(EnergyAsia, September 13 2012, Thursday) — The following is an edited version of a comment by consultant EnerData on the recent massive power blackout in India.
India’s Black Tuesday of July 31 marked the greatest power outage in history: the blackout occurred in 20 of the country’s 28 states and affected three of its five grids.
As the Northern, Eastern and North-eastern grids failed, an estimated 600 million people or half the population were left without electricity, exposing the broken state and stress of the Indian power system.
Reflecting the country’s rapid economic expansion, its power consumption has been growing at an annual 8.3% rate since 2002. However the electrification rate is hovering at around 66%.
Power prices have been greatly subsidised for agricultural users and low-income households and tariffs have not increased significantly to cover for increased costs of fuels and salaries. This issue coupled with high transmission and distribution losses and low power plant load factors have left the country’s state electricity boards with a difficult financial situation for a long time.
The state has been promoting liberalisation since 1991, implementing laws on vertical unbundling, encouraging the creation of independent power producers, lowering taxes to attract foreign investment and favouring “fast-track” generation projects.
This has led to significant changes in the power sector, with the emergence of several large IPPs in recent years, often linked to industrial groups: Tata, Reliance, JSW, GMR.
However, about 20% of production is lost to transmission and distribution (T&D) losses and power theft while capacity expansion continues to lag behind demand growth.
The objectives fixed in the national five-year plans are rarely met: for the last three plans, planned capacity fell short of estimated demand while the realisation rate has fallen to 50%.
By November 2011, only 44.7 GW of the 78.7 GW forecast in the 11th Plan (2007-2012) had been commissioned.
With a downward revision of target capacities and the 17.2 GW expected to be installed over 2012 (about 7.8 GW actually commissioned as of July), there is a clear improvement on the realisation rate but this should still not be sufficient to cover the rising needs of the country.
Delays are often due to long lead times and disputes over obtaining environmental clearances, but they are increasingly due to fuel shortages.
Indeed, Tata and Adani have recently put on hold several GWs’ worth of new coal-fired projects due to a lack of clarity for both coal supply and the regulatory environment around coal prices.
Coal production expansion has failed to meet rising demand from the power sector, hampered by issues of bad domestic coal quality, limited coal washeries capacity, transportation infrastructure bottlenecks, large distances between production and consumption, and disputes between producers, IPPs and the government over the regulation of coal prices amidst higher international prices.
India is turning progressively to imports to ensure its supply: with sky-rocketing coal imports, India joined the world’s top three largest coal importers (India outranked Germany in 2006 and South Korea in 2011), and the share of imports in domestic consumption grew over the last 10 years from 6% to 21% in 2011.
In Indonesia, Australia and Africa, Indian companies are facing fierce competition with Chinese, Brazilian and other companies to ensure their coal supply. Presently, over half of the world coal trade occurs in the top 4 countries, all of which are in Asia.
This situation is a key challenge for a country with an expected economic growth of 7-8% over the next decade (source: IMF). It is expected that the electricity demand will rise at an average rate of 5.5% over the next 20 years, which translates into a need of 420 GW of additional capacities for the power system, of which one third should be coal-fired plants – thus increasing coal demand for power by 50% to reach 760,000 t in 2030.
India is struggling to sort through a complicated situation mixing economic empowerment, access to energy, industrial policy and environment, as it moves towards its 12th Five-Year Plan (2012-2017) and beyond.