New govt faces power challenges due to fuel shortage, El Nino

Written by PTI | New Delhi | Updated: May 11 2014, 17:49pm hrs
NewLower rainfall would also cause a drop in hydel generation, resulting in higher demand for thermal power.
A shortage of fuel needed to fire power plants and expectations of a deficient monsoon leading to lower hydro electricity generation are some of the challenges that the next government may face.

The Central Electricity Authority, a government body tasked with facilitating overall development of the sector, and experts say the El Nino effect on the monsoon may boost demand for power from farmers needing water for irrigation.

The Met department has forecast a below-normal monsoon because of the El Nino effect, which is associated with the warming of the central and eastern tropical Pacific Ocean.

Lower rainfall would also cause a drop in hydel generation, resulting in higher demand for thermal power. This would increase the requirement of coal, which fires most generation plants and is not produced in enough quantities to meet demand in the country.

India's coal imports rose to 82.5 million tonnes till September 30 of the previous financial year from 69 million tonnes in 2010-11, according to official data.

"We can't keep relying on imported coal completely. Significant reforms are needed in the coal sector to get the domestic supply ramped up. There is also an urgent need by the government to look into the role of coal regulator that's being currently envisaged," said Manish Aggarwal, Head, Energy and Natural Resources, at KPMG in India.

The setting up of a coal regulator is aimed at deciding coal prices, overseeing grade testing, adjudicating disputes, approve mining plans and monitor mine closures, among others.

"Coal sector reforms which will lower the need for imported fuel and reduce cost of generation for the power sector and getting consensus across central and state electricity regulators over the need for making tariffs reflective of costs is necessary," said Sambitosh Mohapatra, Executive Director at PwC.

According to Aggarwal, more needs to be done for power distribution following the debt restructuring package approved for ailing state electricity boards.

"Distribution reforms is another key concern for the sector. While the current government took steps to implement the restructuring plan, the new government will have to take some fundamental steps to improve the distribution side of business," Aggarwal added.

The shortage of natural gas in the country, caused by lower output at the KG-D6 block in the Bay of Bengal, has left plants with a combined capacity of 8,000 MW without fuel. Importing liquefied natural gas is not always a viable option.

"The new central government will also have to deal with stranded gas projects that are stuck for lack of gas supply," said Debasish Mishra, Senior Director at Deloitte India.

The country currently has an installed power generation capacity of 2,28,722 MW, of which 1,34,388 MW is coal-based and 20,381 MW operates on gas.