Energy is the indispensable force that drives all economic activity—the greater the energy consumption, the more the economic activity, resulting in the emergence of growth. A steady growth in the economy is a prerequisite for any nation desirous of becoming a developed country. If India adequately utilizes its energy potential to meet growing demand, it will be better poised to achieve high levels of economic growth.
The past year was particularly turbulent for the power sector, which struggled with numerous factors such as a fuel supply shortage, the unprecedented price increases in the international coal market and the dismal financial health of the distribution segment. The worst blackout in the country’s history, which occurred in July, accentuated the need for an immediate resolution to several policy and regulatory hurdles.
Therefore, to ensure desired levels of economic growth, serious collective efforts from the central and state governments, regulators and the industry are necessitated to mitigate hurdles impeding growth of the power sector. The top five areas that demand government intervention are:
Shortage in supply of domestic coal:
To address the shortage in supply, the following need to be ensured: (i) that Coal India Ltd and its subsidiaries augment production of coal; (ii) that production and capacity addition plans of the power producers are facilitated with bankable fuel-supply agreements; (iii) that progressive liberalization of coal sector is undertaken to allow private participation in exploration by stepping up capacity building by the prospective service providers and users of inland waterway transportation facilities, etc.
Unprecedented increase of the coal prices impacting imported coal-based power projects:
Government intervention is necessary to ensure the viability of 55,000 megawatts (MW) of imported coal-based capacities that lie stranded due to changes in regulations by coal-exporting countries such as Indonesia and Australia.
Poor financial health of the distribution sector impacting the performance of transmission and generation segments: The distribution segment generates revenue for the entire value chain. Poor financial health of the distribution sector has, in turn, impacted performance of the transmission and generation segments. This has shaken investor confidence in the power sector. While the central government is offering restructuring packages to improve the financial outlook of the discoms, the states need to be more forthcoming in fast-tracking the reform process in the distribution sector by:
· Rationalizing electricity tariffs that are deliberately being kept artificially low by many states to capitalize on the short-term political gains of providing free electricity and
· Ensuring reduction of transmission and distribution losses and electricity theft through improved metering for operational efficiency and collections. Private participation in distribution can help state distribution companies improve on all these parameters.
Autonomy of regulators: While the Central Electricity Regulatory Commission has been trying to bring in various reforms needed in the sector, implementation at the state level is affected due to lack of the regulator’s autonomy. There is a need to consider a regulatory structure with regional-level regulators, which can address the current structural deficiencies by going beyond the clout of state-level politics.
Shortage of gas: Shortage of gas for the power sector has resulted in existing gas-based capacities to run at an average 70% plant load factor, while another 12,000MW capacity ready for commissioning is stranded due to non-allocation of gas. The government needs to take up measures to ensure affordable and dependable availability of gas to these projects.
Thus, in eliminating roadblocks to the power sector’s growth, concerted efforts from all the stakeholders is an urgent call for 2013. After all, it is uninterrupted power supply that forms the backbone of a robust economy.