CHALLENGES BEFORE INDIA'S POWER SECTOR

Electricity sector of any country is an important sector to help boost its economy and works as catalyst to her developmental efforts. Similarly the role of electricity sector is vital in the development of India’s infrastructure wherein all emphasis is on Make in India and ease of doing business to boost industries and business enterprises. Undoubtedly, power sector is fraught with multiple challenges and risks. According to Mckinsey & Company rapid economic growth has increased the burden on India’s infrastructure. India's electricity consumption is likely to touch from 1.1 trillion to 4 trillion units by 2030 -- four times increase in consumption. Despite massive roll-out of energy efficient schemes, we still see a possible 10 per cent jump in the electricity growth annually for the next 15 or 16 years, The fresh demand for power will come from the 230 to 300 million people who will get electricity for the first time and subsequent elimination of diesel generation sets because of access to power and from increased economic activity coming from the Make in India campaign, 

An infrastructure deficit is widely considered to be one of the factors that could severely impede India’s economic growth. Therefore powering India is imperative for sustainable economic growth. A concerted effort is required by all stakeholders, if successful, the power sector will contribute to the well-being of about 1.3 billion Indian population and in the process it will also create some of the largest energy companies. To overcome these, players will need to craft business models that will allow them to capture value in such an environment. The payoff of making an early entry will be significantly higher compared to entering when the sector has been reformed—the development of India’s telecommunications and infrastructure development industries serve as evidence of this. Indian electricity sector possibly the biggest business opportunity for the world has to offer today. So India is a bright spot offering a huge trajectory of growth in the electricity consumption. 

Now India has one central / national grid since 31st December, 2013 to serve the utility sector. According to Central Electricity Authority (CEA) as of July 2017 India’s total installed capacity of electricity generation is 330.15 GW (including generation of about 99 GW (i.e 30%) from renewable source).

We have 50,289 MW  captive power generation (above 1 MW capacity) in the industries. Captive power generation is a facility used and managed by an industrial or commercial energy user for their energy consumption. Captive power plants normally make a buffer provision to operate off-grid or they can be connected to the electric grid to exchange excess generation. 75,000 MW capacity diesel power generation sets (above 1 MW and below 100 kVA capacities) are also installed in the country. To meet the emergency requirements due to power outages / load shedding huge number of DG sets (of less than 100 kVA capacity) are used nationwide in industrial, commercial, agricultural and domestic sectors. However total installed capacity after deducting the retired plants due to old and obsolete has been 329,204.53 MW.  

Availability of electricity has been 11,35,334 MU as against the requirement of 11,42,929 MU in the year 2016-17 with a deficit of 7595 MU i.e -0.7%. The average annual per person per capita consumption of electricity in India in 2016-17 was 1,122 kWh which is very low in comparison to China 4,310 kWh in 2016, USA 12,1077 kWh in 2014 as per Central Intelligence Agency (CIA) data.

India’s peak power demand during 2016-17 has been 1,59,542 MU as against the installed capacity of 330.15 GW today. 1,56,934 MU of peak demand was met with a deficit of 2,608 MU (-1.6%). Under-utilization of existing assets affects them in profitability of power companies, hampers their capacity to service debt obligations and increases their risk of becoming non-performing assets (NPAs). There is an estimated 90 GW of grid-connected power capacity that is stranded.  

In the past few years, policy makers have recognized this and have made concerted efforts to accelerate infrastructure development. To begin with, in 2015 the government set a target for the electrification of 18,542 villages, out of which electrification of only  15,183 villages completed till date. Electrification of all the 18,542 villages by 2019 as announced by the government seems hard to achieve due to slow pace of electrification. Still as of today over 300 million people in India or 60 million households have no access to electricity. Of those who do, almost all find electricity supply intermittent and unreliable due to inadequate last mile connectivity. The country already has adequate generation and transmission capacity to meet the full demand temporally and spatially. First time in the history of power sector India is exporting power across the border. Still many consumers depend on DG sets using costly diesel oil for meeting unavoidable power requirements due to intermittent supplies by the utilities. Also more than 10 million households are using battery storage UPS as back-up in case of load shedding / power outages. India imports nearly US$ 2 billion worth of battery storage UPS every year. This is also true that many of the power stations are idling for lack of electricity demand. The idling generation capacity can supply three times the domestic electricity needs (nearly 80 billion KWh) of the people who do not have access to electricity. The distribution companies should focus on providing uninterrupted power supply to all the consumers by laying separate buried power cables (not to be affected by rain and winds) for emergency power supply in addition to the normal supply lines. This emergency supply power line supply power when the normal power supply line is not working. Emergency power supply could be charged at higher price without any subsidy but less than the generation cost from diesel oil. Nearly 80 billion kWh electricity is generated annually in India by DG sets consuming nearly 15 million tons of diesel oil.

Despite installed capacity exceeding power demand, some parts of the country face acute power shortages for reasons of

• Coal supply shortages
• high level of transmission and distribution losses and
• Poor financial health of utilities.

India is expected to spend a whopping US $1 trillion (about Rs 65 lakh crore) by 2030 on ramping up its power infrastructure as one of the world's largest energy consumers aims to provide 24/7 electricity to its citizens. India's focus is on Liquefied Natural Gas (LNG) for power plants, coal mining, clean coal technologies, renewable energy, R&D as well as tie-ups with premier research institutes. 
India has set an ambitious plan to add 175 GW of renewable energy (RE) generation capacity by 2022. The country aims to have 100 GW of solar power by 2022 along with 260 GW of thermal and nuclear generation and 62 GW of hydro generation capacity. As per International Energy Agency (IEA) estimates, India has planned to invest about US$ 845 billion in T&D (transmission and distribution) networks between 2015 and 2040 to ensure universal access to power for customers. 

Renewable Energy (RE) potential is vast and largely untapped in India. India’s solar potential is more than 750 GW and announced wind potential is 302 GW (actual could be higher than 1000 GW). India Energy Security Scenarios 2047 show a possibility of achieving a high of 410 GW of wind and 479 GW of solar PV (Photo Voltaic)  by 2047.

India’s resolve to generate 175 GW of RE by 2022 may dramatically reduce the coal import bill in 2022 and thereby the international pressure on her for reduction of greenhouse gas emission from coal fired generation plants of hydro fluorocarbon (HFC) gases.

But, to capture the benefits of RE, India would need to make available the necessary capital. Around 293 global and domestic companies have committed to generate 266 GW of solar, wind, mini-hydel and biomass-based power in India over the next 5–10 years. The initiative would entail an investment of about US$ 310–350 billion.

Between April 2000 and March 2017, the industry attracted US$ 11.59 billion in Foreign Direct Investment (FDI). Some major investments and developments in the Indian power sector are as follows:

• Greenko Energy Holdings, has raised US$ 155 million from its existing investors, Abu Dhabi Investment Authority (ADIA) and Singapore’s sovereign wealth fund GIC, which will be utilized for expanding its clean energy portfolio to 3 GW from 2 GW at present.
• Private equity (PE) investment firm, Actis LLP, is planning to invest about US$ 500 million in Solenergi Power Pvt Ltd, its second renewable energy platform in India.
• Mahindra and Mahindra Ltd is planning to invest in high-end electric power train technology in a move towards the future of mobility as well as for the electrification of its existing and future line-up of products.
• Hero Future Energies Pvt Ltd is planning to foray into the battery storage business and set up solar charging stations for electric vehicles (EV) in India to capitalise on India's emerging EV market.
• Asian Development Bank (ADB) and the Punjab National Bank (PNB) have signed a financing loan worth US$ 100 million, which will be used to support solar rooftop projects on commercial and industrial buildings across India.
• Tata Capital Ltd and International Finance Corporation (IFC) have invested Rs 200 crore (US$ 31.05 million) in their joint venture (JV), Tata Cleantech Capital Ltd (TCCL), to increase its loan book for investing in renewable energy projects.
• Group Plc, a development finance institution, plans to set up its own renewable energy platform in the eastern states of India like Bihar, Odisha and Assam, and other neighbouring countries to focus on developing hundreds of megawatts (MWs) of high-quality greenfield generational capacity.
• Japan’s JERA Co. Inc, has acquired a 10 per cent stake in ReNew Power Ventures Pvt. Ltd for US$ 200 million, valuing the company at US$ 2 billion before its proposed Initial Public Offer (IPO).
• The Indian Railways is looking to award six tenders worth Rs 8000 crores (US$ 1.2 billion), for setting up of a country-wide electricity transmission network, as part of a strategy to reduce electricity bills.
• Renewable energy company ReNew Power has announced securing US$ 390 million debt funding from its existing investor Asian Development Bank (ADB) for developing and expanding capacities of 709 megawatt (MW) across various states of India.
• International Finance Corporation (IFC), along with IFC Global Infrastructure Fund, the private equity fund of IFC Asset Management Company, has announced investment of US$ 125 million equity in Hero Future Energies, which will help the firm set up 1 GW of greenfield solar and wind power plants over the next one year.

The power sector for government of India is now a key sector of focus so as to promote sustained industrial growth. Some initiatives taken by the Government of India to boost the Indian power sector  though far from targeted time schedule are as under

• The Ministry of Power, Government of India, has taken various measures to achieve its aim of providing 24X7 affordable and environment friendly 'Power for All’ by 2019, which includes preparation of state specific action plans, and implementation of Green Energy Corridor for transmission of renewable energy, among other measures. Unfortunately the pace is slow to achieve by 2019.
• India has become an associate member of the International Energy Agency (IEA), which makes the Paris-based body more significant, indicating India's growing prominence in playing an important role in the global energy dialogue, according to the IEA.
• For secured fuel supplies to coal fired generation plants the Government of India plans to auction coal blocks for commercial mining by the end of December 2017, which would end the monopoly of state-run firms in coal mining and help in achieving the country's target of producing 1 billion tonnes of coal by 2020.
• The Cabinet Committee on Economic Affairs (CCEA) has approved a new coal linkage policy, aimed at providing necessary supply of fuel to power plants through reverse auction
• The Government of India has announced plans to implement a US$ 238 million National Mission on advanced ultra-super critical technologies for cleaner coal utilization.
• The Cabinet Committee on Economic Affairs (CCEA) has approved the enhancement of capacity of the Scheme for Development of Solar Parks and Ultra Mega Solar Power Projects from 20,000 MW to 40,000 MW, which will ensure setting up of at least 50 solar parks each with a capacity of 500 MW and above in various parts of the country.
• The Union Cabinet, Government of India has given its ex-post facto approval for signing of a Memorandum of Understanding (MoU) on Renewable Energy between India and Portugal, which will help strengthen the bilateral cooperation between the two countries.
• The Ministry of New and Renewable Energy (MNRE) plans to introduce a fixed-cost component to the tariff for electricity generated from renewable energy sources like solar or wind, in a bid to promote a green economy.
• The Union Cabinet has approved the ratification of International Solar Alliance's (ISA) framework agreement by India, which will provide India a platform to showcase its solar programmes, and put it in a leadership role in climate and renewable energy issues globally.

In the light of above the future of India’s power sector needs huge investment with fine tune monitoring for assured benefits because

• The Indian power sector has an investment potential of Rs 15 trillion (US$ 225 billion) in the next 4–5 years, thereby providing immense opportunities in power generation, distribution, transmission, and equipment.
• The government’s immediate goal is to generate two trillion units (kWh) of energy by 2019. This means doubling the current production capacity to provide 24x7 electricity for residential, industrial, commercial and agriculture use.
• The government has electrified 13,000 villages so far out of the total 18,452 villages and is targeting electrification of all villages by 2019, within the targeted 1,000 days. 
• Hence it is evident that the Government of India is taking number of steps and initiatives for increasing generation capacity to meet the power need  through RE. To promote and encourage RE the government announced 10-year tax exemption for solar energy projects in order to achieve India's ambitious renewable energy targets of adding 175 GW of renewable energy, with 100 GW of solar power included, by the year 2022 as stated above. The government has also to restart the stalled hydro power projects and increase the wind energy production target to 60 GW by 2022 from the current 20 GW.

To achieve all these end-to-end approvals and clearances are needed for making successful implementation of projects. Many of the project  packages did not see the light of the day because of delays / obstructions in clearances for land with access to water, basic connectivity, environment and site-related approvals. 
Capacity enhancement for generation will require time bound equipment manufacturing and related supply chain. To accomplish this, it is necessary to augment manufacturing capacity and  standardize plant modules. This will also require reviving mothballed or storing for emergency use component  capacity, unshackling PSUs by revamping internal approval norms and encouraging participation by local and international players. 
We need to have a system to identify, pick and choose and train and develop 300,000 skilled and semi-skilled workers. Man and material are big challenge on infrastructure development sector. Resolving the severe shortages in manpower will require a host of new training and development service providers. The government can help by strengthening the Industrial Technical Institutes (ITIs), setting up certification standards for a range of roles, enabling public-sector companies to expand their training programmes and encouraging new entrants into training and development.
Last but not the least there should be a body constantly evaluating the progress of the projects. The bad loans yielding no returns and thereby creating NPAs must be guillotined and that money should be shifted for the invested in result oriented projects. More often than not it has been seen that projects are sanctioned first and after that the project awardees start running from pillar to post to get approvals and clearances. In such a state of affairs many projects get stalled and subsequent creation of NPAs in banks. Hence the government should first ensure all clearances before handing over the projects to encourage PPP and international players. The government needs to create such environment of ease of doing business.