India: System failures

Three out of India's five regional power grids collapsed end-July, disrupting life for over half the population of the world's second most populous country. Some 630 million people in all were affected. About 55GW of consumer load was disconnected, 35GW in northern India. Trains stopped, metro services halted, water supplies were cut off and the lights went out in homes and offices.

Such a power failure is not without precedent. The northern region saw a similar collapse about 11 years ago, but this time it was jolted twice, first on 30 July and again on 31 July, when the eastern and north-eastern regional grids broke down simultaneously.

This article was published in the September issue of Platts Energy Economist. Platts is a media partner. It is also organising its 2012 Platts Top 250 Asia Awards Dinner at SIEW 2012.

Photo Credit: iStockphoto.com

Official investigations have pointed to three key factors behind the black outs: indiscipline among a few north Indian states, which were drawing much more electricity from the grid than they had been allotted, a lack of authority among regional-level load management agencies to control that kind of violation and a weak transmission system.

Take what you want

Electricity drawn from the grid by Haryana state was found to be 25.5 percent in excess of the allotted quota on the first day of the twin grid collapses. Consumption by Uttar Pradesh and Punjab exceeded allocation by 20.8 percent and 5.5 percent, respectively. These were the three main offenders. On the following day, these states again broke grid rules, which mandate load shedding when grid frequency drops below 49.5 hertz.

Over-drawing is not uncommon, especially in summer when temperatures rise above 45° Celsius at some locations, requiring extensive air cooling. Demand also rises above normal levels at this time if there has been a lack of rainfall because farmers use pumps to draw water from wells for crop sowing.

India's millions of farmers are a particularly sensitive constituency, which in many cases receive free or below-cost electricity in return for political support. Politicians cannot afford to displease farmers during crop plantation.

Pressure on state power generation companies for electricity had been high because of a lack of rain in June and July, the first two months of the monsoon season, when normal rainfall is crucial for crop sowing. Moreover, a lack of rain not only increases demand but reduces supply, owing to low reservoir levels for India's hydropower plants. India's states had already been living with severe electricity shortages for the best part of the year, with load shedding often going beyond scheduled power cuts in both rural and urban areas, with the exception of a few big cities.

The fact is that India is perennially short of electricity. Power cuts, both scheduled and unscheduled, lasting for several hours of the day, are frequent, sometimes leading to attacks by angry consumers on substations and electricity staff. Supply fell short of the 333TWh required by 8.4 percent in the period from April-July. Peak time consumption shortages tended to be higher at about 9 percent, when demand requires operational power generation capacity of just over 135GW.

Although the supply shortfall was higher in the northern states, none of the states has a surplus. Some major states, including Andhra Pradesh, Tamil Nadu and Bihar, had shortages of up to 15 percent of demand, while in some of the smaller states, notably Himachal Pradesh and Jammu and Kashmir, both in north India, the data showed deficits of up to 25 percent. This is based on connected load, and ignores the latent demand represented by millions of households without access to electricity.

States are charged higher than normal rates--known as Unscheduled Interchange charges--for drawing more electricity than allocated, but this has not dissuaded them from doing so. Some states do not even bother to pay the UI charges. Discipline is hard to impose. Politically significant states, where ruling political parties are partners or supporters of the governing federal coalition, can escape these charges with impunity.

Regional load management agencies have the authority to disconnect power supply to erring states, but choose not to. These state-level agencies are often already under political pressure from the state government to draw as much electricity as possible. These agencies are in theory independent, but political interference often gains the upper hand in electricity supply management.

Power load management at the national level is conducted by the Power System Operation Corp., a subsidiary of the central government-owned Power Grid Corporation of India. PSOC operates the National Load Dispatch Center through five Regional Load Dispatch Centers and 33 State Load Dispatch Centers at state level. These operate under State Transmission Utilities owned by the respective state governments.

The Central Electricity Regulatory Commission, which has jurisdiction over inter-state power matters, heard from the northern RLDC that the states failed to heed several warnings about how much electricity they were drawing before the end-July blackouts occurred. The CERC noted that the SLDCs are not "financially and functionally independent". The CERC is considering penal action against officers in charge of the STUs and SLDCs in six northern states, including Uttarakhand, Jammu and Kashmir and Punjab, which were found to be violating grid discipline.

Generation and fuel

The problem behind the lack of power supply that limits states' allocations is not a lack of installed generating capacity, but a lack of economically-priced fuel. India currently has about 45 percent more installed generation capacity, at 206GW, than required to meet peak time demand. However, over 40GW is unavailable, about one-fourth due to planned maintenance. Fuel shortages account for much of the rest. According to Central Electricity Authority data, the coal fleet in the April-July period operated at 75 percent capacity, the gas fleet at 49 percent, while operating capacity from hydro plant was also well below installed capacity.

National generation capacity rose by about 55GW during the five-year plan period to March 2012. This was more than twice the additions made over the previous 10 years and was claimed as a great achievement by Sushilkumar Shinde, until recently India's Minster for power. Shinde was, ironically, promoted on the second day of the blackouts to the position of home minister and ruling party leader in parliament.

About 9,000MW of newly-constructed capacity is stranded for want of coal, and more new coal plant currently under construction looks set to suffer the same fate upon completion. In addition, over 13GW of gas turbine capacity under construction faces the prospect of a lack of gas.

The reason is that domestic coal production, recorded at 540 million mt for fiscal 2011/12, has been virtually stagnant for the past two years. Tough environmental rules, land acquisition hurdles, and delays in gaining mining licenses and other administrative clearances mean that years are lost before construction of a new coal mine can begin. Opposition parties also allege corruption in the selection of investors for captive coal blocks, which has served to make it even harder for power project developers to develop such mines.

Fuel supply is supposedly guaranteed by Fuel Supply Agreements (FSAs), but state-owned coal company Coal India Ltd, which accounts for 80 percent of national output, had, until a few months ago, avoided signing new ones since April 2009. Intervention by the Prime Minister's office forced CIL to accept a minimum 80 percent supply commitment and some FSAs have been signed by power developers frustrated by the unreliable, interim arrangements.

However, the new FSAs are to be revised as many power producers, including the country's leading power producer NTPC Ltd, have refused to accept contracts that provide no penalty for the first three years and only a token penalty thereafter if CIL fails to deliver, rendering the agreements largely meaningless.

Natural gas supply has been equally disappointing. Production from the KG-D6 block, which had been expected to double domestic production this year, has dropped to less than half of its peak output of two years ago. This is the main reason behind the drop in total domestic gas output of about 9 percent last year to 130 million cubic meters a day. The petroleum ministry expects production to drop further to 118MMcm/d this year, leaving a 189MMcm/d gap between domestic supply and demand to be met by LNG imports. The deficit will rise to about 292MMcm/d the year after.

So, why not make up the fuel shortfall with imports"font-size: medium;">Transmission weakness

Unlike generation, few private investors have been attracted to the transmission sector. Investment here has always lagged that in the generation sector. An important contributory factor to the July grid collapse was a number of inter-state transmission lines shut for maintenance. The transmission system is unable to absorb the demand load and deal with essential maintenance simultaneously.

The country had a total of 270,051 kilometres of transmission lines by March, a rise of 36 percent on the previous year. A much larger programme to build an additional 109,440km of transmission lines over the next five years is planned. A strong inter-state and interregional transmission system has evolved over the past few decades led by Power Grid Corporation of India. Inter-regional transfer capacity has doubled to over 26GW in the last five years and another 38GW is proposed over the next five years.

However, the federal-state administrative structure requires much of the responsibility for transmission system development to be taken by the states. State level transmission networks are weak. One of the northern states, Uttarakhand, explained to the CEA after the grid collapse that it was following a manual load disconnection strategy to restrict over-draw from the grid.

This takes 45-60 minutes to pass on the message from the RLDCs to several sub stations. Uttar Pradesh said its communication system can convey messages only to 220kV sub-stations leaving out others at the lower voltage level to be contacted manually. Most states' transmission communications systems lack real-time communications.

In addition, low voltage transmission and distribution infrastructure in most states is dilapidated and characterized by heavy losses running up to 70 percent of capacity, resulting in massive leakages of revenue. This, combined with having to supply electricity below cost price mainly to agricultural consumers, means the state distribution utilities are financial wrecks. Banks are refusing to extend them any further debts.

They are worse off now than when they were bailed out more than a decade ago with the intention of providing them with a clean financial sheet. The central authorities are once again working on a bailout package, concerned that the fragile finances of the utilities will hold up generation project development and in turn become a barrier to national economic growth.

In other countries, such systemic and enduring failures in power supply have caused governments to fall, but India's politicians are instead paralyzed from taking decisive action by their own political interests and corruption scandals. All three sectors of the system--generation, transmission and distribution--require urgent action to improve power supply, which together can contribute to better grid operation.

However, it is clear that private sector capital is unlikely to be attracted to an industry increasingly reliant on imported fuels that are too expensive to burn based on the domestic price of electricity. India will struggle to find an efficient allocation of capital within its electricity system until that system starts to run on a commercial basis rather than being distorted by politically-motivated subsidies.

BY : Sunil Sarif, Platts Energy Economist