Power Sector : Why not attach top priority ?

Dr B K Mukhopadhyay *

Staffs of Power Dept installing pre-paid power meters :: Pix - Hueiyen Lanpao

In the 1920's, the time of New Economic Policy framing, Lenin opined: Socialism plus Electricity is equal to Communism. The importance is not down even by a single percent as of now and would remain so in the days to come. The world is steadily learning the ever increasing need and rightly realizing the source – the sun god – leaning to renewable energies encompassing energy security with food security and water security.

So far as India is concerned the fact is that in spite of the existence of a number of grey areas the positive points must not lose sight of. During the Eleventh Plan period [2007-12] the country added about two-and-a-half times of the capacity that was added during the Tenth Plan period. 80,000 MW capacities is set as construction target for the Twelfth Plan period.

What is more: emission of greenhouse gases leading to climate changes has become a major concern globally. Under the Kyoto Protocol's terms, industrial country parties were under obligation to limit their greenhouse gas emissions [by 2008-12]. India has also signed the treaty under the Kyoto protocol and now focuses to drive a Clean Development Mechanism aimed at protecting the environment by reducing carbon emissions - to become at par with the global stipulations on carbon emissions and sustainability through various changes initiated in the current set-up.

The launch of Jawaharlal Nehru National Solar Mission [a joint initiative of the Ministry of New and Renewable Energy and Ministry of Power] - the first of its kind in the world - is one of the most important environment-friendly energy solutions available in India. Further, there has been a considerable growth in the power sector as the generating capacity in the country has increased steadily.

Again, there has been a significant growth in the number of new initiatives in the renewable energy sector. Wind power is the fastest growing renewable energy sectors in India. The wind energy sector picked up momentum by adding capacity resulting in grid-connected renewable power capacity crossing the 22,000 MW milestone and grid-connected solar power plants crossing the 100 MW milestones as well. Further, remote villages were electrified through renewable energy systems.

Jawaharlal Nehru National Solar Mission aims at adding 20,000 MW solar power capacity in the country by 2022. Promotion of grid-connected solar power in a big way could bring cost of solar power generation to grid parity levels. Natural gas is also expected to play a key role in India's energy mix by 2025, increasing to 20 per cent. What is more mentionable here is the fact that the petroleum and natural gas sector attracted cumulative FDI worth US$ 3,338.75 million [between April 2000 to March 2012] - an attractive destination for CDM projects owing to the vast market potential and well-developed industrial, financing and business infrastructure. India has been ranked as the third best investment destination in renewable energy sector, next only to China and the US, according to Ernst & Young. Renewable energy contributes now to around 70 per cent of the total power business in India, as compared to 10 per cent in 2000 [in terms of project numbers and dollar value].

The electricity industry remains a strategic sector whose activities have significant implications on the performance of any economy – big, medium or small. The employment aspect is something to mention on this score. For example, the power sector in India would need a huge workforce of over 6.5 lakh by the 12th five-year plan [2012-2017] as the country embarks on an ambitious plan to add over 180,000 mw capacity by then, according to a report by the Institute of Energy and Research.

The experience of other developing economies may also be seen on this score.

Bhutan's experience is something to observe and shared on this score - the only country in South Asia with surplus power generation capacity, and a hydropower sector that contributes as much as 40 percent of Government revenues, 45 percent of export earnings, and 25 percent of gross domestic product (GDP) in 2009. As of now, Bhutan exports more than 75 percent of the hydroelectricity produced to India and the per capita income is also higher than that of the latter. The country also imports electricity from India during winter months to meet peak demand during winter.

The total installed capacity of hydro power at present is 1488.66 MW. The domestic consumption is approximately 250 MW, and the rest is exported to India through a bilateral contract. Now, it has 27 hydropower stations, comprising 4 major hydroelectric power plants, 12 mini-hydro plants, and 10 micro-hydro plants. The total power generation increased from 2,060 GWh in 2002 to 6,925 GWh in 2009. Hydropower - the source for 99 percent of the country's electricity generation today - is widely abundant in terms of potential, estimated at 30,000 MW.

Naturally, accelerating hydropower development for export is of strategic significance for Bhutan's economy. Given the government's limited fiscal capacity for large infrastructure projects, the strategy is to leverage public and private investments to accelerate hydropower, and generate income for further socio-economic development.

What is most interesting to note is the fact that since 2007, hydropower generation has quadrupled to 1,489 MW and is further expected to increase to 1,602 MW by the end of the Tenth Plan and the trend is maintained it would reach 10,000 MW by 2020. Endowed with vast hydropower potential from the perennially snow-fed north-south flowing rivers, the economy is well aware of the facts and have undertaken far-reaching institutional reforms to improve the investment climate for export-oriented hydropower projects, and to expand power distribution to largely rural domestic consumers in a financially sustainable manner.

Without clear Feed in Tariffs ((FIT - for all possible feedstock) and well-defined information on allowable deal structures, potentially viable power generation opportunities will not be developed. Uganda, Tanzania's East African neighbor has already announced highly differentiated, FIT for its renewable energy which specify capacity caps for technologies, and the relevant tariff setting mechanisms.

Newer avenues / innovative practices must be sought after. A noticeable trend within resource-rich African countries has been that of allowing mining firms to develop power for their own use and sell the excess power to the national grid. Thus, mining sector development could be the key to averting future electricity crises.

Electricity pricing is the crucial area that is handled very cautiously by these economies because of obvious reasons. The intention of policy makers, not only in Tanzania but also in other economies, is definitely to minimize the effect of tariff rises on the industries' operations and growth. In general, tariffs continue to go north in order to: cover losses, pay for emergency power generation and fund capacity expansion, either directly or indirectly. Attempts at cross-subsidization also had minimal effects on balance sheet.

Then, for economies like India, Vietnam, Bangladesh, why not to speed up the renewable sources? Not only hydropower but biomass [includes wood, wood waste, pear, wood liquors, rail-road ties, pitch, wood sludge, municipal solid waste, agricultural waste, straw, tires, landfill gases, fish oils, and other waste materials energy] is also the predominant fuel. Solar power has to become an important part of rural electrification. Even where the grid extension is assessed economically unfeasible, off-grid electrification may be pursued, mainly through stand-alone solar home systems. It is a fact that the use of solar energy for space heating and domestic hot water production has received little attention from the public and private sectors in such economies, mainly due to high cost of solar PV systems. Wind Energy / Geothermal Energy power has also remained unexplored so far. Fresh study can be conducted into the geothermal potential of the economies.

Renewable energy is very central to climate change mitigation efforts. Broad estimates have shown that mitigation from existing renewable energy portfolio is equivalent to around 4-5 per cent of total energy related emissions.

The Government- level strategy to meet the energy needs of these economies may focus on the vital areas: diversifying investment sources to meet the growth in energy demand, establishing a competitive energy market, developing renewable energies, promoting trading of energy with neighbouring countries, improving energy efficiency and conservation and promoting the environmental sustainability of the sector.

It has been a fact that as the investment requirements of the energy sector happens to be a large one, many of these challenges are better addressed by public and private investors plus the multilateral and bilateral development banks that are already providing loans in this sector as already experienced in a number of economies. In India, the national transmission system that shifts power around the country needs modernization and investment—some $110 billion according to a McKinsey study! The country's power sector requires Rs 13.72 lakh crore in funding for the 12th Five-Year Plan (2012-17) as per the Working Group on Power for formulation of the 12th Five-Year Plan estimations.

The World Bank, for example, extends such supports to energy sector with loans for power generation, transmission, distribution, and rural electrification. In addition, it provides technical assistance in areas like: power sector policy and strategy; institutional strengthening; private sector participation in infrastructure; gas master plan; petroleum product pricing; development of the Electricity Law and promotion of renewable and rural electrification. Developing economies are sure to benefit out of these if the political strings are not attached!!

And then what about the much-needed power sector reforms? Can we expect something from the forthcoming budget, especially so far as rural electrification and power security is concerned?