Worst India Outage Highlights 60 Years of Missed Targets: Energy (Businessweek)

Worst India Outage Highlights 60 Years of Missed Targets: Energy (Businessweek, Aug 1, 2012):

India’s worst-ever power crisis is the legacy of 60 years of missed investment targets and on current projections fixing the nation’s electricity supply is still decades away.

The network in Asia’s third-largest economy loses 27 percent of the power it carries through dissipation from wires and theft, while peak supply falls short of demand by an average of 9 percent, according to India’s Central Electricity Authority. Some 300 million people, or one in every four, remain without links to the grid and the number will still be about 150 million by 2030, according to the Paris-based International Energy Agency.

A blackout yesterday across the north and east of the country, the second in two days, left more than 640 million people without electricity. It forced homes and businesses to switch to back-up supplies, halted trains and public transport and caused traffic jams. Prime Minister Manmohan Singh in response will probably speed approvals for coal mining and power plants, Planning Commission energy adviser I.A. Khan said in a phone interview, developments that will take years to build.

“The proximate cause of a power outage on this scale almost always seems trivial,” said Michael Parker, an analyst in Hong Kong with Sanford C. Bernstein & Co. “The blackout highlights the big underlying issue India faces in terms of infrastructure quality. To keep the lights on, India needs to add power capacity, build robust transmission and distribution systems, ensure fuel supply and transport and reform power pricing. Most of that is expensive.”

Building Infrastructure

India has missed every capacity addition target since 1951, underscoring the urgency behind Singh’s effort to make $400 billion in investments, or 40 percent of the total spend planned on infrastructure, over the next five years, according to Power Secretary P. Uma Shankar, the top bureaucrat in India’s power ministry.

The world’s second-most populous nation suffers from frequent power outages that can last as long as 10 hours, amid summer temperatures of as high as 45 degrees Celsius in the capital, New Delhi. Power supply shortages shave about 1.2 percentage points off the nation’s annual growth, according to the Planning Commission.

States usually contract power purchases a day in advance, according to Jayant Deo, managing director of the Indian Energy Exchange Ltd. Some end up drawing more power than contracted, and are charged a penalty for the additional purchases. When a buyer draws more than is due, the frequency at which the grid operates drops, causing the system to collapse and forcing power plants connected to it to shut down.

Excessive Draw Downs

It was excessive draw downs by states in north India which caused the grid to collapse this week, said R.N. Nayak, chairman of state-run Power Grid Corp. (PWGR) of India, which carries half of the electricity India generates.

Ten north Indian power transmission companies and eight electricity dispatch centers had already been censured for drawing more power than their due between Jan. 1 and March 25 and on July 10 the states of Uttar Pradesh, Rajasthan, Punjab and Haryana were ordered by the Planning Commission to cease overdrawals from the grid to maintain its safety. As of July 30, the overdrawals were continuing, the Commission said.

Coal and natural gas supply shortages and the lowest monsoon rains in three years have cut electricity generation in India, even as demand continues to grow, putting additional stress on the grid. Power stations, including those operated by NTPC Ltd. (NTPC) and billionaire Anil Ambani-controlled Reliance Power Ltd. (RPWR), in north India feed electricity into the grid.

Price Controls

India’s government controls the price of electricity and the coal used to produce it as it seeks to reduce costs in the country where about 800 million people live on less than $2 a day. That crimps utilities’ profitability and investment. The nation also needs to improve its coal output and transportation, Bernstein’s Parker said. Prime Minister Singh is seeking $1 trillion in investment in the five years to 2017 to build out an infrastructure that is ranked below Kazakhstan and Guatemala by the World Economic Forum.

Power Grid Corp. of India, established in 1989, is setting up a nationwide grid to integrate the country’s five electrical regions. It plans to spend 1 trillion rupees ($18 billion) in the next five years to double capacity, said I.S. Jha, director for projects.

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