Power transmission (Satish Bate/Hindustan Times via Getty Images) 
Snapshot
  • What sits between power generation and power consumption are two other critical functions – power transmission and power distribution.

    And this is beginning to be addressed - in the three fiscal years from March 2014, there has been an increase of more than 40 per cent in transmission capacity.

A debate has been raging in newspapers and on social media whether India, today, is a power surplus country or there just isn’t enough demand for electricity in the country. This follows from recent government statements about the power demand and supply gap in India being at an all time low.

The graph (below) from a Central Electricity Authority (CEA) report explaining India’s power demand-supply deficit shows that both the peak as well as the average power deficit is constantly reducing and stands at an all time low at the end of last fiscal.

Power supply-demand deficit Power supply-demand deficit

In the past few weeks, some columnists have pointed that this situation is not so much because there is a lot of power being generated; it is because there is no demand for electricity. Critics point to load shedding and unavailability of power for retail consumers.

That electricity is a critical component, which drives economic growth, is uncontested. Chronic electricity shortages have routinely led to low electricity consumption, low industrialisation and farm distress over many years.

The crucial “surplus test” should essentially ask one fundamental question – if a consumer today wants more electricity for industry, agriculture or personal use, can this additional delta be generated in the country. The answer to that question is an overwhelming yes. The challenge lies in matching the supply to the demand. The challenge of getting the power generated to the place of consumption demand is being used to question the existence of surplus itself, which is an incorrect measure of evaluating surplus.

India’s first power plant was set up in 1897 in Darjeeling. Since then, a conventional capacity of 214 GW was built up to March 2014. In the next three years since, under the present Narendra Modi government, 60 GW or almost 28 per cent of the 117 years worth of capacity addition has been topped up on the 2014 number. The following power generation data over the last year demonstrates robust growth.

Power generation data Power generation data

One key reason of continuing generation capacity addition is the steps taken to remove the supply bottlenecks, especially on coal. There is no shortage of coal as compared to 2014, when two-third of the plants had critically low stocks of coal. This quarter, all but three plants in the country have sufficient coal to continue their operations.

On the demand side too, the government has taken several steps to address power equity and access. Of the 18,000+ villages un-electrified as of 31 March 2015, less than 4,000 villages now remain to be electrified. Every village in India will have access to power by May 2018. To top this, government is now running a household electrification programme – the work will not stop just at getting a power line to a village, it will ensure every household is electrified. There are 4.5 crore such households and the task of getting power to every household is expected to be completed by 2022. Critics routinely underestimate the demand boost from complete electrification because rural electrification is often confused with household electrification, a problem highlighted by Swarajya earlier.

The affordability aspect is being addressed through leveraging economies of scale under the Unnat Jyoti by Affordable LEDs for All (UJALA) programme. The world’s largest LED bulb distribution programme is now using the same model to supply appliances like solar pumps and fans to consumers nationally. The hitherto un-served consumer benefits from a low entry price as well as low ongoing operating costs of the appliances.

The demand boost will likely follow a hockey stick pattern between 2018 and 2022, assuming both programmes stay on track. The progress of both the electrification initiatives can be tracked online on the GARV app (garv.gov.in).

What sits between power generation and power consumption are two other critical functions – power transmission and power distribution. The former is an area largely controlled by the central government, while the latter is controlled by state governments and private players in select cities.

Power transmission is critical because often the place of power generation and the place of power consumption are located far apart. Coal rich states or states with run of rivers can generate a lot of power, but they may not be rich enough to consume this power. As a rule of thumb, the eastern and northern states have more generation capacity while the western and southern states want this power. While this is a known problem, India never invested in large scale power transmission overhaul, letting regional grids work disparately. This started changing only in 2014. In the three fiscal years from March 2014, there has been more than 40 per cent increase in transmission capacity, which has helped increase available transfer capability to southern states by 116 per cent. India also achieved One Nation One Grid One Price parity in December 2015. With all transmission grids interconnected, a power distribution company (discom) could buy the cheapest available power from the power exchanges to manage its peak load.

Power distribution is the trickiest area. There may be enough coal and every plant in the country may be working. There may be a customer willing to pay for the power and there may even be an option to evacuate the generated power and bring it to the state where the consumer is located. Yet the consumer may not get this power, because distribution – that last mile function - has been broken in the country since Independence. The state discoms run perennially in losses as they hardly ever pass the cost of their operations to the consumer. The reasons mainly are political and economic - these firms were never run like a business. Given their precarious finances, they hardly ever invest in upgrading the local urban and rural infrastructure –that’s why a fallen wire or a rain induced malfunctioning circuit, or a burnt transformer in the neighbourhood are such routine instances.

In some ways, these discoms are like Indian e-commerce firms – the more they sell, the more loss they make. While the e-commerce firms are funded by deep pocket venture capitalists, discoms are unfortunately funded by the government and hence the taxpayer.

To ensure that distribution sector is not an impediment in ensuring access to affordable and reliable power, the Ujwal Discom Assurance Yojana (UDAY) was launched to resolve all past, present and future problems. By making states accountable for discom finances, there has been a positive movement to bring about operational and financial efficiencies. UDAY programme has led to savings of nearly Rs 12,000 crore per year for discoms nationally, translating into lower prices for consumers. There are some green shoots already in states like Rajasthan, Haryana, Andhra Pradesh, Uttar Pradesh, and Bihar, where the gap between the cost of power for the discom and the revenue made by selling it is reducing. Power theft is also on a decline in many states - an endemic problem leading to shortages and wastages. Another large state, Tamil Nadu is expected to break even on discom operations by end 2018.

Yet, the discom improvement is a waiting game. Firstly, they need to break even operationally. Then they need to generate sufficient free cash flows to apportion money for the all important capital expenditure to improve both urban and rural infrastructure. This process is ongoing, but will still take a few years to fully reach a logical conclusion. While the central government continues to support and goad states towards making rapid changes, ultimately the political will of the states is critical. Even with all these constraints, rapid strides have been made since the launch of UDAY in curing long-standing historical problems of discoms.

The fact is that Compounded Annual Growth Rate (CAGR) of power generation has been 6.4 per cent between 2014 and 2017. This growth rate was 6.15 per cent between 2004 and 2014. The power generation CAGR in the last three years is higher than those achieved in the years when the economy was growing between 8 per cent and 9 per cent. The current CAGR aptly captures the level of economic activity, and would perhaps have been more but for the consumption efficiency initiatives in place.

Power generation is the most robust method of calculating electricity growth since electricity cannot be stored. It is also a metric that directly impacts power generators. These players are in for a long haul and they are concerned about what they can generate and sell, not what reaches the last consumer standing. India, today, has enough generation capacity to meet even a 50 per cent demand rise – the available generation capacity will still meet this ramp up.

If power sector was a simple and unitary demand-supply matching marketplace, the supply today will easily clear the demand. That’s the essence of power surplus – at the point of generation. Changes being made across the value chain will eventually keep right shifting (a right shift indicates an increase in the quantity supplied) this surplus to the point of consumption and this right shift is also now an accelerated process.

The Modi government is targeting 24x7 affordable ‘power for all’ by 2022. Power Minister Piyush Goyal is spearheading this initiative, methodically resolving problems at various points of a complex value chain. Today, there are column inches devoted to torturing the consumption data to question the generation surplus. Quite likely, these column inches will vanish as the intermediary infrastructure deficit continues to be bridged.

A few hours of load shedding here or there do not change the fact that India, today, is a power surplus country.

This article is a part of a Digital Special Series on the Power Sector sponsored by Powergrid.

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