9th Five Year Plan (Vol-2)

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Energy || Power Sector || Oil and Natural Gas

POWER SECTOR

6.86 The incremental capacity of 40,245 MW referred to above, includes around 17,588 MW to be added by private generating companies. In order to achieve the targeted private sector capacity creation during the Ninth Plan, the following additional facilitating measures have recently been suggested by the promoters. Most of these have been accepted while some of them are under the consideration of the Government.

i) Speedy Environmental Clearance:

The Ministry of Environment and Forests has agreed to delegate the powers to States for environmental clearance of :

  1. all co-generation plants and captive plants up to 250 MW;
  2. coal-based plants upto 500 MW using fluidized technology subject to sensitive areas restrictions;
  3. power stations upto 250 MW on conventional technology;
  4. Gas/Naphtha-based stations upto 500 MW.

ii) Access to Institutional Funds:

At present, there is a 15% limit on lending by the IFIs to any one sector e.g power. Keeping in view the large requirement of funds for the power sector and considering that adequate budgetary support for such projects is not available, this 15% limit on the IFIs lending for infrastructure sectors has been removed. There is need to create capital market and debt market to boost investment in the sector.

iii) Fuel Linkages:

Firm fuel linkages is being provided for the addition of capacity based on liquid fuels.

iv) Viability of SEBs:

The financial health of the SEBs will be improved through rationalisation of tariff, restructuring and reforms to make them economically viable and their projects bankable to generate energy on economic rate, to provide quality services to the consumers and to ensure a fair return to the investors. This can be best achieved by unbundling single entity (SEBs) and corporatising the same for the above activities. In this context, some of the States have taken initiative by unbundling their respective SEBs into separate companies for Generation and Transmission and Distribution.

v) Regulatory Bodies:

The Government of India has promulgated Electricity Regulatory Commission Act, 1998 for setting up of Independent regulatory bodies both at the Central level and at the State level viz. the Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commissions (SERCs) at the Central and the State levels respectively. These regulatory bodies would primarily look into all aspects of tariff fixation and matters incidental thereto.

Independent Regulatory Commissions for Power

Reform of the Power Sector would be greatly aided by the establishment of Independent regulatory agencies responsible for setting tariffs and regulating power purchase agreements. The Electricity Regulatory Commission Act, 1998 provided the legal basis for setting up a Commission at the Central level with separate Commission at the State level.

Central Electricity Regulatory Commission

  • The Central Electricity Regulatory Commission (CERC) was constituted on 24.7.1998. The main functions of the CERC are:
  • to regulate the tariff of generating companies owned or controlled by the Central Government
  • to regulate the tariff of generating companies, other than those owned or controlled by the Central Government, if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State,
  • to regulate the inter-State transmission of energy including tariff of the transmission utilities,
  • to regulate inter-State bulk sale of power and to aid and advise the Central Government in formulation of tariff policy.

State Electricity Regulatory Commission

  • Section 17(1) of the Central Electricity Regulatory Commission Act, empowers the State governments to establish an Electricity Regulatory Commission for the State. State Regulatory Commission has been set up in Orissa and Haryana and it is expected that most States will establish regulatory commission within 1998-99. The main functions of the SERC would be:
  • to determine the tariff for electricity, wholesale, bulk, grid or retail;
  • to determine the tariff payable for use by the transmission facilities,
  • to regulate power purchase and procurement process of transmission utilities and distribution utilities,
  • to promote competition, efficiency and economy in the activities of the electricity industries, etc.
  • Subsequently as and when each State Government notifies, other regulatory functions could also be assigned to SERCs.

Power Sector Reforms:

6.87 The National Development Council had constituted a Committee on Power to evaluate the working of the power sector and, in this context, to examine inter alia the measures to make the SEBs viable by taking appropriate measures. The Committee submitted its report to the then Prime Minister on 10th March, 1995. Some of the major issues which have been discussed in the report are as under:

  1. Restoration of the autonomy and professionalisation of the State Power Utilities and allowing such Utilities to have tariff structures that would generate adequate resources for the State Electricity Boards.
  2. Setting up of Tariff Boards at the National and regional level for regulating the tariff policies of public and private Utilities. The minimum agriculture tariff should gradually be increased so that it is not less than 50% of the cost of supply.
  3. Fuel supply agencies, the Railways and power Utilities should enter into a legally enforceable tripartite contracts with suitable bonus and penalty clauses to take care of quality, quantity and punctuality of despatches . The Ministry of Power should also evolve a long-term fuel policy for power generation in consultation with concerned Ministries taking into consideration, the availability of resources, their geographical distribution, status of technology, economies of their utilisation and environmental aspects.
  4. The conversion of loans of State Electricity Boards(SEBs) into equity with debt equity ratio of 1:1. Subsequently, the State Government equity is to be reduced in the first instance to 51% and thereafter to 26% in the final phase.
  5. Role of the Central Electricity Authority -
    • The CEA should function as an apex agency for evolving tariff policy at the national level. It should modernise the appraisal system and function as a nodal agency for Planning, Research and Development.
    • The CEA should continue to act as a single window agency for obtaining various statutory and non-statutory clearances. To achieve this, the Government should constitute Empowered Committees at the National and State levels to facilitate the timely clearance of the power projects
  6. To streamline forest clearance, "Forest Banks" may be created in advance in various States by the Forest Departments. Forest clearance could be accorded against specific schemes and the extent of compensatory afforestation involved for such schemes could be debited to the "Forest Bank Account" of the concerned power Utility which will deposit additional funds to the forest department to take further necessary action towards afforestation.
  7. Power Grid should function as a clearing house for trading power between the State/Region.
  8. The private sector should be involved in the generation and supply of power to well identified areas and in the installation of regional power stations by utilising inter-State transmission networks. The power projects identified for the private sector should be awarded through competitive bidding route rather than MoU route.
  9. A "Power Development Cess" of 10 paise per Kwh should be levied by State /UT Governments on the total quantity of electricity consumed in the country for funding hydro development, electricity conservation, the R and D and other activities in the power sector.

6.88 Most of the above recommendations have since been included under the Common Minimum National Action Plan on Power approved by the Chief Ministers of States/UTs.

Current Problem of Power Sector

6.89 The most important cause of the problems being faced in the power sector is the irrational and unremunerative tariff structure. Although the tariff is fixed and realised by SEBs, the State Governments have constantly interfered in tariff setting without subsidising SEBs for the losses arising out of State Governments desire to provide power at concessional rates to certain sectors, especially agriculture. Power supply to agriculture and domestic consumers is heavily subsidised. Only a part of this subsidy is recovered by SEBs through cross subsidisation of tariff from commercial and industrial consumers. The SEBs, in the process, have been incurring heavy losses. If the SEBs were to continue to operate on the same lines, their internal resources generation during the next ten years will be negative, being of the order of Rs. (-) 77,000 crore. This raises serious doubts about the ability of the States to contribute their share to capacity addition during the Ninth Plan and there after. This highlights the importance of initiating power sector reforms at the earliest and the need for tariff rationalisation.

6.90 The programme of capacity addition of 17588 MW in the private sector may not involve any Plan funds but is critically dependent upon the financial credibility of States as well as the operational performance of State Utilities. Any investment by IPPs or even the bilateral and multilateral finances from donor agencies can materialise only if the State Governments are able to provide concrete evidence that efforts in the direction of improving the operational and financial performance have been initiated by them. Reforms and restructuring are thus no longer a matter of choice but a necessity and precondition for the success of the Ninth Plan as well as for setting up a viable and sustainable basis for the programmes beyond the Ninth Plan.

6.91 A plan for power sector reforms cannot be designed and implemented without the consensus and active participation of State Governments. Accordingly discussions were held with the Chief Ministers of the States/UTS and a Common Minimum National Action Plan on Power (CMNAPP) was agreed upon in December 1996. A copy of the Plan is in Annexure 6.1

6.92 Rationalisation of tariffs is one of the steps that needs to be taken urgently. It is recognised that SEBs require urgent restructuring not only to improve their financial health but also to enable public and private sector companies to inject the much-needed incremental capital investment in generation, transmission and distribution and also to introduce competition in the power sector for bringing greater efficiency which could, in the long run, reduce tariffs for the consumers and ensure better service for them. The CMNAP seeks to carry out the rationalisation of tariff and restructuring of SEBs within a definite time frame. The Plan also envisages that SEBs should be allowed maximum possible autonomy and run on commercial lines. It acknowledges the need for private sector participation and also creation of Regulatory Commissions. It deals with several related issues including forest clearances, development of hydro potential, mega power projects at pitheads and setting up of coal washeries. The CMNAP needs to be strictly implemented for removal of bottlenecks and faster development of the power sector.

Power Sector Reforms Set in Motion

The objective of power sector reforms must be to generate electricity at an economic cost, provide a reliable and high quality service to the consumers, and ensure that the sector is financially viable and also provides an attractive environment to bring in private investment. To achieve these objectives, it is desirable to reconsider the present arrangement in which the State Electricity Boards operate as an integrated unit, with generation, transmission and distribution all bundled in a single entity. Unbundling the SEBs and separating generation, transmission and distribution into separate corporations makes it possible to monitor efficiency levels in each activity and also to create appropriate incentives for efficiency in each area. Unbundling also makes it easier to allow entry of private sector operators in each area in a suitable manner which ensure competitive efficiency. Several states have initiated power sector reforms along these lines as indicated below:

Orissa

Orissa was the first State to initiate reform of the Power Sector w.e.f April 1,1996. The reform envisaged setting up of separate generating as well as Transmission and Distribution (T and D) agencies. Accordingly, the State’s Electricity Board has been split into three entities viz. Orissa Power Generation Corporation (OPGC- for thermal power), Orissa Hydro Power Corporation (OHPC - for hydel power) and Grid Corporation of Orissa (GRIDCO - for transmission and distribution network). A Separate Regulatory Commission has been constituted as a statutory and autonomous institution to regulate and co-ordinate the activities of all these corporations. The state is now geared up to privatise the distribution network w.e.f 1-4-1999.

Haryana

The State Electricity Board was converted into two separate entities on August 14, 1998. It has set up corporations namely Haryana Power Generation Corporation (HPGC) for generation and Haryana Vidyut Prasaran Nigam (HVPNL) for transmission of power. On the lines of the Orissa model, the State recently constituted a Regulatory Commission. It has also appointed a Consultant to advise it on the privatisation of distribution. There are plans to limit the distribution zones to two due to the wide variations in load across the state.

Andhra Pradesh

The SEB is to be spun off into three entities on the lines of Orissa model. Distribution in . Andhra will be divided into 8 zones in which 51 per cent will be offered to the private sector. The State has received Presidential assent for the Electricity Reform Bill 1998 paving the way for constituting a regulatory commission and dismantling the SEB.

Rajasthan

One of the first states to have proposed the model of privatising power distribution by hiving off a majority stake to the private sector. Despite this, the actual process of privatisation has been stalled due to various reasons. The plan is to hive off seven zones through the licensing route, whereby private operators’ financial operations are governed by law and do not have to rely on a regulator for direction.

6.93 The agenda for rationalisation of tariff and implementation of other reforms in the power sector in various States is in the initial stage and may take some time to yield results. The capacity addition programme during the Ninth Plan period, particularly in the State sector depends upon the ability of State Utilities to mobilise adequate funds for their on-going projects as well as for implementing the R and M and T and D programmes. To supplement the efforts of State Utilities, additional funds are being made available to them from PFC on concessional interest rates for completion of on-going projects, maximising benefits from existing assets and improving the T and D network during the Ninth Plan.

6.94 The CMNAPP foresees private sector participation in distribution. The State governments may embark on a gradual programme of private sector participation in distribution of electricity. The process of private participation should be initially in one or two viable geographical areas covering both urban and rural areas in a State and the State may extend them to other parts gradually. In this context, the Ministry of Power has circulated a document entitled "Sample agreement for private management of SEB distribution systems" to provide assistance to SEBs in the privatisation of their distribution system. Orissa has already taken steps for private sector participation in Cuttack, Bhubaneshwar and Denknal districts. The Noida area in U.P. has also been handed over to the private sector for distribution. The situation regarding induction of the private sector in distribution will vary from State to State. The nature of generation plants and the pattern of loads will have a bearing on the timing and scope of this policy reform.

Renovation and Modernisation (R and M)

6.95 Much greater emphasis than at present needs to be given to R and M schemes to ensure regular maintenance and upgradation of power plants to obtain optimal performance. A comprehensive evaluation should be undertaken of the projects where R and M schemes have been implemented to ascertain the actual returns acruing through the R and M investments. Plant betterment and life extension schemes should be taken up immediately to improve the capacity utilisation of the existing facilities.The R and M of existing power plants should be done in a time- bound manner.The PFC and Central financial institutions should provide enhanced funding to R and M schemes. Clearance of R and M projects may be given by State Governments. No clearance from CEA/PIB need to be required.

6.96 Investments in R and M have distinct cost advantage over new generation capacity. The instruments required to attract investment in these areas need to be defined and prioritised during the Ninth Plan.

Transmission and Distribution Management

6.97 It had been recommended by the Rajadhyaksha Committee (1980) that the investment on transmission and distribution should not be less than the investment on power generation. In practice, however, the investment on T and D has been considerably lower than on generation, thus affecting the system efficiency. The T and D losses in the country are as high as 21.4 percent. These comprise of 6-7% transmission losses and 14-15% distribution losses and include theft of power. With every reduction of 1% in T and D losses there could be a saving of 800 MW of new capacity addition. This would be possible if comprehensive action plans for system improvement works are drawn up by the SEBs/ State Governments and the funds are made available to them by PFC and REC. Necessary amendments in the relevant Acts/Rules to allow private participation in transmission and distribution are being carried out.

6.98 In order to avoid backing down of base load stations and to utilise fully the power generated from private sector projects likely to be commissioned during the Plan period, the Ninth Plan recommends even development of loads as well as strengthening of T and D systems. An exclusive interest subsidy scheme for improvement of sub-transmission and distribution system for North-Eastern region is to be initiated.

Losses - How long ?

Transmission and Distribution

  • The present level of Transmission and distribution losses is very high. The All India T and D loss is nearly 23% and the losses in some States are much higher. Losses in Delhi are as high as 50%.
  • While a part of the T and D losses is due to technical deficiencies in the system and the large spread of low voltage distribution in rural area, a large portion of the line losses is due to theft and pilferage compounded by connivance on the part of line personnel.
  • There are large scale unmetered connections particularly for Agriculture sector apart from its low power tariff. Even if supply of electricity to agriculture is to be subsidised it should be metered so that proper accounting can be maintained.
  • The proliferation of Low Tension (L.T) distribution lines has led to a low load density (as measured by demand in MW divided by length of T and D system) and high ratio of LT to HT lines. This needs to be brought down preferably by upgrading the system voltage. This would also check large amount of pilferage and reduce the losses considerably.
  • There is a strong case for privatising distribution in order to reduce the present high level of theft and pilferages. . A beginning can be made by mandatory privatisation of distribution in urban area with population of one million and above.
  • The Ninth Plan should target a reduction on T and D losses at the rate of 1% per year. Each reduction of 1% in T and D losses is equivalent to generation of an additional revenue of about Rs.590 crore at an average tariff prevailing in 1995-96.

6.99 Compulsory metering at substations and on all major feeders should be introduced. Compulsory metering of all new electricity connections as also of connections to agriculture sector exceeding 10 HP must be undertaken and completed in two years. All electric supplies should be metered by 2002 AD.

6.100 The existing bulk sale tariff for electricity does not take into account the time of supply. The SEBs should introduce the concept of time-related tariff to encourage efficient operation of the power system.

6.101 The need for a national grid for integrated operation of the power system is well recognised. The ground work for the national grid to be functional in a time-bound manner is proposed to be worked out during the Ninth Plan period.

Project Implementation

6.102 In every Plan, there have been delays in project implementation resulting in cost overruns in both the Central and State sectors. These overruns have not only eroded the available resources but also have adverse impact on mobilisation of additional resources. This is a matter of concern specially when a large-scale capacity addition programme is being contemplated during the Ninth Plan and efforts must be made to optimise the use of scarce resources. Languishing unfinished State projects should be transferred to Centre\private sector.

6.103 As far as externally-aided projects are concerned, although there has been an improvement in the utilisation of total external aid in the Central sector during the Eight Plan, utilisation in respect of State sector projects has been below the target. The main reason was non-availability of counter-part funds with the States. The States could not provide these funds due to irrational tariff structure for electricity in the States. In the Ninth Plan, utmost importance will be given to streamlining the investment clearance procedure at all levels (Centre, State and Private).ATask Force to monitor the implementation of ongoing projects should be constituted and adequate funding should be made available to reduce the time and cost over runs.

Regional Disparities

6.104 Regional disparities in electricity availability have widened over the years, inspite of the phenomenal progress made in capacity addition and generation during the successive Plans. The Ninth Plan takes cognizance of these disparities as also the need for corrective actions. The Central PSUs including PFC and REC as well as the State PSUs will have to play an important role in removing these regional disparities.

Nuclear Power

6.105 In the early 1980s the Department of Atomic Energy initiated a long-term plan for achieving substantial expansion with a programme for adding nuclear generation capacity of 10,000 MWe by 2000 A.D. based on the uranium resources available in the country. As regards the potential, it was noted that by adopting the fast breeder technology a nuclear capacity of about 3,00,000 MWe could be added by using the indigenously available uranium resources. The country also has one of the largest reserves of thorium which could also be exploited through the fast breeder technology for generation of electricity. Advance action by way of procurement of long delivery equipment and material was initiated for implementing the10,000 MWe by 2000 A.D programme. However, due to severe constraint of resources, there have been slippages in the implementation of this programme and it had to be scaled down to 3820 MWe. The current nuclear capacity of 2225 MWe constitutes only 2.65% of the total installed capacity in the country. The Nuclear Power Corporation of India Ltd (NPCIL), has limited capability for generation of internal resources. A major area of concern has been the delays in project implementation and the consequent cost over runs. However, the performance of nuclear power stations has improved considerably by the terminal year of the Eighth Plan and the present average PLF is to the tune of 55.9% as against 52.1% in 1992-93. This needs to be improved further.

6.106 The Nuclear Power Corporation does not presently have adequate financial strength to implement the programme. There are inherent constraints to NPCIL's ability to mobilise funds from external sources or private equity. The Corporation heavily relies on Government support for the present. For the development of nuclear power, budgetary support to the corporation needs to be continued. However, it has to commercialise its operations and achieve greater economic viability in the years ahead..

6.107 Keeping in view the experience of private sector participation in power sector (for thermal and hydro generation), there is a need to explore the possibility of private sector participation in the nuclear power programme. There could be impediments in the process but some innovative initiatives need to be explored. Since in the long run, nuclear power has to play an important role in the energy mix of the country, all possible alternatives for enlarging nuclear power generation need to be explored. We have to ensure that the high degrees of self-reliance that has been achieved in the nuclear power generation is consolidated, upgraded and utilised for higher capacity addition. R and D in nuclear technology should be continued.

Fuel for Power Sector

6.108 Coal will continue to be the major fuel for the power sector in India. Based on the study conducted in the Planning Commission on cost of generation with different fuels, it has emerged that the domestic coal and the natural gas at current price level are the cheapest fuels for power generation. However, the domestic production of coal and gas is projected to fall short of the requirements during the Ninth Plan period. In order to meet this situation, increased imports of coal and gas may be necessary. Some liquid fuel imports for short gestation capacity addition of 12000 MW, mainly using Naphtha and Furnace Oil may also be necessary. A Model Fuel Supply Agreement (FSA) for supply of liquid fuels to be imported by the National Oil Companies has already been circulated to the States. In the long run, in order to promote the use of environment-friendly fuels, LNG import has been put under OGL. Gas is likely to be a major source of energy during the 21st Century. As the country enjoys a closer proximity to large gas resources in Middle East, gas imports to meet the energy demand of the country may also be more economical than imports of other fuels.

Captive power Generation

6.109 Industrial sector is the largest consumer of electricity. Besides purchasing power from the Utilities, a number of industries namely aluminium, cement, fertilizer iron, steel, paper, sugar etc. have their own captive power plants either to supplement the electricity supply from the Utilities or for generating electricity as a by-product by using high pressure steam while utilising low pressure steam in their industrial process. The all India installed capacity of non-Utility power was 9302 MW at the beginning of the Eighth Plan. This capacity increased to 11889 MW by the end of March 1996 and yielded a generation of about 38 billion units in 1995-96 as against the target of 45 billion units during the Eighth Plan.

6.110 As per the Common Minimum National Action Plan for Power, the State Governments should encourage co-generation/captive power plants and facilitate evacuation of power from these plants to the grids. The State Governments should formulate a clear and transparent policy for purchase of power and wheeling charges which provide fair returns to the co-generation/captive power plants owners. Captive power plants should also sell electricity to a group of industries as well as to other categories of consumers in the State industrial zone or area. Wheeling of power from captive power plants to consumers located at a distance either physically or on displacement basis should be encouraged and the States should issue clear and transparent long-term policy in this regard.

6.111 To some extent the increase in captive power generation based on diesel is due to the very high subsidy being allowed on diesel prices under the Administered Price Mechanism. Users may, therefore, find diesel-based power generated by their captive units cheaper than grid-supplied power, especially because the price of power supplied by Utilities to industry bears the burden of cross subsidisation to agriculture and household sectors. It is important that tariff rationalisation measures to be evolved in the Ninth Plan should minimise the effect of such distortions.

R and D

6.112 The Power sector is highly technology-intensive. Therefore, technological upgradation and modernisation assume an important role, specially towards realising the utmost economy in generation, T and D and efficient utilisation of electrical energy.

6.113 The R and D programmes must necessarily provide inputs to future power programmes relating to both generation as well as transmission and distribution. Full advantage should be realised of the large base of R and D capabilities that already exist in the country. Emphasis must be laid on solving field problems adversely affecting the production of power, creating bottlenecks in power system operation and affecting the quality of power supplied.

6.114 Considering the large capacity additions required during the Ninth and Tenth Plans, there is a need for upgrading the relevant technologies by promoting the existing R and D institutions, transfer and use of advanced technologies and practices for environmentally sound energy systems, including new and renewable sources of energy. This should cover (I) creation of infrastructure facilities in high-tech areas such as - synthetic testing for 800 KV EHV/UHV transmission lines across the country; (ii) Mission mode R and D programmes to cater to the needs of Utilities and manufacturing industry with the participation of beneficiary industry for example, development of clean coal technologies (coal beneficiation/gasification), flexible AC transmission for operational flexibility of power system; (iii) experimental and demonstration projects in the State-of- the-art technology areas as for example NHVDC 2nd phase and third phase programme for the further development of HVDC system in the country, application of High Temperature Fuel Cells in stand alone systems feeding rural/remote areas and iv) environmental aspects including fly ash utilisation. To achieve these objectives and in order to acquire the new technologies, the existing testing facilities and research centres should be strengthened. Already, a long-term perspective called Technology Vision for India 2020 has been prepared, which could form the basis for technology development programme for the power sector during the 9th Plan.

Manpower Development

6.115 During the Eighth Plan, there has been no appreciable change in the number of employees in the State Government. Utilities and electricity departments due to increasing automation as well as the conscious policy of redeploying surplus manpower. Not only a number of SEBs but also the Central power Utilities must continue to identify surplus manpower which could be redeployed through training and upgradation of skills. The Ninth Plan is likely to add an average generating capacity of 8,000 MW annually compared to 3000-4000 MW annually in the past. Additional manpower would be needed not only in the public sector Utilities but also in the private sector to meet the requirement of capacity additions envisaged for generation, transmission and distribution and to compensate for normal decline due to retirement, death, migration etc. It is estimated that around 15 lakh employees may be manning the power sector by the end of Ninth Plan. The manpower per MW works out to around 10 in contrast to about 13 at the end of the Eighth Plan.

6.116 To sustain quality in performance, induction level training programmes, as well as periodic refresher courses would be needed. The modern techniques and tools like simulators will have to be used and the existing institutional arrangements have to be strengthened. This is essential in view of the rate at which technological upgradation is taking place in this sector.

Environmental Management

6.117 Energy is one of the basic inputs for economic growth. All conventional fuels have varying degree of impact on environment when subjected to energy transformation and use. In India, the general awareness about environmental impact of power projects has increased significantly and the measures for controlling and minimising the impact have been a subject of public debate. This has resulted in more strict implementation of pollution control laws. Environmentally-benign energy systems, particularly new and renewable sources of energy, are being encouraged. The Ninth Plan will place considerable emphasis on integrating energy, environment and economic policy decisions for sustainable development. Special importance will be accorded to programmes aimed at catchment area treatment and reclamation of degraded land, in case of all major hydro electric projects. In case of thermal power projects the emphasis will be on restricting air and water pollution to the prescribed levels. Mega power projects using high sulphur content fuels should set up fuel gas desulpherisation (FGD) units to maintain the SOx emissions within the prescribed limit in future. In order to promote the use of environment-friendly fuels, LNG would be an important source of energy during in power generation the 21st century. High priority will also be accorded to enforcement of rigorous safety standards in all nuclear power projects.

6.118 In addition to the above, the following measures are suggested for minimising the adverse impact on the environment:

  1. Demand and supply side measures for conservation of energy as stated in Para 6.2.88
  2. Various measures such as afforestation, use of washed coal etc. have to be encouraged to reduce the Green House Gasses (GHG) emission in the environment.
  3. Portable gen-sets being run on diesel/petrol and used by the commercial and domestic consumers should be minimised by ensuring reliable supply of electricity.

6.119 The utilisation rate of fly ash in India is of the order of 2% as compared to 80% in Germany followed by 20% in Holland. The poor rate of utilisation is attributed to (a) non-availability of proper machinery; (b) ignorance regarding potential of fly ash utilisation in various applications. ( c ) lack of clear policies to promote fly ash utilisation, etc.

  1. Private entrepreneurs should be encouraged to set up facilities to utilise fly ash in building materials such as bricks, cement etc. For this purpose, the State Governments may exempt the end products of ash from Sales Tax, in line with Excise Duty exemption given to ash-based product having minimum 25% ash given by Central Government. Total exemption from Excise Duty/Sales Tax may also be accorded in case of indigenous equipment and total exemption from import duty, may be given to all imported equipments required for manufacture of ash based products.
  2. Financial institutions may extend loans to ash-based industrial products on priority.
  3. In order to promote manufacture of fly ash-based Portland Pozzlana Cement (FAPPC). Government Departments like CPWD, DDA, Power Utilities should be advised to use FAPPC for majority of applications.
  4. All new Thermal Power Stations should be advised to earmark land in the planning stage itself for ash-based industries.
  5. Stowing of underground mines using fly ash in place of riversand is to be considered in all coal projects.

Resettlement and Rehabilitation (R and R)

6.120 The setting up of large hydel and thermal plants often necessitates clearing of l arge tracts of land, affecting the lives of people, flora and fauna. Since the displacement of people becomes unavoidable , Government of India has already evolved certain compensation packages which should be implemented in the proper manner. These are (a) providing early financial compensation and settlement in land requirement; (b) resettlement of people including construction of dwellings in new areas. providing subsidy for farming in the new areas. (d) starting of special training programmes in the areas of poultry, breeding, handicraft and cottage industries (e) employment avenues in the project and (f) provision of education, medical and drinking water facilities.

6.121 The feasible capacity addition during the Ninth Plan period would be of the order of 40245 MW of which 22656.7 MW is likely to come up in the public sector (11909 MW from Central sector and 10747.7 MW from State sector). The outlays assessed by the Planning Commission for the Ninth Plan for the power sector fully cover the requirements of all ongoing schemes in the public sector which will yield benefits of 16653.7 MW capacity (9126.7 MW of hydro, 6647 MW of thermal and 880 MW of nuclear) during the Ninth Plan. In addition, these outlays are expected to take care of a major portion of the requirements of new generation schemes which will yield benefits of 6003 MW capacity (143 MW of hydro and 5860 MW of thermal) during the Ninth Plan period.

Rural Electrification

6.122 The rural electrification programme is viewed as a prime mover for rural development. Electricity is not only the basic pre-requisite for industrialisation but it also contributes significantly to increasing agricultural productivity and other job and income generation activities, besides enhancing the quality of life in rural areas and controlling migration from rural to urban areas. Electricity, therefore, deserves to be classified as a basic amenity along with others like housing, drinking water, health and education. The time-span in which the objective of "Electricity to All" can become a reality will depend upon the priority assigned, the resources allocation, political will, the administrative skill and active interest of all agencies and people concerned associated with economic development of the nation.

6.123 As per the 1991 census, there are 5,87,288 villages in the country of which about 85% have been electrified by the end of March, 1996. As many as 13 States in the country have completed 100% village electrification. However, this achievement is to be viewed with the existing definition which declares 'a village as electrified if electricity is used for any purpose within the revenue boundary of that village'. Thus, even in all these electrified villages, power connection may or may not be available on demand. A large number of hamlets and harijan bastis adjoining the villages are yet to be electrified. In this context, the Government of India has notified a change in the definition of village electrification as follows:

" A village will be deemed to be electrified if electricity is used in the inhabited locality, within the revenue boundary of the village for any purpose whatsoever" against the old definition " a village should be classified as electrified if electricity is being used within its revenue area for any purpose whatsoever".

6.124 The latest estimate of pump sets potential in the country by the Central Ground Water Board is about 195 lakh. As against this, only 115 lakh pump sets have been energised so far leaving a balance of 80 lakh pump sets yet to be energised. Rural Electrification Corporationm (R.E.C) ensures that the overexplotiation of the ground water resources does not occur and accordingly extends loans for pumpset energisation only in such areas where sufficient potential is avaiable. Nevertheless efforts will continue to avoid over exploitation of ground water. In spite of large-scale pump sets energisation, the prevailing low tariff for agriculture does not provide any incentive to the farmer to adopt energy-efficient measures to optimise the consumption of electricity.

6.125 A large number of pump sets are of sub-standard quality and operate at sub-optimal efficiency. Often the pumps have wrong features e.g high discharge head, inefficient foot-valves, pipes with excessive friction, oversized motors and motors without capacitors. It is estimated that the country could save 57 billion Kwh of electricity if higher efficiency is achieved in this sector. The investment required is estimated to be of the order of Rs.1100 crore. In this contest an interest subsidy scheme for financing efficient agricultural pumpsets needs to be introduced.

6.126 Rural areas are facing serious problems with regard to quality and reliability of electricity supply. A long L.T distribution network with inadequate capacity of transformers results in low voltage condition and higher T and D losses. These difficulties can be overcome only by adopting large scale system improvement works including installation of capacitors, using higher voltage rural distribution lines and augmentation of transformer capacities.

6.127 The electrification of dalit bastis and tribal villages is to be taken up on a priority basis. Separate funds should be earmarked for their electrification under the Special Component Plan or Tribal Sub-Plan.

6.128 There is also a need to review the guidelines for MNP taking note of national average electrification level of 85 percent. Around 86000 villages which are left out of electrification are located in remote and difficult areas. Around 18,000 of these are in such localities where extension of grid will be costly and uneconomical and where development of load growth is unlikely due to thinly dispersed population. These remote areas in the country need to be provided access to electricity and this can best be achieved through non-conventional energy sources.

6.129 A target to electrify 30000 villages and energise 20 lakh pump sets during the Ninth Plan has been set. It is necessary to earmark institutional and funding arrangements for achieving these targets. The Ninth Plan will also deal with the problem of providing institutional support through the involvement of decentralised private companies, rural cooperatives and panchayats not only for implementing the schemes but also for the upkeep and maintenance of the assets created.

ENERGY CONSERVATION

Review of Eighth Plan.

6.130 The National Energy Efficiency Programme (NEEP) was initiated during the Eighth Plan which included components of policy package, financial arrangements including creation of revolving funds, technical assistance, technology development, selective legislation and developing institutional capabilities. The targets of electricity saving equivalent to an additional capacity of 5000 MW in the power sector and saving of 6 million tonnes of petroleum products by the terminal year of the Eighth Plan were set for the National Energy Efficiency Programme. An outlay of Rs. 1,000 crore was provided for the purpose of energy conservation during the Eighth Plan which included activities of energy conservation being carried out in different Energy Departments.

6.131 The Ministry of Power prepared an Action Plan to achieve the Eighth Plan targets, which envisaged conservation of 2250 MW on the supply side and 2750 MW on the demand side. The supply side programmes included renovation and modernisation of old generating units, reduction in auxiliary power consumption in thermal power stations and reduction in T and D losses. These programmes had earmarked funds. The Central Electricity Authority has reported a saving of 2900 MW comprising 2030 MW on account of saving through the programmes of renovation and modernisation and auxiliary consumption reduction and the balance through reduction in transmission and distribution losses.

6.132 The Ministry of Power implemented various demand side saving measures through several programmes carried out by the Energy Management Centre (EMC), set up in 1989 under the Ministry of Power. The EMC has coordinated a large number of training programmes, awareness campaigns, projects and studies, demonstration projects, data base on energy efficient processes and technologies and implementation of multilateral and bilateral energy efficient projects etc.

6.133 The demand side management measures resulted in significant achievements in reduction of specific electric consumption in major energy intensive industries like cement, steel, pulp and paper, etc. Further, the rectification of pump sets taken up through limited pilot programmes have also resulted in saving of energy to some extent in the agriculture sector. In the domestic sector, energy efficient lighting and other energy saving devices have been introduced. However, the actual savings in terms of Mega-Watts could not be quantified.

6.134 Energy audits have been conducted in different types of industries. The State Governments. of Kerala, West Bengal and Tamil Nadu have issued notifications for mandatory energy audits in respect of high tension consumers. Other States have also been requested to make energy audits compulsory for such industries having a connected load of above 100 KVA. The response from various States are not encouraging. The Ministry of Power has proposed to amend the provisions of the Electricity Act to provide for compulsory energy audit for such industries having connected load of 100 KVA and above.

6.135 In the petroleum sector a saving of 3.6 million tonnes of products was achieved during the first three years of the Eighth Plan. During the following years of the Eighth Plan, the Petroleum Conservation Research Association (PCRA), oil refineries, marketing companies and other users were able through their various programmes to achieve the target set for Eighth Plan.

NINTH PLAN PROGRAMME

6.136 The programmes started during the earlier Plans would continue. The new initiatives for energy conservation during the Ninth Plan include electricity tariff rationalisation, effective role of financial institutions in funding energy conservation programmes, and standards and labelling for equipments and gadgets. It has been suggested that a Central Legislation on Energy Conservation could help coordinate the efforts of both Centre and the State in more effective implementation of the conservation programmes. However such a legislation should not replicate the work already being done by other agencies.

Targets for Ninth Plan

  1. On the supply side thermal power stations should aim at a reduction of 10% in heat rate by the end of the Ninth Plan.
  2. The T and D losses should be reduced at least by 1% during each year of the Ninth Plan.
  3. The auxiliary consumption especially in the old thermal stations should be reduced at least by 1 per cent.
  4. The demand side measures should be implemented through comprehensive programmes in each sector e.g., industrial, domestic, commercial and agricultural. Each programme should provide for targeted savings, their quantification as also proper evaluation to ascertain the achievement.
  5. Compulsory annual energy audit of large consumers i.e.100 KVA and above should be undertaken.
  6. Time of the day metering should be introduced initially for large power consumers for better load management. Its coverage should be slowly extended.

Demand Side Management

6.137 Demand Side Management (DSM) which is now increasingly being used in the developed countries is an effective instrument to bridge the gap between demand and supply. It ensures that the electricity consumption can be effectively used in an optimal manner. The DSM options include staggering of the load during the day so as to cut down the peak demand by flattening the load curve. This in turn would result in a substantial saving of additional capacity of generation.

6.138 Another DSM option is time of the day metering which improves capacity utilisation of power systems to reflect better the real cost of electricity. Because of all- round energy shortages, this option is not often feasible in India. But it could be effective in the Western and Northern regions, where there is predominance of thermal generation and surplus power available at night which can be sold at concessional tariffs. Night power could also be sold at a concessional rates to selected large industrial consumers. The DSM does not require substantial investments but only involves cooperation of the users.

Tackling Peak Power Demand?

A special feature of the Indian Power Sector is that the level of demand at peak times in a day is very high compared to the demand at off peak time. For example, in the NCT of Delhi, which has a large number of domestic/commercial consumers, the ratio of maximum and minimum demand is almost as high as 1.5:1 or 2:1. In such a situation, we require double the installed capacity to meet demands at the peak time. It also results in heavy overloading of T and D system, causing operational problem and to some extent increase the distribution losses in the system.

The problem needs to be tackled by adopting demand side management Techniques to "flatten the Load Curve" i.e reduce the peak load hour demand and create additional load during off-peak hours in the following way:

  • Introduce differential pricing according to time of day thus giving incentives to users to shift their demand to the off-peak period. This requires introduction of electronic time of day (T.O.D) metering.
  • Having a two-part tariff for all categories of consumers in which the consumers have to pay an amount that depends on the maximum demands he makes, plus a charge for each unit of energy consumed.
  • Utilise Hydro Resources for peaking Generation. This also provides power at cheaper rate..
  • Segregation of Irrigation Feeders from Domestic Feeders. Irrigation Feeders will be made on only at off-peak hours.
  • Staggering of Office timings
  • Commission the National grid to take advantage of different peaking time of different Regions. Introduction of more than one time zone in the country would help in this process.

6.139 The industrial sector still consumes a significant amount of electricity of about 34% and therefore, there is greater scope for implementing energy efficiency programmes in this sector. One of the major constraints in the implementation of energy conservation programme in the industrial sector is non-availability of energy efficient equipment and technologies. There is a need to develop the capability for manufacturing these equipments. Manufacturers should be motivated by providing necessary incentives such as concessional financing and reduction in custom and excise duties, sales tax, etc. to increase their production capacities for energy efficient equipments.

6.140 The agriculture sector accounts for about 28 to 30% of the total electricity consumption in India. Around 12 million electrically operated pumps and 6 million diesel pumpsets are in operation in the country. Thus, this area has greater importance for energy conservation and there is a large scope for energy conservation is large by carrying out simple pumpset rectification measures. Most of these pumps in operation are having sub-optimal efficiencies. A comprehensive pumpset rectification programme will significantly increase the efficiency of the pumpsets and the result would be savings up to 50% electricity consumption.

6.141 The funds to meet the expenditure of the programmes on the supply side like improvement in heat rate of thermal stations, reduction in auxiliary consumption of old thermal stations, reduction in T and D losses etc. are to be provided by the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) of the Ministry of Power under the overall co-ordination of the energy conservation cell of the Ministry of Power. These funds could be in the form of loans.

6.142 For the demand side programmes, funds may have to be found from the budget allocations of the Central and State Governments.

Financial Outlays

6.143 The Ninth Plan (1997-2002) assessed outlays for the power sector is given at Annexure 6.2.

COAL and LIGNITE

6.144 The Ninth Plan envisages a major thrust to infrastructure development, particularly Energy and Power. Coal and Lignite are the major energy resources for power generation. Almost 70% of the country’s power generation is based on these two resources. The Plan, therefore, has made special emphasis on rapid and proper development of these resources, which forms the main thrust of the country’s long term strategy. Lignite is also called brown coal and unless the context indicates otherwise, reference to coal is deemed to include lignite. After nationalisation in 1975, development of coal has been confined to the public sector. It is only recently that the sector has been opened up for private participation. The major coal producing companies in the country are Coal India Ltd. (CIL), a centrally owned public sector undertaking and Singareni Collieries Co. Ltd. (SCCL), a joint public sector undertaking of Government of Andhra Pradesh, as major equity shareholder and Government of India. Besides, captive collieries of TISCO/IISCO/DVC are also producing coal for captive consumption. Besides Neyveli Lignite Corporation (NLC), a public sector undertaking, lignite is also being produced by Gujarat Mineral Development Corporation (GMDC) and recently by Rajasthan State Mineral Development Corporation (RSMDC), both in the State Sector.

REVIEW OF EIGHTH PLAN

6.145 Some of the major objectives for coal sector during the Eighth Plan were: a co-ordinated approach for production, transportation and pithead stock reduction of coal to meet fully the consumer demand, maximisation of the use of indigenous coking coal for steel making, beneficiation of non-coking coal, streamlining of project implementation procedures, introduction of an effective environmental management plan, improvement of productivity, lignite development, scientific evaluation of coal and lignite resources and making the coal industry viable and self-supporting.

Exploration and Coal Resources

6.146 The Eighth Plan objective for coal exploration was aimed at meeting the demand for coal over a 15 years perspective, through intensification of regional exploration in new areas and promoting recent discoveries.

6.147 The potential areas and the new finds that were identified during the Eighth Plan period with good quarriable prospects are located in the East Bokaro Coalfield, South Karanpura and Sohagpur Coalfields for metallurgical coal; Birbhum (coal seams under cover of trap rocks), Sohagpur, Mand-Raigarh (Phutamura area with Grade A coal), Tatapani - Ramkola and Korba for superior grade non-coking coal and Talcher, Korba, Rajmahal and Auranga Coalfield for inferior grade non-coking coal.

6.148 As a result of intensified regional/promotional and detailed exploratory efforts, coal reserves have increased from a level of 196 billion tonnes (bt) at the beginning of the Eighth Plan i.e. as on 1.1.1992 to a level of 204.65 bt as on 1.1.1997. Large quantities of coal reserves have been added in the coalfields of Raniganj, Domra and Birbhum in West Bengal, East Bokaro, Auranga, South Karanpura and Rajmahal group of coal fields in Bihar, Talcher and Ib in Orissa, Sohagpur, Mand-Raigarh, Korba, Bisrampur and Tatapani-Ramkola in Madhya Pradesh and Godavari in Andhra Pradesh. Of these, coking coal reserves are about 15% and non-coking coal reserves are 85%. Category-wise about 35% are proved, 44% are indicated and 21% are inferred reserves. Grade-wise reserves of non-coking coal comprise 1.18% Gr. `A', 3.96% Gr. `B', 9.36% Gr. `C', 13.4% Gr. `D', 48.92% Gr. `E', `F' and `G' and 23.18% ungraded coal. Similarly, depth-wise about 67% of coal reserves are distributed in the range of 0 - 300 m, 26% in the range of 300 - 600 m and 7% in the range of 600 - 1200 m.

6.149 The coal reserves under proved category have increased from 61.14 billion tonnes (bt) at the beginning of the Plan to 72.73 bt as on 1.1.1997. This is only about 35% of the available geological reserves. This brings in the necessity for further expediting the exploration efforts to upgrade the geological reserves to proved category for augmenting coal production in line with the growing demand.

6.150 Against the Eighth Plan regional exploration drilling target for coal and lignite of 403400 metres, the achievement was about 299658 metres upto Sept. 1996.

6.151 The geological reserves of lignite have increased from 6.473 bt as on 1.1.1992 to 27.45 bt as on 1.1.1997. Of these, 25.88 bt (94%) are in Tamil Nadu and Pondicherry, 1.02 bt (3.7%) in Rajasthan and 0.47 bt (1.7%) in Gujarat.

Coal Demand

6.152 Against the annual average growth of 7.34% in the consumption of coal during the Seventh Plan, the projected growth for the Eighth Plan was 6.32%. The overall coal demand in the terminal year of the Eighth Plan (1996-97) was estimated at 311 mt (excluding 7 mt of washery middlings) against a coal consumption of 228.94 mt (excluding 2.3 mt of washery middlings) in 1991-92. As against this, the actual coal demand in 1996-97 has been 325 mt (excluding 7.7 mt of washery middlings) with the share of power sector (Utilities) at 215 mt including 5 mt of washery middlings against the initial demand estimates of 190 mt, which is followed by steel, cement etc. Though the addition of new coal based generation capacity has been only 9488 MW against the envisaged capacity addition of 14340 MW during the Plan, the increase in coal consumption in the power sector has been mainly due to improved PLF performance of the existing plants. The power sector foresaw a shortfall of around 20 - 25 mt in the indigenous availability of coal to meet their requirements during 1996-97 at the time of the formulation of the Annual Plan 1996-97. In the case of steel sector, availability of coking coal has fallen short of requirements and imports have increased to a level of around 9 mt during 1996-97 against 3.5 mt originally envisaged. There has been shortfalls in supply of indigenous coal to the cement sector as well. The demand of this sector was partly met by lignite particularly in the case of cement plants located in Southern India and by some duty-free imports of coal made against exports of cement. Besides, coal from the open market was also reportedly consumed by the sector for which no reliable data is available. The main reasons for shortfalls in the availability of domestic coal are regional demand supply mismatches, quality problems and inadequate rail evacuation facilities. Besides, the constraints of domestic coal production have affected the demand materialisation in the later part of the Eighth Plan. The growth in consumption during the Eighth Plan was about 5.3%, with the actual consumption of 295.98 mt excluding 4.74 mt of washery middlings. The broad sectoral coal demand is given in Table 6.20 and details are given in Annexure 6.3.

Table 6.20
Sectoral Coal Demand
(million tonnes)

Sector EIGHTH P LAN NINTH PLAN GROWTH RATE
1991-92 1992-93 1996-97 1997-98 2001-02 1996-97 2001-02
Actual Actual Orig. Targ. Rev. Targ. Provl. Target Target 1991-92 1996-97
COKING
Steel ! 31.66 32.43 42.00 40.50 34.71 41.40 49.60 1.86 7.4
Coke Ovens ! - - - - - 2.00 - - -
Sub-Toal (Coking) 31.66 32.43 42.00 40.50 34.71 41.40 51.60 1.86 8.25
NON-COKING
Power 134.60 147.04 185.30 210.00 199.26 205.90 262.00 8.16 5.63
(Utilities) (2.30) (2.49) (4.70) (5.00) (2.58) (4.10) (5.00)    
Cement 9.97 10.89 17.50 17.50 11.25 18.20 21.40 2.45 13.72
Others 52.71 51.33 66.20 57.00 50.76 57.88 77.20 -0.75 8.75
  (2.30) (2.70) (2.16) (2.70) (2.70)        
Sub-Total 197.28 209.26 269.00 284.50 261.27 281.98 360.60 5.78 6.66
(Non-Coking) (2.30) (2.49) (7.00) (7.70) (4.74) (6.80) (7.70)    
Total 228.94 241.69 311.00 325.00 295.98 323.38 412.20 5.27 6.85
  (2.30) (2.49) (7.00) (7.70) (4.74) (6.80) (7.70)    

Note: Figures in  brackets are washery middling, and are not included in the totals.

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