The Indian Economy Blog

April 26, 2006

News from the Indian Electricity Sector

Filed under: Energy,Infrastructure — Reuben Abraham @ 6:21 am

I was invited to a luncheon yesterday with union power minister, Sushil Kumar Shinde, hosted by the Indian Consulate General in New York. Mr Shinde was doing a roadshow inviting U.S. investors to invest in India’s power sector, which allows 100% FDI in generation, T&D and trading. I took notes about some key issues/facts about India’s power sector, which I figured many of you would be interested in as well.

Only 56% of the Indian population has access to regular power. That’s about 500 million people without access.

Per-capita consumption of power in India is 606 KWH, 20% of the world average.

India needs another 100,000 MW to come online by 2012 to keep growth going (too low, in my opinion). 100,000 MW implies an additional investment of $100 billion in generation alone, and therefor the 100% FDI, you see.

The breakdown of India’s power generation looks like this:
Hydropower — 32,335 MW (26% of total)
Thermal — 82,500 MW (66% of total)
Nuclear — 3,310 MW (3% of total) [to go upto 25% if we get access to nuclear fuel]
Renewables/Alternative — 6,158 (6% of total)
That’s about 125,000 MW in current production, with another 41,500 MW in execution currently.

Total commercial losses of state utilities as a percentage of turnover dropped from 40% in 1999 to 14% in 2005, though the situation remains abysmal in the BIMARU states.

There seems to be a great opportunity in rural electrification, which because of its importance to the current government, gets you a 90% grant from the central kitty, combined with a 10% loan.

Hidden in the midst of all of this was the opportunity to produce decentralized power in the 5-10 MW range, which apparently companies like GE are looking at very seriously. Personally, I am gung-ho about decentralized, off-grid power.

The real coup that Mr Shinde and his bureaucrats have pulled off though seems to be the idea of the shell companies/SPVs in the power sector. Yesterday’s FT special section on infrastructure touched upon this as well.

Unlike most off-the-shelf entities, however, these “fab five” are packed with assets, such as statutory land clearance licences, water agreements, fuel links and coal blocks, assurances on power purchase agreements and even a preliminary credit rating from an Indian agency. The aim is to create and sell “running companies” with locked-in approvals – the bane of foreign investors in Indian power – to investors in India, the US, Europe and even China. Experts describe the “shell companies” as the ace cards in India’s new mega-power policy, which, according to Mr Shinde, is designed to achieve “economies of scale in the delivery of power at a comparatively cheap price”.

Unveiled in January, the five entities contain enough ticked and crossed regulatory clearances to lift the spirits of those foreign investors who over the past decade had all but written off India’s power generating sector as a no-go area. The projects will be sited at coastal locations and at pit-heads – India has the world’s second largest reserves of coal but only a fraction ends up going to domestic coal-based power plants. Each scheme will have generating capacity of 4,000mw, require investment of Rs150bn and will be commissioned within five years.

The only thing that worried me in all of this was the emphasis on large, coal-fired (dirty coal, for the most part) plants and big hydro electric projects. India seems to be determined to follow in the foot-steps of the United States in this regard, which can only lead to an ecological disaster as hundreds of millions of people demand electricity as economic growth spreads. If I were making decisions, I would certainly be looking more carefully at renewables, especially since the cost of fossil fuels is bound to increase dramatically as demand soars in India and China.

I would love to hear from the energy enthusiasts among you what you think of all of this.

29 Comments »

  1. There was an excellent article some months ago in the National Geographic. Net-net, their conclusion- there is no silver bullet to this issue of a clean sustainable energy source. Much of the current state of technology in renewables make investment unaffordable. Also, renewables also have ecolological costs. Solar does imply significant land use, wind turbines affect migratory birds, etc. Non-edible oils for bio-fuel like Jethropa will take too long to deliver and also mean diversion of scarce land.

    All of this point to the need for nuclear energy.

    However, given the scale of our requirements in the near future, unless we invent some new form of generation we appear stuck with dirty fossil fuels!

    We are in urgent need of breakthrough technology and throwing money at this problem by way of research grants at our universities is one thought even if the track record is unmpressve till date. Given the criticality of the issue I suppose it is best tackled using multiple approaches.

    Comment by little Ram — April 26, 2006 @ 10:57 am

  2. This is in response to the above comment that we would require significant land use for solar energy. While it is true that we would need a lot of surface area for generating solar energy, in my opinion, solar energy has to be looked into from the point of complimenting other sources of energy at this moment. If cheap solar panels (and they are getting cheaper by the year) are put up on the roofs of houses in the cities to begin with, and excess capacity can be traded with others in a community, a sizeable chunk of the household energy requirements can be addressed. Now household energy consumption may not be the largest use of energy in the country but every MW counts.

    Comment by sanatan — April 26, 2006 @ 5:09 pm

  3. I am with Sanatan on this one. I think one needs to think of renewables wherever one can, even if as an add-on to conventional energy sources. I think roof-top panels to handle basic stuff (like heating water etc) will be a good start, though if we could start thinking in terms of green buildings from concept stage onwards, we may be able to conserve significant amounts of energy.

    Ram, yes, I’ve heard lots of energy experts say that nuclear may well be the only way out of the impending energy crisis. I am yet to hear from anyone though how they plan to handle waste, which is a real problem. If the waste issue can somehow be tackled and safety standards adhered to, nuclear may well become a really viable option.

    The interesting thing about Jatropha is that it does not require “scarce” land in a sense, because Jatropha’s biggest upside is that it can grow effortlessly on wasteland, which is why the govts of states like Gujarat and Chattisgarh may be inclined to support Jatropha production, if it proves to be a viable option.

    Comment by Reuben Abraham — April 26, 2006 @ 11:21 pm

  4. I don’t see how India can afford renewable energy technologies if the US even finds it too expensive.

    Comment by Patel — April 26, 2006 @ 11:43 pm

  5. Reuben,

    Nuclear Waste is certainly an issue. However, France is an example of a country which gets around 30% of their energy through nuclear means. Clearly it can be done with adequate controls and precaution in place.

    Renewable sources should always be kept in mind … Solar energy (the most easily abundant renewable in India) is still not inexpensive to even get setup. Lets see, there is some serious research going on in the field. Hopefully it will become more economically viable in the not too distant future.

    Comment by Sameer Mehta — April 27, 2006 @ 12:24 am

  6. Sameer,
    France actually generates 70%+ from nuclear energy, but they also get slammed for the way they treat their waste.

    As for solar, the two things that keep the unit cost of solar high is the battle for silicon (it has to compete with the IT industry) and plain lack of scale. The scale is something that can be addressed if a country like India takes it seriously. As for materials, that’s why we need to watch companies like Nanosolar (funded by Brin/Page) which are working on interesting new nano materials.

    As for the U.S. and it’s energy production, trust me, if fossil fuels weren’t subsidized (not accounting for externalities and such like), I think you’d see the U.S. begin to think very seriously about renewables.

    Comment by Reuben Abraham — April 27, 2006 @ 3:16 am

  7. Enron’s experience with Maharashtra State re: the Dhabol plant left a bad taste in everyone’s mouth. I realize that Enron took advantage of the state, but abrogating a $2 Billion deal is remembered by investors.

    Having said that, as I understand it, India is blessed with significant amounts of coal, and coal is not always dirty…there exist coal gasification technologies that cost about 50% more than a conventional steam plant (US$ 1,800/kilowatt) that are as clean as combined cycle NG generation. LNG is another possibility, as CCNG plants can be build for about $600/kw…cost of production is about US$90/MWH (as LNG on the world market is priced at about 1/6 the world price of crude oil, and it takes about 7,200 cu ft of NG to produce 1 MWH, plus O&M).

    I do not know what the coal price is in India, as it’s tied to transportation.

    It will be very interesting to see what sorts of returns Indian investors demand as they become more affluent and (assuming) the US$ continues to lose value. Right now, many investors find the US to be an excellent place to invest, but that may not be the case for much longer.

    Comment by Bristlecone — April 27, 2006 @ 3:44 am

  8. Having said that, of course, I would love to invest in an Indian power plant, as the population becomes more affluent.

    I am a native of Houston TX, and I know what 100 deg F and 90% humidity feels like…and would suspect that India has 1 billion people who would love to buy an air conditioner….

    Comment by Bristlecone — April 27, 2006 @ 3:53 am

  9. Thanks for the correction Reuben.

    Comment by Sameer Mehta — April 27, 2006 @ 7:39 am

  10. Bristlecone,
    I consider air-conditioning to be a multi, multi-billion dollar business in India. I think the perfect comparison is with the American south, which was literally made liveable by the eradication of malaria and the advent of air-conditioning. I’d rather look for alternatives to the energy intensive current models of air-conditioning though.

    I think a technology that consists fundamentally of dehumidifying and then cooling the air using a technology that uses far, far less energy than the average air-conditioner will fly in India. This is not some pie-in-the-sky scheme, since I am actually talking to someone who has developed similar technology to adapt the model to developing country conditions. Oh, and the fixed costs of installation are substantially lower too.

    Fundamentally though, policy makers in India need to realize that air-conditioning is absolutely crucial to productivity when the temp is at 90F and humidity is at 90%. This realization will, hopefully, lead to lower import duties and the likes, which alone can cut the cost of equipment.

    Comment by Reuben Abraham — April 27, 2006 @ 10:04 am

  11. And Bristlecone, the biggest problem with the Enron deal, IMHO, was the indexing of power tariffs to the USD, which was a terrible idea in a country that was going through multiple currency devaluations.

    The shell company/SPV idea is partly a strategy to deal with the adverse fallout of the Dabhol affair.

    BTW, coal does not have to be dirty especially if you use new sequestration techniques and so on. The trouble is that almost all the coal used in India today is dirty coal and I did not hear anything on Monday that seemed to suggest a move away from dirty coal, which India has abundant reserves of.

    Comment by Reuben Abraham — April 27, 2006 @ 10:06 am

  12. Reuben/ others,

    Sure ivestment in renewables, bio-fuel needs to happen. Every bit counts- that is my point on multiple approaches. I can see that a lot of stuff that is unviable now, will get hugely more viable once crude crosses $ 100/ barrel.

    I am seeing 2 big technology challenges out here-

    a. Getting conversion efficiencies to go up- solar to electrical, biomass to heat to electricity, whatever.

    b. Developing storage technology that would greatly ease the issue of synchronicity. Moment the water stops flowing, the sun stops shining or the wind stops blowing, energy production stops. If we could produce the energy asynchronously and store it so we could consume it when really needed, it would solve a lot of problems. Just think about it, if you could develop an energy pack that can condense and store energy for quick and easy retrieval, that would make grid planning and networks so much more easy.

    BTW, great point on air-conditioning.

    Comment by little Ram — April 27, 2006 @ 2:54 pm

  13. There was an article in last week’s Newsweek (could’nt find the link, sorry) about some commercial firms producing small, windmills that can be planted on roof tops. One decent sized windmill in a reasonably tall building (16+ floors) can generate enough power to supply the whole area.
    Any comments on this idea?

    Comment by Shrini — April 27, 2006 @ 5:58 pm

  14. “As for solar, the two things that keep the unit cost of solar high is the battle for silicon (it has to compete with the IT industry) and plain lack of scale…”

    Reuben, did you know silicon is sand? I have watched Intel make chips and they use pure sand as raw material.

    As little Ram says, the issue with solar panels is efficency – hence the acres of panels to generate viable power. Storage has always been an issue – the charge is lost rather rapidly – if not the end product would be biggest export product.

    I’d say make the cheapest power first, clean up latter when we can actually afford to do so. Most alternatives are very expensive – apparently now so too are LNG and petrol based materials. But I doubt our environmental bridge will let SPEs happen – clean coal power costs a lot of money – rather have people sitting in dark.

    Comment by Chandra — April 28, 2006 @ 4:05 am

  15. I think that the best thing to do is to focus on alternative energy more. India has diverse landscape and climate and with the constant price of oil in the international market, alternative energy seems to be the best thing to go for. Environment pollution is claiming

    thousands of lives every year i
    n India and investing for the alternative
    energy sources can be the right way.

    Comment by Razib Ahmed — April 28, 2006 @ 4:28 am

  16. Chandra,
    Yes, I happen to know Silicon is present in sand, feldspar, clay etc. However, the silicon that’s used in photovoltaics and semiconductors are several orders of magintude different from silicon used elsewhere. In fact, there are categories, namely silicon, pure silicon. Semiconductors and photovoltaics use another class called ultra-pure silicon, and this is where the two industries come into conflict from a demand perspective. You can read more about that on several stories that have appeared in the news.

    http://www.renewableenergyaccess.com/rea/news/story?id=43983

    “The worldwide silicon shortage is a major driver of the pickup in M&A activity says Walter Nasdeo of Ardour Capital Partners. Over 90 percent of global solar cell production is silicon based. Despite very high demand for photovoltaic equipment, the raw material shortage is squeezing margins. Solar World cited two major benefits of the Shell deal: one, it secures more access to silicon supply and, two, monocrystalline solar technology provides the highest yields and, thus, requires less silicon. The deal makes the German photovoltaic supplier the largest solar power company in the US.”

    http://www.wired.com/news/planet/0,2782,67013,00.html

    “There is a definite shortage of silicon out there right now,” said Gary Homan, vice president of Hemlock Semiconductor, which manufactures polycrystalline silicon that is used in semiconductors and photovoltaic cells. Homan said that from 2000 to 2004, silicon manufacturers could not justify capital investments because the price for their products in the solar industry had dropped to less than $30 per kilogram, or below many companies’ costs. Demand for silicon from semiconductor manufacturers and the solar industry has increased sharply since then, and the price has nearly doubled, Homan said.”

    Do a google search and you will find many more articles on the silicon shortages faced by the solar industry. This is not random hand waving about the economics of demand and supply of ultra-pure silicon.

    Comment by Reuben Abraham — April 28, 2006 @ 7:41 am

  17. I saw a documentary last night on HBO talking about this very issue of renewable energy and dire situation our planet is in. It was eye opening.

    http://www.hbo.com/docs/programs/toohot/?ntrack_para1=leftnav_category1

    Check it out if you have access to HBO

    Comment by Sameer Mehta — April 29, 2006 @ 12:39 am

  18. I think this represents a great opportunity for India. The growth potential is massive; the good it can do for the country in terms of giving us a solid base to launch ourselves ever further is unquestionable.

    This is going to get the greens a little unhappy but needs to be said, and I’m sorry if this has already been said but it’s fundamentally vital to stress this. India needs generation, we need power and not on a load shedding basis. We need to rely on traditional solutions in the short and medium term. India is firmly participating in the Kyoto protocol and so the emissions scheme will equally apply to Indian companies.

    We must open our eyes and see reality from a capitalistic view point. India is in trouble if it does not shape up to cheap power solutions while looking into viable renewable sources inc fuel cell technology.

    Let’s take China for example, power obviously not being a storable commodity is utilised to its best. The cities are powered for work in the day and at night when the city is asleep the big industrial units kick into life so as to provide for everyone’s needs.

    Comment by Kunal Solanki — April 29, 2006 @ 4:44 am

  19. Reuben, thanks for correcting me. But I very much doubt the viability of solar power generation relates to supply (or lack of) silicon. The hurdle with solar power has always been and still is efficiency. I hear there is start up in Southern California that has created solar panels that can increase efficiency several folds. Let’s hope it’s true and, if so, technology is adopted quickly.

    Comment by Chandra — April 29, 2006 @ 5:31 am

  20. When you say, commercial losses as a percentage of the turnover is 14% for state utilities, do you mean overall commercial losses as a percentage of the combined turnover of generation, transmission and distribution?

    I am raising this point because, average distribution losses(quantified by Aggregate Technical & Commercial Losses) would be of the order of 40% in India. Even Delhi, after nearly 4 years of privatization, clocked about 40% AT&C losses last financial year. Though some utilities are doing better (WBSEB at about 25%, CESC at 16%, BSES Bombay at about 14% etc.), there is absolutely no sanctity to the figures released by many state utilities, since the subsidy they receive is directly proportional to the loss reduction they achieve (or rather are able to show in their books).

    Ensuring lowering of distribution losses through better enforcement and collections by the SEBs, backed by a strong political will, would help narrow the energy deficit considerably by promoting efficient use of energy (e.g. use of energy guzzling coil-based electric stoves for cooking in most households indulging in power theft). It would also decrease the subsidy burden of the government. Once distribution losses go down, retail tariffs would come down. Flipping the logic, it would mean, creating a buffer to absorb any tariff hike due to rise in cost of generation. Since tariff rates tend to be downward inflexible, it would increase the viability of alternate fuels, which are more expensive than conventional fuels. A favorable government policy at that juncture (an incentive to power generation through alternate fuels or a disincentive to power generation through conventional fuels), would give a filip to the adoption of alternate fuels.

    Concentrating on only increasing power generation capacity today, IMHO, will only add to the subsidy burden of the government and further deepen the crisis at our SEBs.

    Comment by Debajit — April 30, 2006 @ 12:58 am

  21. Chandra,
    The California company you are referring to is Nanosolar, which I had mentioned in an earlier comment.

    Debajit, excellent question. I don’t know the answer to that though when I went through my notes, it seemed like they meant percentage of combined turnover. But I cannot be sure, since I am purely repeating numbers I heard. I have nothing on me in terms of stats to challenge those numbers with.

    What is your take on decentralized, off-grid power generation? On the transmission loss front, the loss incured merely as a matter of electrons being stripped away can be avoided by going for an off-grid model, yes? Or do you think scale is the name of the game?

    Comment by Reuben Abraham — April 30, 2006 @ 3:22 am

  22. [...] ron Blowout”, by P. Purkayastha and V. Prashad, Singpost Frontline, vol. 23, issue 7 The Indian Economy Blog economic reforms [...]

    Pingback by Power and water liberalisation issues at How the Other Half Lives — May 5, 2006 @ 1:34 pm

  23. you may be glad to hear, that pune city has finally formulated a plan permitting captive power plants in the city & industrial belt to contribute power to the grid to reduce the darkness city folks have to endure (upto 6 hours daily) across seasons. Well it must have been rocket science! but atleast other states/cities can emulate the success over time. Given that practically every state has large underutilised backup power generation available, it would assist alleviating the power problem and reduce undue stress on core equipment. Now only if the govt can prevent free power to those who are willing to pay – rest assured the power problems may be resolved sooner than expected. and as we say – indegeniously.

    Comment by Peebz — May 21, 2006 @ 9:59 pm

  24. I stumbled upon the site researching on wind power generation. Could anyone give an idea about the kind of land required to set upa 1.5 MW windmill and the per unit cost of generation.

    Comment by Abhishek — June 5, 2006 @ 4:07 pm

  25. India, the land of 10 months of cloudless sun, should instantly switch to this infinite source of energy.This be for housholds and possibly many firms as well.
    Every house or small cluster of houses for themselves.Solarcatchers in conjunction with photovoltics and maybe throw in a Sterling engine to produce electrics.
    Convert your electrics to a DC, and becone a DC community,batterybanks 12/24 V, saving bulbs, electric accessories, radio, tv etc all 12/24 V DC based, even refrigirators come as 12V DC.
    This consept could easily be tested in fullscale in rural villages “tomorrow” – go for it.There are many unpowered villages, and here such an effort will be embraced ….
    When the technology is in place, proceed to the bigger cities, suburb by suburb.
    You know India can do this – you are clever peoples – and the technical competance and infrastructure are in place.
    Let the high power demanding portions of industri, railway and so fort use the cheaper 220V AC you already exploits, dont mess up your beautiful country for the idea of “energy to any cost”-kind a’ thinking. THINK SUN MOTHER INDIA – THINK HARD TODAY !

    Do not venture down the nuke-alley, the uranium mines are drying up, and the easy to access uranium
    will last just few decades with todays use. The idea of Peak-oil is happening these days, so even using money
    this way is “a shot in the dark”. Rather take “a shot in the ligth”, as in the sun, that is viable for all
    future…..

    Comment by paul norway — June 24, 2006 @ 6:39 am

  26. Look, all this talk about planting solar cells on rooftops and furthermore wind ‘mills’ (its actually windturbines if it generates electricity) is all great to talk about, but without seeing these things function, how can you justify these energy sources?

    Remember, a large solar array of 20 sqm of good 25% efficiency, which I work with at Northwestern University, makes barely enough energy to run even a few fans. Furthermore, remember that on a cloudy day, solar cells still have a 30% efficiency.

    Winpower on the other hand, is largely misinterpretted in terms of capacity. Granted a turbine may be rated at 1MW, it will RARELY work at that level. a reduction in windspeeds from 8 to 6 m/s will reduce efficency to less than half! Furthermore, with large variations in windspeeds, how is this wind supposed to provide a constant energy source? sometimes these turbines produce zero energy for weeks because wind is too low.

    Nuclear technology does not depend on technology my friend, we have all of that. What we do not have is the uranium, and even this can be obtained. However, if you look at the situation in Japan, which despite being a technologically advanced country, it still has poor safety levels.

    Comment by Anurag — July 21, 2006 @ 3:09 pm

  27. I have studied Nanosolar and it has great promise. I am hopeful that their product will enter the market soon. The world needs this!

    Comment by Mas — March 31, 2007 @ 8:38 am

  28. If any one have refrence for per unit cost of electrivity generation through digfferent technology or fuel, I need it very badly. Specifically if possible for India is available that will be even better.

    Regards.

    Comment by Vijayanand — August 18, 2007 @ 3:18 pm

  29. INDIAN POWER SECTOR

    OPEN ACCESS TO TRANSMISSION SYSTEM

    Private Sector will have large role in capacity addition. But there are many risks that they encounter, the foremost of them being evacuation of the generation.

    Electricity Act 2003 mandates that the CTU shall provide non-discriminatory open access to its transmission system for use by any licensee or generating company on payment of the transmission charges.

    At present the Power Grid Corporation of India has been designated by the concerned authorities (under the Act) as the Central Transmission Unit (CTU)

    When Private Power Generators approach the CTU for providing them with Open Access to the transmission system for evacuation of power from their proposed power plants, the former is asking the generator to identify the Licensee and the point of drawal.

    For the Private Generator obtaining commitment of open access of transmission facility is a pre-requisite for Financial Closure. This is a requirement that forms the corner stone and forms an activity the kick starts the project schedule. Identification of power purchasers as also the points of drawal of power cannot be finalised at that stage for the reasons given below:

    The Government of India had issued on 6th Jan., 2006 Tariff Policy that states “All future requirement of power should be procured competitively by distribution licensees”

    This Order “forbids” the distribution licensees from even considering entertaining any proposal from private generators about extending a commitment to purchase power from such generators.

    This has become a “Catch 22″ type situation.

    The Authorities who are keen to see that Private Generators to come forward to supplement the efforts of the Government agencies to add to the installed generating capacity during the Eleventh Plan (2007-2012) should look into this anomaly and correct the same.

    PGCIL is a commercial entity and is concerned on the financial viability of their investments and would not be able to take risks while investing.

    It should be the responsibility of the Planning Commission of India to provide for necessary and adequate funds as part of the Plan funding to cater to the augmentation of transmission elements to meet the Power Evacuation requirements of the Private Generators. The entire funding can be routed through Central Electricity Authority and the implementation agency could be PGCIL.

    Comment by J.Balasubrahmanyam — January 28, 2008 @ 6:02 pm

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