A gridlocked state of affairs

There are a few things that have not changed in the power sector in the country in the last two decades or so. One is the continuing shortage of electricity and the worsening financial position of the State electricity utilities.

The other is the complete lack of coordination among various arms of the Government that have a major say in the sector’s development. Decisions are often taken in a knee-jerk and haphazard manner. The net result is that the power sector continues to be in as bad a shape, if not worse, than what it was in the early 1990s, when the first so-called attempts at improving the sector were taken.

The installed generating capacity has grown more than three-fold in the last two decades — from 63,636 MW at the end of the Seventh Plan (as on March 31, 1990) to 1,99,877 MW at the end of the Eleventh Plan (as on March 31, 2012), and has now crossed the two-lakh MW mark. The basket is more diverse, but still coal-fired power plants account for bulk of the installed capacity.

Despite this growth in generating capacity, the deficit in energy requirement is around 8 per cent and that in peak demand about 8.5 per cent. Nearly 30 power plants across the country have coal stocks of less than seven days. In most cases, the reason given for this critical situation is the deficiency in supply from the mines. You substitute the year, the picture would be the same — the numbers similar.

Carrot and stick

The reasons for this state of affairs are many. For one, the Centre proposes and the States dispose. The Centre may have taken a couple of wrong steps along the way, but it cannot be faulted for not trying. In the early 1990s, it focussed on increasing generating capacity and provided counter-guarantees to eight “fast-track projects,” including Enron. The focus should simultaneously have been on setting right transmission and distribution.

Having learnt the lessons, the Centre attempted to get the States to set right their utilities. For the carrot of financial assistance, the stick was that they had to unbundle their utilities. A few States did, many did not. The Centre could do precious little but to keep extending the deadline. Not that unbundling has solved all the problems plaguing the sector.

The Electricity Act, 2003, was yet another effort to set right the wrongs in the sector. Compared with the piecemeal and out-dated laws, here was a comprehensive piece of legislation that gave a clear direction to the power sector. A key positive fallout of all this was that States set up regulatory commissions.

However, legislative efforts and policy initiatives can only go so far. They have to be matched by action on the ground. This has been a key failing for the power sector. There are several ministries and departments involved and not often do all of them work in unison. The ministries of coal, railways and environment — to name just three — play a crucial role in a power project’s successful completion. The coal sector’s performance largely depends on the Environment Ministry. With heightened environmental awareness and activism and the Ministry concerned too taking a tougher stand than hitherto, both power and coal mining projects have suffered.

Coal production

While power capacity addition has increased in every Plan period — though always short of the Plan target — domestic coal production has not kept pace with the demand. All along, about 3,000-5,000 MW of power would be added every year, but in the just concluded Eleventh Plan, this increased to more than 13,000 MW a year; a total of 67,548 MW came up in the Five Year Plan period ending March 31, 2012, a record for the power sector. In the preceding four Plan periods, the capacity added was: 21,052 MW in the Seventh Plan; 22,159 MW in the Eighth; 19,250 MW in the Ninth; and, 27,284 MW in the Tenth.

Coal consumption for power generation has increased from 253 million tonnes in 2002-03 to nearly 415 million tonnes in 2011-12. Because of shortfall in supply, coal imports by the power sector have been steadily going up over the last few years. From about 10 million tonnes in 2007-08, imports went up to 42 million tonnes in 2011-12.

According to the Central Electricity Authority, which monitors the power sector in the country, the plant load factor of coal-based plants came down to 74.86 per cent in April 2012 from 79.19 per cent a year ago. The dip in PLF is mainly on account of shortage of coal. During 2012-13, the anticipated gap between the requirement and availability of domestic coal is estimated at 70 million tonnes. Of this, 46 million tonnes is to be met through imports, for which all utilities have been asked to take steps. Power plants for the balance 24 million tonnes were in any case designed for imported coal.

Infrastructure challenges

Coal India, the monopoly public sector coal miner and supplier, has been finding it difficult to scale up production because of delays in environment clearance and land acquisition. The coal shortfall for power generation in two years is estimated to increase to 160 million tonnes, much of which will have to be imported.

Importing such large quantities of coal will impact the cost of electricity produced. More importantly, the infrastructure — both railways and at the ports — will have to be improved immediately to receive and move the coal to power plants. The Railways will have to provide adequate lines from the ports to the power stations in the hinterland and also provide wagons so that coal does not get held up at the ports.

Also, imported coal has to be handled carefully, particularly in summer, because of the higher volatile matter which makes it inflammable. Blending imported coal with domestic production has its own issues as the plants are designed for the latter that have high ash content and lower calorific value compared with the former.

Power plants have been blending 10-15 per cent of imported coal by weight. In future, all power plants must be designed to handle blended coal and also be able to give 100 per cent performance using indigenous coal alone. While fuel availability is one issue affecting the power plants, another major aspect is the fuel price increase and how it is affecting the viability of operations. But, that calls for a complete overhaul of the Government’s approach.

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