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Power Crisis: NEW STRATEGY CRITICAL, by Shivaji Sarkar, 27 Jan, 2012 Print E-mail

Economic Highlights

New Delhi, 27 January 2012

Power Crisis


By Shivaji Sarkar


India’s power scenario is yearning for a new strategy. As of now, it has a mixed bag of achievements and unfulfilled targets. While in each Plan the country is setting a target of adding nearly one lakh megawatt capacity, it has managed to achieve less than 50 per cent.  


Worse, it is now facing a serious crisis in pricing and fuel linkage. High energy costs are posing severe problems for existing power units and the fear is that the proposed new ultra mega power projects (UMPP) may be in jeopardy. As coal is becoming scarce a new power strategy is desired and has to be devised.


Today, the country has an installed capacity of 1.82 lakh MW. The Ministry of Power has worked out the addition of 1.07 lakh MW during the 12th Plan. During the 11th plan it had set a target of 78,7000 MW of capacity addition. It has reduced the target to 52,000 MW and could commission only 41,963 MW till October 2011. Unfortunately, till the end of the Plan period, March 2012, not much is expected to be added. The Committee on Estimates of Parliament states slippages in the 11th Plan would definitely spill over into the 12th Plan.


The target for capacity addition was estimated on the basis of achieving the original target. However, now the gap is bound to increase. The 17th Electric Power Survey (EPS) found that the demand would be 2.18 lakh MW by 2017 and 2.98 lakh MW by 2022. The projected demand in 2011-12 is 1.52 lakh MW. The target of 1.07 lakh MW for addition in 12th Plan is set accordingly.


If the spill over of 36,000 MW is added, the actual addition has to be 1.41 lakh MW. This is clearly not easy to achieve. The reason being that it is just not about erecting plants but also arranging funds to the tune Rs 7.05 lakh crore! Apparently, owing to slippage of targets, the banks had to restructure a few lakh crore of rupees debts to power companies and it is yet to be estimated whether new funds would be arranged by them or not.


Given the situation, the Power Ministry has rung the alarm bells saying a whopping 96 power plants are in super critical situation as coal is running out. The reason could vary from either the coal plants are delaying supplies or are simply not signing MoUs with them.


Rating agency Fitch has warned that rising cost of imported coal, coupled with a weakening of rupee could force some Indian companies to default on their debt obligations. The average cost could rise to Rs 4.21 per kilowatt hour for projects relying on imported coal, from the average Rs 2.29. Even Coal India is demanding higher prices and wants it linked to inflation.


The Central Electricity Authority has been asked to carry out studies to prepare a realistic blueprint of the 12th Plan targets. However, Chairman of Estimates Committee Francis Sardinha says that the committee has severe doubts about achievement of the 12th Plan capacity addition targets. It may have to put off 800 MW supercritical units proposed in coastal locations where imported coal could be used. For inland station using indigenous coal, maximum unit size envisaged is 660 MW. Thus, an estimated investment of $ 4 billion is required. While the government hopes to manage the investments despite difficulties, it will still have to work out the fuel linkages and the high costs for the16 UMPPs.


While the CEA has estimated coal requirement to the tune of 455million tonnes (MT), indigenous availability is assessed at 402 MT. The gap is to be met by import of 35 MT in 2011-12. Coal reserves are assessed at 268 million tonnes.  But prospecting all of it is not feasible as the reserves are in forest areas and many in “no go” areas marked by the Environment Ministry. Remember, this has already posed problems for many power projects.


Interestingly, while estimates indicate availability the fast depleting coal reserves are putting many power projects in jeopardy. Coal shortage has hit generation at many plants. The assured coal linkages have become a big challenge for the upcoming power projects.


Perhaps there is a way out. India should learn from the example of Wales and other areas of United Kingdom. Many ports and other industrial operations have shut down as coal reserves have exhausted. Building ultra projects have their dangers as reserves too may be under threat of fast exhaustion. Therefore, wouldn’t huge investments go waste?


Additionally, dependence on imported coal is increasing. It is expensive and worldwide coal is becoming scarce. There are some gas-based power plants. But there is a problem with continuous gas supply as well. Some like the D6 in Krishna-Godavari region has far less gas than was estimated.


The country has also reconciled to the fact that liquid fuels cannot form the backbone of our energy plans. It is expensive and costs foreign exchange. Thus, India should look for other power generation techniques and gradually start depending less on thermal energy. It is easier said than done. Alternatives are not easy.


The advantage of India is its low per capita energy consumption. It often wants to compete with Europe for increasing power consumption. But it should review considering Europe as its model. Today the European economy is facing a serious crisis owing to its high energy consumption as also the high cost of generation.


Europe pays a very high tariff for electricity and all other energy needs. In 2005, European Energy commissioner Andris Piebal had predicted the crisis that Europe finds itself today. He said that rising energy costs would adversely impact not only the well-being of EU citizens but also their economic growth. Likewise in the US a study by Logility and Manhattan of 139 industries found that high power and other energy costs were becoming prohibitive. The US forecasters have acknowledged that higher energy prices can become a drag on the overall economy


India needs to look for a different model where natural light is used more for housing and office purposes. The country has to look for renewable sources of energy. The estimated potential for power generation from wind, small hydel and bio-mass is estimated at 87,000 MW. The present installed capacity is 21,125 MW. But renewable energy is expensive at present. The cost has to be reduced from Rs 15 crore per MW to Rs 6 crore through new research and indigenous production of critical raw materials.


As of now, nuclear energy is not a solution for its risks, higher gestation and high waste management costs. Large hydro power plants are not considered environment friendly and we are already witnessing problems of resettlement. Where lies the answer? The Ministry of Power would need to do some hard thinking.---INFA


(Copyright, India News and Feature Alliance)

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