Power sector was one of the worst hit by the “twin balance sheet crisis” that dried up private risk capital for long years. The sector was also bogged down by legacy issues like an entrenched culture of payment defaults. These problems and a resultant high incidence of insolvency have now been resolved to a large extent, with the Union power ministry playing a pivotal role in bringing about a wholesome behavioral change among key players including the state governments (who used to delay release of release of policy-borne subsidies to the discoms), but not any longer), their power departments (discoms), and the regulators. The ministry honed a carrot-and-stick line to ensure compliance. Alongside, India has added renewable energy (RE) at a rapid rate in recent years, and tall targets are being pursued under a medium-term plan. However, with a widening demand-supply gap, the entire electricity value chain will require unprecedented levels of investments over the next few years to avert a looming supply deficit. The plan to phase out fossil fuel energy (coal-based thermal power) is therefore being pushed back. Minister for power and RE, RK Singh talks about the sector’s turnaround under his watch, and a plan of action being conceived for “the Modi 3.0 government” in an interview with Arunima Bharadwaj and KG Narendranath.
Q: Don’t you think the accelerated rise in demand for electricity raises the spectre of a serious supply crunch in the short to medium term?
I do. Though a lot of RE capacity has been added, there is the issue of intermittency with such energy. Solar is usable only during the day, while wind energy is viable only when wind blows. In capacity terms, non-fossil is 43%, but as for actual energy supplies, it comes to less than quarter only. Consequently, there’s already a shortage (of power) during the peak hour at night. Until the (RE) system is made viable, we need to add more thermal capacity, and about 85 giga watt (GW) is being lined up.
Q: When do you expect coal-based capacity to peak?
It should peak only when sufficient RE storage capacity is in place. When the cost of storage per kWh comes down to Rs 4 or less, we will stop adding more coal-based capacity. For sure, we aren’t going to compromise on the availability of power (for climate goals). India is already the lowest emitter in the world, with legacy CO2 load share of just 4%. The country’s per capita power consumption needs to go up 4 times, so massive capacity addition is required.
Q: The updated National Electricity Plan implies you have given up on gas-based power…
We have given up on gas-based capacity, as it is prohibitively costly. Who will buy electricity at Rs 15/unit from such units ? So, only if gas prices indeed come down, we will work on that front. But we have opened a window on the power exchanges for gas-based power and round-the-clock RE, using storage which will cost over Rs 10 per unit. Whoever can afford may buy it to meet exigent demand.
Q: Now that you have tackled the issues of payment delays in the electricity value chain, do you see a revival of investor interest in thermal power?
Power demand in our fast-growing economy is going up exponentially. Peak demand is now 243 giga watt (GW), up form just 130 GW in 2013-14, and might rise to 370-380 GW by 2030. We need to almost double the capacity in almost all segments of the value chain – from generation to distribution. This is a stupendous task, but we’re confident about it.
Another 100,000 circuit kilo metre (cKM) of transmission lines are needed just to give connectivity to the capacity being built. Not for nothing that the share prices of power-sector companies have doubled. Companies have started investing as they see that demand has multiplied, and the trend will strengthen in the coming months and years.
Besides, 35 GW of pump storage capacity is awaiting clearances, and 4 GW is under construction. That capacity is going to come out rapidly. About 14 GW of hydro power is under construction and another 10-12 GW is in the pipeline. Almost in every area, we are planning to double the capacities by 2030, and the details would be spelt out in the 100-day action plan of Modi 3.0 government.
The power sector has a share of a third of the total capex, at around Rs 20 trillion, with all sectors –thermal, hydro, RE, transmission – seeing investments.
We constructed almost 3,000 new substations, upgraded another 4,000 and added 850,000 cKM of HT (high-tension) lines and LT (low-tension) lines, 750,000 transformers, and 130,000 cKM of agricultural feeders. The entire country is connected to one grid.
In 2014, you could only transfer 36 GW of power from one point of the country to another. Now you can transfer 168 GW. As a result, the availability of power has gone up from 12 hours a day in 2014 to 22.5 hours today in rural areas. In urban areas it (availability) is 23.5 hours at present.
Q: What about distribution? The sector is yet to see sufficient competition…
The distribution system is being modernised too, and in the first round, Rs 2 trillion was spent on this.
As for (introducing) competition in distribution, we had earlier planned to privatise discoms, but it was a half-brained idea, as it would have only resulted in replacing government monopolies with private ones. The amendments we have tabled recently in Parliament remove the hurdle to multiple licenses. The existing discoms could continue but new players can come in and compete. Infrastructure will be common, and one of them could own it too, but it has to be available to all on a non-discriminatory basis, under a common carrier principle. The system that is now operational in Mumbai could be replicated elsewhere.
(Parliamentary) standing committee has given its report on these amendments. Getting these amendments through is one of our immediate priorities.
Q: What are your projections regarding Green Hydrogen (GH)?
As much as 7.2 billion GH capacity is coming up, as we have the advantage of the most robust transmission system in the world. Our RE costs are the cheapest in the world, after the West Asian countries. So our green hydrogen, and green ammonia will also be the cheapest. But I’m concerned about a trend among the western countries to set up GH facilities in Africa and South America, with purchase guarantees. This is against the free market principles and amounts to protectionism.
Q: How is the current situation of coal supplies to thermal power plants? The coal ministry has asked imported-coal based plants to change technology to enable the use of domestic coal…
Let the domestic coal capacity go up further, before we ask for such conversion. For the last 3-4 months the arrival of domestic coal is matching (demand from power plants). Before that, there was a gap, and we had to import coal. Imports have now come down. The other major problem is wagon (rake) availability.
Q: With peak demand in this summer seen at 260 GW, how would you ensure adequate coal supplies?
We sat down with the ministries of coal and railways. They told us how much they can give, and we studied how much the demand will be. We saw a gap. So we said that the current level of imports will continue and this will meet the gap.
Q: You had proposed bringing electricity under the GST? What could be the tax rate?
The GST levy need not be very high. It could be, say, 5%, so that the input costs are covered.