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With the coming of Electricity Act 2003, the power sector, which was highly regulated with lot of licensing requirements, is in the throes of a long awaited change. The licensing requirements have been reduced, as the generation company will be free to enter distribution business and vice-a-versa.
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The generating capacity in India stood at 143,061 MW (1,253 bn units). Out of this, the total generation was only about 704 bn units, due to lack of fuel sufficiency. As a result, it has become necessary to resort to power cuts and other regulatory measures to ration power supply.
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Currently central institutions like National Thermal Power Corporation (NTPC) and the State Electricity Boards (SEBs) dominate the power scene in India. India has adopted a blend of thermal, hydel and nuclear sources with a view to increasing the availability of electricity. Thermal plants at present account for 64% (91,907 MW) of the total power generation, hydro-electricity plants contribute 25% (35,909 MW) and the rest comes from nuclear and wind.
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Average transmission and distribution losses (T&D) exceed 25% of total power generation compared to less than 15% for developing economies. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage.
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| Supply |
Many projects have been planned but due to slow regulatory processes, especially in the distribution segment, the supply is far lesser than demand. Currently, India needs to double its generation capacity in the next 7 to 10 years to meet the potential demand.
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| Demand |
The long-term average demand growth rate is 6% to 7% per annum and is expected to grow at faster rate in the future.
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| Barriers to entry |
Barriers to entry are high, especially in the transmission and distribution segments, which are largely state monopolies. Also, entering the power generation business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from state governments that buy power and retail distribution license.
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| Bargaining power of suppliers |
Not very high as government controls tariff structure. However, this may change in the future.
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| Bargaining power of customers |
Bargaining power of retail customers is low, as power is in short supply. However government is a big buyer and payment by government can be erratic, as has been seen in the past.
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| Competition |
Not high currently. The Electricity Act 2003 aims to encourage investments, thereby increasing competition. |
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In FY08, the total power generation figure for the country stood at 704 bn units as compared to 663 bn units in FY07, thus representing a growth of 6.3% YoY. This was largely on the back of higher capacity addition and improved plant load factor. However, owing to sustenance in strong demand for electricity, the shortages remained high, with the month of February 2008 recording a shortage of as high as 14.5%.
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The average PLF in the Central Public Sector Undertakings in FY08 was much higher than that achieved by the SEBs as a whole. Wide inter-state variations are noticed in the average PLF of thermal power plants with southern and northern zones having better performances.
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As far as T&D segments of the sector are concerned, there was little that actually happened in FY08. The country continues to reel under the pressure of higher T&D losses and with the government running very slow with the reforms in these segments, the long-term sustainable growth of the sector seems doubtful.
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Recognising that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the industry has set itself the target of providing access to all households in next seven years. As per Census 2001, about 44% of the households do not have access to electricity. Hence, meeting the target of providing universal access is a daunting task requiring significant addition to generation capacity and expansion of the transmission and distribution network.
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Restoration of the financial health of SEBs and improvement in their operating performance continue to remain a critical issue in the power sector. The Electricity Act of 2003 contains provision for securitisation of accumulated SEB dues.
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On overall basis, power distribution has been loss-making business in India. But with the privatization coming in, the investment in transmission and distribution networking is expected to improve. Distribution business has already been privatized in Delhi and a five years target has been set to bring down its T&D losses from 52% to 31%. Following Delhi's example, many states like Uttar Pradesh, Gujarat and Maharashtra are looking at corporatising their distribution circles.
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Trading in electricity has brought a sea change in the structure of the industry because some parts of country are power surplus and some are deficient. Power trading company buys power from surplus area and sells it in deficit area using and transfers power through transmission lines. While the potential for power trading is huge, the regulator has to play a key role in removing all discrepancies that occur in terms of electricity pricing across trading regions.
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