Competition reason for congestion in transmission: IS Jha

Q&A with IS Jha, chairman and managing director, Power Grid Corporation

More than ever before, transmission is at the heart of the governments power push. Despite a private-sector focus, state-owned Power Grid Corporation of India (PGCIL) is poised to play a crucial role in transfer of electricity over long distances. In an interview, IS Jha, the company’s newly-appointed chairman and managing director, tells Shreya Jai & Jyoti Mukul about the challenges and the way forward for the business of transporting power. Edited excerpts:

How crucial is transmission in the current power market?

Today, the power sector is in a very comfortable position as generation capacity has come up significantly. So far, transmission planning was matching and generation came up wherever there was load. The increase in generation capacity is good because we have power for tomorrow, but now the load does not match supply.

The major reason for this is the poor health of electricity distribution companies, which restrict their drawl of power. In such a situation, the role of transmission increases.

There is also a mismatch. For instance, Chhattisgarh, Madhya Pradesh and Gujarat have surplus power and can supply to the northern and southern regions. If for one consumer, there is more than one supplier, then the transmission system is needed to facilitate competition.

But there are increased concerns of congestion in the transmission network. What steps are being taken to resolve this?

Congestion in the network is not because of missing transmission, but generation changed its direction of load. In that direction, transmission was not built according to the original plan. Planning was done according to the original flow of power. In the past five years, the situation has changed. States are replacing costly power with cheap power from other regions. By paying 25- 30 paise on transmission, they are saving Rs 1- 2 per unit of generation.
 

This is good for competition and transmission will play the balancing act.

Similarly, in south India, lots of power plants were supposed to come up. At that point, they did not want power from Chhattisgarh. There is a generation lag of 7,000-8,000 megawatts (MW) in the south. On other hand, Chhattisgarh, which was selling to the western region, built surplus power generation capacity. We have built more corridors in northern and southern regions. Congestion is a reality not because there is no transmission, but because of competition. 

How is transmission being prepared to meet the mammoth target of renewable capacity addition?

There is a major challenge in integration of renewable energy. But, I think this is the right time for accelerating renewables as conventional energy today is in a (good) position. If solar power transmission is a standalone system, it would lead to a lot of fluctuations. So, we need to merge it with a large system. The gestation period of solar is too less. So, a big system can’t be made for solar. We need smaller ones. That is what we have planned.

In a market which is opening up to the private sector as well, what are PGCIL’s plans?

Out of our three streams of business — power transmission, telecom and consultancy, 97 % of our revenue is from transmission. Since 2011, we have bagged Rs 14,000-crore worth of projects through tariff based competitive bidding ( TBCB). Projects worth Rs 70,000 crore were are already being undertaken, including projects given by the central government recently on a regulated tariff basis. Going forward, PGCIL will continue to be a participant in the bidding process.

According to Central Electricity Authority ( CEA) estimates, returns on TBCB are 10 %, while nomination projects give 15-17 %. Won’t TBCB hurt the company?

These estimates are not really of return (IRR) is 12-13%. We are also, generally, on a similar rate of return in TBCB projects.

Is such an IRR sustainable?

Our gross assets are Rs 1.2 lakh crore and our annual turnover is Rs 18,000 crore, with a profit of about Rs 5,000 crore. The annual return is hardly 4-5% over the asset base.  There are three types of costs we consider [for] tariff bidding — material cost, construction, operating and maintenance cost for 35 years, and finance cost. We are a AAA [rated] company and we get [ the] most competitive prices from the market. Some companies like Adani and Sterlite might get [ prices] equal to that, but generally not others. Margin cost [ of] PGCIL is not much. That is why we are competitive. 

What is the status of the separation of the Central Transmission Utility ( CTU) from PGCIL?

PGCIL as CTU is responsible for wheeling of power generated by producers and involved in planning transmission systems and operations. There is one committee [that has been] constituted by the Ministry of Power for recommendations on separation of CTU. In such an event, we will be able to expand our business, if we want, to distribution, solar power, power trading etc. In my opinion, CTU needs to be one company to take care of bidding, monitoring and planning. Currently, it is done by three different agencies.