POWER SECTOR

Presented by:

Kuldeep Kavta- PT300713

Mustafa K. Sonasath- PT301513

CEPT University

INTRODUCTION

Electric power is a critical input into all economic activity.

It is essential not only for agriculture, industry and commercial business but also for basic household lighting.

India ranks 5th in power production in the world but still about 45% of rural India is yet not electrified.

Since power is a basic amenity required which is yet to be satisfied, the sector has an immense growth potentials.

Installed capacity of power plants in India is 250256 MW as in 2014 in which private sector contributes about 35%, state has 25% and centre has 37 % contribution.

Recently after formation of new government in 2014, power sector has been in lime light for its restructuring.

GROWING DEMANDExpansion in industrial activity to boost demand for electricityGrowing population and per capita usagePower consumption is expected to increase from 821.2 TWh in 2013 to 1433.2 TWh in 2022

ATTRACTIVE OPPORTUNITIESLarge capacity additions targeted in 12th and 13th year plansIncreasing investments and projectsDiversification into renewable sources

HIGHER INVESTMENTS FDI infows in the power sectors Major investments by public as well as private sectors

POLICY SUPPORT Elimination of licences Rationalisation of Tariifs and development of UMPP

Advantage India

INDIAN SCENARIO

Before 1956

Electricity Act 1948

Establishment of SEB’s

1956-1991

1991-2003

2003 onwards

Industrial Policy Resolution

Generation & Distribution of power under State ownership

Power losses, subsidies and resource constraints

Legislatives & Policy initiatives

Private sector participation in generation

Electricity Regulatory Commissions Act for establishing Central and State Regulatory Commissions

Electricity Act 2003 National Tariff Policy

2006 Elimination of licensing

for generation Launch of UMPP scheme Various schemes and

initiatives to promote renewable energy

Fuel Supply Agreement of power companies with CIL

Increased competition through international competitive bidding

EVOLUTION OF INDIAN POWER SECTOR

Canda Germany India Japan Russia US China0

500100015002000250030003500400045005000

608 6151006 1104 1052

43084700

World’s largest electricity producers

Production in 2012 (TWh)

• With a production of 1006 TWh in 2012, India is the fifth largest producer and consumer of electricity in the world

• Although power generation has grown over independence, demand growth has been even higher due to accelerating economy

Source: Energy Statistics 13, CEA

WORLD’S LEADING ELECTRICITY PRODUCERS

Thermal68%

Hydro18%

Renewable12%

Nuclear2%

Shares in total installed capacity 2013

Thermal Hydro Renewable Nuclear

Thermal Hydroelectric Renewable Nuclear0

20

40

60

80

100

120

140

160

180 168.4

40.531.7

4.8

Installed Capacity for different sources 2013

Capacity in GW

POWER SHARES

Source: Ministry of Coal

POWER: MARKET WITH GROWTH POTENTIAL

2007 2008 2009 2010 2011 2012 20130

20

40

60

80

100

120

140

160

87 91 97 104 110 116 122

101109 110

119 122130 137

Addition to Capacity Generation (GW)

Capacity Peak requirement

The per-capita electricity consumption of India stood at 819 lower than the global average of 2803 representing enormous growth.

The addition of approx. 106 GW to the existing capacity is expected to boost GDP growth to 8% by 2017

Source: CEA

GROWTH OF ELECTRICITY PRODUCTION

2007 2008 2009 2010 2011 2012 20130

100200300400500600700800900

1000

663 705 724772 811

876 912

Electricity Production in India (TWh)

Production in TWh

CAGR=5.5% Over 2007-13, electricity production

expanded at a CAGR of 5.5%

Electricity production in India stood at 911.6 TWh in 2013, a 4% over the previous fiscal.

Source: CEA

INCREASING INVESTMENTS: FDI INFLOWS

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY130

200

400

600

800

1000

1200

1400

1600

1800

87157

967 985

1437

1252

1652

536

FDI Inflows (USD Million)

FDI Inflows (USD Million)

Power is one of the key sectors attracting FDI inflows in India

Power accounted for 4% of total inflows in the sector in FY13.

Cumulative FDI inflows into the FY00-13 were USD 7.8 billion

100% FDI in Power Generation, Transmission and Distribution from 2012.

Source: Make in India

MAJOR PLAYERS IN POWER SECTOR

POLICIES ADOPTED DURING BUDGET FY 14

• Government to reintroduce generation based incentives for wind power projects to boost capacity addition in sector

Generation Based Incentives

• To reduce dependency on imported coal, a PPP policy framework would be devised with CIL to increase coal production

Public Private Partnership(PPP)

• During FY13, Government liberalized policy for power trading exchanges.Liberalized FDI policy

• Low interest bearing funds to be provided from National Clean Energy Fund to IREDA for on lending to viable renewable energy projects

Low Interest Funds

• The total plan outlay for the power sector for FY14 was aprox USD 1.6 billion, a significant 27% higher than estimate of USD 1.5 billion for FY13

Growing Investments

• The total capex by power PSU’s is estimated to be USD 9.4 billion in FY14 as against USD 9.3 in FY13 Higher Capex by PSU’s

Ministry of Power

TransmissionGeneration

Central Electricity Authority

Distribution

National Load Dispatch Centre

Central Transmission

Utility

Govt owned PSU’s

State Load Dispatch Centre

State Transmissio

n Utility

Regional Load Dispatch Centre

State Electricity Board’s

STATUTORY BODIES

PPP IN POWER SECTOR A PPP project at Jhajjar in Haryana for transmission of electricity was awarded

under the PPP mode. Further, to enable private Participation in distribution of electricity, especially by way of PPP, a model framework is being developed by the Planning Commission.

To attract private sector participation, government has permitted the private sector to set up coal,gas or liquid-based thermal, hydel, wind or solar projects with foreign equity participation up to 100 per cent under the automatic route.

The government has also launched Ultra Mega Power Projects(UMPPs) with an initial capacity of 4,000 MW to attract `160–200 billion of private investment. Out of the total nine UMPPs, four UMPPs at Mundra(Gujarat), Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiya Dam (Jharkhand) have already been awarded. The remaining five UMPPs, namely in Sundergarh District (Orissa), Cheyyur (Tamil Nadu), Girye (Maharashtra), Tadri (Karnataka) and Akaltara (Chattisgarh) are yet to be awarded.

To create Transmission Super Highways, the government has allowed private sector participation in the transmission sector

ACTS RELATING TO POWER SECTOR

1) Indian Electricity Act, 1910:This Act was introduced to provide a basic framework for electricity supply industry in India. Its main objectives were: To assign nominal powers to local governments so as to remove the problem of dual

control of electricity supply. To allow local governments to issue licenses for bulk supply of electricity To provide a legal framework for laying down of wires and other works To provide for laying down relationships between licensee and consumer.

2) Electricity Supply Act, 1948:The main objective of this Act was to make provisions for the establishment of the CEA to monitor the electricity sector at the central level. SEBs were established at the state level to expand the supply of electricity to remote areas of the country.

3) Amendments to Electricity Supply Act, 1948:The following are the amendments introduced in the Act:

(a)Electricity Supply Act, Amendment 1975:

To enable the generation of electricity at the Central government level; and, To bring commercial viability to the functioning of SEBs by ensuring a minimum return of

three percent on net capital at the beginning of each year as a mandatory requirement for SEB

(b) Electricity Supply Act, Amendment 1991: To open generation to the private sector; and To establish the setting up of RLDCs to monitor the appropriate dispatch ofelectricity within their respective regions.

(c) Electricity Supply Act, Amendment 1998: To provide for private sector participation in transmission.

4) The Electricity Regulatory Commission Act, 1998: The Act provided for the setting up of the Central/SERCs with powers to determine electricity tariffs. While the CERC had responsibility over all centrally owned power stations and other interstate stations, the SERCs were responsible for stations within their own jurisdiction or state. The constitution of SERC was left optional for States.

5) Electricity Act, 2003 (Act):The Electricity Act, 2003 endeavoured to provide an enabling framework for an accelerated and more efficient development of the power sector. It encouraged competition with appropriate regulatory intervention.

REGULATORS IN POWER SECTOR

CERC-Central electricity regulatory commission.

CEA-Central electricity authority

Centre State

SERC-State electricity regulatory commission

SEB-State electricity board

Goa and UT

JERC-Joint electricity regulatory commission.

REGULATORY ROLE:

Powers to regulate centrally owned generating companies.

Sale of electricity in more than one State and regulate inter-State transmission/Trading.

CERC

SERC

Powers to regulate intra-State generation, transmission and distribution.

TEC of generation projects, technical norms etc.

CEA

SEB Several powers as main advisor of State Govt.

FUNCTIONS OF CERC:

To regulate the tariff of inter-state generating companies.

To regulate the inter-State transmission of electricity.

To determine tariff for inter-State transmission of electricity .

To issue licenses for inter state electricity transmission and trading.

To adjudicate upon inter-State disputes.

To specify and enforce the standards with respect to quality, continuity and reliability of service.

To fix the trading margin.

To develop national power market.

Promotion of competition, efficiency and economy in the activities of the electricity industry.

FUNCTIONS OF SERC:

Determine the tariff for generation, supply, transmission within the State.

Facilitate intra-State transmission and wheeling of electricity.

Issue licences for intra state transmission, distribution and trading.

Promote co-generation and generation of electricity from renewable sources of energy.

Adjudicate upon the intra-state disputes.

Specify or enforce standards with respect to quality, continuity and reliability of service by licensees.

Fix the trading margin in the intra-State trading of electricity.

Matters concerning generation, transmission , distribution and trading of electricity or any other matter referred to the State Commission by that Government.

SCOPE/ACTIVITIES:Generation No requirement of licence. Full freedom to captive generation. For hydro-generation clearance of CEA is necessary due to concern of dam safety

and inter-State issues. Generation from Non-Conventional Sources / Cogeneration to be promoted.

Minimum percentage of purchase of power from renewables may be prescribed by Regulatory Commissions.

Transmission Transmission Utility at the Center and in the States to undertake

planning/development of transmission system. Regional Load Despatch Centres to ensure integrated operation of the power

system.

Distribution Distribution, a licensed activity. Retail tariff to be determined by SERC. Provision for suspension/revocation of licence by Regulatory Commission as it is an

essential service which can not be allowed to collapse.

RECENTLY IN POWER SECTOR: Government sanctioned total 12 UMPPs. (4000 MW and above)

The UMPPs that commissioned production are facing problem due to lack of fuel.

Due to these UMPPs stared buying occupying coal mines in Australia, Indonesia and other Eastern countries

These resulted in UMPPs asking for increase in the tariff (Mundra case). The empowered panel approved the new tariff.

After supreme court cancelled the allocated coal blocks recently, new government came up with new policy o revive coal India recently.

As per statement by power minister government might go for UMPP on their own if required.

(source: business standatrd)

ISSUES AND RECOMMENDATIONS

1) Reducing the Government monopoly over coal through auctions & pooling.

Auctions can be considered an effective method for allocating coal blocks, as mining companies bid according to how much they value the license. The government has approved auction of Coal blocks and worked out the methodology

for auction by competitive bidding of the coal blocks. Care has to taken by the government and regulators that bids submitted justify the value

of coal blocks. Secondly, the pooling of domestic and international coal prices can be used as an

important tool for reducing the vagaries arising from fluctuations in international coal prices.

Under the pooling of coal prices, power plants would pay a uniform, average price for both domestic and imported coal

This process would reduce the dominance and near monopoly of CIL as the price of domestic coal is one third the cost of imported coal and would advantage private players as well.

The view of the CEA that power plants equidistant from the coast and coal mines should be supplied imported coal and that CIL should supply coal to power stations located near coal mines should be considered by the government.

This pooling mechanism may help reduce transportation costs of coal by 50 percent.

2) Encouragement of Private Mining and Corporatisation Of Coal India’s Subsidiary

The government should take more concrete steps to encourage the setting up of private mines so as to increase availability of coal for electricity generation.

The Ministry of Environment & Forests needs to play a bigger role in giving quick clearances for setting up of these mines.

3) Implementing Open Access

Currently in the distribution sector, the networks of power lines supplying electricity to consumers‘ houses are mostly owned by state utilities.

Besides creating confusion about tariff rates, this also hinders the implementation of open access

A review of the existing policies and regulations, and adherence to the same is very critical. Further, rationalisation of wheeling charges and cross subsidy surcharges, as per guidelines in the Electricity Tariff Policy, is a prerequisite to encouraging demand for Open Access.

4) Rationalising Tariffs

Tariff rationalisation is essential in order to ensure the financial viability of the state utilities, and to promote private entry into the market for electricity distribution.

To this end, there is a need to clearly define and demarcate the powers of the State governments in tariff setting and controlling.

4) Ensuring unbundling in The Electricity Supply Chain

There is a need to undertake measures that would ensure the unbundling of SEBs in all of the states.

While progress has been made in some states such as Gujarat, Maharashtra, West Bengal and Orissa others such as Tripura, Uttarakhand, Himachal Pradesh, Jammu & Kashmir, Meghalaya and Mizoram still have ways to go.

5) Reforming Subsidies

Efficient and alternate ways of providing subsidies to the agriculture sector or to the poor must be designed and implemented to benefit poor households without proving detrimental to the functioning of private players in the electricity distribution sector.

Private public partnerships in such reforms can lead to a more efficient distribution of Power.

It offers assistance to the poor directly using government finances without adding undue burdens on the power distributing company.

6) Resolving Domain Issues Between Regulators

Differences have cropped up between CERC and the CCI regarding jurisdiction over anti-competitive practices in the power sector.

The central government should clearly indicate who has jurisdiction in the domain of competition in the electricity sector.

7) Making Umpps more Viable

So far 12 UMPPs have been sanctioned by the government but they face fuel shortages and losses due to their inability to set tariffs reflective of their costs.

For eg, the CERC allowed Adani Power to temporarily increase tariffs from it’s Mundra project and subsequently passed a similar order for TPC. Such allowances for tariff revisions due to supply and demand conditions must continue in order for the UMPPs to remain viable business ventures.

8) Misuse of the Powers Given To States Under Section 11 Of The Electricity Act 2003

According to Section 11, appropriate state governments may specify that a particular generating company may, in extraordinary circumstances, operate and maintain any generating station in accordance with the directions of the government. This has become a norm rather than an exception.

The government should take necessary actions to amend the section so it is used only as intended. The matter has been referred to the judiciary.

9) Private Sector Participation In Retail Business

The government should consider involving private sector companies in outsourcing retail business such as bill collections from customers, running customer care centres and other related activities in the distribution sector. Most developed countries practice this model.

TARIFF OF ELECTRICITY IN INDIA

Tariff refers to the amount of money the consumer has to pay for making the power available to them at their homes. Tariff system takes into account various factors to calculate the total cost of the electricity.

Types:1) For Consumer

The total cost levied on the consumer is divided into 3 parts usually referred as 3 part tariff system.

Total cost of electrical energy = fixed cost +semi fixed cost + variable cost = (a + b*KW +c*KW-h ) Rs.

a = fixed cost independent of the maximum demand and actually energy consumed. This cost takes into account the cost of land, labour, interest on capital cost, depreciation etc.

b = constant which when multiplied by maximum KW demand gives the semi fixed cost. This takes into account the size of power plant as maximum demand determines the size of power plant.

c = a constant which when multiplied by actual energy consumed KW-h gives the running cost. This takes into account the cost of fuel consumed in producing power.

Types:1) For DISCOMS (Availability Based Tariff)

The total cost levied on the consumer is also divided into 3 parts usually referred as Availability Based Tariff.

This tariff mechanism also has of 3 parts: Fixed charge + capacity charge + UI (Unscheduled interchange).

The capacity charge is for making the power available to them and depends on the capacity of plant.

Unscheduled Interchange is the charge for making the system

5th largest producer and consumer globally• With a production of 1006 TWh , India is the 5th largest consumer and producer in th World

Large scale government initiated plans• The government targets expansion of 89 GW under the 12th Five Year Plan and around 100 GW under the

13th Five Year Plan

Robust growth in renewables

• Renewable energy capacity additions of 30 GW are planned in the next five year plans to meet the growing demand

Favorable policy environment

• National Tariff Policy ensured adequate return on investment to companies engaged in power sector and assured electricity to end users at affordable and competitive rates

• Launch of UMPP scheme

SUMMARY

THANK YOU…..