Power Sector in India

By BYJU'S Exam Prep

Updated on: September 13th, 2023

Electricity is one of the most fundamental components of basic infrastructure in the world today. It is crucial for the economic growth and welfare of countries. Thus, the existence of efficient power sector is required for the development of further critical infrastructures that are crucial for sustained growth of the Indian economy as well. Due to the vastness in its geographical region and the presence of natural resources, the Indian power sector has become one of the most diversified in the world.

The sources of power generation include:

  • Conventional sources such as coal, natural gas, oil, lignite, hydro and nuclear power.
  • Non-Conventional Sources such as solar, wind, and agricultural and domestic waste.

Power Sector in India:

In the WEF(World Economic Forum) report in 2016, it was held that the Indian power sector is presently at an inflexion point and requires an integrated outlook for the country’s energy sector. With a total installed capacity of 3,65,981 MW as on November 2019, India is the world’s third-largest producer and consumer of electricity. The demand for power is rising further at a rapid rate. Keeping in view of the significance of Electricity driven development, Government of India is focussed on 24*7 Power for All.

Renewable energy plays an important role in a sustainable increase in power generation. The Government plans to achieve 175 GW in renewable energy by 2022 which would include generation of 100 GW by solar, 60 GW by wind, 10 GW by biomass, and 5 GW by small hydro.

A Rent a Roof policy is also being prepared to support the target of generating 40 GW power through solar rooftop projects by 2022 (included in 100 GW by solar plan).

Dependence on Fossil Fuels.

India’s power generation sector although diverse is overly dependent on Thermal which is a huge 2,29,201 MW out of total 3,65,981 MW as on November 2019. That is over 62%. Thermal power generation includes Coal (54% of total), Lignite, Gas and Diesel. 

  • Hydropower generation of 45,399 MW stands at 12%.
  • Nuclear power generation of 6,780 MW is only 1.8%.
  • Renewable Energy Sources ( RES) power generation of 84,400 is 23%. RES include Small Hydro Project, Biomass Gasifier, Biomass Power, Urban & Industrial Waste Power, Solar and Wind Energy.

Data Source: Central Electricity Authority.

The problem in over-dependence on coal is three-fold:

  1. Poor quality coal reserves found in India leads to huge imports which have a fiscal impact.
  2. Cost of building coal-based power plants is also high in India.
  3. Environmental impact due to release of SOx, NOX, PM10, among many others.

Issues of Power Generation In India

The power generation situation in India has constantly improved especially after 1991 with opening up of the market for the private players. However, there are some persistent issues leading to inadequate generation capacity. These are

  1. Shortage of fuel: The consistent fuel insecurity regarding quality coal and natural gas is one of the main reasons that the power plants work below their full capacity. The PLF (plant load factor-a measure of average capacity utilization of a thermal power unit) of thermal power units fell to 51.6% in November 2019. However, the present fall in PLF is also caused by a decline in energy demand as well.
    • Coal India Limited supplies only around 65% total national requirement, thus leading to dependence on imports.
  2. High AT&C losses: The Aggregate Technical & Commercial losses is a combination of Energy Loss ( Technical loss + Theft+ Inefficient Billing) and Commercial Loss (Default in Payment + Inefficient Collection). In India, the average AT&C losses are about 32% compared to 6-12% in developed countries.
    • Technical losses include transmission and distribution losses caused to inefficient and obsolete power lines. Around 25% of generated power is lost in transmission in India.
  3. Differential tariff structure: Small consumers are cross-subsidised with high demand consumers. This leads to excess burden and ills of theft and corruption in the system. This is a political issue and needs to be solved at the political level. The Government has proposed tariff slabs rationalization and limiting cross-subsidy. It would help in making businesses more competitive.
    • Free Electricity to farmers across the country and political freebies are a major issue leading to low revenue collection to the government.
  4. Poor health of State DISCOMS: DISCOMS is the Distribution Companies which supply electricity to consumers. BSES Rajdhani, BSES Yamuna Power etc. DISCOMS do not generate electricity but purchase it from producers like NTPC, NHPC etc.
    • Populist tariff schemes, mounting AT&C losses and operational inefficiencies have led the DISCOMS under outstanding debts of over ₹2.5 lakh crores.
  5. Interstate Disputes: The hydropower projects are paralysed due to disputes over inter-state river waters, land acquisition and environmental concerns. The interstate disputes also prevent excess power exchange between states.
  6. Lack of Long term Power Purchasing Agreements: Power Plants need to recover their investments but due to the short duration of PPA and slowdown in demand, the DISCOMS are hesitant to undertake long term power generation contracts. Long term PPAs would ease planning and investments in the sector. The subsequent competition would benefit the consumers as well.
  7. Policy Paralysis: The policies governing fuel costs, competitive bidding guidelines, mega power policy are not in tandem with frameworks of Electricity Act 2003 and National Electricity Policy.

India’s Power Paradox.: According to the Ministry of Power, India has become a power surplus country since the past few years (around 1% energy surplus). But there are about 300 million people without access to electricity. Rampant power cuts in faraway regions are still common and India has one of the lowest per capita power consumption in the world. India’s per-capita energy consumption is about one-third of the global average. Though India accounts for around 18% of the world’s population, it uses only around 6% of the world’s primary energy.

Surplus or Deficit is calculated as a difference between the demand for power and availability. Now, while calculating power demand, only those who are connected to the grid and have access to electricity at present are considered. This demand definition creates a loop for the paradox. Therefore, the Real Demand could only be calculated when India achieves its goal of Power for All.

Case for 24×7 power for all: Since electricity is the driver of the country’s development today, in order to achieve this goal focus should be upon three factors

  1. Monitoring of Supply i.e. real-time monitoring of power supply at the end-user level.
  2. Quality and Maintenance Service of the DISCOMs i.e. efficient transmission, and reduce load shedding and blackouts.
  3. Customer Service i.e. billing, metering and collection need to be made tech-driven and efficient by reducing human error.

Investment Scenario in Power Sector

100% FDI has been permitted under the automatic route in the power in India leading to investments growth at a record 12% from 2015 to 2018, to around $85 billion. As per 4th Annual World Energy Investment (WEI) report by the International Energy Agency (IEA), the Energy sector in India has seen the highest growth in the world. In 2018, India was the fourth-largest investment destination in the power sector. The report underlines the fact that for three continuous years, spending in the renewable sector exceeded fossil fuel-based power generation. This was due to government initiatives to support Solar PV and Wind energy generation.

Digital Grid technologiesEV charging stations, Smart metering solutions are the other sub-sectors that have seen an increase in investments. The credit goes to the modernisation of industrial facilities coupled with strong mandatory government policy, through the Perform, Achieve, Trade (PAT) policy.

Power System Development Fund (PSDF) has been approved with over Rs. 6000 crores to create and modernize transmission and distribution systems of strategic importance to relieve congestion in Inter and Intra State transmission systems.

Government Strategies and Way Forward

The government has undertaken several policies and strategies to boost the power sector as a key infrastructural sector to promote sustained industrial growth. Some steps taken by the government for development of the power sector are:

  1. UDAY scheme:
  • The Ujwal DISCOM Assurance Yojana was formulated for financial turnaround and revival of power distribution companies (DISCOMS) to ensure accessible, affordable, and available power for all. Due to legacy issues, DISCOMs were trapped in a vicious cycle of operational losses which were funded by debt. Outstanding debt of DISCOMs increased significantly from about Rs. 2.4 lakh crore in 2011-12 to about Rs. 4.3 lakh crore in 2014-15.
  • Under UDAY, state governments, which own the DISCOMs, can take over 75 per cent of their debt and pay back the lenders by selling bonds. The lenders can convert the debt into equity for the time being and for the remaining 25 per cent, DISCOMS will issue bonds.
  • The scheme is optional for States, but they are encouraged to benefit from UDAY.
  • Appraisal: The UDAY scheme has faced criticism due to mounting debt and overdue of DISCOMS. Rating agency CRISIL had reported earlier this year that combined external debt of DISCOMS is set to rise to pre-UDAY levels of Rs 2.6 lakh crore by March 2020 from Rs 2.28 lakh crore in March 2019 and Rs 1.85 lakh crore in March 2018.

   2. DDUGY scheme:

Deendayal Upadhyaya Gram Jyoti Yojana is custom-designed for rural areas. It aims to electrify 18,452 unelectrified villages. It subsumes previous Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). Its major components are

  • Feeder separation of agricultural and non-agricultural consumers.
  • Strengthening of sub-transmission and distribution network;
  • Metering at all levels (input points, feeders and distribution transformers);
  • Microgrid and off-grid distribution network &
  • Rural electrification and already sanctioned projects under RGGVY are to be completed.

   3. Integrated Power Development Scheme (IPDS):

The scheme is designed for urban areas. It aims to

  • Strengthen sub-transmission and distribution networks.
  • Metering at all levels.
  • Strengthen and create IT-enabled distribution sector.

    4. Grid Connected Rooftop & Small Solar Power Plants Programme and Off-Grid & Decentralised Solar are two national-level programmes are implemented by Applications by MNRE (Ministry of New and Renewable Energy) in order to promote the installation of solar rooftop systems.

    5. One Nation, One Grid: To improve the country’s connectivity infrastructure, a model National Grid is planned to ensure availability of power to states at affordable rates. It will connect all regional grids and result in one national frequency.

    6. Saubhagya scheme: Pradhan Mantri Sahaj Bijli Har Ghar Yojana has been implemented at a tremendous pace with over 45,000 households being electrified every day since its operation began.

    7. Smart meters:

  • Government has mandated the usage of smart prepaid electricity meters from April 2020 across the country and replace the previous ones in the next three years.
  • Smart meters would reduce AT&C losses and make bill payments easy.
  • Energy Efficiency Services Limited (EESL) has already floated two global tenders for 10 million smart meters.

    8. SAMADHAN SchemeUnder the Scheme of Asset Management and Debt Change Structure ( SAMADHAN), bankers consortium would acquire the debts of 11 shortlisted power plants. The debts would be reduced to manageable levels and converted to equities.

   9. PARIWARTAN Scheme: To prevent distress sale of stressed power projects under the Insolvency and Bankruptcy code, the government plans to warehouse such projects totalling 25 GW under an asset management firm. This is similar to SAMADHAN scheme.

  10. Changes in Electricity Act 2003:

Changes have been proposed to make the power sector more market-friendly.

  • A single public utility will be in charge of transmission lines.
  • Public and Private power producers and DISCOMs will compete for consumers.
  • Will lead to improved supply and lower bills.
  • Changes in tariff structures and subsidies and make it market-friendly.

   11. Promoting awareness by considering to make 24°C as a mandatory default setting for air conditioners (ACs). Every 1°C increase in the AC temperature results in saving of 6% of electricity consumed. Practical moves like this will make people conscious of their carbon footprint.

The above initiatives by the Government and International arrangements such as International Solar Alliance (ISA), Nuclear Power Generation deals regarding fuel and technology transfer, and global focus on improving efficient electricity penetration in poor households through large scale investments and collaborations are considered to be game-changer for the Indian Power Sector.

These would lead to achieving the Goal of 24*7 Power for all without jeopardising the environment.

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