Strategy for the Ministry of Power

By K Gnanadesikan
Himangshu Shekar Das
1. Vision Statement of the Ministry

Quality power for all in a sustainable manner.

2. Mission Statement of the Ministry

Achieve the vision by providing an enabling policy environment for

production of power through various sources of energy at internationally
competitive prices in an environmentally sustainable manner, supply of quality
power to all consumers and provision of access to electricity to all households in
the country especially in the rural areas.

3. Objectives

1. Production of electricity to meet the demand from all categories of

consumers in full without any time lag keeping pace with the growth of the
Indian Economy.

2. Production of electricity in an optimal manner from various sources of

energy namely hydro, coal based thermal power, Natural Gas and LNG
based thermal power, Nuclear power and renewable sources of energy
namely wind, cogeneration, biomass and solar energy.

3. Policy framework to produce coal based thermal power in consonance with

the voluntary commitments made by the Govt. of India to reduce carbon
dioxide emission by 20-25% below 2005 levels by 2020.

4. Ensuring fuel security namely availability of domestic coal, imported coal,

natural gas and imported LNG on a long term basis at internationally
competitive prices.

5. Ensuring creation of matching transmission, subtransmission and

distribution infrastructure keeping pace with creation of capacity addition in
generation.
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 6. Provision of access to electricity to 100% of the households in all habitations
in rural areas by 2017.
7. Ensuring provision of lifeline quantities of electricity to poor families both in
rural and urban areas at affordable prices.

8. To achieve per capita consumption of 1000 units per annum by 2017.

9. Provision of electricity to agriculturists at affordable prices with explicit and

timely subsidies to Distribution Companies (DISCOMS) by the State
Governments.

10. Rational tariffs for electricity used by different categories of consumers.

11. Reduction of Aggregate Technical and Commercial Losses (AT&C Losess).

12. Ensuring financial viability of the power sector in general and the
distribution sector in particular.

13. Conservation of energy by appropriate Demand Side Management

solutions.

14. Improved performance of existing old power plants through Renovation

and Modernisation.

4. Purpose of the strategy: Ensuring adequate availability of quality power at

competitive prices keeping pace with the rapid growth of Indian economy is a sine
qua non for achieving the high growth rate of 8% plus in the next 10 years. Given
the present unsatisfactory poor performance of the power sector, a strategy for
achieving the above said goal is a must and does not require further justification.
This calls for an integrated and realistic approach with a clear strategy and action
plan.

5. Assessment of the Current Situation

1. The present situation is characterized by shortages including peak shortages,

poor quality of power in terms of interruptions, voltage and frequency.
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2. Large number of rural habitations in the country do not have access to
electricity.

3. Even in habitations having access to electricity all households have not been
electrified.

4. The sector is suffering from unsustainable financial losses. The loss making
distribution sector has made the viability of the entire value chain namely
generation, transmission and trading a big question mark.

5. Project execution is marked by delays and roughly only 50% of the targeted
capacity is added in almost every plan period.

6. Hydroelectric power sector is affected by procedural hurdles and time delays in

obtaining environmental clearances.

7. Coal based thermal power generation has several areas of concern. First and
foremost of them is the inadequate availability of long term domestic coal
linkages. This requires working closely with the Ministry of Coal and working
out an appropriate strategy for domestic coal linkage for power sector.
Secondly rising requirement of imported coal has strategic implications in
terms of energy security for the country. In addition, the high cost of imported
coal has also implications for the competitiveness of produced power.

8. India’s international commitment to reduction of carbon emissions has

significant implications to coal based thermal power generation. This requires
to be resolved in operational terms.

9. In view of the problem associated with coal based thermal power generation
stated above, natural gas based power generation continues to be a major
source of clean power. However adequate availability of Indigenous natural
gas continues to be a matter of concern. In addition pricing of indigenous gas
has considerable implications for the price of gas based power.

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10. Liquefied Natural Gas (LNG) continues to be a costly source of energy for
production of electricity. Long term LNG contracts at competitive prices need
to be ensured.

11. Nuclear power currently accounts for a very small share of the overall
production. This needs to be stepped up considerably in the next 10 years.
Long gestation of these projects is another area of concern.

12. Capacity addition in generation is not synchronously matched by

corresponding inter and intra transmission infrastructure. There are
bottlenecks term of right of way and inadequate number of vendors with the
required capability. These need to be paid close attention.

13. The most critical issue affecting and eroding the viability of the entire sector is
the huge aggregate transmission and commercial losses due to high theft and
technical losses.

14. Currently the country has only one major supplier of generation equipment
namely BHEL. Therefore, there has been delay in commissioning of generation
projects. Therefore both public and private sector generation projects are
forced to order imported generation equipments. There is a need for
augmenting the generation equipment manufacturing capacity in the country.

15. While a good beginning has been made in term of energy conservation and
energy efficiency measures, much more needs to be done. While industries
have been in the forefront in energy efficiency measures purely as a cost
reduction and competitive strategy, domestic household sector is largely
untouched. Replacement of incandescent bulbs by Compact Fluorescent Lamp
(CFL) in a time bound manner has become a top priority. Energy efficient
buildings and lighting systems need to be promoted on a large scale.

Key stakesholders:
The key stakesholders are listed below.

1. Ministry of Power GoI (MOP)

2. Ministry of Coal GoI

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 3. Ministry of Petroleum and Natural Gas, GoI
4. Ministry of Railways GoI
5. Ministry of Shipping GoI
6. Dept. of Atomic energy GoI
7. Ministry of Non- conventional energy sources.
8. Ministry of Environment and Forests
9. State Governments
10. Central Electricity Regulatory Commission (CERC)/ Appellate Tribunal
11. State Electricity Regulatory Commissions (SERC)
12. Generation utilities
13. Power grid/Central Transmission utility
14. State Transmission Utilities
15. Distribution companies
16. various categories of consumers and bodies representing them
17. Union Planning Commission
18. Financial Institutions
19. BHEL and other equipment suppliers
20. Bureau of Energy Efficiency
SWOT analysis
Strengths Weaknesses

1. Regulatory and policy framework already in 1. Unsustainable losses of

place distribution companies

2. Big industrial houses and private sector 2. High AT&C losses

investors having appetite for investment in the
entire value chain of the power sector

3. Availability of skilled manpower covering 3. Free or highly subsidised

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the entire spectrum of activities in the sector power for Agriculture.

4. Indigenous and abundant availability of 4. Not too healthy finances of

coal, thorium and sunlight state governments constraining
timely and adequate release of
subsidies to DISCOMS.

Opportunities Threats

1) Change in nuclear landscape 1) Continuing poor financial health of

distribution companies

2) Lack of political will to address tariff issues

in general and agriculture in particular.

2) Economy growing at a fast pace 3) Risk of fuel security looming large

3) Availability of cost effective 4) Constraints imposed by climate change

latest technology including IT obligation
enabled systems across the value
chain

6. Outline of the Strategy:

1. Privatisation of Urban Distribution: Indian economy has been growing at

8% plus. The elasticity of electricity to economic growth rate is around
one. Hence electricity in terms of energy units also need to grow at that
pace. Due to high AT & C losses, uneconomic tariffs and delay in and
inadequate release of subsidy by State Governments the entire sector is
in deep financial trouble. As long as retail distribution of electricity is in
the hands of distribution companies owned by State Governments, there
is no future for this sector and the writing is on the wall. Therefore
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 privatization of distribution appears to be the only meaningful strategy
for ensuring viability of the sector. Once this is done, rest of the
problems are manageable and can be addressed relatively easily. To start
with, privatization of urban areas with a population of one million and
above can be taken up. The lessons of privatization of Delhi can be drawn
upon.
2. Provision of choice by separation of wire and supply: We may also need
to provide a choice of distribution companies, at least two (more than
one) to the domestic and commercial consumers (Open access to
industrial consumer above 1 MW is already available). We may also think
of separation of supply and wire. This means that eventhough last mile
connectivity is provided by one DISCOM, the consumer should have the
choice of becoming customer of another DISCOM. Once privatization of
urban circles is achieved; it may be left to State Governments to privatize
rural circles or continue to run them in public sector.
3. Make rural distribution reduce losses: In rural circles with high AT & C
losses especially low collection, franchisee model may also be tried.
Multiyear tariff setting by SERCS will also reduce price tariff uncertainties
to DISCOMS as well as consumers.
4. Ringfencing rural discoms from losses on account of free power/highly
subsidized power to agriculture: Provision of free or highly subsidized
power to agriculturists has eroded the viability of the entire distribution
sector also leading to high levels of cross subsidy. This has reduced the
competitiveness of Indian Industry. Therefore, State Governments should
pay the difference between the cost to serve and the tariff upfront to
DISCOMS rather than making industrial consumers bear a substantial
part of this cost of agricultural power by way of cross subsidy. State
Governments may also be advised to earmark energy equivalent to their
own hydel production for supply to agricultural sector.
5. Deepen open access: Open access in the true sense even to low tension
consumers by separation of wire and supply may herald a consumer
revolution in power sector as has been witnessed in telecom sector. In
addition, levy of cross subsidy surcharge for open access may be
abolished by amending the Electricity Act.
6. Augmentation of generation equipment manufacturing capacity: To
augment the generation equipment amending the manufacturing
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 capacity BHEL may be bifurcated to create two stand alone
manufacturing companies to bringing in greater competition even in
public sector, In addition, a number of private sector generation
equipment manufacturing companies as JVs between Indian companies
and foreign manufactures currently under way may need to be
encouraged.
7. Incentivising rural electrification: Rural electrification can continue to be
incentivized with grants by Government of India based on timely
achievement of targets.

8. Ensuring fuel security: In co-ordination with the ministry of coal,

domestic coal linkages for the upcoming generation projects may be
provided without further delay. After clearly arriving at the overall
requirement of imported coal, the respective generation projects should
be advised to go for long term fuel supply contracts, through
international competitive bidding. Similarly in consultation with the
ministry of Petroleum and Natural gas domestic gas linkage should be
provided and for the remaining requirement long term LNG supply
contracts may be entered into through competitive bidding route.

9. Creating matching infrastructure in transmission: Power grid, the

National Transmission Utility and State Transmission Utilities should
provide the required transmission infrastructure coterminus with the
commissioning of capacity addition in generation.

10.Thrust on Demand Supply Management (DSM: Use of incandescent

bulbs should be banned say from 2013-14 and may be replaced in 2 years
by DISCOMS. DISCOMS/ DSM companies can be incentivized for DSM
measures based on quantifiable and verifiable results.

11.Reduction of AT&C Losses: AT & C losses can be reduced at least 1%

every year by DISCOMS by strengthening distribution infrastructure,
installation of capacitors, installation of SCADA, metering at all levels of
distribution infrastructure, deterrent anti-theft measures, installation of
energy efficient pumpsets by farmers by providing them appropriate
incentive by way of partial grants.

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 12.Renovation and mordernisation of old plans: Renovation and
Modernisation and Uprating of existing hydro and thermal power plants
which are at the end of their useful life is a very cost effective strategy for
optimizing availability of power in a relatively shorter period of time,
compared to greenfield projects.

7. Implementation Plan:

1. Privatisation of urban distribution: Privatization of distribution in one million

plus cities in the country can be done in a two year time frame starting from
2011-12 and ending in 2012-13. A panel of transaction advisors can be
provided to States by MOP. Transparent International competitive bidding can
be adopted for privatising urban distribution.

2. Long term fuel linkage: Ministry of coal may be requested to allot coal blocks
for mining only through competitive bidding. Generation projects without
domestic coal linkage shall go for long term imported fuel supply contract
through competitive bidding route. Ministry of P&NG may be requested to
clearly indicate the quantum of gas available for power generation and for the
remaining gas based projects imported LNG may be sourced through long term
supply contracts.

3. Open Access: Open access may be ensured by separating wire and supply at
11KV and low tension level as well as abolition of cross subsidy surcharge by
appropriate amendment if required.

4. Make rural distribution more viable: Appointment of franchisees in rural

circles wherever AT & C losses are more than 25% may be made compulsory by
SERCs.

5. Energy accounting and energy audit: Metering at various levels of distribution

infrastructure and energy accounting at 11 KV level and distribution
transformer level may be made mandatory by SERCs.

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6. DSM measures: Submission of annual action plan of verifiable DSM measures
by DISCOMS may be monitored by SERCs and State Governments and
Government of India may provide appropriate monetary incentives for
achievement of DSM measures by DISCOS/ DSM companies.

7. Remove bottlenecks for laying transmission lines: As transmission

infrastructure is a public good, Electricity Act may be amended to provide for
right of way to Central and State Transmission utilities as provided in the Indian
Telegraph Act for laying telephone lines.

8. Enhance thermal efficiency: In order to comply with low carbon emission,

generation through supercritical technology may be made mandatory for coal
based thermal power stations. Minimum unit size of 660 MW supercritical
technology shall be prescribed to promote energy efficiency.

9. Generation Capacity addition: Taking advantage of the success achieved by

Govt. of India in obtaining the consent of the international community in
obtaining fuel and technology from nuclear technology and fuel supplier
countries, the nuclear power capacity addition to be commissioned in next 10
years should be determined and the balance requirement must be met from
other sources. Similarly, Capacity addition form hydroelectric power to be
added in next 10 years should be determined having regard to the feasibility of
environmental clearance. Renewable energy like wind energy is not a base load
power since it is seasonal and infirm in nature and hence need to be treated
only as a supplemental source of energy. However, Biomass based power
generation with help decentralising the location of generating units near rural
load centres. Solar power generation given its high cost of generation per unit
will continue to be a marginal source for a long time to come till technological
breakthroughs in photovoltaic material science is achieved. Therefore the
balance requirement has to come from coal based power and gas based power
generation.

10.Resource requirements of the strategy

This strategy instead of requiring resources from the exchequer will provide
resources to the exchequer of state governments since core element of this

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strategy is privatisation of urban circles in the country. Power-grid the central
transmission utility will not require any budgetary support in view of its financial
strength for its investment in capital expenditure by way of interstate 765 KV/ 400
KV and HVDC network. State transmission utilities may require funds which can be
met by borrowings. Generation companies can also meet capital expenditure
requirements by borrowing and IPO listing. Distribution companies may require
substantial funds for upgrading distribution infrastructure. This can be met by PFC
and other FIS. It is rural electrification which will require financial support by way
of grants form GoI and state governments. This can be met by R-APDRP/RGGVY.

11.Power trading/ market

Power trading has evolved over the last decade. This will develop further
with further deepening of open access.

12.Contract Management

Successful execution of projects depends on effective contract

management. This will require fine tuning of tender specification to foster greater
competition and incentivizing timely execution of projects by way of bonus
payments. New vendors also need to be developed by motivating vendors to bid
for bigger contracts.

Bid capacity should be made a mandatory requirement of evaluation of

technical bids so that bidders whose capacities are overstretched are eliminated
from qualifying.

13.Statutory clearances: In consultation with MOEF, shorter time limits may be

prescribed for I and II clearances.

14.Electrification in remote areas

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 Wherever electrification through conventional line is not feasible due to
forests and other natural barriers, alternative sources like solar power units, micro
hydel units. will be installed for street and home lighting.

15.Transparency: In order to ensure transparency is power sector, competitive

bidding will be the only route for awarding any project or contract. Price
discovery through the market by bidding process will be the sole guiding
principle.

16.Spinning reserve / Reserve capacity

10-15% of the total demand will be created as spinning reserve for meeting
contingencies due to breakdown of generating unit or transmission lines or grid
collapse. Pumped storage plants will be taken up whenever feasible. Industries will
be encouraged to install captive plants for meeting any sudden unanticipated
breakdown.

17.Autonomy of Load Dispatch Centres: National load dispatch centres, Regional

load dispatch centres and sate load dispatch centres will be made autonomous
and will continue to provide continuous real time load management.

18.Human Resources Development: Human resources skill up-gradation and

training will continue to be taken up by National Power Training Institute (NPTI)
and state utilities.

19.Research and Development : R&D will be the focus of Central Power Research
Institute (CPRI) and BHEL.

20.Implementation targets: i) Generation - In addition to existing capacity at the

end of 2010, another 1,00,000 MW may have to be added in the 12th plan
period. This may be broken into year wise targets as below.

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 IN MW
2012-13 2013-14 2014-15 2015-2016 2016-2017 Total

20,000 20,000 20,000 20,000 20,000 1,00,000

ii) Capacity Addition by fuel in MW

Hydro 10,000
Nuclear 4,000
Gas 16,000
Coal 70,000
Total 1,00,000

iii) Capital addition by Central PSUs/State Utilities/Private Sector

State PSUS 15,000 MW

Central PSUS 25,000MW
Private sector 60,000MW
-------------------------------------------
1,00,000 MW

Matching transmission and distribution infrastructure will have to be made.

8. Cross departmental and cross functional issues: Power generation based

on various fuels involve different administrative ministries. Very close co-
ordination and consultation is required between MOP and Ministry of coal
regarding availability and linkage of domestic coal. Ministry of Railways has an
important role in ensuring the required rail linkage. Ministry of Commerce through
MMTC has been involved in import of coal for NTPC and State Generation utilities.
Similarly close co-ordination is required with the Ministry of Petroleum and
Natural Gas regarding allocation of natural gas as well as gas pipeline
infrastructure. Co-ordination with the Department of Atomic Energy and Nuclear
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Power Corporation will be required in terms of Nuclear power capacity addition,
power evacuation planning for Nuclear power stations and joint ventures of
National Thermal Power Corporation (NTPC) and Nuclear Power Corporation
(NPC). In respect of hydroelectric power projects close co-ordination with MOEF is
required. Co-ordination is required with Ministry of Non-conventional Energy
Sources (MNES) regarding development of biomass, wind and solar based power
generation and their tariffs. In respect of remote habitations for which line based
electrification is not feasible due to forest and environmental constraints,
renewable energy like solar power may have to be provided by MNES in co-
ordination with State Distribution utilities.

9. Linkage between Strategic plan and RFD: This strategic plan has been
prepared with a perspective period of 10 years with indicative target for 12th plan
(2012-2017). 12th plan capacity addition and capital expenditure in transmission
and distribution have been broken into year-wise targets. Also reduction of AT&C
losses has been proposed as annual targets. These annual targets will form part of
Results Framework Document (RFD)

10. Monitoring and reviewing arrangements: Various projects will be

prioritised in the order of their early commissioning probability and monitored by
MOP, Central Electricity Authority (CEA), State governments and project
authorities. Quantified outcomes like capacity addition in generation,
transmission and distribution infrastructure, Reduction of AT&C losses, financial
performance of power utilities will be monitored by MOP and State Governments.
Number of rural habitations and households electrified will also be monitored. In
addition to MOP and State Governments these outcomes will also be reviewed as
part of regulatory oversight by SERCs periodically as well as part of tariff setting .

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