May 1, 2009

Powering the People: India’s Capacity Expansion Plans

Sonal Patel

India has become a global business power even though hundreds of millions of its citizens still live in poverty. To sustain economic growth and lift its people out of poverty, India needs more — and more reliable — power. Details of government plans for achieving those goals demonstrate that pragmatism may be in shorter supply than ambition and political will.

India’s economy has been booming in recent years. Supported by market reforms, huge inflows of foreign direct investment, growing foreign currency reserves, and flourishing sectors such as information technology and real estate, it grew steadily at an average of 7% for a decade. But although progress is evident, the complexities of sustaining such growth are proving challenging. As the country’s Planning Commission says, if the country peopled by 1.1 billion is to eradicate poverty and meet its human development goals, it will need to sustain an 8% to 10% economic growth rate over the next 25 years. And in order to deliver this growth rate, it will need, at the very least, to triple or quadruple its primary energy supplies and increase total electricity generation capacity from 148 GW to nearly 800 GW by 2030.

The challenge is formidable. Despite progressive reforms, India’s electricity supply already lags 11% behind demand, and peak shortages surge as high as 17% (Table 1). The quality of the power supply is also very poor, owing to unstable voltages and routine frequency excursions (see sidebar, "A Passage for India’s Power"). More than often, state governments force the industrial sector to bear the brunt of power shortages to meet demand, crippling productivity and hampering economic development. The prevalent outages — which frequently last eight hours at a time — have also been known to cause violent skirmishes in urban areas.

Correction: One unit used to measure energy requirement and availability in Table 1 is equivalent to 1 kWh, not 1 MW as stated in the note.

Table 1.    A generation gap. Since 2002, when the government’s 9th plan ended, the gap between energy availability and requirements has widened, and peak demand continues to soar. India will need to add 92,000 MW before 2012 to eliminate these deficits and meet its economic goals. It has only planned to add 78 GW, however, and even this goal is unlikely to be met. Note that peak met and energy availability represent net consumption (including transmission losses). Sources: Economic Survey 2007; Central Electricity Authority

As well as being rapid and reliable, the supply expansion must also be affordable. Pointing to the yawning gap between India’s superpower economic aspirations and realities on the ground is the fact that its energy consumption on a per-capita basis (a factor loosely correlated with gross national product) ranks among the lowest in the world. In terms of electricity use, per capita consumption was only 480 kWh in 2005 — a quarter of China’s and 1/20th that of developed countries.

At the same time, expansion must not come at a steep cost to the environment. The country already emits 4.6% of the world’s greenhouse gases, making it the fourth-largest contributor, after the U.S., China, and Russia. Though it says it is concerned about climate change (see the web supplement "Of Prosperity and Pollution" at www.powermag.com), India has pointed out that, considering it has 17% of the world’s population, those emissions on a per-capita basis are relatively low.

Securing its fuel supplies will be another primary consideration. Today, more than 50% of India’s power is generated with coal, and 10% is natural gas – fired (Figure 1). But, though India has the world’s fourth-largest reserves of coal and has recently made important gas discoveries, the power sector routinely suffers acute shortages of quality coal and gas. Because coal power’s dominance is unlikely to subside, as the Planning Commission recognizes, the country must step up coal production or importation and expand supply of the fuel to more than 2 billion tonnes (2.2 U.S. tons)/year based on the quality of domestic coal.


1.    Fueling growth. Coal dominates India’s 148.4-GW power generation portfolio. According to Planning Commission scenarios, by 2030, coal-fired capacity will likely be in the range of 200 GW to 400 GW, up from the 77 GW today. Source: Central Electricity Authority, “Power at a Glance”; Ministry of New and Renewable Energy

The country will also have to secure uranium resources — of which it has meager reserves — to support its planned nuclear renaissance. Exploitation of its large hydropower potential, on the other hand, will involve displacing people and submerging land — not to mention potential environmental consequences. Renewable energy sources, therefore, are especially attractive. Although efforts have long been under way to promote them, renewables such as wind, solar, and biogas make up only 9% of the country’s generation portfolio.

Overarching all these challenges is a rickety institutional framework. A host of energy policies were adopted after independence to serve the socioeconomic priority of development, but these have instead "encouraged and sustained many inefficiencies in the use and production of energy," as the Planning Commission acknowledges.

Under India’s constitution, electricity is a "concurrent" subject, which places it under the control of both central and state governments. After independence in 1947, the electricity sector was organized around public State Electricity Boards (SEBs); these operated as extensions of state energy ministries — but as commercial entities that could develop policy. Driven by populist politics, they pushed for cheap electricity for agriculture in the late 1970s to stimulate India’s Green Revolution. In the 1980s, by raising tariffs on industrial consumers, farmers in several states began receiving power for free or at flat rates.

Gradually, while pushing the industrial sector to build captive power plants (that is, facilities commissioned by a group of users for self-consumption of the electricity provided), this approach led to a rampant lack of accountability that finally caused an average fiscal deficit of more than 20% in the states’ budgets. As the gap between demand and supply widened, the government was forced to rethink its policies. Finally, to deal with the macroeconomic financial crisis in 1991, it opened the door for domestic and foreign independent power producers.

Nevertheless, despite lucrative incentives, twice as much capacity was added in the public sector as in the private sector during the second half of the 1990s. Reform to the sector came only after the World Bank pushed the government to view power as a commodity, pointing out that the sector’s problems were a result of a conflict of interest "between government’s role as owner and its role as operator of utilities." The eastern state of Orissa was the first to adopt the recommended — albeit controversial — legislative and institutional changes. First it set up an independent regulatory commission to promote accountability and further encourage private sector investment. Then it split its SEB into two generation companies and a grid management company. The central government consolidated these reforms through the Electricity Regulatory Commission Act in 1998 and the Electricity Act in 2003.

Despite these changes, however, the public sector continues to play a dominant role in determining India’s power generation and supply (Figure 4). Through the Ministry of Power, the central government sets overall power policy, while state governments focus on power plants and regional transmission and distribution networks located within their boundaries.



4.    Sharing power. Though it was liberalized almost 20 years ago, India’s power sector continues to be dominated by the government. Today, state governments produce 52% of the nation’s power, followed by the central government (34%) and the private sector (15%). Source: Central Electricity Authority

State governments produce 52% of the nation’s power, followed by the central government (34%) and the private sector (15%). The industry’s other major players are also central government – owned: The National Thermal Power Corp. (NTPC), for example, accounts for 28% of the country’s capacity, while the Nuclear Power Corp. of India (NPCIL) owns all 17 existing nuclear power plants. The Ministry of Power also oversees key organizations like the national grid operator, Power Grid Corp., and the Central Electricity Authority (CEA), which conducts techno-economic assessments. The coal sector is also dominated by public sector institutions — as is the electric power technology manufacturing sector. Bharat Heavy Electrical Ltd. (BHEL), a holding company overseen by the Ministry of Heavy Industry, manufactured more than 60% of the generation units installed in the 1970s, and it will build many of the power plants planned in the coming decades.