Power Sector Planning in India Tejal Kanitkar+, Rangan Banerjee

Department of Energy Science and Engineering,

Indian Institute of Technology Bombay, Powai, Mumbai, India

ABSTRACT

The electricity sector in India has registered significant growth since India’s independence. This paper

analyses the historical trends in the installed capacity, generation and investments in the power sector. An

energy balance for the power sector for 2008 is drawn up showing the different components of energy

use. India’s per capita electricity consumption of 450 kWh/year is compared with other countries and

linked with the Human Development Index (HDI). An analysis of aggregate electricity use and installed

capacity projections in 2031-2032 is carried out. The paper recommends a focus on demand side

management and energy efficiency to develop sustainable power systems in India in the future.

INTRODUCTION

For any country the energy sector is one of the most important sectors of its economy. For a developing

country such as India, the development of this sector is important in terms of improving the material well

being of its population. However, in the context of resource constraints in terms of fuel sources, water etc.

as well as growing concerns over environmental impacts of burning fossil fuels, there is a need to rethink

strategies in this sector and carefully evaluate the linkage between energy, environment and the economy.

This paper deals with the electricity sector in India. The electricity sector is an important part of the

energy sector as a whole and its importance in India is growing as a larger section of the population

obtains access to modern energy and as the economy grows and modernises. The electricity sector

accounts for approximately 50% of all primary energy1 consumption in India. In urban India, electricity

Tel.: +91-22-25767883; Fax: +91-22-2572 6875, 2572 3480; Email: rangan@iitb.ac.in

+ Program Officer, Centre for Science, Technology and Society, Tata Institute of Social Sciences, Mumbai, India

1 Primary energy is the energy contained in fuels (coal, oil, gas) obtained from nature and not subjected to any transformation or conversion. Electricity is a secondary form of energy which is obtained after conversion of primary energy by the process of power generation.

consumption constitutes 20% of the final energy consumption2. Also of the total carbon-dioxide

emissions in India, approximately 40% are from the electricity sector3.

In this paper, a brief overview of India’ power sector is provided along with an analysis of past trends in

the sector. The electricity sector in India is compared to some developed and developing countries to

underline India’s position in the world energy scenario. Official estimates of future demand in 2031-32

are also analysed along with alternative future scenarios.

POWER SECTOR BASICS

As a country develops the share of electricity in its energy mix increases. Households substitute electricity

for other forms of energy for uses such as cooking, heating etc. as their income increases (Alam et. al.

1998) as it is a convenient and clean (from the perspective of local pollution) form of energy. However,

storing electricity in large quantities is not cost-effective. Hence the electricity supply system has to be

planned in a manner such that it can meet the demand that is imposed on it by different consumer loads at

all times. The system demand varies daily (with a peak in electricity demand mostly occurring in the

evening when residential and commercial loads appear on the system). System demands also vary

seasonally, with a higher cooling load during the summer months for countries such as India. To supply

this growing demand for electricity, large investments have to be made for installing power plants and

building transmission and distribution infrastructure. These investments have long gestation periods; for

example, a coal based power plant requires 4-5 years to be built before it can start generating electricity.

The gestation periods for hydro and nuclear power plants are even longer. Therefore planning is a critical

aspect of the development of the power sector. It is necessary to ascertain the potential demand on the

system in the future and plan for the development of power sector infrastructure as well as investments

required.

In this paper, time series trends of capacity addition as well as investments are analyzed to understand the

baseline from which projections for the future can be made. A static analysis for the year 2008 is also

done to understand the patterns for electricity consumption and generation. Finally, an overview of the

trends for electricity use and generation are presented and the implications of the projected futures for

power sector planning and investment are analysed.

In order to understand the power sector, it is necessary to define a few terms used to explain the process

of power generation and supply. These are given below.

- Installed Capacity - The Installed Capacity of a generating unit is its maximum rated capacity at the

time of installation. Power generation units typically rate between 250-1000 MW 2 Integrated Energy Policy, GoI, Planning Commission (2006) 3 WRI-CAIT Emissions Database, 2007

- Peak power demand - The maximum power demand registered in the system which has to be

supplied by the power utilities. Figure 1 shows the peak demand in Maharashtra on 1 May, 2011.

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Figure 1: Load profile experienced by the Maharashtra State Electricity

Distribution Company Ltd. on May 1, 2011

As show in Figure 1 the power utility in Maharashtra experiences peak demand in the evening.

- Reserve margin – It is the generation capacity planned above peak load requirement. Higher the

reserve margin, higher is the probability of meeting peak demand.

- Average demand - It is the average power demand experienced by the utilities. It is calculated by

dividing the total electricity use by the total number of hours. The average can be computed on a

daily, monthly or annual basis.

- Electricity Generation – The total electricity generated by a plant in a given time (say a year) gives us

the total generation of the plant4.

- Plant Load Factor (PLF) for a generating unit is calculated as the ratio of energy actually generated,

to the energy it would have generated if it were operating at its maximum rated capacity

- T&D (transmission and distribution) losses – It is the loss of electricity in transmission and

distribution. This includes technical losses (incurred for example due to long, low voltage distribution

lines) as well as losses due to theft of electricity. 4 For example, a power plant can have a maximum capacity of 100 MW, but if it is shut down for 4 hours every day then it will generate 100 MW* 20 hours = 2000 MWh per day instead of 2400 MWh per day if it were running for all 24 hours.

- Auxiliary consumption – It is the electricity consumed by the power generating units themselves to

run the power production process.

INDIAN POWER SECTOR – HISTORICAL TRENDS

The power sector in India has grown rapidly since the 1950’s after India achieved independence with an

increased growth rate since 1970 when large public sector units set up by the Central Government.

(National Thermal Power Corporation, National Hydro Power Corporation) started playing an important

role in electricity generation. The demand for power as well as installed capacity has been steadily

increasing over the last 50 years. However, in spite of the developments made by the sector, some

problems still persist, e.g. high technical losses in electricity transmission and distribution, inefficient

generation of electricity, continual financial losses being incurred by utilities. These problems have

persisted through various phases of the power sector – the phase before the 1990’s when a majority of

new generation each year was installed by public sector companies, the phase of independent power

producers in the early 1990’s of which the Enron Power Company is a notable example, or the phase of

independent regulation of the power sector since 1998. Power shortages have increased in the last decade

as power supply has been unable to keep up with demand. The investment required per MW of generation

capacity added has also increased. Power sector policy and planning has almost entirely been supply

focused. However, while looking to the future, these problems will have to be resolved and power sector

planning will have to be rethought if the goals of enabling access to electricity for the entire population

within constraints placed by energy resources as well as the environment have to be achieved.

Although the electricity sector has grown rapidly, there has been a significant gap between the planned

generation capacity (budgeted for in the 5 year plans of the Government of India) and actual

achievements. This gap has been increasing since the 8th Five year plan with an average achievement rate

of only 51% since 1992 as shown in Figure 2.

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Figure 2: Plan-wise Installed Capacity (Targets and Achieved)5

The solid line in Figure 2 shows the incremental installed capacity addition as planned for every 5 year

plan of the Government. The dotted line shows the installed capacity that has been actually implemented

during the plan periods. Though the total capacity added between 1998 and 2008 has been 35% higher as

compared to the previous 15 years (1976-1992), the gap between total planned capacity addition and total

achieved has increased. The compounded annual growth rate of actual installed capacity for every five

year plan has also been shown in the Figure 2. The growth rates of installed capacity have reduced since

the 8th Plan period, despite the higher targets set by the Government.

Figure 3 shows the plan-wise budgeted outlay per MW as well as the actual investment per MW by the

Central Government6. The figures include costs of generation as well as transmission and distribution of

electricity. The amounts have been adjusted for inflation and are expressed in constant 2005 Rupees.

5 Figures for Plan-wise Installed Capacity for years 1951-2007 have been taken from the (CEA, Publications) for the respective years. The values for the 11th plan have been taken from the Ministry of Power (MoP), GoI, (2007). 6 The numbers shown in the graph do not include the expenditure as well as the capacity addition by private companies and the state government

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Figure 3: Plan-wise Outlay and Actual Expenditure per MW (2005 Base year)7

The squares in the graph show the plan-wise budgeted outlays for the power sector per MW of installed

capacity (planned) and the asterisks show the actual expenditure per MW of installed capacity

(implemented). As seen in Figure 3, the actual expenditure incurred per MW has been greater than the

total budgeted outlay for the power sector in the last two plans. This underestimation of the investment

might be one of the reasons for the increasing gap between the targeted and achieved installed capacity. It

is also possible that due to delays in construction and other problems, the cost/MW has increased beyond

the budgeted amounts in the last decade because of which a discrepancy in outlay and actual expenditures

can be observed. The causality here is unclear however both aspects must be studied if the problem of

under-achievement of targets is to be addressed. Since the 8th Five year plan, there has been a policy of

encouraging investments for power generation from the private sector. However, during the period

between 1992-1997 only 7000 MW of generation capacity was added by independent power producers

(the private sector), while the existing power stations, due to improved efficiency contributed more than

10,000 MW (incremental – over and above what they were contributing earlier) during the same period

7 The values for outlay as well as actual expenditure in Figure 2 for the years 1961-74 are very low as these numbers only show the total contribution of the Central Government and during this period, the state electricity boards were playing a more important role in generation that the central government.

indicating that the investments from the power sector were lower than were expected by the Government.

This might also partially explain the difference in the amounts for outlays and expenditure. In the last five

years, the Government has proposed ultra mega power plants (UMPP) to be built by project developers on

a ‘Build, Own and operate’ basis. The project developers are to be allotted captive coal blocks for

pithead8 plants and are to use imported coal for plants which are situated on the coast. The Government is

hoping to attract more private investment in the sector through this route. A significant amount of

electricity is expected to be generated by these UMPPs in the future (6 plants – 4000 MW each already

under way). The tariff arrived at through competitive bidding for some of the pithead plants are also

significantly lower as compared to current average power tariffs (The Ultra Mega Power Plant at Sasan is

estimated to have a cost of generation of Rs. 1.19/kWh).

An analysis of the budgets of the five year plans shows that the power sector commands a significant

share (on an average 16%) of the total plan outlay by the Central Government. The role of the central

government vis-à-vis the state government in adding new generation capacity has increased over the last

20 years. However, this should be seen in comparison with the expenditure undertaken by State

Governments to build new capacity, analysis for which has not been done in this paper.

In the 10th five year plan, the power sector outlay was Rs.143400 crore (to come from the Central

Government) whereas in the 11th Plan this number was expected to be Rs.876100 crore totally (excluding

merchant9 and captive plants10) of which Rs. 299300 crore are to come from the central Government (real

costs). This figure represents the addition of 69 GW of installed capacity. The planned investments have

doubled between the 10th and 11th plans. In the 12th Plan, the expected capacity addition is of 100 GW.

The corresponding planned investment can be expected to be as high as Rs.4345 billion just from the

Central Government (using a value of approximately Rs. 4.5 crore per MW).

New generation capacity is planned for and added based on certain projected demand for power for the

country. This demand for power can be based either on an extrapolation of the past trends or can be

modified according to certain changed circumstances such as new policy guidelines for example (the

former methodology is used more frequently)11. Utilities plan for a reserve margin (generation capacity

planned above load requirement) based on levels of power availability (hours for which power should be

8 Plants located near the coal mine

9 Merchant plants, by definition, do not have pre-identified customers. This would mean that these plants would have to depend on redundancies in the existing transmission system to evacuate power. A merchant power plant is funded by investors and sells electricity in the competitive wholesale power market. Since a merchant plant is not required to serve any specific retail consumers, consumers are not obligated to pay for the construction, operations or maintenance of the plant. 10 Captive Power refers to generation from a unit set up by industry for its exclusive consumption. 11 CEA extrapolates past data to forecast demand for the future. The integrated energy policy also uses this methodology, with some qualifications.

available) that are deemed acceptable. The higher the reliability of power, the greater is the reserve

margin required, i.e. if surplus capacity is higher then there is a greater chance of meeting the load

requirements.

However there has been growing gap in the peak power demand and the peak demand met in the country

despite a very high margin between the installed capacity and the peak demand as shown in Figure 4.

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Figure 4: All India Electricity Demand and Installed Capacity

Table 1 shows the ratios of peak demand to installed capacity as well as average demand to installed

capacity. Table 1: Ratios of Peak and Average Demand to Installed Capacity

Peak demand/Installed

Capacity

Average demand/Installed

Capacity 1988-89 0.51 0.30 1996-97 0.57 0.37 2008-09 0.65 0.39

The ratio of peak demand to installed capacity has been improving, but this might only mean that demand

is growing much faster than installed capacity as there has been an increase in the unmet demand since

2003. In spite of the installed capacity being 35% higher than peak demand in 2007-08, there has been a

deficit of approximately 16% in the demand met by the power sector. Figure 5 shows the total peak

shortages for the state of Maharashtra in year 2006-07.

More et al. (2007)

Figure 5: Annual Load Duration Curve for Maharashtra – 2006-07

Since there is a shortage of power supply in Maharashtra the utility has to undertake load shedding. The

restricted demand shown in the figure is the demand under load shedding and the unrestricted demand is

the sum of the total demand met and the total load shed by the utility. It can be seen from the figure that

the state of Maharashtra suffered from a peak shortage of 3603 MW in 2006-07 (~27% of the total

unrestricted demand).

The average demand in the country will grow further in the future as more people get access to electricity

and as the demand from manufacturing grows in order to create infrastructure as envisaged by various

Government plans. Although, installed capacity is also slated to grow, the total amount needed as well as

the corresponding investment can be reduced significantly if efficiency of power plants is increased and

the losses in transmission and distribution are reduced.

Table 2 shows the comparison of the ratio of the electricity consumption to generation for four countries.

Table 2: Ratio of Electricity Consumption to Electricity Generation India China USA UK

1978 0.77 0.92 0.92 0.93 1988 0.73 0.97 0.91 0.96 1998 0.72 0.96 0.92 0.96 2008 0.71 0.95 0.94 0.95

While UK, USA and China have a consistent ratio of over 0.9 for electricity consumption to electricity

generation, the India power sector has not managed to cross a ratio of 0.8. However, it must be

remembered that India has the highest length of low tension distribution lines with very low usage of

electricity by domestic consumers. This would result in higher technical T&D losses than countries such

as the UK that have higher power consumption densities. It is true that a part of what is categorized as

“transmission and distribution” loss is actually un-metered consumption. The ratio of electricity

consumption to electricity generation is decreasing for India implying an increase in T&D losses and

auxiliary consumption. There may not actually be a deterioration in the performance of the power sector,

but with the increasing role and importance of regulatory commissions and improved quantification of

losses, what was in earlier years being categorized as ‘agricultural consumption’ (which is still largely

unmetered in many states) was re-classified as transmission and distribution loss, causing an increase in

the latter.

66% of the country’s electricity comes from coal based power plants. Figure 6 shows the source-wise

installed capacity for two years – 1976-77 and 2008-0912

12 Figures for Installed Capacity have been taken from the (CEA, Publications) for the respective years

Hydro38%

Steam56%

Diesel and RES*3%

Gas1%

Nuclear2%

Source-wise Shares of Installed Capacity in 1976-77

*Under the category 'Diesel and RES' 100% is from Diesel

Hydro21%

Steam52%

Diesel and RES*13%

Gas11%

Nuclear3%

Source-wise Shares of Installed Capacity in 2008-09

Under the category 'Diesel and RES', 54% is from Renewable Energy Sources

RES stands for Renewable Energy Sources

Figure 6: Source-wise Shares of Installed Capacity 1976-77 and 2008-09 (Utilities and Non-Utilties)

However, it should be remembered that a power plant does not always run at its maximum capacity.

There will be times when it will run at a lower capacity. The Plant Load Factor (PLF) for a generating

unit is calculated as the ratio of energy actually generated, to the energy it would have generated if it were

operating at its maximum capacity. It is given as a percentage and is usually calculated for a period of one

year. The plant load factors for Indian power plants have been low historically but have been increasing

and show improvement in recent years. In 1990, the average PLF (average over all plants in the country)

of state owned thermal plants was 51% and that for centrally owned thermal plants was 65%. In 2008, the

average PLF for state owned thermal plants had increased to 72% while that for centrally owned plants

had increased to 87%.

A better indicator of source-wise shares can be obtained from the numbers for electricity generation (in

kilo watt hours - kWh) instead of capacity (mega watts – MW)).

Hydro37%

Steam59%

Diesel & RES0%

Gas1%

Nuclear3%

Source-wise Electricity Generation in 1976-77

*Under the category 'Diesel and RES' 100% is from Diesel

Hydro15%

Steam66%

Diesel & RES5%

Gas12%

Nuclear2%

Source-wise Electricity Generation in 2008-09

Under the category 'Diesel and RES', 64% from Renewable Energy Sources

Figure 7: Source-wise Electricity Generation in 1976-77 and 2008-09 (Utilities and Non-Utilities)

Although the share of coal in installed capacity has gone down, its share in total electricity generation has increased. The share of gas and renewable based power generation has been growing and it now constitutes 17% of the total generation. In the last 5 years (studied in this paper - 2003-2008), as compared to earlier, gas, nuclear and renewable energy based power plants have grown at the fastest rate (5%, 8% and 14% respectively). The share of hydro power has been declining. This has implications for the power sector’s ability to meet peak demand. Coal based plants are usually considered to be base plants. These plants have significant thermal inertia and the load on these plants cannot be increased or decreased quickly. Hydro plants have the ability to rapidly change their power output by adjusting the water flow. The historical trends and performance of the power sector provides a framework within which to understand and analyze the future trends for the power sector.

POWER SECTOR – SNAPSHOT IN TIME (2008)

Figure 8 shows the energy balance for the Indian power sector for 2008

Figure 8: Energy Balance for the Power Sector - 2008

(Numbers for generation will differ slightly from the pie chart shown in Figure 7 as the generation by utilities and non-utilities – industries- is separated in this figure. Also the numbers have been rounded to billion)

There are seven categories for consumers shown in this graph. 46% of the total energy available is

consumed by the industrial sector. Domestic consumption has grown considerably since 1980 and now

accounts for almost 21% of the total consumption as seen in the figure. The T&D (transmission and

distribution) losses - about 25% of total electricity generated - shown in the figure refer to electricity lost

in during transmission and distribution. These include technical losses (incurred for example due to long,

low voltage distribution lines) as well as losses due to theft of electricity which cannot be accrued to any

one category of consumers. Auxiliary consumption (‘aux con’ in the figure) refers to the electricity

consumed by the power generating units themselves to run the power production process. It is

approximately 7% of the total electricity generated. Captive generation refers to the generation of power

by industries for their own use13.15% of total consumption comes from captive generation.

Electricity consumption in all sectors has grown rapidly in the last two decades. The growth in the

commercial sector has been the highest in the last five years. Table 3 shows the growth rates of electricity

consumption in the five high energy consumption sectors of the economy.

Table 3: Sector-wise Growth Rate of Electricity Use during 1988-2008

Domestic Commercial Industrial Agricultural 1988-93 9.91% 5.00% 3.64% 10.25% 1993-98 6.84% 6.49% 2.11% 5.23% 1998-03 5.11% 5.14% 1.81% -2.76% 2003-08 6.15% 10.61% 8.74% 3.65%

The electricity regulatory commissions were instituted in most states after 1998. Due to improved

quantification of losses, some of the consumption which was accrued to agricultural consumers before

1998, was re-classified as loss after 1998. This may be one of the reasons for the negative growth rate

(rate of reduction), for agriculture consumption between 1998 and 2003.

COMPARISON WITH OTHER COUNTRIES

The Indian economy is still a low consumption economy, with very low levels of per capita consumption

as compared to other developed countries as well as some other emerging economies as seen from Table

4.

13 The amount mentioned in the figure is for only those industries that generate more than 1 MW of power

Table 4: Development Indicators for Some Countries14

Countries (2007)

Per Capita GNI at PPP ($)

Per Capita Energy

Consumption (kgoe)

Per Capita Electricity

Consumption (kWh)

Per Capita Installed Capacity

(kW/person)

Per Capita

Emissions (tCO2)

HDI (2010)

India 2,870 529 452 0.13 1.4 0.52 China 5,640 1,484 2,332 0.48 5 0.66

South Africa 9,660 2,784 4,944 0.85 9 0.59 UK 36,270 3,465 6,123 1.31 8.8 0.85 US 46,740 7,759 13,638 3.24 19 0.90

World 10,203 1,821 2,875 0.6415 4.6 - United Nations, World Population Prospects (2009)

India has lower per capita energy consumption as compared to developed economies as well as some

developing economies and is below the world average energy/electricity consumption. According to the

2001 Census, almost 56% of all Indian rural households still do not have access to electricity. Also, the

less energy intensive sectors such as the services sector have been growing at a faster rate and thus

contributing a larger share to GDP as compared to the energy intensive sectors such as manufacturing.

This has also resulted in a relatively low energy intensity (of GDP) as compared to other developing

countries.

India’s HDI is low compared to other countries and although the growth in energy consumption levels

off after a certain achievement in development (Martinez and Ebenhack, 2008), India is also below the

nominal requirement to reach the level which will allow a sustained improvement in human development

without a further increase in energy use as shown in Figure 9.

14 Data for all Indicators taken from the (World Bank Country Database). Numbers given for 2007 as emissions data for 2008 is not available 15 Data for world installed capacity was available for years 2006 and 2009. The figure for 2007 is estimated by calculating the growth rate between 2006 and 2009

Integrated Energy Policy, GoI, Planning Commission (2006)

Figure 9: Human Development Index (HDI) vs. Electricity Consumption per Capita (2002)

As shown in Figure 9. As the per capita consumption increases, the HDI tends to increase till a certain

level of HDI is reached. Beyond this point, the HDI does not change significantly for higher consumption

of electricity. This is characterized by the shoulder like property of the HDI vs. Electricity use curve

shown in Figure 9. India is currently below the shoulder that appears closer to 0.85 HDI (Human

Development Index)16 and 2500-3000 kWh of electricity use hence it will require energy to improve its

levels of development.

PROJECTIONS FOR THE FUTURE (2031-32)

As more people get access to electricity and the country develops necessary infrastructure, e.g. housing,

water supply, sanitation etc. the energy consumption is expected to grow.

The energy elasticity of GDP is currently 0.81 (from 1989-2008) [See Figure 10]. The projections for the

future have been done using this elasticity. The elasticity will be higher if the share of manufacturing in

GDP increases in the future.

16 The Human Development Index (HDI) is a composite statistic used to rank countries by level of "human development" measured by levels of life expectancy, literacy, education and standards of living

Elasticity = ~0.81;

t-test; p-value = 0.00001 R2 = 0.94

Figure 10: Regressing Electricity per capita and GDP per capita (1989-2008) The explanatory variables in the equation used for this regression analysis are GDP and population. The

relationship between per capita GDP and per capita Electricity Use is given as follows

Log(Energy Use/Capita) = 1.019 + 0.81*Log(GDP/Capita)

Integrated Energy Policy, GoI, Planning Commission (2006) uses a similar methodology for projecting

for future electricity demand. The official estimates for 2031-32 made in the Integrated Energy Policy,

GoI, Planning Commission (2006) as well as by the Ministry of Power, GoI, (2007) are shown in Table 5.

Table 5: Projections for Electricity Use and Installed Capacity in 2031-32

Electricity Use/Requirement (BkWh)

Per Capita Electricity Use/Requirement (kWh/person)

Installed Capacity (GW)

Per Capita Installed Capacity (kW/person)

2008 578 490 168 0.142

IEP Projections (2031-32) at 8% GDP Growth 3880 2598 778 0.521

IEP Projections (2031-32) at 9% GDP Growth 4806 3219 960 0.643

MoP Projections (2031-32) at 8% GDP Growth 4793 3210 962 0.644

MoP Projections (2031-32) at 9% GDP Growth 6036 4042 1207 0.808

Integrated Energy Policy, GoI, Planning Commission (2006) as well as the projections by the Ministry of

Power, GoI, (2007) project an high rate of growth in electricity use as well as installed capacity for the

next 20 years. While the electricity use is slated to grow by 6-10 times, the installed capacity is to grow

by 4-7 times the current capacity. The achievement of this target entails an average capacity installation

of almost 150-250 GW of new capacity every 5 years from now up to 2031-32. The maximum capacity

that has been installed during a 5 year plan in the past has been 21 GW. Even assuming that the

investment required per MW remains at Rs.4 crore/MW, a capacity addition of 700 GW entails an

investment of about Rs. 28 Trillion (1012). If our GDP continues to grow at 8% p.a., the investment in the

power sector alone would be about 15% of our total GDP in 2031-32 which is approximately similar to

the investment made right now (the current investment is also approximately 15% of current GDP).

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Installed Capacity - Historical Trends and Future Projections

Historical Trend5

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1'- Scenario: Capacity Needed with an improved average reserve margin of 51%

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Figure 11: Trends for Installed Capacity

The trends for average capacity are calculated using the energy elasticity of GDP. The dip in the trend for

capacity needed with a 51% average reserve margin is because the improvement here is assumed to be at

the start of the projections itself. An improved average reserve margin can indicate an improvement in

plant generation efficiency, reliability as well as an overall improvement in transmission and distribution.

Figure 9 implies that even if an energy-elasticity of 0.81 is used for energy use, and the existing

inefficiencies of the system are allowed to remain unchanged, the average capacity needed at a growth

rate of 8% will be approximately 740 GW less than that projected by the Ministry of Power. An

improvement in plant generation and distribution efficiencies can lead to a potential avoided capacity of

150 GW (with respect to a simple BAU extrapolation), which implies a savings of the order of Rs.600800

crore. Assuming that the efficiency improvements will cost approximately Rs. 2 crore/MW, this would

imply an avoided cost of over Rs. 300,000 crore.

As seen from Table 6, most of the new generation projected in the Integrated Energy Policy, GoI,

Planning Commission (2006) is from thermal energy (coal and gas predominantly), while there is a

decrease in the contribution from renewable energy.

Table 6: Electricity Generation by Source, Current and Projections

Energy Mix Thermal* (GWh) Hydro(GWh) Renewables(GWh) Nuclear(GWh)

2008 80% 15% 3% 2%

2031 - IEP Projections 78% 11% 1% 10%

Alternative Scenario for 2031: Centre for Science and Education

67% 9% 18% 6%

*Thermal includes coal, gas and diesel based generation

The energy mix can be different than that projected in the IEP. If the CSE scenario is considered in which

18% of all energy comes from renewable sources by 2031, then some nuclear and some thermal energy

can be forgone. However, coal and gas will still dominate energy production and be more than 50% of the

total energy mix. The cost of renewable energy has been reducing steadily. For a scenario of ~20%

renewable energy, the cost per MW of installed capacity is likely to increase by at least by 50% (6

crore/MW) putting the total investment required to Rs. 42 trillion between 2008 and 2030.

ALTERNATIVE PERSPECTIVE IN POWER PLANNING

The energy projections as discussed in the previous section, consider an energy elasticity of GDP of 0.81

calculated using past trends. However, as mentioned earlier, this assumes that existing efficiencies persist

in the sector. As a lot of the stock of infrastructure that is needed in the country is yet to be added, there is

opportunity to reduce the inefficiencies and redundancies in the system. This can be done on the supply

side (reducing auxiliary consumption, T&D losses) and also on the demand side. There should be efforts

to ensure that the significant level of new stock of infrastructure to be added in the country is energy

efficient. For example, the ‘buildings’ sector in the economy is growing rapidly. The current stock of

commercial buildings in India covers approximately 659 million m2 and is expected to grow to about

1900 million m2 by 2030 (Kumar, 2011). The average consumption of commercial buildings (all kinds) is

approximately 240 kWh/m2/year (MoHUPA, GoI, 2006). This implies a total consumption of 456,000

GWh by commercial buildings alone by 2030 – an implied capacity of 52,000 MW, which is almost 30%

of the current installed capacity. If this consumption is reduced, by employing efficient technologies for

cooling and lighting as well as by reducing requirements through better, more energy sensitive

construction, then it would mean a significant reduction in the required electricity generation. For

example, if energy consumed per square meter of area can be reduced by 30%, the avoided installed

capacity would be approximately 16,000 MW, which implies an avoided cost of Rs. 30,000 crore17 in the

commercial buildings sector alone.

In terms of the volume of materials produced, Indian construction industry is one of the largest. It is

responsible for a significant share of total energy supplied in the country resulting in one of the largest

shares of CO2 emissions%. However, it has been shown that total embodied energy of load bearing

masonry buildings can be reduced by 50% when energy efficient/alternative building materials are used

(Reddy and Jagadish, 2003). The aggregate savings for the new stock of buildings yet to be built will be

significant according to these estimates. Savings of such a magnitude can alter the demand projections for

the future significantly.

An analysis of the actual implementation of energy efficient measures implemented in the cement

industry (based on data available from the database of the Bureau of Energy Efficiency) is shown in

Figure 12.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

0 20 40 60 80 100 120

Cos

t of S

aved

Ene

gry

(Rs/

kW

h)

Cumulative Energy Savings (GWh)

1- Optimization

2.Automation

3. Additives

4. Energy Efficient Motor

5. Energy Efficient Lighting

6. Variable Speed Drive

7. New Installation

8. Equipment Modification & Retrofits

9. Waste Heat Recovery

1 2 3

4

5

6

7

8

9

Figure 12 Conservation supply curve for electricity savings in cement industry-India (Rane, 2009)

17 The calculation assumes a cost of Rs. 4crore/MW for installing new generation capacity and a cost of Rs. 2crore/MW for implementing energy efficiency appliances and processes.

Figure 12 shows savings of about 118 GWh from a base level energy consumption of 1797 GWh. These

savings of about 7% have been achieved from measures already implemented by the cement industries

under study. There can be many more potential opportunities and for energy efficiency, which will yield

higher savings.

CONCLUSIONS

The electricity sector in India has been accounting for about 16% of the budgetary outlet of the Five year

plan. Despite of rapid growth, there are significant shortages and large proportion of the rural households

do not have access to electricity. An analysis of projections for electricity till 2000-2031 show that need

for installed capacity additions between 600 to 1200 GW. This may be unachievable in terms of

investments and carbon dioxide emissions.

It is important to focus on demand side management options along with adding new power plants. A

focus of new stock in buildings, commercial installations and industry can result in significant reductions

in the need for additional power plants. Investments in DSM and efficiency are essential for developing a

sustainable power sector for India.

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