The power sector was one of the first targets of the economic reform initiative in the early 1990s with the government unfurling an ambitious scheme to accelerate private sector investments through Independent Power Producers. Nearly two decades on, the sector continues to be a laggard with the average increase in supply stuck below the 6% mark. The result is that, as we enter 2010, 600 million Indians do not have access to power. And those with power supply have to make do with periodic cuts as peak power deficits have hovered in the 10-15% range in the past decade. Unfortunately, the scenario is unlikely to improve in the short run. Of the 11th Plan power generation target of 78,700 MW, only 18,235 MW of capacity has been commissioned in the first half of the plan period.
But the government is optimistic about commissioning 62,374 MW in capacity with the expectation that two of the four Ultra-Mega Power Projects awarded will be commissioned in the Plan period.
Many factors account for the slow pace of power reforms. For one , power is a concurrent subject, where both the Centre and the states have a major role, and power pricing continues to be heavily regulated to ensure subsidies to consumers. This strategy?along with the excessive AT&C losses, which still exceed one-third of generated power?has continued to bleed the state electricity boards, whose operational losses last year were Rs 31,862 crore. And private investors are still to benefit from regulations that provide open access for power transmission. All these have discouraged flow of credit to investors and the current estimates are that the funding gap will be as large as Rs 4,21,642 crore in the 11th Plan and even bigger in the 12th Plan. Then there are other more complex issues like the disproportionate share of coal based plants which leave large carbon foot prints. Coal and lignite will account for around two-thirds of the capacity created in the 11th Plan and the dependency on coal will continue until gas supplies pick up substantially. One reason for hope is a potential pickup in nuclear power generation once the availability of fuel and equipment allows substantially scaled-up operations. But problems in transmission and distribution will remain as long as the regulatory policies fail to provide incentives to the states to accelerate the pace of reforms and to empower the state regulatory commissions to function smoothly and put the power sector back on track.