An overview of the Indian power sector

By on December 14, 2012
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Power sector is the base of economic growth in a country. It acts as the index of economic health of the country. India is one of the fastest growing economies across the globe and has the second largest population in the world. As such India shows lot of potential for the growth of power sector (RNCOS, 2011). India has the 5th largest power generation capacity and contributes around 4% of the total power generation across the globe. But at present, the per capita energy consumption level in India is 778 units which is far below the global consumption of 2300 units. The top 4 countries in terms of power consumption are US, Japan, China and Russia which together consume about 49 percent of the global power generation (KPMG, 2010). However, the growing demands of power by both the industrial and household sectors reflect that the future is bright.

History of Indian power sector

If we refer to the history, Indian power sector was largely underdeveloped at the time of independence and it has gradually reached to where it is today through a series of reforms. The Electricity Act, 2003 was a major initiative in the power sector and emerged as the turning point. This act simplified the administrative procedures and removed the need for obtaining licenses for power generation. The act also encouraged competition in the sector through competitive bidding and allowed greater access to the private players. The act also levied penalty on power theft which has always been a big problem in India (Thomas, 2003). The country utilizes both conventional and commercial sources of fuel to generate power. The commercial sources include coal, lignite, oil, hydro, natural gas, and nuclear power while the conventional sources include wind, solar, agriculture and domestic waste. But still the supply of power is far below its demand which results into a wide demand-supply gap.

Major challenge

The challenges of land acquisition, fuel availability, environmental clearances, infrastructure constraints and the growing demand pressure due to increasing urbanization and industrialization have added to the burden of power industry in India. Around 55% of the power generation in India is coal-based and the coal is not only restricted in its availability but also in quality; as the Indian coal has very high ash content deteriorating its quality (Galuszka, 2012). Apart from the generation, the challenges also exist in the transmission and distribution (T&D) areas of Indian power sector. The total T&D losses stand at around 33% which is very high as compared to the global standards. However, the participation of the private players in the distribution of power has improved the situation to a large extent; the Governments at both the Centre and the States will have to take further initiatives. The future somehow lies in shifting fuel dependency on renewable sources like solar, wind and thermal energy to reduce the frequently widening demand-supply gap in the sector. Apart from this, the initiatives are also required to improve the procedures of environmental clearance formalities and supply chain issues.