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Overview of Indian power sector

Overview of Indian power sector. Prayas - EGI Skill-share workshop for Tajikistan and Kyrgyzstan Delegates November 16-18, 2010, Pune, India Prayas Energy Group www.prayaspune.org/peg , energy@prayaspune.org. Generation 120 GW 120 million Consumers >35% Transit loss Financial loss 1 % GDP

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Overview of Indian power sector

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  1. Overview of Indian power sector Prayas - EGI Skill-share workshop for Tajikistan and Kyrgyzstan DelegatesNovember 16-18, 2010, Pune, IndiaPrayas Energy Groupwww.prayaspune.org/peg, energy@prayaspune.org

  2. Generation 120 GW 120 million Consumers >35% Transit loss Financial loss 1 % GDP Consumption Industry - 35% Houses - 26% Farms - 25% Overview Current Indian structure Prayas - EGI Workshop, Nov. 2010, Pune

  3. Overview Distribution of Household by use (kWh/month) Numbers are indicative 25–30% of 200 million houses in India pay electricity bill > US$ 3- 4 / month! Prayas - EGI Workshop, Nov. 2010, Pune

  4. 1975-90Increased rural access (green revolution) & Federal intervention in generation  Skewed tariff 1950–75 Major growth, State govt lead and ownership Stage 1 & 2: Initial Growth & Federal Action Key points: (1) Govt ownership gave great boost initially – large social benefits & mixed experience of efficiency, (2) Federal government intervention in generation – taking part in state mandate – but ignored the key ground realities Prayas - EGI Workshop, Nov. 2010, Pune

  5. Initial Growth & Federal Action • Fast growth of grid and farm connections (un- metered, subsidized) – lack of accountability • Sales not able to pay for increased generation – skewed tariff • Federal generation – attempted solution Agricultural (IPS) tariff and consumption in Maharashtra Prayas - EGI Workshop, Nov. 2010, Pune

  6. Neglect of negative impact of subsidy • Non-irrigated farmers (80%) did not get subsidy, and top 2% captured 20% power subsidy (fig shows subsidy distribution among the land-owners in Maharashtra) Prayas - EGI Workshop, Nov. 2010, Pune

  7. Focus on Centralized generation – resulting in vicious cycle Prayas - EGI Workshop, Nov. 2010, Pune

  8. 1975-90Increased rural access (green revolution) & Federal intervention in generation Skewed tariff 1950–75 Major growth, State govt lead and ownership 1991-98 IPP Era Financial crisis  controversial IPPs High cost gen, high T&D losses Stage 3: Solution to capital crisis - IPP & Regulation Foreign capital (IPP) invited at extremely attractive returns (Enron, GE etc.) – simultaneous process in all over Asia and parts of Africa, Latin America Neglect of core inefficiencies continued (skewed tariffs, distribution losses, bad contracting etc.) Top management time lost in IPP negotiations Prayas - EGI Workshop, Nov. 2010, Pune

  9. IPP push – A Massive Policy Failure • IPPs –MoU for 90 GW  ~7 GW realized (in a decade) • Close door contracts, high ForEx dependence (fuel, debt and equity) • Power planning norms totally ignored • Improvement in performance of existing power plants added three times more generation than IPPs – while top management remained locked with IPP issues Prayas - EGI Workshop, Nov. 2010, Pune

  10. Comparison of CCGT Plants Around the World 1400 Enron Dabhol 1200 1000 800 Cost per kW ($/kW) 600 $/kW Plants 400 370-600 18 600-800 3 800-1000 4 200 > 1000 3 0 - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Capacity MW LNG NG 1 NG 2 High Cost IPP Projects – e.g. Enron Prayas - EGI Workshop, Nov. 2010, Pune

  11. Problems of the Electricity Sector • Social: About half of the houses are yet to be electrified, cost of power increasing rapidly, large problem of rehabilitation of displaced people • Environmental: Problems associated with mining, ash disposal, dams, air pollution, and CO2 emissions • Technical & Managerial Performance: Power shortages, bad service quality, etc. • Financial Crisis: 35-50% of electricity lost in transit (~half is estimated to be theft), high cost - long term contracts with IPPs, inability to recover costs Planners remained focused on Financial crisis Prayas - EGI Workshop, Nov. 2010, Pune

  12. 1975-90Increased rural access (green revolution) & Federal intervention in generation Skewed tariff 1950–75 Major growth, State govt lead and ownership 1991-98 IPP Era Financial crisis  controversial IPPs High cost gen, high T&D losses 1996-2002 WB Model Attempt of un-bundling & pvt. in some states Regulatory commission Stage 4: WB Reform Model & Regulation Prayas - EGI Workshop, Nov. 2010, Pune

  13. Diagnosis Financial crisis rooted in “political” interference due to public ownership & monopoly Prescription: ‘Reforms and Privatization’ Unbundling, Privatization & Competition, Independent Regulation, Policy Changes Diagnosis by World Bank Prayas - EGI Workshop, Nov. 2010, Pune

  14. Control by Vested Interests and Undermining of Public Control Irrational Decisions and Operational In-efficiency Financial Crisis Subversion of TAP Process (Transparency Accountability Participation) Reforms: Directed Towards Privatisation and Competition Real dynamics Prayas - EGI Workshop, Nov. 2010, Pune

  15. Earlier model with direct Government Control Tariff Investment Govt. Management Prayas - EGI Workshop, Nov. 2010, Pune

  16. Public Un-bundling and Corporatization… continuing experiment Prayas - EGI Workshop, Nov. 2010, Pune

  17. Rapid Replication of WB Orissa Model Prayas - EGI Workshop, Nov. 2010, Pune

  18. Partial implementation of WB model • Unbundling and corporatisation – but not privatisation • Independent Regulation Applied through a National Act • Established in most states (with reluctance) • Exposed inefficiency of the sector (T&D loss, power purchase etc.) • Enforced energy audits, rationalization of tariffs & power purchase Prayas - EGI Workshop, Nov. 2010, Pune

  19. Regulatory Commission’s Effectiveness Un-metered electricity = T&D losses + Agri sales Difference = $300 Mn Prayas - EGI Workshop, Nov. 2010, Pune

  20. Movement of tariff over years: Maharashtra Case Prayas - EGI Workshop, Nov. 2010, Pune

  21. Reform: The Paradigm Shift • Policy • Self Reliance Globalisation (Technology, Fuel) • Electricity, a Development input aMarketableCommodity, with Cost based/Market based Tariff • Utility Structure • Integrated Unbundled, Corporatised, ‘Independent’ Regulation • Ownership • State Private Prayas - EGI Workshop, Nov. 2010, Pune

  22. 1975-90Increased rural access (green revolution) & Federal intervention in generation Skewed tariff Electricity Act 2003 Bulk competition, Captive gen, subsidy for increased access 1950–75 Major growth, State govt lead and ownership 1991-98 IPP Era Financial crisis  controversial IPPs High cost gen, high T&D losses 1996-2002 WB Model Attempt of un-bundling & pvt. in some states Regulatory commission Stage 5: Mixed model Prayas - EGI Workshop, Nov. 2010, Pune

  23. Electricity Act 2003 • Emphasis on competition • Generation as well as distribution • Allows power exchanges and traders • Facilitates privatisation • Multiple licenses • Franchisee • Strengthens regulation Prayas - EGI Workshop, Nov. 2010, Pune

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