Power

The Government has, since Independence, been giving priority to this sector. As a result, the installed generation capacity has risen from a mere 1,300 megawatt (MW) at the time of Independence to more than 1,00,000 MW today. Along with the growth in installed generation capacity, there has also been a phenomenal increase in the transmission and distribution (T&D) capacity. However, despite these achievements, the power sector has not kept pace with the growth in demand with the result that the country has always faced energy crisis and peaking shortages.

The state electricity boards (SEBs), have, in the past, played a significant role in the generation and supply of power. But the present financial health of the SEBs is not sound, to say the least. This is mainly due to un-economic tariffs for agriculture, lower slabs of domestic consumption and high T&D losses, which often disguise large-scale theft, and low billing and collection efficiency. This is the main roadblock to attracting the much-needed private investment and, in fact, has been one of the main reasons for the shortfall in capacity addition from private sector projects. The actual capacity addition during the Ninth Plan (1997-2002) was 19,015 MW against a target of 40,245 MW. The other major reasons for shortfall in the capacity addition were delay in land acquisition and environmental clearances, unresolved issues in fuel linkages, contractual problems, resettlement and rehabilitation (R&R) problems and law and order problems.

As far as the Tenth Plan 2002-2007 is concerned, the Working Group Report on Power has envisaged a capacity addition requirement of 46,939 MW during the Plan period. However, keeping in view the status of the ongoing, sanctioned and new projects in the pipeline, the Planning Commission assessed that a capacity addition target of the order of 41,110 MW (comprising 18,659 MW from on-going, 9,193 MW from projects cleared by the Central Electricity Authority (CEA) and 13,258 MW from new schemes) would be more realistic.

The Government proposes to enhance public funding for the sector as well as encourage the public sector undertakings (PSUs) to take up projects in joint ventures with private investors and state governments. As part of these efforts, the Accelerated Generation and Supply Programme (AG&SP) is proposed to be extended to provide funds to critical ongoing schemes at subsidised interest rates. There is also a focus on initiating suitable policy measures to accelerate the pace of hydro power development as well as to make nuclear power generation as competitive as power generation from other fuels. The Government is making concerted efforts to channelise adequate investment to ensure the completion of the National Grid 2012. This would enhance the inter-regional transfer of power and facilitate the optimum utilisation of existing assets.

Power sector reforms were initiated in 1991 to encourage competition in each sub element of the sector, namely, generation, transmission and distribution under an independent and transparent regulatory regime. With this objective in mind a Central Electricity Regulatory Commission (CERC) has already been set up at the national level and State Electricity Regulatory Commissions (SERCs) set up in 19 states, 11 of which have issued tariff orders. Private sector participation has also been set in motion with the enactment of the Electricity Laws (Amendment) Act in 1998. The draft Electricity Bill, 2001 has been introduced in Parliament which will replace the existing three laws relating to electricity: the Indian Electricity Act, 1910 as amended from time to time; the Electricity (Supply) Act, 1948 as amended from time to time; and the Electricity Regulatory Commission Act, 1998.

The Electricity Bill recognises trading of power as a distinct activity and permits SERCs to allow open access in distribution of electricity in phases that would ultimately encourage efficiency and competition.

These reforms could be carried forward aggressively to improve the financial health of the SEBs. The issue of one-time settlement of dues payable by SEBs to central power utilities (CPUs) has been addressed by securitising the dues. It is likely to facilitate further reforms in the sector. Reforms in the distribution sector have been identified as the key area of reform. The Accelerated Power Development Programme (APDP) was initiated in 2000-01 in order to give a fillip to the reform process in the power sector. One of the main strategies identified in this regard is the development of distribution plans/projects for all distribution circles as centres of excellence that can be replicated by the states in the later phase of distribution reforms. Sixty-three such circles have been taken up initially under APDP funding, which envisages metering of 11 KiloVolt (KV) feeders, improvement/strengthening of sub-transmission and distribution network, 100 per cent metering, establishment of a management information system (MIS) to improve billing, collection etc.

Power Sector Reforms

Apart from envisaging the setting up of the CERC, the Common Minimum Plan formulated at the Chief Minister's conference in December 1996 also accepted the need for rationalisation of tariffs so that subsidised sectors like agriculture would pay at least 50 per cent of the average cost of supply within three years. The establishment of SERCs had been envisaged by the State Power Ministers' conference, also in December 1996.

Besides licensing and setting of performance norms, the CERC was expected to set tariffs for all generation and transmission utilities supplying power across several states. The SERCs were expected to discharge a similar function for state utilities. Most importantly, the regulatory bodies were expected to encourage competition, on a level playing field, in each sub sector, namely generation, transmission, distribution and supply. Such competition under an independent, adequate and transparent regulatory regime was expected to yield the desired efficiency gains. Accordingly, the Electricity Regulatory Commissions Act, was passed in July 1998.

Nineteen states - Orissa, Haryana, Andhra Pradesh, Uttar Pradesh, Karnataka, West Bengal, Tamil Nadu, Punjab, Delhi, Gujarat, Madhya Pradesh, Arunachal Pradesh, Maharashtra, Rajasthan, Himachal Pradesh, Assam, Chhatisgarh, Kerala and Uttaranchal - have either constituted or notified the constitution of SERCs. The SERCs of Orissa, Andhra Pradesh, Uttar Pradesh, Maharashtra, Gujarat, Karnataka, Rajasthan, Delhi, Madhya Pradesh, Himachal Pradesh and West Bengal have issued tariff orders.

The Electricity Laws (Amendment) Act was passed in 1998 to enable private participation in the power transmission sector. The Indian Electricity Grid Code (IEGC) was established by the CERC in January 2000 to ensure grid discipline and set operation and governance parameters for individual players in the T&D sector. Trading of power has been recognised as a distinct activity that would encourage efficiency and competition. The Power Trading Corporation (PTC) was set up to facilitate inter-state trading in power. The Availability Based Tariff order notified by the CERC in January, 2000 is a step towards encouraging greater reliability and efficiency in generation.

Orissa, Haryana, Andhra Pradesh, Uttar Pradesh, Karnataka, Rajasthan, Madhya Pradesh and Delhi have enacted State Electricity Reforms Acts which provide for unbundling/corporatisation of SEBs, setting up of SERCs etc. The SEBs of Orissa, Haryana, Andhra Pradesh, Karnataka, Uttar Pradesh, Delhi and Rajasthan have been unbundled/corporatised.

Captive Power Generation

The industrial sector is the largest consumer of electricity. Besides purchasing power from the utilities, a number of industries, viz. aluminium, cement, fertiliser, iron, steel, paper, sugar etc. have their own captive power plants either to supplement the electricity supply from the utilities or for generating electricity as a by-product through co-generation. Captive power plants are being set up by industries to meet their own power requirements to enable them to tide over problems due to power shortages and poor quality of supply. The Electricity Bill, 2001 proposes to free captive generation and enable captive generators to sell directly to other consumers by wheeling power through the grid under an open access regime. However, the Tenth Plan capacity addition has been finalised based on the demand as per the Sixteenth Electric Power Survey that excludes the demand met by captive power plants.

In accordance with the guidelines issued by the Ministry of Power, the following categories would be eligible to install captive power plants:

• A consumer of electricity.
• A group comprising more than one consumer as a joint venture.
• An actual user of power but not a consumer.
• A group of actual users of power, but not consumers, as a joint venture.
• A group comprising both consumers and actual users of power as a joint venture but excluding `Generating Company' as defined under Section 2(4A) of the Electricity (Supply) Act, 1948.
• If the captive plants falls under the category of hydro or CO-generation plant, such plant may be permitted, irrespective of its size and the power supply position in the state.
• If the captive power plant is based on coal or liquid fuel or gas and if the state is deficit in power supply, the installation of the plant could normally be allowed and the plant can be permitted to have a capacity up to 200 per cent of the requirement of the host industry.
• If the captive power plant is based on coal, liquid fuel or gas and the state is surplus in power, the installation of such captive plants can still be considered in cases where the state/SEB cannot guarantee uninterrupted supply or stipulated quality of supply (within prescribed voltage and frequency variations) required by the industry or a particular process. Further, captive generation may also be permitted if it is found, after a review of costs and tariffs, to be more economical than grid supply.
• Banking facilities may also be provided to the captive plants so that available capacities are utilised to the extent possible and when required. The rates for banking may be determined on mutually agreed terms.
• Units in Special Economic Zones (SEZ) and industrial estates may be allowed to set up captive power plants liberally.