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Power Sector Crisis in IndiaPower Sector Crisis in IndiaSeminar Paper Presentation

Presented By:

Arnab Kumar Roy

PGDM Operations

Roll No. 01



Power Sector OverviewPower Sector Overview

y India Worlds 5th largest energy consumer, accountingfor 4.0% of global energy consumption by morethan 17% of global population

y Power is generated by State utilities, Central utilities &

private players

y As per Central Electricity authority as on 31-11-11, totalInstalled Capacity of Power in India is 185.5 GW, statesector having the largest share of about 46%

StateSector, 45.8

PrivateSector, 31

CentralSector, 23.2



Working of the Power IndustryWorking of the Power Industry

y Major proportion of power is generated from thermal

sources, coal being the main raw material, accounting for

55% of the total power generated



The Power CrisisThe Power Crisis

y India faces a peak power shortage of 13 % as rising demandhas outstripped capacity growth

y India has always been a power-deficient country

y The country needs to add over 75,000 megawatts in next fiveyears to support its target of 9 per cent GDP growth, whichwill cost roughly Rs 1,098,000 crores (Govt. report)

y Power sector is the catalyst for growth, but investor appetite

is weakening



AThreeAThree-- fold crisisfold crisis

Shortage of Power

Inadequateavailability of

coal

Rising tariffs

Huge burdenof debt for

powercompanies



Inadequate availability of coalInadequate availability of coal

Over half of India·s 185.5 GW (185,500 MW) power generation capacity is coal-based

Domestic coal production has not been able to keep pace with acceleration in generation capacity addition

Coal stock in plants that generate this power is expected to last less than a week

The gap between demand and supply of coal is expected to be 83 million tonnes by the end of 2012

Coal India has missed production targets. During 2010-11, it produced 431 million tonnes, which is justmarginally more than what was produced in the previous fiscal

Environmental clearance and land acquisition issues have been a major bottleneck.

Declaration of 35% of forest area in nine major coal-mining zones as 'no-go' zones led to an immediate haltof mining activity in 203 blocks, which had a potential capacity of over 600 million tonnes



Supply Chain BottlenecksSupply Chain BottlenecksMost of the power plants requiring coal supply are in the interior of thecountry, often far from ports existing rail/road network provesinsufficient

Indian ports cannot take capsize vessels which carry more cargo (canget only Panamax freight: which are smaller and expensive)

Average time taken by ships to load/unload at India ports is almost 96hours, way more than in most other countries

Lack of co-ordination between Shipping and coal ministry overimproving the ports

Poor Logistical management has led many large coal consumers resortto higher quality imported coal instead

But in response, exporting countries especially Indonesia has imposedbans on exporting coal below notified rates and specified calorific value

Power equipment shortages like boilers, turbines and balance of plant(BOP) equipments has also been a cause of concern



Some other issues with coalSome other issues with coaly Coal shortages and the low thermal quality of coal supplies cause

disruptions in power generation and result in lower plant loadfactors

y Imported coal not only costs higher, blending of imported anddomestic coal raises the cost per unit to Rs 4 as opposed to just Rs2.50 per unit in case of domestic coal alone

y Barely any Fuel supply agreements (FSA) have been actually signedbecause of inability to meet existing contractual agreements

y Labour unrest, heavy rains, and Telangana protests has causeddwindling stock piles at power plants

y Given that it takes five to seven years to fully develop a coal mineabroad, the short-term solutions must lie at home



RisingTariff RatesRisingTariff Rates

y Power tariffs are essentially a sensitive political issue

y The Central Government has traditionally been biasedtowards the generators (NTPC), neglecting the Stateelectricity boards in turn

y

The power sector reforms advocated unbundling of thesector into:

Generation

Distribution

Transmission

y As a consequence, NTPC and private power companiesbecame increasingly more important in the grid. States keptlosing control over generation prices with no privatisation indistribution companies

y The SEBs now had to distribute power at costs reasonable to

for consumers, but without any control over it



RisingTariff Rates Contd..RisingTariff Rates Contd..

y Power generation costs depend to a large extent on fuel

costs

y In India, it ranges from a low of 28 paise a unit (where power

plants have access to captive mines) to Rs 2.60 a unit in the

case of imported coaly But tariffs across the country are much lower

y The sudden revision in tariffs is being done now after a gap

of several years

y

As an example, Tamil Nadu is one of the biggest defaulters -the power tariff here is an average of Rs 2.35 per unit. The

gap between cost to serve and revenues in the state is Rs

1.66 per unit

y Despite the recent hike in tariffs in Delhi, it is still incurring a

loss of Rs. 1.13 per unit



Huge burden of debt for powerHuge burden of debt for power

companiescompaniesy The current rise of tariffs is only a precursor of things to

come

y High technical and commercial losses which stand at 30 percent and inadequate subsidy payments from states hasalready led to loss of Rs 75,000 for state distributors

y It is estimated that the tariffs have to rise by about 50% forthe power sector to break even a feat politically impossible

y The private power companies have taken huge loans fromthe banking sector, lending to the power sector being awhopping Rs. 480,000 crores (Crisil)

y The banks will be left with the bad debts of private sectorpower companies, if electricity prices dont rise by 50%

y On the other hand, there will be a huge resentment amongpeople as they will find such rates unbearable



What is the Solution?What is the Solution?

y There is no easy way out of this crisis, without a hard look at the

basic policies that have been followed in the power sector

y The Steps that should be taken to improve the situation can be

listed as:

Distribution Reforms:

The aggregate technical & commercial losses (about 30%) which arise out of inefficient transmission and distribution infrastructure need to be reduced

Once distribution losses come down, much of the problems of distributioncompanies will come down

New reforms have to be brought in, including a crack down on electricitythefts, proper billing systems in place, and stopping freeelectricity(subsidies) for farms to reduce the burden



Solution Contd..Solution Contd..

Need to hike tariffs

There is no choice but for power companies to hiketariffs - need for mandated annual hike in tariffs

Its unlikely that there will be consensus in this amongthe states but for distribution companies to survive, it isimperative

There can be a differential pricing scheme, passing onfull prices to the consumers who can bear them andsubsiding the genuinely poor



Solution Contd..Solution Contd..y Need for fixing overall energy policy, not only fixing coal linkages

y Ultimate aim is reduce dependency on thermal power, and findthe right energy mix

Thermal power will continue to dominate our energyrequirements for some time to come, hence bettercoal linkages need to be established immediately

Need to bring in more private sector involvement,breaking the monopoly of Coal India Ltd.

An increasing role has to be envisaged for hydel andrenewable power in the energy mix

Government should address public concerns overnuclear safety, post - Fukushima



THANK YOU

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