India’s Power Sector: Challenges and Path Forward

Context: India’s power sector has witnessed significant growth through competitive bidding, but recent moves towards composite bidding for coal and solar energy have raised concerns about the sector’s efficiency and inclusivity.

Key Concepts:

• Competitive Bidding: A transparent process where bidders offer their best prices for services or goods to ensure cost-effectiveness and operational efficiency.
• Composite Bidding: Combines procurement of different energy sources (e.g., coal and solar) in a single tender, but this complexity creates challenges such as mismatched delivery timelines and the exclusion of smaller players.

Challenges of Composite Bidding:

• Delivery Delays: Coal plants take much longer (6-7 years) to become operational compared to solar projects (1.5-2 years), leading to mismatched timelines.
• Exclusion of Smaller Players: The high investment requirements for composite bids make it difficult for smaller developers to participate.
• Unequal Expertise: Developers experienced in solar energy may not have the expertise to handle coal-based projects, which affects competition and efficiency.

Important Facts About India’s Power Sector:

• Global Ranking: India is the third-largest producer and consumer of electricity.
• Installed Capacity (2024): 442.0 GW, with renewable energy making up 168.4 GW (40.9% of total capacity).

Systemic Issues in the Power Sector:

• High Fuel Costs: Delays in environmental clearances, land acquisition, and coal extraction technology hamper efficiency and increase costs.
• Imported Coal Reliance: Despite having large coal reserves, India imported around 60 million tonnes in 2023, adding $2 billion in costs.
• Aged Infrastructure: Many power plants are outdated, leading to inefficiencies and higher operational costs.
• Technical and Commercial Losses: Average losses are 27%, with some states suffering from losses as high as 40%.
• DISCOMS’ Financial Struggles: State-owned power distribution companies (DISCOMS) face severe financial challenges, with accumulated losses surpassing Rs 20,000 crore in Andhra Pradesh (2022).
• High Industrial Tariffs: Cross-subsidies lead to high tariffs for industries, affecting their competitiveness.

Government Policies & Initiatives:

• Green Energy Corridor: Over 8,651 km of transmission lines and 19,558 MVA substations were constructed to support renewable energy distribution.
• Rooftop Solar National Portal: Streamlines the process for residential consumers to adopt solar power.
• Smart Meters: Over 51.62 lakh smart meters have been deployed under the National Smart Grid Mission.
• Production-Linked Incentive (PLI) Scheme: Allocated Rs 19,500 crore for high-efficiency solar PV modules.
• Saubhagya Scheme: Electrified 2.82 crore households by March 2021.
• KUSUM Scheme: Promotes the installation of solar pumps and allows farmers to sell surplus power to DISCOMS.

Way Forward:

• Separate Bidding for Solar and Coal: Avoid complexity by separating tenders for solar and coal power, allowing developers to focus on their area of expertise.
• Inclusion of Smaller Developers: Create tenders with lower entry barriers to foster competition and better price discovery.
• Annual Procurement Calendar: This would give developers more time to plan investments and participate in bids.
• Cross-Subsidy Rationalization: Gradually reduce cross-subsidies to create more equitable tariffs, reducing the financial burden on industries.
• Improved Metering: Implement 100% net metering, smart meters, and agricultural power metering to improve revenue collection and reduce losses.
• Cross-Border Trade: Leverage regional grid integration to trade surplus electricity with neighboring countries like Bangladesh and Nepal.
• Hybrid Power Solutions: Promote the combination of renewable sources like solar and wind with battery storage for a more stable power supply.
• Enhance Grid Infrastructure: Upgrade transmission networks, especially in solar-rich regions, to ensure smoother power flow and energy security.
• Develop Energy Storage Capacity: Support renewable energy projects with energy storage systems, such as those already developed in Tamil Nadu.