The challenge of surplus power

Options with significant potential for creating demand do exist beyond traditional paradigm

Over the decades, power shortages and captive back-up power generation had become the norm. Today, India has the luxury of being surplus in power. One critical infrastructure constraint that was coming in the way of the country achieving its full growth potential is at last no longer there. This is primarily the result of the success in getting competitive private sector investment in generation, with private sector capacity addition exceeding that of the public sector in the last decade.
 
Swift and unexpected success presents new challenges. The modest quantity of electricity traded in the power exchanges has seen prices fall from over Rs 6 per unit in 2009 to about Rs 2.50 per unit now. For coal-based thermal power plants, capacity utilisation has taken a hit, with many states having units backing down by 25-30 per cent while consumers are having to paying full capacity charges in the tariffs determined by the state regulators. The Central Electricity Authority in the draft Electricity Plan has stated that no new capacity is needed till 2022. However, about 50,000 Mw of coal-fired power projects are at present under varying stages of execution with little likelihood of the conventional take or pay contracts from the buying distribution companies for them. Gas capacity of about 15,000 Mw is lying idle as there is no demand for power generated from these plants with imported LNG as it is too expensive and cheaper domestic gas is not available. All of these constitute a gigantic stranded asset problem, with promoters and their lenders in deep trouble as power is a capital-intensive sector with an average cost of Rs 5 crore per Mw for coal-fired stations
 
The normal way of addressing such a situation would be to ask where and how substantial demand could be created in the short as well as medium term. For the power sector in India this is a new phenomenon. However, when one looks beyond the traditional paradigm, promising options with significant potential for creating demand do exist.
 

CHARGING UP The game changer would be a push for electric mobility. If a switch can be made to moving people and goods with only electricity, India would become an almost fossil-fuel-free economy

The central grant-funded rural electrification programme is nearing completion, with all villages and their below the poverty line (BPL) households getting electrified. However, household electrification still has a long way to go in recently electrified areas. More than 50 per cent of the households in Uttar Pradesh and Bihar still need to get electrified and for the country as a whole the percentage is around 25 per cent. While the government has the goal of getting electricity to all households, the bulk of the task is to be undertaken in the weaker resource-constrained states which, on their own, may find it difficult to step up progress.  Central funding under the ongoing rural electrification programme to cover all households, rather than just BPL households, would enable completion of household electrification in two to three years going by the execution abilities that have been created. This could be comfortably financed from the Clean Energy Fund, which is growing rapidly with the cess on coal. This should also enable the winding up of the supply of subsidised kerosene in rural areas as this was needed for lighting only, cooking needs being met by biomass. Bringing in about a hundred million additional household consumers should definitely lead to a surge in demand as these homes move from using lights and fans to TVs, refrigerators, coolers. Distribution companies may be made to give these connections with prepaid meters, which are now available at reasonable rates and whose introduction has been long overdue. This would ensure that this additional demand is met in a commercially viable manner. The prepaid meters in telecom have been very successful.
 
Export of electricity has considerable potential. Some electricity is being exported to Bangladesh and Nepal. This can be stepped up considerably as they have shortages and also need to accelerate and complete household electrification. Pakistan has been experiencing power shortages and short-term imports from India till such time as their planned projects start generating enough electricity makes great sense for them, provided political considerations do not come in the way. The power interconnectors for transmission do not take a long time to execute nor do they cost much money.
 
The game changer would be a real push for electric mobility, which would have a huge impact in the medium term. This is a real desirable outcome from the long-term global warming perspective as it is possible to get all our electricity without using fossil fuels, and, if we can switch over to moving people and goods with only electricity, then we have an almost fossil-fuel-free economy. The easiest is for the Indian Railways to phase out the use of diesel fully at the earliest. This also makes commercial sense for the Railways as it would save a lot of money in doing so. A mandatory decision is needed to overcome the internal inertia in the Railways. E-rickshaws are already taking over the market. With public investment in charging stations in cities and appropriate pricing and other incentives, one could aim at having all urban public transport vehicles such as electric buses, mini buses, taxis and three-wheelers. Grant and renewal of permits from a prospective date, say, after a year would need to be restricted for electric vehicles only. This could be started in the metros and tourist destinations initially. Fortunately, such vehicles are available and with bulk procurement, prices should also come down. Till such time as these become commercially viable, financial support would also be needed to drive the process in a way that users of public transport do not have to pay more for using electric vehicles. A combination of an interest subsidy for the purchase of the electric vehicle and a subsidy on the price of electricity should make the operating cost per km the same as for normal vehicles. The benefits from reduction in completely unacceptable levels of air pollution in our cities, which are imposing such excessive health costs alone, would amply justify the provision of the necessary resources from the Clean Energy Fund for this.

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The author is former secretary, Department of Industrial Policy and Promotion, and has been special, additional and joint secretary in the power ministry