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Empowering India

EM news bureau ,  Friday, February 12, 2016, 14:42 Hrs  [IST]

Lead 01 Generation.jpgElectricity is a subject that touches every citizen – both directly and indirectly. Not only is it an enabler of human life but electricity is also an index of socio-economic development. It is simple truth that have access to electricity led a distinctly different, and better, life from those that don’t. In fact, the quantum of electricity consumed by a household, an industrial unit or even a nation, can speak much about how developed it is.

Even after sixty-five years of Independence, the per capita consumption of electricity in India is just about 1,000 kwh per year. Though this has grown by around 20 per cent over the past five years or so, the absolute level is still a far cry from 15,000 kwh, which is the metric for the developed world. Even China, another developing nation, has aggressively outpaced India and today boasts of an average per capita electricity consumption of 4,000 kwh per year. Add to this the fact that nearly 30 per cent of Indian households do not have access to electricity. There are areas in northeastern India where over 50 per cent households have no electric connection. This is a paradoxical situation when juxtaposed by the fact that northeastern India is the country’s seat of hydropower potential!

When we speak of Empowering India, we are dealing with a vast and intricate subject with multiple dimensions. A wide-ranging topic, it could cover everything from coal supplies to power generation plants on the generation side right down to setting up Smart Grids, on the distribution side. It can also include demand side management, which is bringing about efficiency in electricity consumption.

The transmission & distribution (T&D) sector is considered as the weakest link in the power value chain. Any attempt to empower India must address multiplicities of issues affecting the T&D sector. In this special story, we attempt to discuss some of them.

Transmission: As of December 2015, India’s total installed power capacity, including renewables, stood at around 2.84 lakh mw. Over the past five years or so, India’s power generation capacity has increased by over 50 per cent while transmission capacity has shown a growth of just around 25-30 per cent. Thus, for effective evacuation of power generated, transmission infrastructure needs to grow commensurately. India is a vast country where consumption areas are very different from generating centres. For instance, northeast houses the hydropower potential whereas eastern India is the main source of thermal power. Consumption centres, on the other hand, are north, south and western India. This calls for high-capacity transfer of electricity across very long distances. Power transmission is a land-centric activity and securing right-of-way across can prove arduous at times. It is in this context that high-voltage transmission would definitely play an important role. Today India’s power transmission infrastructure is of 765kV level as against 400kV a few years ago. Efforts are on to introduce 800kV HVDC and even 1,200kV UHVAC transmission infrastructure. In conjunction, technology like VSC and FACTS are also being deployed to reduce the right of way requirements. It is encouraging to note that government is also increasing the compensation to landowners for faster acquisition of land. All these measures, in combination, are expected to result in maximum power transfer capacity with minimum geographical footprint.

Power transmission, in the coming years, will not be limited to transferring power from Point A to Point B. With open access, the flow of electricity from source to destination has become rather unpredictable. In the coming years, it will be difficult for a power producer to predict who the buyers of electricity would be. It was traditional for a power producer to have a fixed customer base, and there was always transmission infrastructure available for the same. However, the dynamics are today changing. A customer in south India is more interested in sourcing cheap power from, say, Chhattisgarh as rates are low. However, such a transfer was never conceived in the past. The transmission network in the country will therefore get more and more intricate to facilitate an ever-growing quantum of power transfer. Power plants selling at higher rates will be forced to shut down while those selling at competitive rates will be sought after. In January 2014, a truly National Grid came into being where all regions became connected to each other synchronously, i.e. at the same frequency of 50Hz. Augmenting capacity of the National Grid will be one of important goals of Central Transmission Utility Power Grid Corporation of India Ltd (PGCIL). The total interregional capacity of the National Grid is expected to grow to 72,250 mw by March 2017 from around 27,750 mw as of March 2012. As of December 31, 2015, this capacity is around 55,350 mw.

Village electrification: Providing electricity to every village has been a priority of the government’s agenda since Independence. Currently, village electrification is being carried out under the Deendayal Upadhyaya Gram Jyoti Yojana (DUGJY) that includes the task of providing electricity distribution infrastructure in rural areas and all objectives under the erstwhile Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). The new programme involves electrification of 1.21 lakh un-electrified villages and intensive electrification works in 5.93 lakh villages. As of June 2015, electrification of 1.10 lakh un-electrified villages was completed. On August 15, 2015, Prime Minister Narendra Modi announced that the remaining 18,500 villages will be electrified in 1,000 days. However, it must be appreciated that a village is defined to be electrified if 10 per cent or more of its households have an electricity connection. Hence, even if a village is technically “electrified”, it could still mean that nearly 90 per cent of its households do not have an electric connection. Providing electricity to each and every household will be the most daunting task as India has thousands of villages in such far-flung areas that conventional grid power simply cannot reach. It is here that solutions like solar power could prove very effective.

Power Distribution

India can be empowered when its power distribution sector is technically and commercially efficient. Today, the situation is appalling. Power distribution is not only the weakest link in the power value chain but it is vitiating and negating all the efficiencies that the power generation and transmission segments are trying to bring in. Being the only customer-centric link in the power value chain, power distribution has been a populist subject, and hence inherently political. Politicians across party lines have resorted to trading in power for political power. Electricity, either free or at very heavy subsidy, has been offered to consumers by political parties since Independence. The government could never sustain power distribution as a viable business; it was always a strictly-for-loss enterprise. Today, the country is staring at a highly atrophied power distribution sector but is making valiant attempts to at least structure and pursue a potential solution.
The morass in the power distribution sector is evident from the fact that as of March 31, 2015, the accumulated losses of state distribution companies (discoms) stood at a staggering Rs.3.80 lakh crore, and the outstanding debt of state discoms was an equally precarious Rs.4.30 lakh crore. What is most appalling is that this outstanding debt has nearly doubled to its current level in just three years. It has come to a stage when discoms are seeking loans to defray their operational expenses. State discoms have got into a debt trap. There is little revenue arising from consumers as the distribution network is fragile and so is the revenue realization mechanism. There is no wherewithal to upgrade infrastructure which is why there is no potential growth in revenue. It is also observed that state discoms are not purchasing power as they cannot afford it. This has artificially brought down power shortages. Hence, power distribution has come to a highly ironical and extremely counterproductive stage where there is a consumer that is willing to purchase power but there is no distribution company that can “afford” to sell!

In the past, at least two major bailout packages were offered to state discoms but none of them really worked with discoms gravitating rapidly to their original state of disrepair. In November 2015, the Cabinet cleared the Ujjwal Discom Assurance Yojana (UDAY) that offers a potentially permanent solution to the power distribution crisis. Under this scheme, state governments will take on 75 per cent of the outstanding loans of discoms. The Central government will not include the debt taken over by she States as per the scheme in the calculation of fiscal deficit of respective states in the financial years FY16 and FY17. States will issue non-SLR including SDL bonds in the market or directly to the respective banks or financial institutions holding the discom debt to the appropriate extent. The scheme also envisages that states shall take over the future losses of discoms in a graded manner.

It appears that states are viewing UDAY with favour. According to reliable sources, 15 states had signed up for the scheme as of January 5, 2016. Joining the scheme entails forming a tripartite agreement between the state government, the state discom and the Union power ministry. Four more states had given their in-principal approval to join UDAY and the Centre is hopeful that by March 31, 2016, there would be 21 states onboard.

Privatisation: Even as power distribution has been largely a government subject, India has had a sprinkling of private utilities in cities like Mumbai, Ahmedabad, Kolkata and Jharkhand even before Independence. These utilities have always followed a sound business model and have generally been techno-commercially efficient. It is widely believed that private sector entities would do a better job even in a messy area like power distribution. Private entities have an inherent business-like approach and are better equipped than public sector entities, especially the traditional ones, in fields like managerial skills, resource management and operational skills.

If there is one power sector-related endeavour in which India has summarily failed is privatisation of power distribution. The Electricity Act in 2003 envisaged increasing role of private sector participation especially in circles with unreasonably high technical and commercial losses. Incidentally, India’s ATC losses in the power sector are estimated to be in the region of 22-25 per cent during the period FY13 to FY15. This is clearly unacceptable given that the world’s metric for distribution losses is 4-8 per cent. Most of the ATC losses in India arise from the commercial side manifesting from power theft, unmetered connections and non-payment of dues, among several other factors. By FY22, India has pledged to contain ATC losses to 15 per cent, which would be much better than the present situation but still a far cry from global standards.

Privatisation of power distribution circles can be realized mainly through two models— distribution franchisee (DF) model or the private licencee model. Over the ten-year period that privatisation is being pursued, the overall result has been very disappointing and has belied even modest expectations. The licencee model has worked in Delhi with private entities like Reliance and Tata Power. Apart from that there have been few cases of the distribution franchisee model. However, the overall achievement has been unsatisfactory. One doesn’t get the confidence that the level of privatisation in power distribution will be anywhere close to that being seen in generation or transmission. The area of power distribution is inherently complex and hence needs much more government support, political will and a policy framework that inspires private sector participation. So far, the progress is not worth discussing and it is only hoped that the government will take privatisation in power distribution with the same earnest and seriousness that it has shown in bailing out inherently inefficient government-owned discoms.

India has cherished ambitions of launching smart grids and even smart cities. Whatever be the extent of smartness that Indian electric grids could “afford,” it must be appreciated that decimating technical and commercial losses in the grid should be the first priority. The efficiency achieved by just this will define a new paradigm in India’s electricity sector. Aspiring for smart grids, by itself, certainly needs to be encouraged. Tokens like smart grids may help India emulate global standards. However, it will be only a recognition of India’s technical capabilities. It is very easy to see that private utilities have already introduced smart grid-like features and in that respect, the grid is already “smart,” at least in circles under private management. Bulk of the concern rests with government-owned distribution companies. India needs a smart approach to resurrect its atrophied discoms; smartness of the grid will be a natural consequence.

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