The private sector's share in power generation, it is expected, will go up from 10 per cent during the 11th Plan to about 35 per cent in the 12th Plan, says Somesh Kumar.India's electricity sector, 5th largest globally, accounts for 4.0 per cent of global energy consumption by more than 17 per cent of global population. About 65 per cent of the electricity consumed is generated by thermal power plants, 22 per cent by hydroelectric power plants, 3 per cent by nuclear power plants and only about 10 per cent by renewable energy sources. Coal still continues to be the dominant fuel contributing almost 50 per cent of the electricity generated. In the last few years, India has started investing in renewable energy, with wind being the main source till now. The Jawaharlal Nehru National Solar Mission (JNNSM) unveiled in 2009 targets to achieve 20,000 MW of solar capacity by 2022, a significant increase from negligible capacity at present. It is quite evident that a large number of infrastructure sectors, including electricity, continue to remain a major bottleneck to sustained economic growth in India. It is estimated that India's growth could have been 1 to 3 per cent higher if such bottlenecks were not there. This realisation actually came about in 1980s when it was accepted that inadequate power supply was a major reason for limiting growth and thus all ways of augmenting power supply, including private sector participation, was of utmost importance. It is not particularly well known that in India, reforms in the power sector were actually initiated before those in the telecom sector. However, reforms in power sector were far more difficult than in the telecom sector due to the inherent nature of the sector. The most notable change that happened in late 1980s was in the power generation segment where private power producers or independent power producers (IPPs) were allowed to set up power plants and sell power to the state electricity boards (SEBs). However, a host of reasons including the financial health of the SEBs did not allow generation capacity to grow as envisaged. Even the decision to invite IPPs to set up power plants in India was done in an ad-hoc and case-by case basis and was not part of any comprehensive policy shift. This unveiled a new era of reforming the SEBs and carrying out other fundamental reforms in the sector, structurally as well as operationally.The (new) Electricity Act, 2003 was a landmark legislation that paved the way to revamp the legal and regulatory framework governing the power sector. Generation was completely delicensed as well as other provisions were made to increase competitiveness in power procurement. As a result, positive response to capacity addition has started emerging. A large number of private players evinced interest and are aggressively looking at setting up capacities of varying sizes, fuels and locations. It is interesting to note that these players are not just established power sector players, but several new entrants to the power or even infrastructure sectors. It is expected that the private sector's share in power generation will go up from 10 per cent during the 11th Plan to about 35 per cent in the 12th Plan. The four ultra mega power projects (UMPPs) awarded till date have also gone a long way in augmenting private sector participation in the sector.However, despite the enabling legislative and policy framework backed by encouraging response from private sector players, the capacity addition is still not adequate. India's total generation capacity is what China adds almost every year. There are delays in some of the projects for a variety of reasons. Foreign players have still not taken the risk of entering the Indian power generation sector. It is important to look at some of the factors contributing to these.For thermal projects, availability of fuel continues to be the biggest challenge. Domestic supplies of both coal and gas supplies are limited. Coal sector reforms are a need of the day. A large number of players started looking at importing coal. This obviously distorts the economics of power generation particularly in a competitively bid scenario. Of late, there have been changes in regulations in several of the geographies, the main one being Indonesia, from where Indian players have been looking to import coal, which increase the challenges.Land acquisition also continues to be a problem. Availability of equipment also continues to be constrained. There have been policy changes to allow even public sector players to source generating equipment from any source. This has led to several private-sector players, domestic and foreign, ramping up their production capacities in India and entering into joint ventures to competitively bid for supply of equipment for power projects. However, the full capacity is yet to be brought on stream. Players are also looking at Chinese equipment suppliers. However, a careful balance has to be struck in terms of quality, cost and timeliness. Renewable power, particularly, solar still remains largely untested. While JNNSM targets to add significant capacities and first phase of award of projects has already been completed, the results are yet to be seen. However, the cost of solar power for a mass scale deployment is still quite prohibitive. Further technological innovations and economies of scale are needed to bring this cost down to a more acceptable level.The power sector has picked up momentum. It is important to ensure that the momentum is accelerated and not stalled. It is good to see that there is a strong realisation of issues and a concerted attempt to find solutions. However, the pace needs to be increased and several institutions including the ministries need to work in tandem to overcome issues. Hopefully, the 12th Plan, the contours of which are in the process of being firmed up, will find more viable options to address these issues and make the power sector the engine of growth for the Indian economy.The author is Principal with Accenture Services. Views are personal.
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