Sweaty in Delhi: India’s Power Woes Are More Than Just An Issue of Generation Capacity

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The multiple grid failures on Tuesday July 31, saw more than half the country without power

As a (now infrequent) resident of Delhi, I’ve sweltered through my share of power shortages. Trying to find that sweet spot between fanning myself fast enough to stay cool, but not over-heating from the action while waiting for the lights to turn back on, was one of the more troublesome equations I wrestled with in my childhood. I’d like to say I bore these episodes with equanimity but that would be a lie. Luckily, I live(d) in an area of Delhi where power outages are rare and if they do happen, they are of short duration.

The liberalising reforms that rolled through the country and down the corridors of the Ministry of Power in the ‘90s promised that a change was coming. With economic growth and energy demand rising, India’s power sector was buzzing with catchphrases like “improved efficiency” and “higher generation capacity”. Foreign and domestic power producers entered the market. Mega power projects (those generating over 1000 MWs) were hailed in with much fanfare. Blackouts, while not quite yet a thing of the past, certainly seemed to be on the decline.

So what exactly happened this week to leave more than half the country and hundreds of millions of people without power for over eight hours twice in 48 hours?

In the worst event of its kind in over a decade, life for over six states came to a complete halt when the Northern Grid network collapsed at 0230 local time on Monday. The affected area, including Delhi, saw a collapse of their water treatment and pumping services, railways, hospitals, banks, metros and traffic systems. Respite was short-lived. Tuesday afternoon saw the Northern, North-Eastern and Eastern grids failing, this time taking out more than half of the country. No one knows why. Government and state officials are pointing fingers, blaming the other for drawing more than their share of power from the grid. News correspondents are urging India to ramp up its power production, saying demand is outstripping supply. The real answer, however, is a bit more complex.

Over-built and under-performing

To meet the rising demand for electricity, the government has focussed its efforts over the last few decades on building scores of new power plants. Estimates by the Central Electricity Authority (CEA) for June 2012 placed the installed generation capacity of power plants in India at 205,340 megawatts (MW). Though not even close to being enough to meet the demand of the connected population – almost a quarter of India’s population is still not formally connected to the electricity grid – it is a remarkable leap from a mere 1,362 MW at the time of independence in 1947.

But despite its large installed capacity, chronic fuel shortages mean that India’s power generation regularly falls short of both what it could produce and what is demanded. A portfolio heavy on non-renewable sources, with a small contribution from hydro and nuclear, and next to nothing from renewables, is at the root of this problem.

Data source: Ministry of Power, Government of India, June 2012

The majority player in the market, state-owned behemoth Coal India, consistently fails to meet its mandatory 80 percent supply commitment (it’s lucky if it hits 60 percent). With tighter environmental restrictions in recent years, several coal mines have been shut down, even as the private sector got into the power generation game. As a result, over 26,000 MW of production capacity remains idle and most plants regularly operate with less than seven days worth of coal stocks. Nor is there much hope coming from the natural gas industry. A shining star less than a decade ago, today it faces similar problems of domestic shortages and crumbling infrastructure. Instead, India is forced to rely increasingly on expensive imports, the costs of which can’t be passed on to the consumer (see below).

Clumsy, inconsistent policies and poor management have only served to exacerbate the existing malaise. An uncertain climate and the rigid control by the state of resource supply also means that private investment into resource production is, inevitably, stifled. Then there’s the complex web of price controls distorting the pricing mechanism and contributing to under-performance: retail prices for electricity, for example, are much lower than the actual cost of producing power – a source of heavy losses for both state-owned and private utility companies.

Skewed subsidies are another issue. Free electricity provided to farmers, for example, results in an inefficient and electricity-wasting agricultural sector. In a country where a significant chunk of the population still lives on less than $2 a day, and 50 percent of the workforce is involved in agriculture, raising tariffs is akin to political suicide. But it is a myth that Indians cannot pay for power. If a reliable power connection could be provided during the busy planting and harvesting seasons, users would find a way to pay. It is thus imperative that India’s energy and electricity sectors see rigorous pricing reforms to adequately reflect market prices. Whether it is the price of fuels or the extensive freebies that see the rich farmers and industrialists benefiting, the implementation of such reforms would have much-needed revenue flowing into the coffers of (currently bankrupt) state utilities and rev up private investment.

The mind is willing but the body is weak

Just as a heart relies on a network of veins, capillaries and arteries to carry blood throughout the body, so does a power plant rely on its grid infrastructure. India’s ageing and outdated infrastructure, however, simply cannot meet the demand of an emerging superpower. Transmission and distribution losses have leapt from 22 percent in 1995-96 to about 25.6 percent in 2009-2010. The main culprit is inefficiencies caused by obsolete and damaged equipment.

Then there’s power theft. For India, it is nearly three times more than the level acceptable for a developing country, as deemed by the International Energy Agency. There are no official figures for this but analysts have estimated that somewhere between a third and half of the country’s electricity supply is unpaid for annually. By one account, this would be enough to power the state of California for a year. No other country sees revenue losses as high; in China, no more than 3 percent is lost to theft. Yet again, turning a blind eye to this has long been a favourite trick of politicians, who hope that by letting this crime go unpunished means more votes during election season.

Electric power transmission and distribution losses include losses in transmission between sources of supply and points of distribution and in the distribution to consumers, including pilferage. Source: World Bank

But the sufferer isn’t just your average Joe sweating through the power cuts. The CEA estimates that failure to meet peak power demand is shaving 1.2 percent off the annual economic growth; these outages alone have cost business losses running into millions of dollars. The faulty electrical system has also seen businesses taking matters into their own hands and creating an informal grid in the shape of noisy, dirty, diesel-swilling generators to handle power shortages, adding on significant equipment and fuel costs. In May 2012, the Infrastructure Development Finance Corporation (IDFC) warned that India will have to increase infrastructure spending to 10 percent of its GDP by 2017 if it wants to sustain a growth rate of 9 percent per year – a tough order for a country that’s consistently missed all its infrastructure and capacity targets since 1951.

One ring cannot rule them all

Perhaps a fundamental problem here is the classic case of putting all your eggs into one basket. This is especially true when the company accounting for 80 percent of the dominant power producing fuel has missed production targets by about 10 percent each year for the last three years. But in India, thermal (coal, gas and oil) generation holds the monopoly, with hydro a distant but gaining second. Alternative energy, used world-over to balance peak loads, remains in the background. Even though its share in the energy mix will continue to grow, the high price tags make such investments primarily a government expense. Nor would it be able to come close to meeting the burgeoning demands of the country.

While enough time has now passed since Fukushima to breathe the word “nuclear”, substantial hurdles still remain. Despite a historic agreement between the United States and India on nuclear cooperation, political barriers have limited interest in investing into new nuclear facilities. And though Prime Minister Manmohan Singh has been a strong advocate for a stronger nuclear profile for India, the Atomic Energy Commission invariably seem to pick the worst spots in the country to build a power plant.

Before writing India off, it might be worth remembering that India has a remarkable ability to move incredibly fast to meet a challenge. Whether the current crisis will suffice to stir the beast, however, is anyone’s guess. And even if there is a reshuffling of power sources, India’s volatile coalition politics and touchy activists make it impossible to suggest a time-line of action. In the meantime, I’ll continue reacquainting myself with finding that sweet spot. Just in case.

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