INTRODUCTION TO INFRASTRUCTURE MANAGEMENT

Introduction
ENERGY is an essential input for economic development
and improving the quality of life.
Development of conventional forms of energy for
meeting the growing energy needs of society at a
reasonable cost is the responsibility of the Government.
Development and promotion of non-conventional/
alternate/ new and renewable sources of energy such
as solar, wind and bio-energy, etc. are also getting
sustained attention.
Nuclear energy development is being geared up to
contribute significantly to the overall energy
availability.

Electricity Act 2003

The Electricity Act 2003 has been enacted by
the Parliament in June, 2003. The salient
positive features of this legislation are:
Removal of a number of restrictive barriers to the
flow of power in a competitive market scenario by
opening access to transmission (from the outset)
and distribution.
Freeing up of generation and captive power plants
from licenses and techno-economic approvals.
The recognition to trading as a distinct activity
that would help ushering in a market environment.

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The formation of an expert Appellate Tribunal
to hear appeals against State and Central
Electricity Regulatory Commission orders.
Transferring the full range of regulatory and
licensing functions to the Central and State
Regulatory Commissions.
Deregulating tariffs in certain situations e.g. in
case of agreements between consumers and
generating companies.
Meeting of electricity supplied made mandatory

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Provisions relating to theft of electricity made more stringent.
Trading as a distinct activity recognized with the safeguard of
regulatory commissions being authorized to fix ceilings on trading
margins, if necessary.
For rural and remote areas, stand alone systems for generation and
distribution permitted.
The central Government to prepare a National Electricity policy and
tariff policy.
The Central Electricity Authority to prepare a National electricity
plan.
An Appellate Tribunal to hear appeals against the decision of the
CERC and SERCs
Setting up of the State electricity Regulatory Commissions ( SERC)
made mandatory.

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The distancing of Government from the
functioning of the sector after giving broad
directions via the National Electricity Policy and
the National Tariff Policy.

The conversion of the remaining State

Electricity Boards into State Transmission The
conversion of the remaining State Electricity
Boards into State Transmission Utilities and
deemed licensees with the freedom (but not
compulsion) to restructure and progress down
the road to corporatisation and privatization.

Background
India's power market is the fifth largest in the world.
The power sector is high on India's priority as it offers
tremendous potential for investing companies based on
the sheer size of the market and the returns available
on investment capital.
Contribution from different sources of power generation

Contribution from various sources of

power generation
Sources

Contribution

Coal based

55%

Diesel

1%

Gas Based

10%

Hydro

26%

Nuclear

3%

Renewable

5%

Recent trends
In the past five years, there has been
a much greater emphasis on
transmission
and
distribution
reforms.

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The government aims to provide "power to all"
by 2012. To achieve that promise, it will have
to add as much as 1,00,000 MW of generation
capacity,
cut
Aggregate
technical
and
commercial (AT&C) losses substantially to
below 20 per cent, rationalize tariffs and
ensure that average revenue realization is
greater than the cost of production.
It will have to continue to push the process of
reform and restructuring and ensure greater
private participation, in every segment.

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In the past few years, there has been
considerable growth in power plants based on
renewable sources of energy.
The Plant Load Factor (PLF) of generating plants
has improved consistently over the last 10
years.
The share of thermal power as a proportion of
total power generated has decreased from 71
per cent to 66.3 per cent in the last decade.
The share of hydro has increased to 26 per cent
from 25.7 per cent.

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Of the fossil fuel supplies, there is delivery
constraint with respect to gas.
A number of gas plants today are running at
sub-optimal plant load factor (PLF) levels due
to shortages.
The government has decided not to embark on
new projects that rely on gas. It is feared that
supply shortages can disturb the capacity
addition plans, reduce PLFs, as the rising crude
prices have led to firmer naphtha and natural
gas prices.

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Emerging environmental concerns have led to an
increasing interest in renewable.
Captive power plants (CPPs) also make a major
contribution, which is more than one-fifth of the
total installed capacity. In the last three years,
captive capacity has grown at an average of 1,600
MW per year. The introduction of ABTs (Availability
Based Tariffs) has changed the thinking of discoms.
They have to pay huge prices as they have to
source power from the grid during low frequency
periods. During this time the CPP power comes in
handy at a much lower tariff.

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The reform process in the power sector continues.
Thirteen states have unbundled SEBs into separate
entities
for
transmission,
distribution
and
generation.
Two states have privatized distribution. Regulatory
authorities have been set up in 24 states.
These authorities are applying commercial
principles to tariff setting, monitoring the
performance of state utilities and paying attention
to areas such as demand side management and
grid discipline.

Generation
Over the years, the fuel mix has
changed.
Growing
environmental
concerns have led to an interest in
renewable sources of energy (comprising
wind energy, solar photovoltaic energy,
biomass power and mini hydro plants).
But despite great potential, renewable
sources contribute only a little over
6,000 MW at present.

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The PLF of generating plants has

improved consistently over the last
few years.

FUTURE PLANS OF CAPACITY

ADDITION
Plan for Capacity Addition during XIth Five Year Plan
(2007-2012)
The power generation capacity added during the last five years is
a lowly 21,280 Mw, which is about half the original target of
41,110 MW set for the Tenth Plan.
This is also 2000 Mw less than the 23,250 Mw capacity addition
projected by the government in last few days of Xth five year plan.
(March 2007).
An ambitious target of 78,577 Mw has been set by the
government for the eleventh plan period (2007 -2012). Of this, the
hydropowers share would be 16,553 MW, the thermal power
would constitute 58,644 MW and the nuclear powers share would
be 3,380 MW. Capacity addition plan from different sources during
XIth five year plan (2007-2012).

Plan for capacity addition from

various sources during 11th Plan
Source

Planned capacity addition

Thermal

58644 ( 75%)

Hydro

16553 (21%)

Nuclear

3380 (4%)

Year wise Capacity addition plan

during XIth five year plan (2007-2012)
Year

Capacity addition (Mw)

Ist year (2007-08)

16,785

IInd year (2008-09)

7272

IIIrd year (2009-2010)

15,198

IVth year (2010 -2011)

16,970

Vth year (2011-2012)

22,352

Total capacity addition

78577 MW

Policy for Additional Capacity

Generation

Policy for future power generation

under the National Electricity Plan:
Inadequacy of generation has characterized
power sector operation in India.
To provide availability of over 1000 units of
per capita electricity by year 2012 it had
been estimated that need based capacity
addition of more than 1,00,000 MW would
be required during the period 2002-12.

Policy reforms by GOI

Government of India has initiated several reform
measures to create a favourable environment for
addition of new generating capacity in the country.
The Electricity Act 2003 has put in place a highly liberal
framework for generation. There is no requirement of
licensing for generation.
The requirement of techno-economic clearance of CEA
for thermal generation project is no longer there. For
hydroelectric generation also, the limit of capital
expenditure, above which concurrence of CEA is
required, would be raised suitably from the present
level.
Captive generation has been freed from all controls.

 In order to fully meet both energy and

peak demand by 2012, there is a need to
create adequate reserve capacity margin.
In addition to enhancing the overall
availability of installed capacity to 85per
cent, a spinning reserve of at least 5per
cent, at national level, would need to be
created to ensure grid security and quality
and reliability of power supply.

Non-conventional Energy
Generation
The Ministry of Non-conventional Energy Sources is promoting
development of small/mini hydro power projects.
The potential of generation of power from small and mini hydel
projects is estimated to be about 10,000 MW in the country.
Feasible potential of non-conventional energy resources, mainly
small hydro, wind and biomass would also need to be exploited
fully to create additional power generation capacity.
With a view to increase the overall share of non-conventional
energy sources in the electricity mix, efforts will be made to
encourage private sector participation through suitable
promotional measures.

Reforms So Far

26 states have signed Memorandum of

Understanding (MoU) with the Government of India
to undertake reforms.

20 states have constituted State Electricity

Regulatory Commissions and are functional. Tripura
and Jharkhand have notified the constitution of SERC.

18 State Electricity Regulatory Commissions have

issued tariff orders.
11 States have unbundled/corporatised.
State of Orissa and Delhi have privatised distribution
of electricity.

Major Policies Notified Under the

Electricity Act During 2006
Tariff Policy
The Tariff Policy has been notified by
Government of India on6 January,
2006 under the provisions of section
3 of the Electricity Act, 2003.

Objectives of the tariff

policy
Ensure availability of electricity to consumers at
reasonable and Competitive rates
Ensure financial viability of the sector and
attract investments
Promote
transparency,
consistency
and
predictability in regulatory approaches across
jurisdictions and minimise perceptions of
regulatory risks
Promote competition, efficiency in operations
and improvement in quality of supply

Guidelines for procurement of

electricity
In compliance with section 63 of the
Electricity
Act,
2003,
the
Central
Government had notified guidelines for
procurement of power by Distribution
Licensees through competitive bidding.
Central Government has also issued the
standard bid documents containing RFQ,
RFP and model PPA for long term
procurement of power from projects
having specified site and location.

Rural Electrification Policy

Rural Electrification Policy, in compliance with section 4 and 5
of the Electricity Act 2003, was notified on 23 August, 2006.
Overall approach enunciated in the Policy highlights grid
connectivity to be normal way of electrification of villages.
For villages / habitations where grid connectivity is not
feasible or not cost effective of grid solutions based on
stand-alone systems may be taken up.
Decentralized distribution generation facilities together with
local distribution network may be based on either
conventional or non-conventional method of electricity
generation.
The State Governments should within six months prepare and
notify a Rural Electricity Plan to achieve the goal of providing
access to all households.

New Hydro-Policy
Section 63 of the Electricity Act provides for development of
projects on the basis of competitive bidding for tariff.
Sections 61 and 62 allow such projects developed on the
basis of tariff to be fixed by the Regulator on the basis of
capital cost and norms.
In fact, the Electricity Tariff Policy notified in January 2006
also allows a special dispensation for project development by
State and Central PSUs on the basis of capital cost and normbased tariff to be determined by the Regulatory Commission.
This dispensation, allowed for PSUs, is now proposed to be
made available for the same period of 5 years to promote
hydro-power development even through the private sector
route. The State would be required to follow a transparent
process for selection of the developer.

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This arrangement would have several advantages.
While the initiative for allocation of the project would
remain with the State Government (subject to the
requirement of transparency in the allocation), the
scrutiny of the regulator and the CEA would ensure
that the project is being designed and built in the
most optimal and economic manner, and that the
interest of the consumers is adequately protected.
From
the point of view of the developer, this
procedure would reduce numerous risks associated
with the construction and operation and maintenance
(O&M) of hydro projects.

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New Hydel Policy announced with an
objective of making investment in
hydro projects more attractive.
The government has prepared plan
for creation of National Grid by 2012
and infrastructure to facilitate interregional exchange of 30,000 MW of
electricity by 2012.

Ultra-Mega Power Projects (UMPPs)

The Ministry of Power, Government of India has launched
an initiative for development of coal-based Ultra-Mega
Power Projects (UMPPs) in India, each with a capacity of
4,000 MW or above.
These projects will be awarded to developers on the basis
of tariff-based competitive bidding.
To facilitate tie-ups of inputs and clearances, projectspecific shell companies have been set up as wholly owned
subsidiaries of the Power Finance Corporation (PFC) Ltd.
These companies will undertake preliminary studies and
obtain necessary clearances including water, land, fuel,
power selling tie-up etc. prior to award of the project to the
successful bidder.

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Nine sites have been identified by
CEA in nine States for the proposed
UMPPs. These include
four pithead sites, one each in
Chhattisgarh, Jharkhand, Madhya
Pradesh and Orissa, and five coastal
sites, one each in Andhra Pradesh,
Gujarat, Karnataka, Maharashtra and
Tamil Nadu.

Development of Merchant Power

Plants
To facilitate the development of the electricity market,
the Ministry of Power has issued the approach and
guidelines on development of merchant power plants
(MPPs). Unlike traditional utilities, MPPs compete for
customers and absorb the full market risk.
There is no guarantee regarding minimum off-take of
their output. Typically the risk of a MPP is carried on the
balance sheet of the promoter.
MPPs can provide the additional generating reserves
that India needs now and will need in the future. They
are a modern, market-based answer at least in part
to the energy challenges faced by the country.

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MPPs are a product of the restructuring of the
electricity industry and they fill different niches in
the market; some provide steady supplies to a
power grid, while others fire up only when demand
is at the highest and meet peak loads.
Merchant power plants operating competitively
help assure that power is produced with efficiency
and supplied to locations where it is needed most.
MPPs up to a capacity of 1,000 MW would be
provided coal linkage, and captive coal blocks may
also be provided to merchant power plants in the
range of 5001000 MW

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It would be essential that certain normative criteria
are laid down for eligibility for coal blocks
allotment, particularly to IPPs and merchant plans.
These criteria could relate to net worth of the
company, their internal resource generation and
annual turn-over.
The agencies being allotted the coal blocks may
also be required to put in place bank guarantee of
a reasonable amount which should be liable to be
encashed if important milestones for development
of coal mines are not achieved.

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The intermediate milestones may also include
indicators concerning the development of
power projects, such as award of Engineering
Procurement and Construction (EPC) contracts,
and commencement of construction.
Success of this scheme would, to a great
extent, depend on availability of reliable data
and information for plant sites and other inputs
in this capacity range so that developers then
can take further appropriate action

Private Participation in Transmission

Private investment has been allowed in power
transmission either through 100per cent
equity or joint venture with PGCIL. In case of
latter, the PGCIL will hold only 26per cent
stake and private party would hold the rest.
Private sector participation in transmission
has been limited to construction and
maintenance of transmission lines on BOOT
(build-own-operate-transfer) basis under the
control of PGCIL.

Various initiatives
Policy initiatives for encouraging competition
in development of transmission projects
Promote
competitive
procurement
of
transmission services
Encourage
private
investment
in
transmission lines
Facilitate transparency and fairness in
procurement processes
Facilitate
reduction
of
information
asymmetries for various bidders.

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Protect consumers interests by facilitating
competitive conditions in procurement of
transmission services of electricity.
Enhance
standardization
and
reduce
ambiguity
and
hence
time
for
materialization of projects
Ensure compliance with standards, norms
and codes for transmission lines while
allowing flexibility in operation to the
transmission service providers.