Need to plug the glaring demand-supply gap in power sector

Two data points could immediately point you to the challenges in India’s power sector. One, demand supply gap, a key indicator of the sector’s efficiency, was at 13.9% as on December 2011. It was highest for the Western region, at 17.8%. Two, the gap between the cost of supply and revenue realization has increased from 33 paise per unit to 86 paise per unit in just seven years.

There’s no doubt then that capacity addition would be of utmost importance.

But India’s record in this has been unenviable. It has consistently fallen short of capacity addition targets. In fact, the capacity addition in the 10th Plan was just half of the target of 41,110 MW. In the 11th Plan, it is expected to be about 65% of the original target of about 78,000 MW, which has subsequently been scaled down to around 62,000 MW.

The list of reasons for the same is long: fuel-linkage problems, non-availability of land, issues with environmental clearances, delay in construction, among others.

On the other hand, business out of even the existing capacity is rendered unviable due to a whole host of reasons. These include the transmission and distribution losses, which for some States are dangerously high at 35%. Then, the tariff structure hasn’t reflected cost increases. Skewed cross subsidies continue. Evacuation capacity is inadequate. Plus, an indifference to energy conservation and energy efficiency measures.

India’s installed capacity now is 186,654 MW. The Ministry of Power has set a target of 100,000 MW each in the 12th Plan (which ends in FY17) and 13th Plan (which ends in FY22). This is to close the demand supply gap. By then, the peak requirement would have jumped. By the end of the 12th Plan, the peak requirement is estimated at 218,000 MW. And by the end of the 13th Plan, it would be about 300,000 MW.

If the issues contributing to our ever-widening demand supply gap aren’t addressed, the targets indeed look daunting. The following table tells what each stakeholder has to do toward betting the power scene in the country:

Discoms: 
Hard decisions for commercial loss reduction and focus on employee productivity and customer service. Realistic decisions on power purchase and with fixed published time table

Generators:
Major Procurement decisions based on life time cost.

Consumers:
Domestic- Get ready to pay more for higher consumptions and focus on energy conservation. Industry- Invest on energy efficiency initiatives. Agriculture – be prepared to invest on DSM initiatives.

State Governments /State PCBs:
Open access policy implementation. Privatization of ring-fenced urban areas after establishing a good database. Identify Power clusters and get environment studies carried out at macro level to set over all tolerable levels for Air, water pollution for that clusters. Land acquisition & possession related issues. DSM initiatives in Agriculture sector.

Central Government:
Monitor strategy and policy implementation. Overseeing the outcome of Policy objectives and initiating corrective actions. Consistency in policy initiatives. Expediting major issues from related industries like Coal and Railways.

Environmentalists:
Being more realistic and practical in their approach (this is a sensitive subject but still a lot can be done to balance the interests of stakeholders)

If the targets aren’t achieved, it’s not the power sector alone that’s going to have a problem. Power problems also affects the GDP growth of any country. The Government therefore should continue sops such as the mega power policy, 80 I policy as also the non-implementation of customs duty on imported power equipment (at least for the 12th Plan duration). Hope the momentum of the recent meeting of the key stakeholders with the Prime Minister is carried forward.

(By Viswanath Attaluri, COO of the Hyderabad-based infrastructure consultancy firm Capital Fortunes Pvt Ltd)

Source: Economic Times

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