Editorial: Not powering along

Everyone knows that India faces a huge shortage of power. Now McKinsey, the consulting firm, has upped massively the estimate of new power capacity required to sustain rapid economic growth. After a six-month study, McKinsey estimates that if India is to continue to grow at 8 per cent a year for the next decade, it will need to nearly treble power capacity to between 315,000 Mw and 335,000 Mw, from the current 120,000 Mw; this estimate is around 100,000 Mw more than most current estimates. McKinsey cites four reasons for its estimate "" the higher growth in manufacturing when compared to the past, faster growth of domestic consumption especially with greater urbanisation, inclusive growth programmes that involve connecting more rural areas to the grid and, if power outages reduce, the suppressed demand due to these outages coming to the fore. Even simple arithmetic would suggest that the McKinsey estimate cannot be far off the mark, for 8 per cent annual GDP growth over a decade would mean cumulative growth of 116 per cent. Assuming a one-to-one equivalence between power demand and economic growth, for the reasons that McKinsey lists, power capacity will have to climb from 120,000 Mw to 260,000 Mw. Add the suppressed demand that exists today (the national power shortage is said to be 13-15 per cent), and a figure in excess of 300,000 Mw is not hard to understand.

 

The real challenge is that this translates into a five-fold hike in the creation of fresh power capacity, in comparison with what has been achieved in the last decade "" 20,000 Mw annually, up from 4,000 Mw. Bear in mind that the additional capacity planned for the five years of the 11th Plan (2007-12) is an extra 78,000 Mw, which if achieved will take total capacity to nearly 200,000 Mw. The subsequent five years will therefore have to see fresh capacity of up to 135,000 Mw. Indeed, McKinsey estimates that by 2027, the rate of capacity creation will have to rise further to between 40,000 Mw and 50,000 Mw per annum. The financial, raw material and environmental implications of these numbers are daunting in the extreme. McKinsey's estimate of $600 billion being the required investment seems to be on the high side, and can be found without too much difficulty if the policies in the power sector are set right.

More important, therefore, is whether India has a stock of bankable projects which can be handed over to the private sector, as the Ultra Mega Power Projects (UMPPs) were; McKinsey says it takes five to six years to build a power plant in India, compared to half that time in China. Land acquisition will be a problem, given past experience with large projects. Then there are the other insurmountables: coal production for instance is nowhere near what it needs to be even now, and captive mining policies will have to be simplified a lot. That raises the issue of environmental clearances for these mines. The privatisation of power distribution, after the initial attempts in Orissa and Delhi, has been progressing at the speed of a snail that occasionally comes to life, showing the reluctance of the political class to tackle the problem of rising theft and getting citizens to pay what power costs. That is why, against sustainable levels of technical and commercial losses of 5-10 per cent, India's loss levels are however around 35 per cent, and in Bihar and Jammu & Kashmir they are around 70 per cent. It is true that some states like Delhi are now examining reforms like open access, which was promised through the Electricity Act five years ago. In short, the ministry of power has its work more than cut out for it, as do state governments.