7 PM | Power Sector: Future Road Map | 1st July, 2019

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Context:

With the National Democratic Alliance government stepping up efforts to supply round-the-clock power to all, power minister Raj Kumar Singh has called a meeting of key stakeholders including company executives on Monday to help prepare the power sector road map for the country, said a person aware of the development.

More in news:

State-owned CIL allocated 27.14 million tonne coal to the power sector under special forward e-auction mechanism last fiscal(2018-19), registering a decline of six per cent from the previous year. According to the latest monthly report by the coal ministry prepared for the Cabinet, Coal India (CIL) allocated 28.93 MT of the dry fuel to the sector in 2017-18. India is looking at a mammoth $500 billion worth of investment in creating renewable energy generation capacity with tendering of 500 Gigawatt (Gw) by 2028 in addition to $250 billion investment in grid expansion and modernisation required for uptake of green energy capacity, according to the Institute of Energy Economics and Financial Analysis (IEEFA). According to World Bank Report: Power Sector Distortions Cost India Billions, 178 million people in India still lacked access to grid electricity in 2017, and power cuts harm economic production and consumer wellbeing. The 2018 Global Competitiveness Report ranked India 80th among 137 economies in the reliability of electricity supply.

Present status of power sector:

Challenges faced by the power sector:

  • Generation capacity increasing, but utilisation of generation capacity is still low: Historically, inadequate generation capacity was the key contributor to power deficit.  However, generation capacity has improved in the last few years due to high participation by the private sector. Over the years, the capacity to generate electricity has increased, however the actual generation of electricity has not been commensurate with this increased capacity.  Key reasons for the low utilisation of generation capacity are: (i) shortage of fuel, especially coal, and (ii) unviable Power Purchase Agreements. The coal sector has failed to match production with the growth in coal-based generation capacity.  This has created a gap between the demand and supply of coal. As a result, India’s coal imports have risen from 59 to 233.56  million tonnes from 2008-19.
  • Decline in AT&C losses has been slower than the target:  Aggregate Technical and Commercial (AT&C) loss is the percentage of power procured by the discom for which it did not receive any payment. The national average for AT&C losses for 2017-18 is 22.73.  In countries such as UK and US, AT&C losses are about 6-7%.
  • Differential tariff, delays in tariff revisions lead to financial losses:  In 2013-14, the average cost of supplying power was Rs 5.9/kWh whereas the average tariff was Rs 4.8/kWh.  In the same year, across consumer categories, the average tariff was highest for commercial (Rs 7.6/kWh) and industrial (Rs 6.3/kWh) consumers.  Average tariff was the lowest for agricultural consumers at 1.8 Rs/kWh (due to direct subsidies received from the state government and cross-subsidisation by commercial and industrial consumers). Recently in the state of Andhra Pradesh, state government planned to reopen the power purchase agreements inked under the previous government. According to a Andhra Pradesh government order dated 26 June, Cabinet Sub Committee has been set up to “identify the person/persons/institutions responsible for prima facie mala fide decisions and actions, and recommend appropriate action.” This decision led to confusion and instability among power suppliers and power purchasers.
  • The financial condition of power distribution companies has only worsened after the launch of the Ujjwal Discom Assurance Yojana (UDAY). Their dues to power generators, at over ₹41,000 crore, have been rising after the launch of UDAY in 2015. The aims of UDAY — reduction in aggregate technical and commercial losses, reduction of the gap between costs and revenue and tariff revisions — have not been met. 
  • Challenges to Renewable energy: The cap on tariffs, imposition of duties on solar panels, infrastructure constraints, execution and operating challenges have made investors worried about the viability of projects. 

Solutions:

  • As of September 2018, a draft amendment to Electricity Act, 2003 has been introduced. It discusses separation of content & carriage, direct benefit transfer of subsidy, 24*7 Power supply is an obligation, penalisation on violation of PPA, setting up Smart Meter and Prepaid Meters along with regulations related to the same.
  • As of August 2018, the Ministry of New and Renewable Energy set solar power tariff caps at Rs 2.50 (US$ 0.04) and Rs 2.68 (US$ 0.04) unit for developers using domestic and imported solar cells and modules, respectively. If the government can allow capacity additions at the pre-set tariff of up to ₹ 3 per kilowatt for a fixed tenure, then it could rekindle investor sentiments and accelerate capacity additions.
  • The Government of India approved National Policy on Biofuels – 2018, the expected benefits of this policy are health benefits, cleaner environment, employment generation, reduced import dependency, boost to infrastructural investment in rural areas and additional income to farmers
  • The government has set a target of 1 billion tonne of coal production by 2019-20.government should support to achieve the target by creating proper ecosystem.

Future of power sector in India:

Way Forward:

60% of power generation comes from thermal sector. The renewable energy sector is growing and India is heading towards its target of achieving 175 GW by March 2022.

India wants to double the share of renewable power in its total installed capacity to 40% by 2030.

Government should make an effort to make coal-fired plants more efficient by bringing down the amount of coal required to generate 1 MW and to make old coal-fired plants compliant with environment norms. If the Indian economy is to continue to grow at 7%, the rise in electricity demand from industry and household will be fulfilled by the efficient coal-fired power plants and reliable and affordable energy mix.

Source: https://www.livemint.com/industry/energy/govt-moves-to-chart-five-year-road-map-for-power-sector-1561919359086.html.

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