacity seeking allocation is 50,000 mw, and the domestic incremental fuel supply can support only 30,000 mw, then the allocation should be restricted to 30,000 mw.
Now that it is becoming clear that fossil fuels will have to be imported for sustaining the sector's growth, a framework should be put in place to enure that adequate port, rail and pipeline capacity are added. Also, the government has to facilitate acquisition of fuel assets overseas by Indian private and public sector companies.
As there will be projects based on non-fossil fuels, estimate will have to be made on which projects in hydro, renewables, etc are doable and in what time-frame.
However, since the cost of producing electricity with imported fuel or renewables is substantially higher than electricity produced from domestic fuel, in the current set-up where distribution utilities are in huge losses, such projects may not become viable until the overall health of distribution utilities improves and retail tariffs are sustainable for the entire system. This would warrant a revamp of the retail tariffs across the country.
There could be an empowered body under the PMO, with cross-functional representations from concerned ministries — that is, power, environment and forest, coal and petroleum & natural gas, railways and shipping — along with power sector lenders and senior representatives from states on a rotation basis to carry out a more holistic planning to support capacity addition in the power sector.
Since this body will have representatives from the ministry of environment and forests as well, more informed screening of the projects, be it fossil fuel-based or hydel-based, can happen at the preliminary stage of the project itself, avoiding situations where a project can be put on hold due to environmental concerns even at an advanced stage of implementation.
After this empowered body sets allocation of fuel for shortlisted projects; decides on the infrastructure requirements; and the targets for acquisition of assets needed overseas; there should be rigorous and focused follow-up of the shortlisted projects.
As it is said, it pays to plan in advance. It was not raining when Noah built the ark!
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