Power and oil companies are getting the attention of India?s policymakers. The Prime Minister?s energy coordination committee, which is the highest authority to determine pricing strategies and availability of fuel in the coming years, has attained importance in this scenario. The committee should expedite a solution to the issue of gas pricing, as there continues to be a difference of opinion on this between the petroleum ministry, which is in favour of market-determined pricing, on the one hand, and those who speak for the fertiliser sector, on the other?as seen in the Reliance case.
In the coming years, the huge gas reserves off the Andhra Pradesh and Orissa coasts in the KG and Mahanadi basins shall become important as vital sources of gas supply. Earlier, Tata Power, ONGC and Cairn India hit the headlines on account of their performance in seeking new resources of power and energy.
The Tatas were awarded the Mundra power project on the basis competitive bidding. If India has to sustain a GDP growth of 9% and above, it has to increase its power generation five or six times over the next few years. A booming economy must be fed. As on March 31, 2006, India?s power system had an installed generation capacity of 124,287 mw. During the year 2005-06, the total power generated in the country was 617.38 billion kwh. In that year, India faced an energy shortage of nearly 8.3% of the total energy requirement and 12.3% of peak demand requirement. The state governments own nearly 55% of the power generation capacity, while the Central government owns about 32%. Private players account for only 13% of the total. NTPC, the largest thermal power company in India, represents 19.5% of the country?s capacity.
By some projections, India?s electricity generation will go up by over 50% in the next five years. But the fact remains that efficiency levels in transforming fuel heat into electrical energy are only 29% at or thermal stations. In Europe, modern fuel technology has taken thermal efficiency rates to levels above 40%. Clearly, India is lagging in this arena, and needs a burst of innovation to improve efficiency levels in power plants. It is possible to have 50% more thermal power from the same amount of coal, our main energy source. The 11th Plan, however, has not provided much to boost thermal efficiency in power plants. The investment on R&D, as stipulated by Plan, is a mere Rs 333.50 crore?which analysts consider insufficient to promote new technology that could do the job.
We need urgent management reforms in the power sector, as the slow pace of capacity addition?shockingly, we achieved only half the 41,000 mw target in 10th Plan?could cripple the country?s development. Electricity is vital for sustained economic growth, and if the problem of growing shortages is not arrested within the next Plan period, the economic costs could be far too high to even contemplate. Attracting private investment on a significant scale should, therefore, be top priority. We also need a professionally managed national power project management board to keep track of the 11th Plan projects.
Power theft is also an issue that cannot be left to sort itself out on its own. The access system should be open, and once it is demonstrated that consumers are happy to pay for quality power supply, intermediaries that distort this relationship should be kept out of the picture. This was envisaged as part of the earlier reforms initiative, but needs activation in full earnest if India is to attract the desired level of private investment.
Moreover, India has still not exhausted the available opportunities for energy conservation through enhanced grid efficiency and improved industrial productivity facilitated by better utilisation of scarce energy resources. The commercial production of biodiesel has begun, but a much wider programme needs to be mounted. To really get things moving, the government should allow 100% FDI in nuclear energy.
?The author is with Krishna Securities. These are his personal views