The key to low cost electricity15 June 2001
By increasing the proportion of hydro power in the Indian generation mix as quickly as possible, Awadh B Giri believes that power prices will start to tumble
Historically, the inefficiency and high cost of the Indian electricity sector has been a crucial factor in limiting competitiveness and standards of living. Indian electrical energy tends to be expensive due to the high uptake of thermal generation and the higher cost of petroleum fuels. The inefficient electrical system has increased state electricity boards’ cost of electricity, resulting in an aggravated cost disadvantage to the industry which is trying to over-come this by resorting to distributed and captive generation from petroleum fuel. The cost of electricity generated from captive sets using petroleum fuels is lower than the cost of grid electricity, due to the latter’s inefficiencies and revenue distortion through cross-subsidies. This has resulted in the rapid growth of 20,000MW of on-site captive generation (20% of the total capacity).
The problem of high tariffs mainly arises from recently commissioned petroleum fuel plants in both the private and public sectors. Increases in energy costs are affected by external factors such as international fuel prices, import duty on fuel and the dollar-rupee exchange rate, along with the level of off-take which in itself is a result of tariff levels.
In comparison, there are no such externalities on hydro power which offers reducing tariffs. The long term answer appears to lie in raising the proportion of hydro energy in the generation mix as quickly as possible. In doing so we would start a downward spiral in the overall tariff.
However, for this to happen, there needs to be a concerted effort between government policies, attitudes of the state governments and the state electricity boards/corporations and the private sector. We would have to start believing that hydro power projects do not have to have a lengthy gestation period, or be risky and difficult to do. In fact, some of the projects in the private sector, and recently in the government sector, have disproved this myth by applying the right entrepreneurial strategy for project development; by engaging efficient project management; and by utilising modern methods of design, scheduling and construction technology.
Hydro power is our natural advantage. It does not do us any credit that we have utilised only 38,000MW of capacity (from our natural potential of 150,000MW) which accounts for a mere 12% of electrical energy at present. Development of hydro power has to be seen as a national priority. Recognition of the fact that over 110,000MW of capacity has yet to be built within the country, should prompt a greater need for bringing in as many developers as possible to clear the backlog in as short a time as possible. To be able to do this, the government needs to reform its policies, open doors and welcome Indian and international private sector investment into hydro power development.
The general impression of hydro power projects is that they are difficult and risky to carry out, as well as having long and uncertain completion periods, with heightened risks. This impression is not necessarily true. A study of a recently completed hydro power project shows that the construction risks, (which relate only to the hard cost of the project: 55-60% of the total project cost), are not the complete or real reason for cost over-runs. The remaining 40-45% is the soft cost of the project impacted by revised designs, re-scheduling, delays, financial costs and high overheads.
The time taken to complete a project is the single most important factor and it depends on site investigation and construction design; project implementation strategy, design and scheduling; pre-construction planning; the culture and autonomy of the implementing organisation; and the accountability of the project executing authorities to the investors and the buyers.
The rapidly rising cost of electrical energy is a concern which also provides the opportunity to review and re-direct our attention and focus to the rapid development of hydro power. This will not only help to contain the rising trend of the cost of aggregate energy, but also holds the promise to reverse the trend and lower costs in forthcoming decades.
With modern management, technology and engineering in a new competitive economy, early utilisation of our vast hydro power potential will help strengthen an economy that we can be proud of.