Developing Countries & Global Climate Change: Electric Power Options in India

Developing Countries & Global Climate Change: Electric Power Options in India

Prepared for the Pew Center on Global Climate Change
October 1999

P.R. Shukla, Indian Institute of Management, Ahmedabad
William Chandler, Battelle, Advanced International Studies Unit
Debyani Ghosh, Indian Institute of Management, Ahmedabad
Jeffrey Logan, Battelle, Advanced International Studies Unit

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Eileen Claussen, Executive Director, Pew Center on Global Climate Change

The electric power sector in India is characterized by low per capita energy use, rapid growth in demand, heavy losses in transmission and distribution, and tariffs well below average costs. Coal dominates usage, which combined with hydropower represents 85 percent of generated power. The power sector is responsible for half of India's carbon dioxide emissions, which were 92 million tons in 1995. Even with the prospect of market and industrial reforms, the 'business-as-usual' path for India in 2015 increases both generating capacity and carbon dioxide emissions by around 150 percent over 1995 levels. But the scenarios modeled in this study show that growth in emissions can be reduced to only 60 percent greater than 1995 if progressive sustainable development policies are implemented.

What are the drivers that will influence future technology choices in India?

  • The ability of India's power producers to fuel-switch and lower carbon dioxide emissions is heavily dependent on the availability and cost of alternative fuels (especially natural gas). In the scenario simulating stricter local environmental controls, this restriction steers decision-makers to sulfur control equipment and does not necessarily lead to reductions in coal use. On the other hand, striving to attain sustainable development goals can reduce costs and capacity needs, and achieve the most dramatic reductions in carbon dioxide emissions.
  • Market reforms can lower costs by 11 percent and carbon emissions by 7 percent through a reduction in the need to build more power plants through increased supply efficiency and earlier availability of new technologies.
  • More widespread adoption of cost-effective energy efficiency measures could also reduce carbon emissions by 23 percent and sulfur dioxide emissions by 60 percent, by reducing demand for power by around 15 percent.

Developing Countries and Global Climate Change: Electric Power Choices in India is the third in a series examining the electric power sectors in developing countries, including four other case studies of Korea, China, Brazil, and Argentina. The reports findings are based on a lifecycle cost analysis of several possible alternatives to current projections for expanding the power system.

The Pew Center was established in 1998 by the Pew Charitable Trusts to bring a new cooperative approach and critical scientific, economic, and technological expertise to the global climate change debate. The Pew Center believes that climate change is serious business and a better understanding of circumstances in individual countries helps achieve a serious response.

Executive Summary

Electricity consumption in India has more than doubled in the last decade, outpacing economic growth. The power sector now consumes 40 percent of primary energy and 70 percent of coal use. This sector is the single largest consumer of capital, drawing over one-sixth of all Indian investments over the past decade. Despite these huge expenditures, electricity demand continues to outstrip power generating capacity, leaving a 12 percent electricity deficit and a 20 percent peak power shortage.

The government has assumed the predominant role in electricity supply in the post-independence era. State electricity boards (SEBs) and power corporations plan and govern power plants financed with state funds. SEBs in particular are wide open to political influence and tariff distortions. Operational inefficiencies grew in the absence of competition and financial discipline, undermining the power sectors financial health. By the early 1990s, the sector was overdue for sweeping reforms to enhance revenues and mobilize investment in the short run, and to change ownership and the regulatory structure in the long run. Reforms underway fall broadly into the categories of SEB corporatization, privatization of power corporations, unbundling (vertical divestiture), and regulatory restructuring.

Despite enhanced competition from other fuels, coal remains the mainstay of power generation in India. The present power technology mix relies on domestic coal to provide three-fifths of the countrys power; large hydroelectric dams provide about one-quarter. Gas-fired power has grown from almost nothing to one-twelfth of total generation in the last decade due to the reduced risk associated with lower capital requirements, shorter construction periods, diminished environmental impacts, and higher efficiencies. Nuclear power contributes less than 3 percent to total generation and renewables (other than large hydro) just over 1 percent. India has a significant program to support renewable power, exemplified by wind power capacity that rose from 41 megawatts in 1992 to 1,025 megawatts in 1999.

Power transmission and distribution has suffered from losses amounting to over one-fifth of generated electricity, more than double the level of most countries. An institutional restructuring process began in 1989 to consolidate various suppliers and distributors under an agency called "Powergrid." Faced with unreliable power supply, many industries have invested in on-site power generation that now accounts for 12 percent of total capacity.

The phenomenal rise in agricultural electricity consumption is due to greater irrigation demand by new crop varieties and the very low price of electricity provided to that sector. The average electricity tariff in India is 20 percent below the average cost of supply. The gap is mainly due to subsidized rates for agriculture. Industrial consumers pay higher costs and provide a cross-subsidy that was worth over US$5 billion in 1997, equal to almost half of power sector investments that year.

Concerns about the environmental impacts of power plant projects have grown in the past twenty years. The power sector contributes about half of Indias carbon, sulfur, and nitrogen oxide emissions. Hydroelectric projects also have generated social concerns. Dam construction has forced the relocation of many Indians, a problem the government has handled poorly. Managing environmental and social impacts has therefore drawn considerable attention in policy-making, project development, and operations.