overview of indian power sector prayas - egi skill-share workshop for tajikistan and kyrgyzstan...

Overview of Indian power sector

Prayas - EGI Skill-share workshop for Tajikistan and Kyrgyzstan Delegates

November 16-18, 2010, Pune, India

Prayas Energy Groupwww.prayaspune.org/peg, energy@prayaspune

.org

Prayas - EGI Workshop, Nov. 2010, Pune

2

Central State Private

Policy Y Y X

Regulation/ tariff Y Y X

Overriding Effect Central - Electricity Act 2003

Ownership of Electricity Generation and Distribution

0% 20% 40% 60% 80% 100%

Generation

Distribution

Central

State

Private

Municipalities

Overview

Current Indian structureGeneration 120

GW

120 million Consumers>35% Transit lossFinancial loss

1 % GDP

ConsumptionIndustry - 35%Houses - 26%Farms - 25%


3

Distribution of Household by use (kWh/month)

> 100 U

50 - 100 U

No Connection

< 50 U

> 100 U

50 - 100 U

< 50 U

No Connection

25–30% of 200 million houses 25–30% of 200 million houses in India pay electricity bill > in India pay electricity bill > US$ 3- 4 / month!US$ 3- 4 / month!

Numbers are indicative

Overview


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Stage 1 & 2: Initial Growth & Federal Action

1975-90 Increased rural access (green revolution) & Federal intervention in generation Skewed tariff

1950–75 Major growth, State govt lead and ownership

Key points: (1) Govt ownership gave great boost initially – large social benefits & mixed experience of efficiency, (2) Federal government intervention in generation – taking part in state mandate – but ignored the key ground realities


5

Initial Growth & Federal Action Fast growth of grid and farm connections (unmetered,

subsidized) – lack of accountability Sales not able to pay for increased generation – skewed

tariff Federal generation – attempted solution

Average cost of supply v/s IPS tariff (in 1995 costs)

8.5

12.6

19 22 25

0

20

40

60

80

100

120

140

160

180

200

1970 1975 1980 1985 1990 1995 2000

1995Paisa/ kWh

IPS Tariff

cost of supplyvalues on chart indicate

share of IPS use

Agricultural (IPS) tariff and consumption in Maharashtra


6

LargeLIS19% Other un-metered

(well, small LIS) : 80%

0

2,000

4,000

6,000

8,000

10,000

12,000

0% 5% 10% 15% 20% 25%

Agricultural Land Holdings in the State

Rs./ IPS(or Family)

Metered : 1%

Neglect of negative impact of subsidy Non-irrigated farmers (80%) did not get

subsidy, and top 2% captured 20% power subsidy (fig shows subsidy distribution among the land-owners in Maharashtra)


7

Focus on Centralized generation – resulting in vicious cycle


8

Stage 3: Solution to capital crisis - IPP & Regulation



1991-98 IPP Era Financial crisis controversial IPPs

High cost gen, high T&D losses

Foreign capital (IPP) invited at extremely attractive returns (Enron, GE etc.) – simultaneous process in all over Asia and parts of Africa, Latin America

Neglect of core inefficiencies continued (skewed tariffs, distribution losses, bad contracting etc.)

Top management time lost in IPP negotiations


9

IPP push – A Massive Policy Failure IPPs –MoU for 90 GW ~7 GW realized

(in a decade) Close door contracts, high ForEx dependence

(fuel, debt and equity) Power planning norms totally ignored

Improvement in performance of existing power plants added three times more generation than IPPs – while top management remained locked with IPP issues


10

High Cost IPP Projects – e.g. Enron

Comparison of CCGT Plants Around the World

0

200

400

600

800

1000

1200

1400

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Capacity MW

Cos

t per

kW

($/

kW)

LNG NG 1 NG 2

EnronDabhol

600-800 3

$/kW Plants 370-600 18

800-1000 4 > 1000 3


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Problems of the Electricity Sector Social: About half of the houses are yet to be

electrified, cost of power increasing rapidly, large problem of rehabilitation of displaced people

Environmental: Problems associated with mining, ash disposal, dams, air pollution, and CO2 emissions

Technical & Managerial Performance: Power shortages, bad service quality, etc.

Financial Crisis: 35-50% of electricity lost in transit (~half is estimated to be theft), high cost - long term contracts with IPPs, inability to recover costs

Planners remained focused on Financial crisis


12

Stage 4: WB Reform Model & Regulation





1996-2002 WB Model Attempt of un-bundling & pvt. in some states

Regulatory commission


13

Diagnosis by World Bank Diagnosis

Financial crisis rooted in “political” interference due to public ownership & monopoly

Prescription: ‘Reforms and Privatization’ Unbundling, Privatization & Competition, Independent Regulation, Policy Changes


14

Real dynamics

Reforms: Directed Towards

Privatisation and Competition

Subversion of TAP Process

(TransparencyAccountability Participation)

Control by Vested Interests and Undermining of Public Control

Irrational Decisions and Operational In-

efficiency

Financial Crisis


15

Earlier model with direct Government Control

Govt.

TariffInvestment

Management


16

Un-bundling and Corporatization… continuing experiment

Regulator

Public


17

Rapid Replication of WB Orissa Model


18

Partial implementation of WB model

Unbundling and corporatisation – but not privatisation

Independent Regulation Applied through a National Act Established in most states (with reluctance) Exposed inefficiency of the sector (T&D loss,

power purchase etc.) Enforced energy audits, rationalization of

tariffs & power purchase


19

Regulatory Commission’s Effectiveness

0%

10%

20%

30%

40%

50%

60%

1975 1980 1985 1990 1995 2000

% o

f Ene

rgy

Ava

ilabl

e

T&D loss Agri. Unmetered Share

Un-metered electricity = T&D losses + Agri sales

Difference = $300 Mn


20

Movement of tariff over years: Maharashtra Case

050

100150200250300350400450500

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Pai

sa/U

Industry

Agriculture

Avg Cost

Formation of RC


21

Reform: The Paradigm Shift Policy

Self Reliance Globalisation (Technology, Fuel) Electricity, a Development input a

Marketable Commodity, with Cost based/Market based Tariff

Utility Structure Integrated Unbundled, Corporatised,

‘Independent’ Regulation Ownership

State Private


22

Stage 5: Mixed model





Electricity Act 2003 Bulk competition, Captive gen, subsidy for increased access

1996-2002 WB Model Attempt of un-bundling & pvt. in some states

Regulatory commission


23

Electricity Act 2003 Emphasis on competition

Generation as well as distribution Allows power exchanges and traders

Facilitates privatisation Multiple licenses Franchisee

Strengthens regulation

overview of indian power sector prayas - egi skill-share workshop for tajikistan and kyrgyzstan...

Documents

prayas egi workshop

maharashtra slide

indicative overview

centralized generation

vicious cycle slide

ipp negotiations

ipp issues

india prayas energy