Editorial: Unexpected success

There has been a buzz for some time now about large investments finding their way into the country's power generation sector. Somehow, though, this has never been reflected in the numbers that the government collates. It now turns out that over and above the 78,000 Mw of power generation capacity that the government expects to be commissioned in the 11th Plan (2007-12) "" which includes power capacity being set up by the Centre and states and by the private sector "" there is another 100,000 Mw of "merchant" capacity that is in the pipeline, with power generated from this to be sold to the highest bidder. Even if it is conceded that not all of this capacity is likely to fructify, it is possible to think the unthinkable: that the days of large power deficits could be over in a few years.

 

There is little doubt that the power sector presents a good business opportunity. As of now, it is a seller's market, and it is expected to remain that way for the next few years. Buyers are willing to pay as much as Rs 7 for a unit of power, which is more than double the rate paid by the average residential user. That companies are willing to put in money to set up power plants, and are confident of making money from the power demand-supply equation as it stands today, is clearly a success of policy. Many of these companies are also setting up trading companies to make the most of the merchant power they plan to generate, and to ensure access to the transmission corridors that are planned. The power exchanges that are planned to be set up to trade power would also make selling of power easier.

The danger is that such a large infusion of power into the system could catch downstream businesses off balance. It is well known that the ideal investment ratio for generation, transmission and distribution is 2:1:1. Since transmission and distribution are already under-invested sectors, urgent steps should be taken to ease the flow of private sector investments into these sectors too. It is also time to overhaul the power planning process, which apparently tracks every single megawatt that is coming through but could not take cognizance of a capacity in the pipeline which is larger than the government's own ambitious plan. Whether it should be tracked by the electricity regulators or the Central Electricity Authority or the Planning Commission or a third party agency, it needs to be done if the risk of stranded power generation assets (without transmission links) is to be eliminated. Those planning for power should know which companies are building this capacity, and the status of these projects. Have they acquired the land? Do they have the environmental clearances? Do they have the fuel linkages in place? Have they begun construction? Has financial closure been achieved? Such information would not only help the government in better investment targeting, it would also help user industries avoid investments in, say, high-cost captive plants. In this case, information is power, literally!