Power sector’s sustainability depends on environmental issues

Experts debate ways to bolster capacity and cut transmission loss while keeping ecological concerns in mind

Bottlenecks in the power sector threaten to slow the world’s second fastest growing major economy. India is set to miss even its lowered target of adding 62,734 megawatts (MW) of generation capacity in the 11th Five-year Plan period (2007-12).

Is there a way to bolster capacity and curtail transmission loss while keeping ecological concerns in mind? An expert panel comprising P. Uma Shankar, Union power secretary; Pramod Deo, chairman of the central electricity regulatory commission; Arup Roy Choudhury, chairman and managing director of NTPC Ltd; Shubhranshu Patnaik, senior director, energy and resources, Deloitte India; and Pawan Parikh, vice-president and head, power transmissions system, Siemens, debated ways of Providing sustainable solutions to India’s power crisis, at Mint’s Clarity Through Debate programme in New Delhi last week.

The panel agreed that the sector’s sustainability depends on environmental issues, availability of fuel and land, assured flow of revenue and innovative technology and practices. Utpal Bhaskar of Mint moderated the discussion. Edited excerpts.

What really ails the Indian power sector?

Uma Shankar: First of all, let’s look at some numbers. The peak shortage used to be 16%-plus at one point of time, now we are down to sub-10%. We used to meet peak demand of 90,000MW in 2007 and now consistently we are meeting a peak demand of 110,000MW. Second thing is, on the energy shortage side, we used to have close to 10% shortage, but now we are down to 5-6%. These two are the major developments.

It is definitely true that the targets that we set for ourselves are not going to be met in that sense. But again, if you look at energy generation, it has increased over time. In 2007, we used to generate 660 billion units and now we are close to 810-plus billion units and this year we are looking at about 850 billion units. It is true that we set for ourselves a target of 78,000MW and then revised it to 62,000MW. But it is a question of what we set for ourselves. If you want to reach tree-tops, they say, you have to aim for the stars. On the positive side, we have more than 78,000MW projects under construction. Actual commissioning we have done for more than 40,000MW as of today. This is twice we did in the 9th Plan and 10th Plan. On capacity addition, we have definitely improved.

Patnaik: The progress of the power sector in the last two-three years has been hugely creditable. The generation capacity addition has been unprecedented. The policy regulator environment has improved hugely. There is a lot of clarity around transmission, open access and competitive bidding, so all those are right things at the right place. (But) there are also certain things which have emerged probably in the last three quarters or so, creating a lot of apprehension among investors. The issues, which have not necessarily cropped up overnight, were there, which have now come to the boil. For instance, issues around distribution losses and distribution part of the network…will it be enough to pay for the capacity addition that has been planned for the future? There are issues around fuel security and resource availability for this type of capacity addition going forward. For the private sector there are concerns that can be road blocks.

Have things been satisfactory from a regulatory standpoint?

Deo: The important thing is the private sector contribution to the sector, which has increased. What gives comfort to the private sector is policies, which have been put in place. You should be able to sell the power.

Are renewables the way forward?

Deo: Not immediate… unless when you can achieve grid parity.

Land has become an emotive issue today. How important is a correct land acquisition policy?

Uma Shankar: You need lot of land in time. You believe that land is available in plenty and you probably look at far more land than required. So we tried to reassess the land requirement for different-sized projects and got the Central Electricity Authority to issue guidelines reducing land availability by 15% to 30%. Going forward we should look at even lesser requirement.

Choudhury: Land is an issue because of the density of the population. The power projects at one time were distributed state-wise and not based on availability of the fuel. Slowly we are getting to a situation where we are trying to locate projects in the fuel bearing areas as far as possible. We look at areas where there is a fallow land and not cultivated land so that you really don’t infringe upon the daily needs of the citizen of the country but you do have to set up power projects. Since we are in the huge expansion mode, looking at the country’s requirements, it is very important the stakeholders are taken along with you when you acquire the land. We are very keen that all the villages in 5km radius of our plant have 24x7 electricity so that they know from the beginning if the power project is coming into their vicinity they have power 24x7, which then makes them co-operate.

On the land issue, I think we will have to take people along, we have to look at location of the project we are looking at, and we have to look at the minimum amount of land that can be used.

How do we stand from the fuel security viewpoint? Domestic supply of coal and gas has not been able to keep pace with the demand.

Uma Shankar: As far as gas is concerned, I suppose we can only make request to the concerned ministry to help us with gas. We have been working with the ministry of coal for the requirement for the projects in current year. Initially we had an estimate of about 319 million tonnes (mt) coal for the year and with lot of effort we could increase it to about 347 mt for the year. We are further working with them to see if more could be made available. There are some issues relating to environment leading to some difficulties in increasing the production. So this is being addressed by group of ministers. We expect there would be changes, which would help coal ministry to increase the production. Other thing we see is fair amount of production being available at coal pit heads is not moving on. This is another area we are working with coal ministry.

Developers are increasingly concerned due to the sharp hike in commodity prices.

Patnaik: It’s a matter of concern. Some of the important coal-based plants were built three years back, and things have changed dramatically since then. So part of the answer may be that the bidder should be brought back into the equation. Part of the answer is that one needs to receptive to the changes happening in other jurisdiction and other countries, and that has to be evolved. Imported coal is definitely here to stay. Imported coal will form a definite part and we are already importing 25% of coal requirement annually, and it is going to go up in the future. And we have to have a policy at national level as to how to acquire assets abroad and that includes how PSUs (public sector units) bids for assets abroad, which needs to be addressed. PSU will need to be brought into the equation, which is key to India’s own security.

We have also seen that while there is enough imported coal available, power procurers are not willing to buy the costly power.

Choudhury: As far as fuel is required, it is food for us. You have to manage coal. I don’t think so it is a major issue today. Yes, there are problems once in a while here and there, but we should be able to get the amount of coal you required for the capacity addition that we are planning. Now a question arises do we have domestic coal or should we go for imported coal. Imported coal is two-and-half times costlier than our own coal and it is going to have an effect on tariff. How that tariff is going to be absorbed by the consumer, whether it will go as pool tariff...that is something to be decided in separate situation. As far as a commercial entity NTPC is concerned, it doesn’t make a difference to us. As far as the national position is concerned, we do have a problem.

How do you ensure meeting generation targets in the background of climate and sustainability issues?

Uma Shankar: There are more and more plants based on supercritical equipment in the current plan and in the next plan we are only going to support supercritical and that will help in bringing down emissions. Then there is a mention of increasing renewable power generation and we will be looking at more hydropower projects. Also energy conservation is a very big programme we have taken up. We are also looking at reducing energy consumption and increasing efficiency of the sector. Eight specific sectors have been identified by increasing their specific energy efficiency. It has to be multipronged strategy. If your main source of power generation is going to be coal, you cannot get away from that. You will have to see you use clean coal technology and increase the share of renewable in your basket. You should also look at other methods where you can bring down CO2 (carbon dioxide) emissions.

Choudhury: There are contractual issues that the public sector faces when setting up a hydro project. I think we have to take it as a nation on a mission mode and all clarifications needs to be given across the table—public sector or any company from the private sector should not get entangled between state and centre issues and if there is a contractual issue, an action must be taken at some level where questions are not asked after five years whether you took a correct decision or a wrong decision?

What role will technology play?

Parikh: When you say sustainable solutions, the word describes it, starting from a smaller footprint, solving the land issue, requiring less coal to produce the same watt of power. One has to take care of other issues and other linkages of the whole power supply chain. In the case of efficient transmission by using HVDC technology, one can transmit power by practically saving 10% and this actually solves a lot of problem. While you have the power plants at one side of the country but the generation is far away from the users. HVDC therefore links it efficiently. I just did a back of the envelope calculation, if you actually go for a HVDC line of transmission... you can have a transmission line of which the corridor is about 84 metres, and if you compare it with the conventional 400 kV transmission, which will be running into 300 metres.

Uma Shankar: You have to look at the entire chain. In fact, generation is second step in the chain, first is coal supply. You have to have end to end solution, coal bereft of other material should be supplied to generation companies. There should be efficient generation, transmission and distribution along with the end use appliance be efficient.

Is distribution the weakest link in the sector?

Uma Shankar: Distribution is the weak and the most important link. Being the cash box, it has to become strong, healthy and vibrant, there are no two ways about it. The tariffs do not reflect the cost. There are some distribution companies which are doing very well and some are not doing well so we need to desegregate and address them differently. The ministry is trying to ensure that the tariffs reflect costs and the revenue realization is at least as much as the cost of supply.

Why are tariffs not being revised and what can the regulator do to solve the problem? The cumulative losses till 31 March 2009 are around Rs. 75,000 crore.

Deo: We are dealing with political economy of electricity, after all the whole idea of the regulatory commission in 1998 was to take the process of tariffs determination out of political purview. And the idea was to have techno-economic body, which will do it on scientific basis. The difficulty has come in the context that you expect a techno-economic body to do a very political process, after all tariff determination is being done for state- owned utility. We are not supposed to do tariff for commercial entity. We are doing it for a utility that is owned by the government. It is always difficult to increase the tariff. The law itself has given that each regulatory commission will have a formula for that. We have framed a model tariff regulation, where we tried to address these issues. The important thing is that the distribution companies have to file annual revenue requirement. It is again a debatable thing as tariff policy says we can do it suo moto. We did study of 10 state utilities and we found that tariff petition has not been filed on time.The issue now comes is what are your actual distribution losses and the whole problem is you don’t know how much agriculture is consuming.

Uma Shankar: What is important is to look at gap between the ARR (annual realized return) and ACS (average cost of service) that is how much is revenue collected per unit of supply and the cost of supply. If there is a negative gap, i.e. expenditure is more than income, then there is going to be a problem.

Deo: We don’t know how much is consumed in agriculture. You are supposed to have metering in agriculture, which for all practical purpose is not going to happen. All the new connections have to be given meters. The fact remains is very large percentage is un-metered. What we have proposed, to know the real number, we must have statistically based random sampling done and estimate the consumption.