Electricity generation was one of the bright spots in 2015-16. Generation rose by 6 per cent as a proactive ministry sorted out fuel supply problems and thus enabled higher plant load factors. There was also capacity addition, amounting to roughly 24 GW in generation capacity, as well as large increases in transmission capacity.
But vast challenges exist and it will require concerted efforts by many stakeholders to tackle these. First and foremost, distribution continues to bleed. Some way must be found to stem the flow of AT&C losses, which amount to Rs 3.8 trillion. As a corollary, discoms have to be restored to financial health.
Apart from this, the transmission segment requires vast investments, including investments in new technologies that can maintain grid stability as more renewable power, which is intermittent, comes online. Attempts must also be made to revive stalled projects and, more generally, to attract funding into every segment.
The new scheme UDAY will stand or fall on the basis of implementation at the state level. In theory, it should lead to more transparency and improve the financial health of cash-strapped discoms as states issue bonds to take over outstanding financial commitments. But it won’t work well until such time as states start charging tariffs that cover costs. States must also stop imposing prohibitive open access charges if higher generation is to translate into effective power trading.
The transmission segment needs around Rs 3.3 trillion in investments over the next five years. There is no way that sums of this nature can be raised and deployed without the participation of the private sector. Appropriate policy is required to channelise such investments, including quicker clearances for transmission projects.
Problems on the fuel front have also been alleviated, rather than solved. The coal block auction process needs to be accelerated. The revival of gas-based plants must also be expedited. The fuel mix requires review as well since India is now far too dependent on coal thermal with over 85 per cent of generation from that account.
To its credit, the government has been proactive. Apart from UDAY, there have been policy changes such as reviews of the UMPP bidding norms and revision of Case 1 bidding guidelines. There has been full-blooded support of the renewable segment.
The DEEP e-auction system has helped to improve offtake of power and the government is pushing ahead with rural electrification and the novel concept of segregation of agricultural power. But it remains to be seen how well these work since we have seen many initially promising schemes stutter.
The past year has seen new hope generated in the sector. The momentum must now be maintained.