Mumbai is a city of 30 million people, widespread poverty, and what appears to be chaos on congested roads. For many years, industry observers have taken the view that the country will never solve its problems. The country’s power sector has been plagued by red-tape, failed projects, the poor health of its State Electricity Boards (SEBs), low availability, transmission losses and power theft.

Since the passing of the Electricity Act 2003, however, the government seems to be making a significant effort to bring much needed power to its nation of 1 billion people. Sceptics would argue that the country will still not achieve the goals set out in its power development plans, but the interest that developers are now showing in the country is undeniable.

Big plans

India has an installed generating capacity of more than 127 GW, a figure to be set against its current shortfall of 50-60 GW. India’s government has a vision of ‘Power for All’ by 2012, which set a target of adding 100 GW under the 10th and 11th Five Year Plans. But this is now looking highly unlikely.

Under its 10th Five Year Plan, which runs to the end of March 2007, India planned to add 46 GW of new capacity to the grid. However it will miss the target by a significant margin. The government is currently predicting that only 30 641 MW will be achieved. Even meeting this revised target will be a tall order. It will require some 12 900 MW to be added in the remaining months, against a total of 17 700 MW that has been commissioned in the last four and a half years.

The government is now being more diligent in how it might make up the shortfall as it prepares its 11th Plan. To minimise slippages in the 11th Plan period, the government has asked the Central Electricity Authority (CEA) to identify a raft of thermal power projects totalling 88 GW and hydropower projects worth 34 GW to increase options and create a buffer.

A chain of coastal power plants adding up to 10 000 MW based on imported or blended coal is being proposed in addition to the proposed ‘ultra-mega’ (4000 MW+) projects. All coastal states have been asked to prepare the action plan to meet this target. Only hydropower projects where the letter of award (LOA) is expected to be issued before March 2007 will be included for commissioning under the 11th Plan. Where new technologies such as supercritical coal fired plants are being considered, again, only those where the LOAs are expected by March 2007 will be included. Each state has been directed to firm up its capacity addition programme under the 11th Plan for submission to the ministry by January 2007.

New optimism

According to the latest estimates India will need to have an installed capacity of about 206 GW by 2012. This calls for the addition of

72 GW in the 11th Plan period.

Despite this huge task, the Indian government remains optimistic about its future development. Speaking at the recent CEPSI (Conference for the Electric Power Supply Industry) conference, R. V. Shahi, secretary, ministry of power said: “The last 30 months have been momentous. For the first time in two and half years, we have achieved an economic growth rate of 8%. We can now confidently target 9-10%. The power sector is key to achieving this target and must prove not to be a constraint. This year has been a good year. In October the growth in electricity demand was 7% compared to 5% this time a year ago.”

The government believes that the only way to get over the potential power constraint is through competition. The Electricity Act of 2003 opened the door to bringing in competition. “It provided the key but we now have to use the key,” noted Shahi.

The move to implement merchant generation is one way in which India is attempting to unlock the power of competition. Shahi spoke of the need for merchant plant to meet market demand. “A few days ago (beginning of November) the Ministry of Power announced a merchant plant scheme to help meet market demand. We have to allow capacity development in a competitive way. Merchant plant could usher in an era where a larger amount can be sold on a trading basis.

At the end of September, the Orissa government signed Memoranda of Understanding (MoU) with different companies for setting up 10 thermal power plants in the state. The announcement marked a major step in India’s power development programme. Chief minister Mr Naveen Patnaik said that with the 10 MoUs, Orissa was set to become the country’s powerhouse.

The 10 coal-fired thermal power plants will be set up with an investment of Rs 450 000 million to produce 10 920 MW power. The state government will earn revenue of Rs 17 900 million annually from these plants.

The MoUs were signed with Tata Power Company Ltd, Visa Power Ltd, Monnet Ispat and Energy Ltd, Lanco Group Ltd, KVK Nilachal Power Ltd, Calcutta Electricity Supply Corporation, Essar Power Ltd, Jindal Photo Ltd, Bhusan Energy Ltd, and Sterlite Energy Pvt Ltd.

Mr Patnaik said that the State Government would hold the right to purchase up to 25 % of power sent out from these plants as per tariff determined by the Orissa Electricity Regulatory Commission. The chief minister also announced that his government would shortly set up an Environment Management Fund. The developers of these power plants will have to contribute 6 paise (0.06 Rs) per unit of the energy sent out from the plants, but sold in the State, for better management of the environment, he added.

In October equipment major Bharat Heavy Electricals Ltd (BHEL) said it was evaluating the option of picking up equity stake in upcoming power projects, especially those incorporating new technology. The State-owned company, which has decided to bid jointly with National Thermal Power Corp. for the proposed 4000 MW Sasan ultra-mega power project, is actively looking at the option of picking up a minority stake in the project, if required.

BHEL chairman and managing director, Mr Ashok K. Puri, said “We are looking at the option of coming in as a minority partner to kick-start power projects, especially those involving new technology. The Sasan project would be using new supercritical technology … We will be jointly bidding with NTPC for the project with the option of picking up equity.”

Meanwhile, last month Qatar Investment Board (QIB) was reported to be interested in taking up to 40 % equity in a Kerala-based thermal power project owned by the NTPC.

Not all thermal

Although the major portion of new capacity will come from thermal (43 GW coal fired) plant, India has big plans for renewables. Under the 11th Plan out of the targeted 65 GW, 17 GW has been earmarked for hydropower.

Notably there will be more incentives for increasing its already significant wind generating capacity. India is the fourth largest wind power generator in the world. As of March 2006, installed wind generating capacity was 5200 MW. Profits from wind plants are not taxable. It was noted at the conference that wind is no longer dependent on subsidies. Nuclear will also play an increasingly important role in the country’s future. This much was made clear with the agreements of cooperation with the US announced earlier this year. The share of nuclear in India could go from the current 3% to 6-10% over the next 25 years.

The installed nuclear capacity is currently nearly 4000 MW. Under the 11th Plan, the target is to add another 3000 MW.

In terms of gas, international gas prices have hit the prospects for gas fired plant. About 5000 MW of gas fired generating capacity built at a cost of Rs200 billion ($24.4 bn) is standing idle. Under the 11th Plan, a target of 2000 MW has been set against the target of 5000 MW set in the previous plan. The Dabhol project provides a stark reminder of the consequences of high fuel prices and the knock-on effect on electricity tariffs.

As a result, India’s industry is learning from its own experiences. Shahi recently noted: “On gas we are being more cautious this time. We will not proceed unless there is better availability and a better predictability of pricing.”

This measured approach combined with increasing interest from the private sector should see India inch closer to improving on its efforts of previous Five Year Plans. It may still fall short but with each attempt it gets closer to achieving its targets.