Over the past couple of years, the Indian power sector has changed dramatically in terms of issues, challenges and opportunities. In good ways and otherwise. The most significant change lies in the fact that supply seems to be exceeding demand. PLFs are decreasing. Plants are being asked to back down. As a result, many existing plants are financially stressed. Plans for new “conventional” capacity are being shelved.
The new capacity addition, being planned or developed, is almost entirely from renewable sources, most of it from solar. The integration of this energy into the grid creates its own challenges, from the flexibilisation of coal-fired plants to increased transmission capacity; from greater storage requirements to net metering capability.The “real cost” of renewable energy is higher than is commonly understood and needs to be quantified. The “threat” from renewable energy is not the only challenge facing coal-fired plants, which provide almost four-fifths of the total power produced. The implementation of new environmental norms will require substantial new capital investment. Some operators may decide to decommission their older plants rather than incur this cost.
The demand for power, meanwhile, seems to have slowed down. It is growing at a rate lower than the GDP, probably a result of improving energy efficiency and decelerating manufacturing growth. There is hope that the focus on rural electrification, 24×7 supply, affordable power for all, Make in India and electric vehicles will reverse this trend. The new Saubhagya scheme, if implemented properly, should also provide a significant boost to demand.
We must not lose sight of the fact that there are still many parts of the country where power is available for only a few hours a day and many households that receive none. The per capita consumption is still far too low for a country with aspirations. Meanwhile, the pipeline of generation projects is not very strong. If manufacturing growth revives and economic growth returns to previous levels, we may see shortages again.
Discom finances have certainly been helped, at least somewhat, by UDAY. Debt and interest costs have been significantly reduced, leading to lower operating losses. But further progress can only come from the rationalisation of tariffs and a reduction in T&D losses, areas where the discoms have been lagging of late. Distribution is still the area that needs most attention and is still the weakest link in the chain.
The inter-state transmission system continues to strengthen and improve. Intrastate transmission, on the other hand, is still constrained and suffering from underinvestment. Power markets continue to develop and evolve, despite the many obstacles thrown in the way of open access.
What is clear is that we need to change our approach to planning in light of all the disruption and challenges that we have seen in the sector. With these new challenges, though, will come new opportunities – for new technologies, new business models and even new players. So while we do not know what lies ahead, we do know it will not be the same and it will not be dull. The power sector, for better or for worse, is no longer boring.