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Laggard power generation could derail India’s growth story

Laggard power generation could derail India’s growth story
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First Published: Wed, Jul 20 2011. 10 31 PM IST
Updated: Wed, Jul 20 2011. 10 31 PM IST
New Delhi: India’s target of achieving a 9-9.5% growth during the 12th Plan period (2012-17) may come unstuck, with power generation unable to match pace with growing demand.
Power has emerged as the biggest bottleneck for India’s growth story, and inability to meet demand can hurt economic growth in the world’s second fastest growing major economy, analysts say.
Electricity for all by 2009, a promise contained in the 2004 election manifesto of the Congress party, which leads the United Progressive Alliance (UPA) government, remains a distant dream.
Chronic fuel shortages are hurting power generation and projects are faltering because of reasons as varied as delayed investment decisions, contractual problems, resistance to land acquisition, geological issues and natural calamities.
Fuel woes
While issues such as delays in environmental clearance for projects and mining sites have dogged the sector, the fuel crisis can be captured in a power ministry’s memorandum last month that sealed the fate of projects totalling at least 10,000 megawatts (MW) expected to come up by March 2017.
“Actual drawal of coal will be subject to 85% of power being tied up through long term PPA (power purchase agreement) with Discoms (distribution companies) through tariff based competitive bidding (except for PSU projects where PPAs were signed by 5.1.2011),” the order said.
In other words, only those private sector projects scheduled to be commissioned in the 12th Plan that will be awarded coal linkages will be those who have signed long term PPAs with distribution firms.
Since a significant number of private sector projects for the next Plan period are being set up on a cost-plus basis, they wouldn’t be recommended by the power ministry. Also, the interests of government owned utilities such as NTPC Ltd has been protected as the utility signed PPAs totalling 45,000MW in the last fiscal by 5 January.
“The order was issued as there is only a limited amount of coal to be allocated in the 12th Plan,” said a power ministry official, who declined to be identified.
The government plans to add 100,000MW during the 12th Plan to the current capacity of 174,000MW. The bulk of the 11th Plan’s targeted addition is coal-based, but the country is facing an increasing shortage of the fuel.
The scarcity has widened from 4 million tonnes (mt) in 2004-05 to 40 mt in 2010-11. The power sector is the country’s biggest consumer of coal, absorbing 78% of domestic production. To generate 1MW of power, around 5,000 tonnes of coal is required in a year.
“The situation would get even worse as about 65-70Gw (gigawatt) of domestic coal linkage-based power projects, which are currently under various stages of execution, would start coming on stream in the period of next six years,” Credit Analysis and Research Ltd said in a report. 1 GW equals 1,000 MW.
The growing panic of the private sector was captured in a letter last month written by Ashok Khurana, director general of lobby group association of power producers, to Montek Singh Ahluwalia, deputy chairman of the Planning Commission.
“A spectre of acute coal shortages looms large on the power sector,” Khurana wrote in the letter. “There is a severe risk of stranding of assets and the associated contracts.”
To make matters worse, no new natural gas-based capacity is being planned in the country. The initial excitement after Reliance Industries Ltd’s (RIL) production from D6 block in the Krishna-Godavari (KG) basin, India’s largest gas reservoir, has tapered because of falling production in that field.
Gas is allotted to customers by the government in line with the gas utilization policy that prioritizes users: existing fertilizer factories rank first, followed by existing power, petrochemical and city gas projects. New projects aren’t high up on the priority list.
Poor track record
India’s track record in adding power generating capacity is poor. In the five years to 2007, the country added 20,950MW of capacity, against a target of 41,110MW. The situation remains grim for the 11th Plan target, with the government set to miss the revised target of 62,374MW.
However, power minister Sushilkumar Shinde insists that the sector has performed much better compared with previous years.
“We have added a record power generation capacity in the country last year. The highest ever record capacity of 15,795MW has been added in the power sector in the country during 2010-11,” he said.
The situation is alarming because the country’s per capita electricity consumption is, at 700 units, less than one-third the global average, yet it faces a 10.2% shortage during the peak hours between 5pm and 11pm. The shortage is expected to worsen with electricity requirement expected to soar by 55.5% by the end of the 12th Plan.
Capturing the problem about ecological concerns becoming a stumbling block for development, India’s Economic Survey 2010-11 said, “There is urgent need to streamline land acquisition and environment clearance for infrastructure projects.”
To be sure, there’s a silver lining. The government’s efforts to increase power generation equipment manufacturing has yielded results. Many local joint ventures, such as between Larsen and Toubro Ltd and Mitsubishi Heavy Industries Ltd; Toshiba Corp. of Japan and JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH; and Thermax Ltd and Babcock and Wilcox Co., have been formed.
“Going forward, our focus will be on meeting our targets,” power secretary P. Uma Shankar said. “We are confident that we will be able to do so.”
The power ministry is also focusing on energy conservation and energy efficiency improvement for demand side management. The government has targeted a 5% reduction in demand during the 11th Plan through schemes such as Bachat Lamp Yojana that promotes energy efficient compact fluorescent bulbs, standards and labelling scheme to lay down minimum energy performance standards and energy conservation building code that sets minimum energy performance standards for new commercial buildings having a connected load of 100Kw.
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First Published: Wed, Jul 20 2011. 10 31 PM IST