Strategies to increase power generation

Policy-makers are looking at energy portfolio to maximise power supply

Monika Nautiyal

Power generation in India has grown at a compound annual growth rate of about 5.82 per cent in the last decade, from 3,50,490 million units (MUs) in 1995-96 to 6,17,382 MUs in 2005-06. Of this increase, thermal power contributes 66.3 per cent to overall capacity; coal, 55 per cent; gas, 19 per cent. The remaining one per cent is based on diesel.

The requirement is to add over 1,00,000 MW of capacity to meet the target. It has been planned to add 32,000 MW in the Tenth Plan period, and 67,500 MW in the Eleventh Plan.

Just about 34,000 MW is planned to be added by the central public sector undertakings (CPSU), of which 10,000 MW will be through hydel power. The state and private sectors are expected to add 16,000 MW and 12,000 MW, respectively. 

One of the problems that has affected generation is constrained fuel supply. It is estimated that the country lost around 18 billion units of power in 2005, which is 3.2 per cent of total generation, on account of inadequate fuel. Twenty of the 75 thermal plants suffered from critical fuel shortage.

All those dealing with power generation complain that fuel, particularly coal, is in short supply, mainly towards the end of the month. This is because the coal industry failed to match the pace of power development. The coal industry did not expect power capacity additions to exceed 50 per cent of the target, and hence did not make adequate supply arrangements.

By the end of the Eleventh Plan, the requirement of coal is expected to be 500 million tonnes (MT), whereas the production would only be around 413 MT. The shortage of 87 MT is likely to be met by imports and supply from the remaining confined coal mines. But imported coal is not cheap, and it will only add to the costs. 

The share of thermal power as a proportion of total power generated has decreased from 71 per cent to 66.3 per cent in the last decade. The share of hydro has increased to 26 per cent from 25.7 per cent. The increasing price of oil, gas and coal in the international market has accentuated the significance and desirability of hydro power. An initiative to add 50,000 MW of hydro capacity by 2017 was launched in August 2003. The intent is to increase the share of hydro power generation from 26 per cent to 40 per cent. 

Of the fossil fuel supplies, there is delivery constraint with respect to gas. A number of gas plants today are running at sub-optimal plant load factor (PLF) levels due to shortages. The government has decided not to embark on new projects that rely on gas. It is feared that supply shortages can disturb the capacity addition plans, reduce PLFs, as the rising crude prices have led to firmer naphtha and natural gas prices.    

Emerging environmental concerns have led to an increasing interest in renewables (comprising wind energy, solar energy, biomass power, photovoltaic energy and mini hydro plants). As per the Central Electricity Authority (CEA) reviews the cost-effective hydro potential of India is about 84,044 MW, but it contributes just 6,000 MW at present.

State Electricity Boards (SEBs) and the new state generation utilities have an installed capacity base of 70,224 MW that accounts for a share of 57 per cent. Sector-wise, the states contribute the maximum generation capacity. Power producers in the central sector, like NTPC, NHPC and DVC, account for 32.2 per cent of installed generation capacity.

The contribution of the private sector was 11.3 per cent in 2005-06. Amongst the private players, Tata has the highest installed capacity, at 2,300 MW. In terms of actual generation, private contribution is 8.7 per cent. There is renewed interest in Independent Power Producers (IPPs) in the power sector. Private IPPs contributed 5,691 MW to installed generation capacity in March 2006.

Captive power plants (CPPs) also make a major contribution, which is more than one-fifth of the total installed capacity. In the last three years, captive capacity has grown at an average of 1,600 MW per year. Conventionally, the attitude of the utilities towards the CPPs has not been flattering since the CPPs were seen as a threat to the discoms as they could divest the state utilities of their strong clients in the industrial and commercial sector. But recently the introduction of ABTs (Availability Based Tariffs) has changed the thinking of discoms. They have to pay huge prices as they have to source power from the grid during low frequency periods. During this time the CPP power comes in handy at a much lower tariff.

Foreign Direct Investment up to 100 per cent under automatic route is permitted in electricity generation (except atomic energy), electricity transmission and electricity distribution. According to RBI sources, FDI inflows in the electricity industry amounted to US $14 million in 2004-05. There is evidence of revival of interest among foreign investors in recent past in the Indian power sector. Also, the sector is currently receiving the attention of the chief

policy-makers, conveying the gravity attached to it. The efforts made in recent months to revive Dabhol Power Project also have a signal value to the investing community.