Interview with Ajay Jain

“For the first time in 10 years, we are seeing a very positive scenario in the power sector”

Andhra Pradesh was one of the pioneer states in the country to initiate power sector reforms as early as 1998. The state government seems to be gearing up to transform the state into a power-cut-free state and provide every citizen access to reliable and affordable electricity, with central government support. It will be spending close to Rs 550 billion over the next four years under different generation, transmission and distribution schemes with a major thrust on renewable energy. Excerpts from a recent interview with Ajay Jain, secretary, energy, Andhra Pradesh…

What is the current power scenario in Andhra Pradesh? What are the key issues and challenges affecting sector growth?

Andhra Pradesh, along with Rajasthan and Delhi, was one of the first states to be selected for the Power for All scheme. The state signed up for the scheme in September 2014. From being a power- deficit state, we now have surplus power. We had a deficit of 22.5 MUs as of June 2014; however, we now have 5 per cent spinning reserves. There are no power cuts anywhere in the state and all domestic, commercial and industrial consumers are getting 24×7 power supply. Agricultural consumers are being given seven hours of power in a single span, as per the state policy. This has been a requirement for the past decade and we have been able to meet it.

These achievements have been possible due to the colossal efforts of the state and central governments. The key initiatives include:

  • Coal availability in the state has improved considerably. Earlier, it was a hand-to-mouth situation, with plants running on a coal stock of half a day to one day; however, now there is 25-30 days of coal stock at each thermal station. As a result, thermal power plants have been able to operate at full capacity. There is no loss of generation on account of fuel shortage.
  • Earlier, we had a massive amount of stranded gas-based capacity. However, with the central government’s gas pooling scheme, we are able to get 500 MW of power from gas-based sources. It is also possible to get more power from these sources, depending on the requirement.
  • The state has launched an energy efficiency programme, which has resulted in significant savings. We have won five awards for our energy efficiency programme from the central government and are the leaders in the Domestic Efficient Lighting Programme. We have distributed almost 16 million LED bulbs out of 56 million distributed in the country, accounting for a 30 per cent share. This has resulted in a power saving of 25-30 per cent. We have also undertaken an extensive street light energy efficiency programme. So far, this has been completed in almost 30 urban bodies, yielding around 40 per cent savings. With this, we have been able to reduce the peak load and deal with the issue of costly power purchase.
  • Another area that we are concentrating on is renewable energy. We are moving in a big way towards solar and wind energy sources.
  • We are also focusing on loss reduction in the state.

We need to ensure power accessibility. Certain states have excess power, but 25-30 per cent of the people do not have power. We want to ensure that every individual and every household in Andhra Pradesh has a power connection. At present, 0.45 million households do not have electricity, mostly in tribal and remote areas. We are aiming to provide electricity to every household by June 30, 2016. We are taking this on in mission mode.

Second, there is a need to provide quality power supply. There are power cuts due to technical disturbances. We are now concentrating on improving reliability indices like the system average interruption duration index and system average interruption frequency index, the number of outages and the duration of each outage. The idea is to be the leader in the country’s power sector and then to benchmark internationally.

Third, there is a need to reduce the cost of power and make it cost-effective.

Currently, we do not have to purchase short-term power as we are able to meet demand. The objective is to bring down the cost of power over a period of time. Fuel costs have come down as domestic coal availability has improved, bringing down the dependence on imports to a great extent, except where it is technically required as per boiler specifications. Now, the challenges pertain to accessibility, affordability and quality of power supply.

What is the expected investment in the state’s generation, transmission and distribution segments?

As per our action plan, we will be spending close to Rs 550 billion over the next four years under different generation, transmission and distribution schemes. Some money will come from the central government as part of the Integrated Power Development Scheme, the Deendayal Upadhyaya Gram Jyoti Yojana, solar parks and energy efficiency schemes. The state government will spend some money, but the majority will be raised through loans from the Power Finance Corporation and the Rural Electrification Corporation. The World Bank recently sanctioned a loan of $1 billion to the state for investment in solar energy projects and the construction of substations and transmission lines.

What is the state’s planned capacity addition?

With regard to capacity addition, the major emphasis will be on renewable energy. Renewable capacity of around 18 GW is planned to be installed over the next seven years, comprising 10 GW of solar and 8 GW of wind. We are also taking up four solar parks of about 4,000 MW, along with rooftop solar projects. In the renewables sector, more than 90 per cent of the capacity will be set up by the private sector. NTPC will just set up a 1,000 MW project.

In conventional energy, NTPC is setting up a 4,000 MW project while APGenco is setting up an aggregate capacity of about 2,000 MW. Hence, the majority of conventional projects will be set up by PSUs, whereas most of the renewable energy projects will be set up by the private sector.

What will be the fuel requirements for upcoming thermal power projects and how will they be met?

Soon, the state government will be provided with coal linkages, which is a positive step. These linkages could be bid out or used by state-owned gencos. Since coal availability has improved, the majority of the upcoming capacity can be based on domestic coal. However, as a coastal state, we cannot depend solely on domestic coal for upcoming ultra supercritical units. So, coal will continue to be imported and blended with domestic coal. We have significant gas-based capacity; around 2,700 MW is operational and an additional 4,000 MW is ready but stranded for lack of gas availability. However, due to the steps taken by the Government of India, we have been able to utilise part of the stranded capacity.

In the long run, we are constructing one floating storage and regasification unit (FSRU) at Kakinada with the help of GAIL, Shell and Engie Global LNG. A special purpose vehicle has been formed for the same. The FSRU, with a capacity of 5 million tonnes per annum, is expected to be operational by the end of 2017. I don’t think gas-based power stations will face any shortage of gas in the future because they can always import. Domestic supply is also likely to improve.

Gas-based stations can be very useful in dealing with peaking power. Increased renewable energy integration will lead to a massive demand for peaking stations, whether they are pumped storage hydel schemes (which we currently do not have) or gas-based stations.

What are the challenges in harnessing renewable energy?

The basic challenges with renewable energy pertain to evacuation and land, particularly for big projects. Going forward, we are adopting the model of solar parks, wherein both land acquisition and evacuation will be handled by the state governments as they are in a better position to do so.

So, it will be a plug-and-play model for the developer, who has to plan and obtain the requisite funding for projects. Grid integration will be a major challenge and to tackle it, the capacity should come up in phases. We are encouraging wind, solar and hybrid plants, as well as storage capacity. The major hurdles pertain to integration, transmission and land availability.

What are the RPO targets that have been set for the next few years? What is the current compliance status?

The renewable purchase obligation (RPO) for the state as of now is 5 per cent. We believe that it is our commitment; hence, we will be doing much more than what is prescribed under the RPO rules. With the falling solar energy tariffs, we are already meeting our obligations. The RPO is supposed to increase by 1 per cent every year, but we are confident about increasing it by more than 10 per cent next year. RPO is our commitment to the next generation and to the environment. It is not a question of mere obligation.

Andhra Pradesh was the first state to enlist in the Ujwal Discom Assurance Yojana. What is the recent financial performance of the state discoms and what is the current status of the debt restructuring package?

Financial help is of utmost importance, along with a multi-pronged strategy. Financial packages are viable but one-sided. To ensure that the structure is sustainable in the long run, loss reduction should be achieved in the long term. Our aggregate technical and commercial losses in this financial year were 10.3 per cent, which is the lowest in the country. Eastern Power Distribution Company of Andhra Pradesh has the lowest losses in the country (even among private discoms) and Southern Power Distribution Company of Andhra Pradesh Limited is in the fourth position.

A marginal increase in tariff should be introduced whenever required. Of course, if we can bring down costs, those benefits should be passed on to consumers. But as long as costs cannot be reduced, a marginal tariff increase can be brought in. Moreover, the full support of the state government is important. In Andhra Pradesh, the state government gives seven hours of free power to agricultural consumers. Hence, it is an upfront state government subsidy.

Finally, states should not opt for the purchase of costly power. Over the past four to five years, this had to be done because fuel, gas and coal were costlier. As a result, we were forced to purchase power at Rs 13-Rs 14 per unit and sell it at Rs 1.40. For every unit of power supplied, the discom was incurring a loss of around Rs 12 per unit. As long as a discom’s losses are low, most of its sales are metered and tariffs suitably revised, I don’t think any discom should go into debt. Hence, low loss levels, controlling the cost of power, having long-term supply of power rather than short-term purchases, managing an adequate stock of coal and gas, reducing the cost of supply and introducing a marginal increase in tariffs to cover operational costs will help discoms bring down their debt levels in the long run.

What steps have been taken to strengthen transmission infrastructure?

We are constructing 400 kV substations for the new generating stations for supplying power to industries. However, the current focus of transmission is the green corridor, since a significant amount of solar capacity is coming up. Of the total sanctioned cost of Rs 30 billion, 40 per cent will come as a grant from KfW and 40 per cent from the central government. Now, there is a need for a second green corridor because so much of green power is coming up. So, for transmission, the biggest challenge is the timely completion of projects because of the right-of-way issue. This is constantly being addressed by talking to farmers and offering them attractive compensation.

What are the state’s plans for power procurement under Case I bidding?

We called tenders for 2,400 MW of power about eight months back. This will be finalised before March 2016, after which regulatory approval will be taken. In the next three to four years, we will not have new power requirements as our new plants are coming up, like the 2×800 MW Krishnapatnam power plant, the first 800 MW supercritical unit by a public sector company. Significant wind and solar capacity is also coming up. I don’t think there will be any power requirements in addition to the 2,400 MW.

What is your outlook for the state’s power sector for the next two to three years?

I think, for the first time in the past 10 years or so, we are seeing a very positive scenario in the power sector. As I said, it is the joint responsibility of the state and central governments. For the first time, the centre is coming forward in a big way in terms of coal, gas and transmission corridors. Our first priority is loss reduction. We are very committed towards ensuring that there should not be any theft, losses should be controlled, tariff petitions regularly filed, capacity added (whether it is solar or wind), and households electrified. The tariff increase can be marginal, but petitions should be filed regularly. My personal view is that there should be at least a marginal increase, if not a hefty increase, in tariff, 2-3 per cent, for instance.

So, we have a very positive scenario. For our state, we already have a 24×7 power situation. Now is the time that we should move a step forward and talk in terms of power quality rather than availability. Even a one-minute power disruption should be monitored. Smart grids, smart metering, consumer initiatives, renewables, energy efficiency and power affordability are the areas we should be looking at.

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