By ANIL KUMAR Sr.

Expert, Strategic Power Management CAMPS, NPTI, Faridabad

GENERAL GOALS OF POWER REFORMS AVAILABILITY OF POWER AFFORDABLITY OF PRICE ADEQUECY OF POWER RELIABILITY & QUALITY OF POWER OPTIMISATION OF RESOURCES CONSERATION OF ENERGY SUSTAINABLE & ENVIRONMENT FRIENDLY MORE CHOICE & BETTER SERVICES ENERGY SECURITY

The National Electricity Policy aims at achieving the following objectives:

Access to Electricity - Available for all households in next five years Availability of Power - Demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available. Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates. Per capita availability of electricity to be increased to over 1000 units by 2012. Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012. Financial Turnaround and Commercial Viability of Electricity Sector. Protection of consumers interests.

Overview of Indian power sector

Structure Performance Drivers for reform Reform steps Mechanisms and modes Analysis

Important Players In The Power Infrastructure

State electricity boards Electricity departments Power Grid Corporation Power Finance Corporation National Thermal Power Corporation National Hydro Power Corporation Central Electricity Authority North Eastern Electric Power Corporation Ltd.

ELECTRICITY ACT, 2003

The Electricity Act (2003) is a revolutionary piece of legislation enforced in India that aims to transform the power sector in India. The salient features of the Act are

Delicensing of generation Liberalized captive power policy Open access in transmission Open access of distribution network in phases. Multiple licensing in distribution zones. Stringent penalties for power theft Transparent subsidy management Constitution of an Appellate Tribunal Thrust on rural electrification.

Changes brought by Electricity Act, 2003

1. Generation
Thermal generation has been completely delicensed, needs no techno economic clearance from CEA. (section 7 of Electricity Act 2003) Hydro projects would, however need clearance from the CEA only if the project exceeds a certain capital expenditure limit. ( section 8) No permission required for setting up a captive power plant. Captive generation can be set up by a group or society to meet their needs. The captive plants can be located off-site far from consumption point. (section 9)

2.

Distribution

Distribution licensee is empowered to recover charges/expenses/security and disconnect supply for non payment of dues. Discoms can enter into direct contract with consumers. CERC can permit a consumer/class of consumers to receive supply of electricity from anyone other than the distribution licensee of the area of supply against payment of wheeling charge & surcharge in lieu of cross subsidy .
Transmission utility at the Center as well as State level, to be a government company. CTU cannot undertake generation or trading (section 38(1)). STU cannot undertake trading (sections 38(1), 39(1) & 41). It provides framework for setting up of NLDC(section 26(1), RLDC(section 27(1) &SLDC that would be responsible for maintaining grid discipline, maintenance of accounts.

3.

Transmission

4.

State governments will have the freedom to decide the sequence and phases of restructuring, and also retain the integrated structure of the SEB for a limited period. 5. Introduction of the concept of power trading as a distinct activity, and the introduction of a spot market for bulk electricity. ERCs authorized to issue licenses and fix ceilings on trading margins. Distribution licensees and State governments do not require a license to do trading. 6. Thrust to complete the rural electrification. Stand alone systems of generation and distribution in rural areas fully delicensed (part 2-(4)). 7. Gradual (progressive) reduction and ultimate elimination of Cross-subsidization. 8. The formation of a State Electricity Regulatory Commission (SERC) in every state to be mandatory. 9. Metering of all electricity supplied made mandatory. 10. Distancing of government from tariff determination. CERC/SERCs to determine tariff on the lines of national electricity policy and tariff policy.

12. Provisions safeguarding consumer interests. Ombudsman scheme for consumers' grievance redressed (section 42(6)). 13. Provision of payment of subsidy through budget. State governments will have to pay in advance compensation to the power supply company for subsidy to any class of consumers to reduce or minimize their subsidy - induced losses (section 65).

Observations/Inferences
Hydro projects presently only require clearances with respect to optimal utilization of water and inter-State and public safety issues. The Policy permits open access to transmission and allows construction of both captive and group captive power plants. Power trading has been recognized as a distinct licensed activity under the supervision of the Central Electricity Regulatory Commission (CERC)/ State Electricity Regulatory Commission (SERC) Moving forward from a single buyer model to a multi seller multi buyer system. The regulatory regime has been made more flexible, with a multi year approach and without requiring the regulatory commissions to follow rate-of-return regulations. The act brings clarity to the roles of different organizations and provides for better financial management of the regulatory commissions.

SIX LEVEL OF POWER POLICY

NATIONAL LEVEL STATE LEVEL SEB LEVEL DISTRIBUTION FEEDER LEVEL CONSUMERS

MAIN CAUSE OF FAILURES OF POWER REFORMS

DOMINANT SELLERS OR BUYERS POOR MARKET DESIGN & ADMINISTRATION CAPACITY SHORTAGES TRANSMISSION BOTTLENECK THIN FORWARD & FUTURETRADING LACK OF CONSUMERS SENSATION TO PRICING & QUALITY POOR INFORMATION SYSTEM

Background of Indian Electricity Sector

India is the worlds sixth-largest consumer of energy. domestically mined coal meets close to 70 percent of Indias total energy needs Oil supplies about another 30 percent of the countrys energy. Currently, India imports more than 60 percent of its annual oil needs, or slightly more than 1.4 million barrels of oil per day. At current rates of economic growth this figure is likely to rise to as much as 5 million barrels per day by the year 2020.

Major Stages in Electricity Sector

Growth 195075

Major Growth, Public Ownership

NTPC,Agri 1975-90 Increased

Access & Federal intervention

IPP Era 1991-98

Private Power Projects

WB Model

E Act 2003

19962002 Orissa & others

Competiti on

POWER SECTOR - EVOLUTION

1947 - Total installed capacity of only 1362 MW. 1948 - Electricity Supply Act leads to formation of SEBs Priority in development through SEBs Development through Five Year Plans Emphasis on hydel power in the first two Plans Uneven distribution of natural resources; inter-state imbalances 1966-67 REBs formed to take care of interstate imbalances Early Seventies - Country faces unprecedented power crisis Capacity: 16,664 MW in 1974 1975 - NTPC and NHPC set up in Central Sector 1991Liberalization; Private participation permitted 1992Power Grid Corp. Formed to facilitate formation of National Grid 1998Regulation through formation of CERC/SERC 2003Electricity Bill-2003

Institutional Framework
The Indian Electricity Act, 1910
-Act passed on 18 March 1910 and came into force from 1st Jan. 1911. -Applicable to whole of India except the state of Jammu and Kashmir -Provided for grant of licenses by the State Governments for supply of electricity in specified geographical areas

Institutional Framework
The Electricity Supply Act, 1948 Came into effect from 10th Sept. 1948 Electricity as a concurrent subject. Aimed to ensure coordinated development of electricity in India on regional basis. Provided for creation of State Electricity Boards with overall responsibility of generation transmission and distribution within the state.

International influences
1. Early period import of equipment and finance (WB, Bilateral funding) 2. IPPs (19922002) 3. Un-bundling, Regulatory Commissions, Privatisation (1996+) 4. Competition /market model (2003+)

5 Major Factors.
Indias quest to maintain the high levels of economic growth . Indias ability (or lack thereof) to locate and use existing domestic gas and petroleum reserves. The ability of the Indian political system to address certain structural inefficiencies which contribute to significant loss and wastage. Ability to adopt new and more energy efficient technologies. Depends on Indias ability to secure external sources of energy.

OBJECTIVES OF ABT

OBJECTIVES .. Cont

Cont.

Cont.

UI RATES

LEGAL Cont.

National Tariff Policy cont..

POWER DEMAND IN INDIA

All India region wise demand forecast Energy requirement MkWh Peak Load (MW)

2006-07
Northern Western Southern Eastern North-East Islands Andaman-Nicobar Lakshadweep Total 236 44 719097 220820 224927 194102 69467 9501

2011-12
308528 299075 262718 90396 14061

2016-17
429480 395859 354599 117248 20756

2006-07
35540 35223 31017 11990 1875

2011-12
49674 46825 42061 15664 2789

2016-17
69178 61966 56883 20416 4134

374 70 975222

591 Nil 1318644

49 11 115705

77 17 157107

122 26 212725

POWER DEMAND
PROJECTS
REGIONS
DEMAND 2011-12 16th EPS

PEAK LOAD (GW) NORTHERN 49 WESTERN 47 SOUTHERN 42 EASTERN 16 NORTH-EASTERN 3 ALL-INDIA 157

ENERGY (Average GU per day) 0.85 0.82 0.72 0.25 0.04 2.70

The above projection taken as basis for evolving perspective transmission plan for 2011-12.

GROWTH OF INSTALLED GENERATING CAPACITY (MW)

124287 107973 113256

Hydro Nuclear Thermal *

28448 16604 2695 1362 4653 9027 42585 63290

79470

Year
Hydro Nuclear Thermal *

Dec-47 Dec-55 Mar-61 Mar-66 Mar-74 Mar-80 Mar-85 Mar-90 Mar-95 Mar-03 Sep-04 Mar-06 508 0 854 940 0 1755 1917 0 2736 4124 0 4903 6905 640 9059 11384 640 16424 14460 1095 27030 18308 1565 43417 20506 1720 57244 26910 2720 78343 29676 2720 80860 32326 3360 88601

* - Includes Wind Capacity

Installed Capacity
Renewables 6190 MW

Nuclear 3360 MW Hydro 32325.77 MW (26%)

Thermal 82410.54 MW (66%) (Coal 68518)

Thermal Hydro Nuclear Renewables

Electricity Generation in Billion Unit (2005-06)

gas 10% lignite 3% diesel/multifuel 2% nuclear 3% hydro 16%

coal 66%

Why Strategize?
India is on a high growth trajectory, FY 2005 - 9.0% FY 2006 - 9.2% GDP $ 1 Trillion

Why Strategize?
To sustain this we need energy especially electricity to grow at 1.5 times the GDP 11th Plan Approach India needs Rs 14.5 Lakh Crores of Infrastructure investments

Rs. 145000000000000

INDEX OF INDUSTRIAL PRODUCTION

IIP - Sectoral
20.00
Growth Rate %

15.00 10.00 5.00 0.00 -5.00 Apr May Jun Jul Aug Sep Oct Nov Dec Jan *

Month Mining Manufacturing Electricity General

Issue
Public sector does not have adequate resources for putting up the required incremental capacity Rs 14.5 Tr = Rs 10.15 (D) + Rs 4.35 (E) Rs 2.03 Tr / yr as debt. Bank Credit is Rs 3.0 Tr Need to attract domestic and foreign private investment.

Risks for IPPs

Unattractive ROI on investments Obtaining financial closure by Private Players Obtaining fuel linkages and guaranteed fuel supplies Default on payments by State Discoms Obtaining various clearances Fickle policies of the government Slow progress of power sector reforms

Strategy
Policy Initiatives Financing

Payment Security
Fuel & Transport Linkages

Strategy: Policy Initiatives

Mega Power Policy - enlarge the scope of definition No customs duty on power sector equipments States not to levy excise and sales taxes on inputs to power plants Govt to provide income tax holidays. Provision for accelerated depreciation. Onus on states to carry out reforms at the earliest. States to privatize distribution in towns/cities with population over a million No preferential treatment to PSU during competitive bidding. Set up a nodal agency with the responsibility of granting clearances related to power plants

Strategy: Financing
Set up a dedicated fund for financing power sector projects. (All the banks & multilateral agencies pool in their priority sector lending fund). Allow funding from Insurance and Pension funds. Deepen corporate bond market. Employ Forex reserves. Variable D/E ratio dependent on the size.

Strategy: Payment Security

Escrow/LC Provision to directly sell to consumers in case of default of payment. States not to discriminate b/w SGS & IPPs during power procurement. Intra-state open access in all states at the earliest.

Strategy: Fuel & Transport Linkages

Allocation of Captive Mines for Coal based power plants. Firm linkage for Gas based power plants. Rationalization of railway freight tariffs for TPPs Improving port facilities for handling increased coal imports. Opening up the coal sector to private players. Introduce NELP.

Regulatory Framework

The Current Regulatory Focus .

Rationalizing Tariffs. Reducing Transmission and Distribution losses. Restructuring the state electricity boards (SEBs). Metering consumers fully.

CONCEPTUAL FRAMEWORK OF REGULATION

A regulation is a legal restriction published by government administrative agencies through rulemaking supported by a threat of sanction or a fine. Regulation mandated by the government or state attempts to: Produce outcomes which might not otherwise occur Produce or prevent outcomes in different places to what might otherwise occur

Electricity Regulation
The duty of electricity regulators is to :
Protect the interests of consumers . Regulate competition between providers . Monitor social and environmental issues within the industry.

THANKS