The Hindu Business Line : Lest `power' potholes trip a sizzling economy

Chennai May 10 There is no dearth of news stories that speak about power shortages. "Peak load shortages at a national level are close to 15 per cent, and are inching upwards. Key States such as Maharashtra are suffering shortages in excess of 25 to 30 per cent," says Mr Kuljit Singh, Partner, Ernst & Young, speaking to Business Line recently.

Chronic power shortages are a serious problem. They can just be the potholes to trip an economy that is estimated to sizzle at a double-digit growth rate. "Economic growth in developing countries is extremely energy hungry. An analysis of electricity generation vis-à-vis the GDP growth rates reveals an elasticity of close to 1.2 per cent," explains Mr Singh. "In absolute terms, this translates to an annual capacity addition requirement in excess of 17000 MW per year. Even considering improvements in energy efficiency, the number is not likely to be substantially lower. Against this, the country has been achieving barely 4,000-5,000 MW a year in the past."

Excerpts from an interview:

Is there evidence that power shortage has already adversely impacted India's economic growth?

In spite of chronic shortfalls, till date economic growth has not been affected as severely as it could have been. A key reason for this is the improvement in performance of generating stations, almost across the board. As compared to a mere 60 per cent in 1994-95, the PLF (plant load factor) of thermal power stations rose to 74.3 per cent in 2004-05. However, such improvements are rapidly reaching limits. The low hanging fruits in this have already been plucked.

What are the solutions?

There are few such short-term solutions to the current crisis. Power projects inherently have a high gestation period and, as a general rule, the large projects required to tide over the shortages have longer development and construction time. Apart from this, the country has been facing acute shortage of coal supplies, which have been holding up projects for years together.

How dismal is the coal scene?

As against the annual growth of 3.2 per cent in domestic coal supplies in the past seven years, the projected growth requirement is about 7.5 per cent. The ability of the domestic coal sector to measure up to these challenges without significant reforms and liberalisation is suspect.

Imported coal as an alternative holds promise, and has got a significant fillip on account of the Mundra Ultra Mega Power Project making the desired progress. However, high coal costs and the freight rates could render imported coal uncompetitive except for few locations in the country. Current capacity limitations in the port and transportation infrastructure would also need to be overcome if imported coal is to become a serious contributor to the energy basket of India.

On the alternative sources of energy.

We expect renewable and alternative energy to be in focus and to contribute to the Indian energy basket. The country has a renewable energy potential in excess of 150,000 MW. Apart from having the obvious advantage of being cleaner than conventional sources, renewable energy has a shorter gestation period.

Over the past few years, India has emerged as a world leader in renewable energy with rapid augmentation of capacity, strong domestic engineering and manufacturing skills and huge private sector interest. The country needs continuation of sensible policies and regulatory arrangements. We expect solar and fuel cells, in particular, to be in focus in the next few years.

We have been hearing lately about gas discoveries. Will gas save us from the energy crisis?

A potential bright spot is the gas-based potential of the country. Gas-based stations can be built fast, almost in half the time as coal-based ones. With domestic gas from new finds starting to flow from 2008, the country can easily add 5,000 MW of gas-based capacity each year for the next several years.

Are there glitches that stand in the way of exploiting gas?

Unfortunately, decision makers still seem to suffer from a fear of volatile gas prices on account of past experiences. The truth is that power from gas-based stations should not be any more expensive than from imported coal-based stations. It would also be significantly cleaner. If not in utility generation, we expect significant expansion of gas-based captive power generation since, Indian industry, having tasted success on a global scale, is unlikely to give up the gains for want of electricity.

Do we use energy efficiently?

At present, India is a rather inefficient user of energy, with energy intensity (measured as energy consumption per unit of GDP) at 3.7 times of Japan and 1.5 times the world average. Even as rapid strides have been made in improving energy efficiency in the recent years, particularly by the corporate sector, focused and concerted efforts are required across all segments of the economy.

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