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Power generation capacity and slippages

V. Jayanth

A 25 per cent carry forward of targeted capacity addition into the Eleventh Five-Year Plan is surprising.

THERE IS likely to be a major shortfall in the addition to power generation capacity during the Tenth Five-Year Plan period ending 2007. Against a target of 41,000 MW, the net addition is now expected to be only around 30,600 MW. This will mean a 25 per cent carry forward into the Eleventh Plan. An ambitious target of 40,000 MW had been planned for the Ninth Plan, but this could not be achieved. It is surprising this could not be done even in the current Five-Year Plan, despite a concerted drive by the Centre and the Planning Commission.

This became clear at the Power Ministers' conference on November 16. Ahead of the meeting, the Planning Commission, in the mid-term review, had scaled down the target to 36,956 MW. Union Power Secretary R.V. Shahi now expects the addition to be 30,642 MW — with more than one-third of the capacity to be commissioned in the last lap of 2007. Of this, about 17,700 MW has been commissioned already; the remaining 12,898 MW will come on stream by March next year. As expected, the Central sector's contribution will be 16,179 MW, with the States adding 11,008 MW to their generation. The private sector will account for just 3,455 MW during this Plan period: clearly it is still not convinced about the return on investment.

Despite the successive slip-up in capacity addition during two Five-Year Plans, the Planning Commission and the Power Ministry are projecting an ambitious target of 66,463 MW for the Eleventh Plan. As of now, the indications are that over 46,000 MW will come from thermal sources and about 17,000 MW from hydel sources. Nuclear power is expected to account for a little over 3,000 MW.

Major challenge

Union Power Minister Sushilkumar Shinde stated that there was a 7.5 per cent energy shortage and an 11 per cent peaking shortage at present. More than 40 per cent of the people do not have access to electricity for most of the day, especially in rural areas, and this remains a major challenge. Mr. Shinde told the Ministers: "When I reviewed our experience with the Tenth Plan, what struck me the most was the weakness in preparatory work for new projects and delays in decision-making, which has led to extreme bunching of capacity addition to the last year of the Plan. I also find that there is great imbalance in capacity addition among the States. Some States have done significant capacity addition. Some other large States have hardly been doing any new projects for a long time and are therefore facing extreme shortages."

His hope seems to be that based on the "learning experience" of the 1990s, the private sector may be ready and willing to step up its role in a significant way. "Competitive tariff based bidding with facilitation of clearances and initial preparatory work through shell companies is emerging as a model which can be replicated rapidly for projects of all sizes."

The States seem to have their roles cut out. First, they have to ensure that the basics laid down under the Electricity Act, 2003, are complied with and the major reforms planned in the power sector are properly carried out. They have to choose the right mix of power projects. They cannot benefit from Central sector projects, come up with their own plans, and encourage private sector participation through competitive bidding on tariff. They should keep in mind the anticipated demand to cater to a higher economic growth, which will necessitate adequate or marginally surplus power generation.

As far as the functioning, efficiency, and viability of the State Electricity Boards are concerned, many of them have turned around. The trend of increasing losses has been contained in most cases. The discipline of State Governments meeting subsidies through budget provisions is in place. What should be done, the State Power Ministers were told, was to focus on transmission and distribution losses and to make the SEBs financially viable to enhance investment potential. But that will mean evolving a national political consensus.

The Power Ministers, at their meeting, agreed that there was a need to monitor closely the projects to be commissioned by March 2007, and to get Bharat Heavy Electricals Limited to enhance its manufacturing and commissioning capabilities substantially. They also mentioned the need to observe grid discipline strictly and, the need to adopt distribution reform and commercial revival to ensure a complete turnaround of SEBs/utilities over the next two or three years.

Andhra Pradesh has been vigorously pursuing power sector reforms but finds itself in a peculiar situation. It has been acutely short of power; has fully tapped into its share from the Central projects; has been told not to overdraw from the Central grid, and needs to find energy for immediate agricultural and industrial needs. The average cost of power generation works out to between Rs.2 and Rs.3 a unit. But the State is now prepared to pay more than Rs.6 a unit for any other source that can supply. Even Central sector power generators are demanding that price to bridge the energy gap in the State.

That is why the States are being asked to plan for the future and invest heavily in power generation if they want to keep generation costs low. Otherwise, they will have to depend on the private sector and strike the best bargain in the power purchase agreements. States such as Tamil Nadu have been demanding special linkages and blocks of mines for their coal needs at convenient locations — for easy and cost-effective transport. Tamil Nadu now imports nearly two million tonnes of coal annually.

With such constant and close monitoring, it remains to be seen if the power sector in the country will be able to meet the energy requirements of the future, especially at a time when India is seeking to move into an 8-10 per cent growth trajectory. To achieve this, there should be no power shortages anywhere. The steps to bring the entire country under one grid have proved useful. But the States must also contribute to the power-generation effort. They cannot always draw from another's surplus or from the Central projects. That is the real challenge.

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