Draft electricity plan paints rosy picture of power scenario

The Electricity Act, 2003 mandates that every five years, the Central Electricity Authority (CEA) should prepare a National Electricity Plan (NEP). Last December, the CEA released draft of third NEP for 2017-2022 seeking comments from stakeholders. Some conclusions of NEP like close to zero energy demand deficit would be music to power starved India while raising questions about its authenticity.

Brownouts and blackouts are every day events all over India. Though 98% of villages are electrified today, 35% of households do not have access to electricity. But draft NEP shows that we have surplus power. Not only it gives a rosy picture of current power scenario, it gives even a rosier picture for the next 10 years with continuing surplus power. The most outstanding recommendation of the draft NEP is that India need not construct any new coal power plant once under-construction plants are complete.

Peak load deficit which used to be above 9% before 2013 has come down to around 3.2% and is likely to disappear as per the draft NEP. Similarly, energy demand deficit which was also above 9%, has fallen to about 2%. These astounding numbers which contradict the actual ground reality of unreliable power supply naturally raise questions on how they were estimated. While the peak demand is relatively easy to estimate, it is not an objective exercise to quantify the energy demand.

An obvious question that needs to be posed while analysing draft NEP is when Plant Load Factor (PLF) has been falling during the last four years, why have we been adding to generation capacity? Also with a low PLF, we should have been able to reduce twin deficit of peak load and energy demand to close to zero by proper balancing of load and making use of the national grid. This clearly shows lack of coordination between different regions.

Most if not all, will be surprised that during the 12th plan, actual generation capacity constructed has exceeded the target by 15%. This is the first time in the history of India’s power sector that actual commission of power plants has exceeded the target. During the earlier plans, targets were never exceeded. They missed by 30% to 53%. In this voluminous NEP, there is no explanation on how it was possible to have such an outstanding performance by the power sector. Of the capacities added, private sector accounted for 56%.

With distribution companies losing large amount of money, on what basis did the banking sector advance loans to construct these power plants? Addition to generating capacity is a necessary investment and economy will benefit in the long-run. However, if it is not done prudently (constructing efficient plants with minimum cost), loans can turn sour. In recent years, there are two notorious examples of such irresponsible bank loans - one in private sector to Vijay Mallya’s empire to finance Kingfisher Airlines, and the other in public sector to Gujarat State Petroleum Corporation to develop KG basin gas reserves.

One of the most attractive aspects of draft NEP is that India need not take up the construction of any new coal power plant in the next 10 years. It is expected that about 50,025 MW of coal power plants which have been already started prior to 2016 will be completed in the next few years and then there will be no need for any additional coal power plants. This would be a hard fact to digest. All the time, India used to argue before and during the Paris summit on global warming that there should be no restriction to be imposed on India to prevent it from constructing coal power plants. Now, we learn that we will not be needing them any way.

Scenario analysis

The draft NEP has conducted extensive scenario analysis for various demand growth from 6.34% to 8.34% which is higher than the current growth rate of 6.14%, different levels of renewable energy source contributions, hydro sources not meeting the potential because of poor rains etc. Results show that even under the most pessimistic case when renewable energy falls short by 50,000 MW, there will be enough generating capacity and plant load factor for coal would be only around 63%.

Since India has been experiencing shortage of gas supplies in recent years, the NEP has not assigned gas power plants any significant role in meeting power demand. But this is an issue that deserves more informed discussion because gas is a preferred fuel especially when the role of renewables is increasing. Another attractive feature of draft NEP is that India can easily exceed the environmental CO2 emission target agreed at Paris Summit because of importance given to renewables.

Three things are missing from the detailed analysis. No discussion on how financial conditions of power sector will improve to pay for the investment needs of Rs 16 trillion to increase generating capacity. As of 2015, power sector had an accumulated loss of Rs 4.3 trillion. To meet the goal of power for all specially in far flung villages, it would be more prudent to adapt distributed generation based on renewable energy sources using micro grid concept. There is hardly any discussion of this important topic.

The NEP does not discuss the role of captive diesel generators used as back up to ensure reliable power supply. Such back ups are not only uneconomical but also add to environmental problems. This expensive energy source could be avoided provided power sector can assure reliable and quality supply. 

Assuming that the power sector unfolds the way it is discussed in draft NEP, India should be able to electrify the remaining 2% villages and be able to supply 24x7 power for all by 2019, a goal of NDA. Let us hope this will not remain a pipe dream.