Over the past few decades, the story of the Indian power sector has been two steps forward, one step back. In some years, come election time, it has been the other way around – one step forward, two steps back. But for the most part, it has been the former rather than the latter.
With all the media attention focused on the issues of the day, it is easy to forget, but useful to focus on, the big picture. And the big picture, in our opinion, is this – with every year passing, more people have access to electricity and the lights are on for more hours. We can debate how far we are from 24×7, but we are certainly getting closer.
The generation mix is more diverse now, with renewables continuing to increase their share. That is good news. What is not good is the decreasing share of hydro and the low capacity utilisation of gas-based plants. Thermal producers are getting used to the idea of PLF levels in the 50s or even lower though some of them have seen increases in the recent past. They have certainly suffered the most from the changes, which are not likely to be reversed. There will probably be more churn and more pain until things “settle down”, whether it is through increasing demand or lack of new capacity addition or decommissioning of assets. Overall though, the demand has increased at a higher rate in the recent past, despite the economic slowdown.
The increasing share of renewables is posing new challenges for transmission and sub-transmission
systems. While the transmission network today is bigger and more flexible, there are still many areas of constraint. This is particularly true for intra-state transmission. The entry of private players at the inter-state level has certainly helped, both in terms of lower costs and timely execution. The government does need to do a bit more of unbundling at the central level. It also needs to ensure that the system expands and develops in a timely fashion, though this is not so easy when the gestation period for generation (renewable) projects is shorter than that for transmission. Perhaps, we need to move even more towards planning that is not tied to specific generation projects. This may mean higher costs in general and more fixed charges in particular.
Distribution remains the hardest nut to crack. The good news is that AT&C losses continue to decline (although at an uneven pace), operating losses as a proportion of total revenues are smaller, and supply and service have improved. The bad news is that receivables are mounting again, and the necessary tariff increases are again being blocked by politicians. UDAY did bring important and structural relief to some discoms that were able to move from losses to almost break-even, but the biggest offenders continued with their merry old ways and are no better off today, in terms of either operating performance or cost/tariff structure. Hence, UDAY 2.0. The answer is greater private participation, though not in all states.
A brief word about the role and performance of the ministry. In the past couple of years, it has taken a workman-like pragmatic approach to most of the issues. The results are beginning to show, with more confidence and less pessimism among stakeholders. We hope that this will continue.
Finally, an encouraging aside. There are today many more think-tanks with many young professionals and academics engaged in research related to the power sector. They are bringing fresh perspective, sometimes theoretical but more often data-driven. They need to be paid more attention by the policymakers.
Power Line itself intends to feature more of their contributions, in print and online. If you are one of these young researchers, do reach out to us at email@example.com.