India's Power Sector

India's Power Sector

ENERGY STRATEGY CONSULTATIONS | HYDROPOWER DEVELOPMENT

OPTIONS FOR LOW CARBON DEVELOPMENT

The inadequate availability of electricity continues to constrain India's sustained growth and
economic competitiveness. While India's GDP has grown at an average of about 8% per year
over the last six years, electricity generation/supply has grown at only an average of 5.3% per
year. Electricity shortages are estimated to cost the country around 7% of GDP.

Apart from certain central institutions such as the National Thermal Power Corporation (NTPC)
and Powergrid, most state power utilities operate without autonomy and under diffuse
accountability systems. They suffer from limited implementation capacities, a shortage of
skilled manpower, and poor financial standing due to inadequate tariffs that do not recover
their costs.

While the Government of India, is working to strengthen the public sector's capacity, it is also
encouraging a paradigm shift to scale-up public-private partnerships (PPP) in the sector. So
far, only 15.5% of grid-based generation and 12% of distribution is currently handled by the
private sector.

CHALLENGES
India's challenges in the power sector are significant. To meet these, the country needs to:
• Increase access to electricity: At least 400 million people (18-20 % of all villages)
still do not have access to electricity, and two-thirds of households rely on biomass
for cooking.

• Expand and diversify generation: Power shortages are the biggest bottleneck to
new investment and industrial growth. Some 60% of firms and a large percentage of
homes rely on captive or back up generation. Reported energy shortages (11.1%)
and peak energy shortfalls (over 11.9%) are higher than 6 years ago, while actual
 shortages of electricity experienced on the ground are even higher.

• Improve efficiency and governance of distribution networks: Technical and

commercial losses amount to more than 40% of electricity produced. Reducing
these losses to 15% will generate additional revenues of $4.4 billion per year.

• Manage growing carbon emissions: While India is a relatively low CO2 emitter by
global comparison, its power sector accounts for 50% of its emissions. With coal
dominating India's energy mix - it presently accounts for 53% of installed capacity
and
70-80% of power generation - current emissions of 0.5 billion tonnes per year are
likely to grow to 2.3 billion tonnes per year by 2031 under a business-as-usual
scenario.

GOVERNMENT PRIORITIES
India's current grid-connected generation capacity is about 148,000 MW (63% coal; 25%
hydro; 12% other). Under the 11th 5-Year Plan (2007-2012), the Government of India expects
to provide all its people with access to electricity by 2012. This would mean increasing its
generation capacity to at least 200,000 MW by 2012. To achieve this goal, the government is
focusing on:

Expanding Generation:
• Adding generation capacity of about 80,000 MW, including 16,000 MW of
hydropower.

• Increasing renewable energy from 4% of installed capacity to 10% by 2012, by

expanding small and medium hydro, wind, and biomass.

• Increasing share of solar energy to 20,000 MW by 2020

Improving Energy Efficiency:

• Rehabilitating and modernizing about 27,000 MW of old coal-fired power plants.
• Increasing the share of supercritical power plants to 20% of new installations.

Managing Demand:
• Including in irrigated agriculture which accounts for 20-25% of total electricity
consumed.

• Adopting stringent and enforceable energy-efficiency standards for

appliances.

Improving quality of energy supply and service:

• Expanding inter-regional transmission from 10,000 MW to 37,000 MW by 2012
• Upgrading and expanding distribution networks and management information
systems and trying to reduce technical and commercial losses from more than 40%
to 15%.

WORLD BANK SUPPORT

The World Bank's program responds to the Government of India's development strategy for
the sector as underpinned by the Electricity Act 0f 2003 and various sector policies. The
Bank's lending to India's power sector is a modest $1 billion, compared to its requirements of
$30 billion per annum on average.
In the past, the World Bank has supported India to build its largest hydropower plant at Nathpa
Jhakri in Himachal Pradesh. It is now helping the country augment the supply of hydropower.
Support for the 412 MW run-of-the-river Rampur Hydropower plant on the Satluj river in
Himachal Pradesh is ongoing, and two other hydropower projects are in the pipeline - a 444
MW project on the Alakananda river in Chamoli district in Uttarakhand, and the other at Luhri,
further downstream from Rampur in Himachal Pradesh.
The Bank is also supporting the efficient transmission and distribution of power to consumers.
It has helped Powergrid, the national power transmission agency, to emerge as a world class
agency. In September 2009, the Bank extended a loan of $1 billion to Powergrid to strengthen
and expand five transmission systems in the northern, western and southern regions of the
country. At the state level, improvements in transmission and distribution are being supported
in Haryana and Maharashtra. The Bank's program also supports a significantly lower carbon
growth path for India than under a "business-as-usual" scenario.
Considerable potential exists for cross-border energy trade with India's neighbors. The
development of hydropower on a regional basis could allow India and some of its neighbors to
address their water and energy security issues within a sound framework of water resources
and river basin management.

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India's transportation sector has not been able to keep pace with rising demand and is
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proving to be a drag on the economy. Major improvements in the sector are therefore
required to support the country's continued economic growth and to reduce poverty.

India’s transport sector is large and diverse; it caters to the needs of 1.1 billion people. In 2007, the sector contributed about 5.5 percent to the nation’s
GDP, with road transportation contributing the lion’s share.
Good physical connectivity in the urban and rural areas is essential for economic growth. Since the early 1990s, India's growing economy has
witnessed a rise in demand for transport infrastructure and services.
However, the sector has not been able to keep pace with rising demand and is proving to be a drag on the economy. Major improvements in the sector
are therefore required to support the country's continued economic growth and to reduce poverty.
Roads. Roads are the dominant mode of transportation in India today. They carry almost 85 percent of the country’s passenger traffic and more than
60 percent of its freight. The density of India’s highway network -- at 0.66 km of roads per square kilometer of land – is similar to that of the United
States (0.65) and much greater than China's (0.16) or Brazil's (0.20). However, most roads in India are narrow and congested with poor surface quality,
and 33 percent of India’s villages do not have access to all-weather roads.
Rural Roads-A Lifeline for Villages in India: Connecting Hinterland to Social Services and markets
Railways. Indian Railways is one of the largest railways under the single management. It carried some 17 million passengers and 2 million tonnes of
freight a day in year 2007 and is one of the world’s largest employer. The railways play a leading role in carrying passengers and cargo across India’s
vast territory. However, most of its major corridors have capacity constraint requiring capacity enhancement plans.
Ports. India has 12 major and 187 minor and intermediate ports along its more than 7500 km long coastline. These ports serve the country’s growing
foreign trade in petroleum products, iron ore, and coal, as well as the increasing movement of containers. Indian ports handled cargo of 650 million
tonnes in year 2006-07, an increase of 14% over previous year. Inland water transportation remains largely undeveloped despite India's 14,000
kilometers of navigable rivers and canals.
Aviation. India has 125 airports, including 11 international airports. Indian airports handled 96million passengers and 1.5 million tonnes of cargo in
year 2006-07, an increase of 31.4% for passenger and 10.6% for cargo traffic over previous year. The dramatic increase in air traffic for both
passengers and cargo in recent years has placed a heavy strain on the country's major airports. Passenger traffic is projected to cross 100 million and
cargo to cross 3.3 million tonnes by year 2010.
Transport infrastructure in India is better developed in the southern and southwestern parts of the country.
Challenges
The major challenges facing the sector are:
• India’s roads are congested and of poor quality. Lane capacity is low – majority of national highways are two lanes or less. A quarter of all India's
highways are congested. Many roads are of poor quality and road maintenance remains under-funded. This leads to the deterioration of roads and high
transport costs for users.
• Rural areas have poor access. Roads are significant for the development of the rural areas - home to almost 70 percent of India's population.
Although the rural road network is extensive, some 33 percent of India’s villages do not have access to all-weather roads and remain cut off during the
monsoon season. The problem is more acute in India's northern and northeastern states which are poorly linked to the country’s major economic
centers.
• The railways are facing severe capacity constraints. All the country’s high-density rail corridors face severe capacity constraints. Also, freight
transportation costs by rail are much higher than in most countries as freight tariffs in India have been kept high to subsidize passenger traffic.
• Urban centers are severely congested. In Mumbai, Delhi and other metropolitan centers, roads are often severely congested during the rush hours.
The dramatic growth in vehicle ownership during the past decade - has reduced rush hour speeds especially in the central areas of major cities.
• Ports are congested and inefficient. Port traffic has more than doubled during the 1990s, touching 650 million tonnes in 2006-07. This is expected
to grow further to about 900 million tonnes by 2011-12. India's ports need to significantly ramp up their capacity and efficiency to meet this surging
demand.
• Airport infrastructure is strained. Air traffic has been growing rapidly leading to severe strain on infrastructure at major airports, especially in the
Delhi and Mumbai airports which account for more than 40 percent of nation’s air traffic.
Key Government Strategies
India’s Eleventh Five Year Plan identifies various deficits in transport sector which include inadequate roads/highways, old technology, saturated routes
and slow speed on railways, inadequate berths and rail/road connectivity at ports and inadequate runways, aircraft handling capacity, parking space
and terminal building at airports. Government aims to modernize, expand, and integrate the country's transport services. It also seeks to mobilize
resources for this purpose and to gradually shift the role of government from that of a producer to an enabler. In recent years, the Government has
made substantial efforts to tackle the sector’s shortcomings and to reform its transport institutions. These include:
• Increasing public funding for transportation in its Five Year Plans.
• Launching the ambitious National Highway Development Program which has seven phases and is expected to be completed by 2012. It includes
improved connectivity between Delhi, Mumbai, Chennai and Kolkata, popularly called the Golden Quadrilateral, in the first phase, North- South and
East- West corridors in phase two, four laning of more than 12,000 km in phase three, two laning of 20,000km and six laning of 6,500 km respectively
in phase four and five, development of 1,000km of expressway in phase six and other important highway projects in phase seven. Total expected
investment is INR 2.2 trillion.
• Accelerated Road Development Program for the North East Region to provide road connectivity to all State capitals and district headquarters in the
North East region.
• Financing the development and maintenance of roads by creating a Central Road Fund (CRF) through an earmarked tax on diesel and petrol.
• Operationalising the National Highway Authority of India (NHAI) to act as an infrastructure procurer and not just provider.
• Improving rural access by launching the Pradhan Mantri Gram Sadak Yojana (Prime Minister’s Rural Roads Program).
• Reducing the congestion on rail corridors along the highly trafficked Golden Quadrilateral and improving port connectivity by launching the National
Rail Vikas Yojana (National Railway Development Program)
• The development of two Dedicated Freight Corridors from Mumbai to Delhi and Ludhiana to Dankuni.
• Improving urban transport under Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
• Upgrading infrastructure and connectivity in the country's twelve major ports by initiating the National Maritime Development Program (NMDP).
• Privatization and expansion of the Mumbai and New Delhi Airports and development of new international airports at Hyderabad and Bangalore.
• Enhancing sector capacity and improving efficiencies through clear policy directive for greater private sector participation. Large parts of the NHDP
and NMDP are to be executed through public private partnerships (PPP).

The World Bank has been a major investor in the transport sector in India. At present, it has ten projects in transport portfolio which include seven state
road projects and one each for national highway, rural road and urban transport with total loan commitments for the transport sector in India as
US$3.48 billion. The main activities include:
• National Highway Development Project: The World Bank is financing highway construction on the Lucknow-Muzaffarpur corridors. It is also
involved in other sector activities such as improving road safety.

• Rural Roads Program: The World Bank is supporting the Prime Minister's Rural Roads Program (PMGSY) in providing all weather roads to villages
in four states – Uttar Pradesh, Jharkhand, Rajasthan and Himachal Pradesh.

• State Roads Projects: State Highways are being upgraded in the states of Andhra Pradesh, Himachal Pradesh, Kerala, Mizoram, Punjab, Tamil
Nadu, Orissa and Uttar Pradesh.

• Mumbai Urban Transport Project: The project aims to improve transportation in the Mumbai Metropolitan Region by fostering the development of
an efficient and sustainable urban transport system - suburban rail, bus and link roads - and building effective institutions.

• Sustainable Urban Transport Project: The project aims to promote environmentally sustainable urban transport in various cities and support
implementation of India National Urban Transport Policy (NUTP).

• In addition to the above, the Bank is involved in the preparation of various analytical works (AAA) in the transport sector in India. These include:

• India Port Sector Study: The purpose of the effort is to review the demand-supply situation with respect to the port sector, identify physical, financial
and policy constraints to sector development and suggest mitigation measures for the same.

• Indian Road Construction Industry Study: Given the large development programs being launched to support the rapidly growing economy, the
supply side constraints in terms of the construction industry capacity are a serious cause of concern. The study reviews these limitations and suggests
mitigation measures. This study has produced two outputs titled "Indian Road Construction Industry: Ready for Growth?" and "Indian Road
Construction Industry - Capacity Issues, Constraints and Recommendations".
While the Bank will continue to support the upgrading and development of roads and highways in the country, it plans to scale up its involvement in
railways and urban transportation.