Numerous steps by the Indian government to combat challenges facing the domestic power sector will realise immense potential, says Anil Kadam, Solution Architect & Marketing, Energy & Utilities, Schneider Electric India.
The power sector in India is approaching a crucial juncture on the back of various reforms and initiatives taken by the government to resolve the challenges facing the industry. Power is critical for industrial growth, which, in turn, leads to sustained economic growth. India’s power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste.
Energy consumption in India has doubled since the year 2000 and is expected to more than double by 2040, which will account for one-fourth of global increase in the same period. Even after being the third largest market in the world in terms of gross electricity generation, India’s per capita electricity consumption is less than that of Africa’s and one-tenth of America’s level. In India, almost 250 million people still do not have access to power. Rectifying this situation will be critical if the Indian economy wants to grow five-fold by 2040 and policies such as ‘Make in India’, ‘Skilling India’ and ‘Digital India’ are to be a success.
Fuel supply issues
The government has addressed the grave issue of fuel scarcity in the right earnest. Coal output, which was stagnant for years, has increased significantly thanks to the coal auctions conducted by the government under the Coal Mines (Special Provisions) Ordinance. The Ordinance detailed the process of auctioning and allocating coal mines. Under the provision, coal mines have been auctioned to the private power sector, while the government has also allocated mines to Central and state public sector companies. This move is expected to promote efficient utilisation of coal, thereby bringing down thermal power costs.
Natural gas is also being auctioned for supplying fuel to gas-based firms, helping many stranded power plants to generate electricity.
Power generation peaks
India is the world’s sixth largest energy consumer, accounting for 3.4 per cent of global energy consumption. The country is also the sixth largest in terms of power generation. About 65 per cent of the electricity consumed in India is generated by thermal power plants, 22 per cent by hydroelectric power plants, 3 per cent by nuclear power plants and the rest (10 per cent) from other alternate sources like solar, wind, biomass etc.
Power capacity addition has seen a noticeable progress in recent years. According to the Central Electricity Authority (CEA), energy deficit and peak deficit are set to be eliminated for the first time this year leading to power surplus. The government is committed to improving the quality of life of its citizens through higher electricity consumption. The aim of the Government of India is to provide each household access to electricity, round the clock (24×7). The ‘Power for All’ programme is a major step in this direction.
Apart from enhancing the overall capacity of power generation, the Indian government is also taking productive measures to regulate its transmission and distribution. The Cabinet Committee on Economic Affairs has given its approval for setting up over 5,000 MW of grid-connected solar PV power projects on a build, own and operate basis. This would also help in employment generation for about 30,000 people in rural and urban areas with reduction of about 8.5 million tonnes of CO2 emissions every year. The government is also taking initiatives for expediting forest clearances and is undertaking intensive monitoring of critical transmission lines.
The power transmission sector has seen high performance in recent times. A total of 16,398 circuit kilometres (ckm) of transmission lines have been commissioned during April-October, 2016, which is 70.1 per cent of the annual target of 23,384 ckm fixed for 2016-17. Similarly, the overall increase in the transformation capacity has been 39,060 MVA during April-October, 2016, which constitutes 86.4 per cent of the target of 45,188 MVA fixed for 2016-17.
The weak link
Distribution is the most important link in the entire power sector value chain. As the only interface between utilities and consumers, it is the cash register for the entire sector. However, one of the biggest issues facing this segment is the financial condition of state discoms. To address this issue, the government launched the Ujjwal Discom Assurance Yojana (UDAY) in November 2015, to improve the financial position of discoms. The scheme could be a game-changer for the country as it is aimed at revitalising and returning the buying power of the weakest link in the electricity supply chain, i.e., the State Electricity Boards (SEBs). This initiative could result in these SEBs buying 15,000 MW of unsold power in the system and simultaneously providing power to 250 million people who do not have access to electricity.
Meanwhile, the Government of India is also focusing on attaining ‘Power for All’ which has led to capacity addition in the country. The competitive intensity is also increasing at both the market and supply sides (fuel, logistics, finances, and manpower). As an outcome, the total installed capacity of power stations in India crossed 300 GW as of August 31, 2016. Electricity generation also rose 5.69 per cent year-on-year during April 2016-August 2016.
Another government initiative that has been launched of late is ‘DEEP’ i.e., Discovery of Efficient Electricity Price. It has been launched in the form of an e-auction portal for compulsory purchase of short-term power (for a period of more than a day to a year) by state discoms through reverse e-auctions. Earlier, short-term power trades used to take place either on power exchanges or bilaterally (directly between a discom and a power producer) and accounted for about 10 per cent of the country’s power generation.
Since April 2016, all bilateral trades are being conducted on the newly launched e-auction platform DEEP. The new platform has resulted in the participation from a much wider network of players (as compared to bilateral trades) via a reverse auction methodology. This is expected to bring in greater transparency and thereby bring down tariffs.
Renewables taking rapid strides
India is ranked among the top investment destinations in the renewable energy sector and this feat has been achieved on the back of strong focus by the government on promoting renewable energy and implementation of projects in a time-bound manner. The government has embarked on an ambitious solar programme and plans to add 100 GW of solar capacity by 2022, along with 60 GW of wind energy, among others. The government has also committed to reduce emissions intensity by 33-35 per cent below the 2005 level and that 40 per cent of its electricity would come from renewable sources by 2030.
Apart from increasing targets for renewable energy use, the government has imposed a coal tax of Rs 400 per tonne to discourage consumption of coal-fired power, and is planning to install ‘supercritical technology’ in new and existing power plants that will generate more electricity from less fuel, thereby increasing energy efficiency. India recently achieved a major milestone in solar power capacity addition with its cumulative solar capacity crossing 10,000 MW in the country.
Keeping up with this momentum, India is expected to become the world’s third biggest solar market next year, after China and the US. An average annual capacity addition of 8-10 GW per annum is expected from next year. In the solar rooftop segment, improving net metering implementation and subsidy disbursal are expected to lead to a significant demand boost for rooftop solar across consumer segments. There is also a strong impetus on increasing rooftop solar deployment in government-owned buildings. Around 1,500 MW of potential rooftop solar capacity has been identified in Central ministries and departments alone.
The way forward
The Indian power sector has an investment potential of Rs 15 trillion in the next fourÃ»five years, thereby providing immense opportunities in power generation, distribution, transmission, and equipment. The government’s immediate goal is to generate two trillion units (kilowatt hours) of energy by 2019. This means doubling the current production capacity to provide 24×7 electricity for residential, industrial, commercial and agriculture use. However, the sector is facing multiple challenges like risk of high fuel supply, the limited capacity to pay on the part of financially weak distribution utilities and cost overruns at plants operated by Independent Power Producers (IPPs).
Nevertheless, the Indian government is taking numerous steps and initiatives to curb the challenges. The government’s newly launched schemes like the National Smart Grid Mission, the scheme for gas-based power plants and Integrated Power Development Scheme will help the power sector to perform well in the times to come.
About The Author
Anil Kadam, Solution Architect & Marketing, Energy & Utilities and Smart Cities Schneider Electric India.