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Current impasse short-lived…
Indias power generation capacity has struggled to keep pace with rapid economic growth and urbanisation. Various measures are being taken, shown we should be seeing another growth pace.
IE: The power position has been rather precarious, especially in states like Tamil Nadu. What do you consider as the underlying causes and the possible quick remedies?

B P Rao: During the last one to two years, the accelerated pace of growth of Indian power sector has calmed down. Issues of coal linkages, gas exploration, land allocation, environmental clearances and poor financial position of state distribution companies (discoms) have curbed the interest of developers and investors in new projects. Because of high interest rates and shortage of liquidity in market, many projects are on hold. There is no single cause or solution for the problem. It is unfortunate that the power sector is being bogged down with multiple problems at the same point of time. We need to address all of them simultaneously. The government is taking various initiatives such as securitisation of debts for state discoms, FSAs with power producers, coal price pooling mechanism, etc to revitalize the power sector. But, in my opinion, it will take some time, may be 1-2 years, for things to regain the earlier growth momentum.

IE: In successive five-year plans, there have been significant shortfalls in achieving the targets set. The enthusiasm displayed in setting the targets, unfortunately, is not seen in monitoring and meeting these. How can it be addressed?

B P Rao: Historically, India has been achieving around 50 per cent of the capacity addition target set in various five-year plans. In the 11th Plan, a total of 55 GW of generation capacity has been added which is 70 per cent of the original plan target. Therefore, there is an improvement. It is not correct to say that there is a dilution of enthusiasm from target setting to execution. Actually, there are multiple reasons, which prevent conducive environment required to enable projects to achieve set targets. For example, from the equipment manufacturers’ point of view, BHEL, along with a few private players, have built power plant equipment manufacturing capacities to match demand. But at the same time there is a lack of vigour and proportionate efforts from BoP suppliers. And this has become a major bottleneck in project execution. Similarly, inadequate support infrastructure like roads and railways are also major bottlenecks in large size project executions.

IE: There have been serious issues relating to environment, coal linkages. Your suggestions for meeting these... 

B P Rao: India has around 280 billion tonnes of coal reserves out of which 110 billion tonnes are ready to mine. But to the disappointment of industry, domestic production has not kept pace with the increasing demand. The country had to import around 100 MT of coal last year resulting in financial stress on both the industry and the country. Historically, consumption of coal has increased at a higher pace compared to domestic production. And this gap is likely to increase in coming years. Today, availability of coal has become the most important issue, which needs long-term solution for ensuring future energy access. Any such solution should address structural and operational aspects of coal mining in India with active technology interventions.

IE: Ultra Mega Power Projects were mooted with great promise. Over the last eight years, these have made poor progress. The major issue relates to pricing over the long term. How can the country get out of this impasse?

B P Rao: Whatever happened in coal sector in recent years, like regulatory changes in exporting countries and inordinate delay in coal linkages in our country, was not expected by anybody. Developers as well as regulators were new to the concept of UMPPs, per se large-scale projects. So, contracts were devoid of suitable risk mitigation measures resulting in contentions on the issues of pricing, execution and the very viability of these projects. Price pooling is one of the options in the long-term interest of the industry. We are waiting for the much-anticipated CERC’s decision in case of petitions filed by Tata Power and Adani Power, which should give more clarity on the issue. 

IE: Do you think the measures outlined to redeem State Electricity Boards with massive central funding are sustainable?

B P Rao: Cash losses of all state discoms have crossed Rs 200 bn. In recent years, we were not seeing much of the modernization and expansion activities in state power sector, which is not good for the economy. So, current revival package from government is the need of the hour. There is no choice. But for ensuring sustainability, we have to reduce AT&C losses, increase tariff while considering affordability and modernize last leg of distribution. 

IE: Your estimate on the state of the sector in 2025.

B P Rao: As per Integrated Energy Policy 2006, for India to grow at 8 per cent, generation capacity and electricity generation should have been 220 GW and 1097 bln kWh in 2012. Against this estimation, we had a generation capacity and electricity generation of 200 GW and 858 bln kWh. Further, India will need to increase its primary energy supply by four to five times, and its electricity generation capacity/ supply by six to seven times, as compared to 2003/04 levels with power-generation capacity reaching 778 GW by 2031/32. 

India’s power generation capacity has struggled to keep pace with rapid economic and population growth and urbanization. Despite 55 GW of total power generating capacity added over the past five years, peak demand deficits remain worryingly high in the range of 10-12 per cent. Transmission and distribution network is also inadequate. AT&C losses in FY11 came down to 26.6 per cent from 28.74 percent in FY09 and 40-45 percent in early 2000s. Even these losses are among the highest in the world, comparable with some countries in sub-Saharan Africa. Various measures are being taken at all levels. Soon we should be seeing another growth phase. 

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