Editorial June 2017

The power minister recently highlighted the achievements of the sector during the past three years of the NDA government at the centre. India, he noted, has become a power-surplus country. There is no shortage of electricity or coal. Energy shortages have come down to 0.7 per cent in 2017 from 4.2 per cent in 2014, and peak energy shortage to 1.6 per cent from 4.5 per cent. This has been achieved through the highest-ever addition of 60 GW in conventional power capacity, about 36 per cent or 192,400 MVA increase in transformation capacity, and 26 per cent or 75,300 ckt. km increase in the transmission network between April 2014 and March 2017. Further, India became a net exporter of electricity for the first time in 2016-17.

The principle of “less coal for more power” has ensured cheaper electricity generation. An 8 per cent reduction has been achieved in specific coal consumption, from 0.69 kg per unit of electricity generated in 2013-14 to 0.63 kg in 2016-17. Further, coal linkage rationalisation of 40 mt is expected to result in savings of Rs 30 billion.

Distribution reforms through UDAY have resulted in savings of nearly Rs 120 billion for discoms. This was achieved due to the issuance of UDAY bonds worth Rs 2.32 trillion. India’s ranking in “ease of getting electricity” by the World Bank has risen to 26 in 2017 from 99 in 2015. The flagship scheme for rural electrification, the DDUGJY has fared well with less than 4,000 villages remaining to be electrified by May 2018. About 45 million rural households remain to be electrified by 2022.

Reinforcing its commitment to clean energy, the government continues to focus on achieving 175 GW of renewable power by 2022. Thanks to competitive bidding, renewable energy has become affordable and attractive for consumers. In 2016-17, the lowest tariffs were discovered in both the solar (Rs 2.44 per unit) and the wind (Rs 3.46 per unit) energy segments. In fact, for the first time, the net capacity addition of renewable energy was higher than that of conventional energy during the last fiscal year. Another positive has been the emphasis on transparency through various web and mobile applications, as well as the focus on electronic-based competitive bidding for generation and transmission projects.

Despite these impressive achievements, there are several issues that continue to plague the sector. The hydropower segment has been in troubled waters for some time now. Most hydro projects are facing huge time and cost overruns. Its share in the energy mix has been declining continuously and is now even below that of renewables.

Overcapacity and less-than-expected electricity demand have resulted in low PLFs and hugely stressed generation assets. This has, in turn, led to a heavy financial burden in the form of NPAs on the banking sector. Given the low prices prevailing in the power markets and the poor financial condition of discoms, distribution utilities continue to avoid getting locked into long-term contracts. Private investments in new conventional capacity have almost come to a standstill. This may not be ideal for a country planning to expand access to electricity to a large population. The government is aware of these issues and is working towards resolving them. Clearly, an improvement in electricity demand and the discom turnaround hold the key to the sector’s future growth.

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