Long-term Power Options for India:Modelling and Policy Analysis

P.R. Shukla

Indian Power Sector Dynamics

Government Ownership

Tariff Distortions

Demand - Supply Disequilibrium

High Reliance on Domestic Coal

Restricted Primary Energy Market

Cautious Reform and Restructuring

Indian Power SectorOverview

0

20

40

60

80

100

120

1980 1985 1990 1995

Year

Cap

acit

y

Coal Diesel+Wind Gas Hydro Nuclear

Power Capacity in India (GW)

Power Generation Capacity

Coal Oil Gas Hydro Nuclear Renewables

GW

0

20

40

60

80

100

1970 1975 1980 1985 1990 1995

Plant Ownership and Performance

Plant Load Factor : 1996(Thermal Power Plants)

60.3

71 71.2

64.4

0

20

40

60

80

SEB’s CENTRAL PRIVATE OTHERS

Ownership affects Performance

SEB Plants have remained inefficient

Sectoral Electricity Consumption

(GWh)

19801985

1990

1995

0

50

100

150

200

250 AgricultureRailwayIndustrialCommercialDomestic

Electricity Consumption has grown at 8 % in past few years

Share of Agriculture has reached 30%

Power Gap and T&D Losses (1995)

0

5

10

15

20

25

%

Ener

gyD

efic

it

Peak

Def

icit

T&D

Loss

es

Rising Peak Deficit is major problem

Peak Deficit varies across zones

Inefficient technologies and pilferage cause high T&D Losses

Electricity Cost & Tariff

1990 19911992

19931994

19951996

1997

Cost

0

50

100

150

200

250

Tariff

1996-97

(Paise/kwh)

Cost - Tariff Gap: 24%

Subsidy in 1997 (Rs. Billion)

0

20

40

60

80

100

120

140

160

180

Domestic Agricultural Cross Subsidy Net Subsidy

80% Subsidy to farmers

20% to Households (mainly Rural)

Industries Cross Subsidizes

> 1 percent of GDP

Share of Power Sector in Total Emissions (%)

Carbon EmissionsN2O / NOX/ SO2

Emissions

0

20

40

60

1990 19950

20

40

60

80

N20 NOX SO2

1990

1995

0

100

200

300

400

500

1975 1980 1985 1990 1995

Ind

ex (

1975

= 1

00)

GDP Energy Power

Energy and Power in Indian Economy

Indian Power SectorInstitutional Structure

Power Sector Institutions (Pre 1990)

Institution Functions

CEA 1950 Arbitration, Advice, Power Policy

CPRI 1960 Power Engineering Research

Equipment Testing and Certification

REC 1969 Finance and Planning for Rural Electrification

MOEF 1974 Policy, Legislation

NTPC 1975 Thermal Power Generation

NHPC 1975 Hydro Power Generation

PFC 1986 Finance for Power Projects, T&D and Renovation

PGCIL 1989 Regional Grid Monitoring, Transfer of Power, Transmission Line Construction

EMC 1989 Energy Conservation Information, Research,Training

Central Power Organization

NJPC NTPCNHPC

NEEPCO

PLANNING COMMISSION

NRB AEC NPC

MINISTRYOF POWER

STATE GOVERNMENT

DEPT. OFATOMICENERGY

NATIONALDEVELOPMENT

COUNCIL

MNES

ENERGYMANAGEMENT

CENTRE

NPTICPRI

GOVERNMENTOF INDIA

PFCREC

PGCILTHDC

CENTRALELECTRICITYAUTHORITY

DVCBBMB

CERC

State Power Organization

PRIVATESECTOR

LICENSEES

STATEELECTRICITY

BOARDS

STATEELECTRICITY

DEPARTMENTS

STATEELECTRICITYINSPECTION

ORGANISATION

MINISTRY ORDEPARTMENT OF

POWER

STATEGOVERNMENT

SERC

Power Sector ReformsAn Overview

Why Reforms? The SymptomsDemand-Supply Energy GapPeak Power GapSystem InefficienciesFinancial LossesVintage TechnologyPoor Supply QualityEnvironmental Quality

What reforms aim at? Remove Barriers and reduce

Risk Transaction Costs

Enhance Technology Choices Enhance Financial Flows Enhance Efficiency

Competition

Early Reforms

Corporatization of SEBs

Privatization

Unbundling

Regulatory Changes

Slow Changing Reality

Weak Electricity/ Energy Market

Weak Grassroots Democracy

Strong Urban-Rural Divide

Antiquated-Inverse Bureaucracy

Corruption (High Transaction Costs)

Regional Conflicts

Future Power Sector Trends: Model Analysis

Economic and Environmental Power Planning Software

(EEPS)

User Inputs Exogenous

Power Plant Characteristics(cost, performance,

emission control)

Transmission GridCharacteristics(cost, geometry,

performance)

EnvironmentalDamage (Optional)

(emission externalities)

Existing Power System(capacity, generation,emissions, plants under

construction)

LevelizedCost

Calculations

Least-CostOptimizationof New Power

Plants

Power Demand

Fuel Availability(coal, gas, oil)

Fuel Characteristics(cost, heat value,

composition) Emission Caps orLimitations

Renewable EnergyAvailability

( hydro, wind, bio)

EquipmentManufacturing

and ImportLimitations

OUTPUT:Power Plant

Capacity Mix,Emissions Profile,

Total Costs

EEPS: Model Structure

EEPS

Excel spreadsheet program using Solver based on Simplex linear programming algorithm

Driven by exogenous electricity demand assumptions

Analysis over 20 years at 5 year time steps Spread- National as well as regional analysis Determination of power supply options

needed to meet future electricity demand.

Minimization of present value of system costs.

Costs- Capital, O&M, Fuel and Environmental costs

Levelized cost determination of power generation technologies

Fourteen power generation technologies are modeled

EEPS

Technology choices constrained by fuel availability and price penetration rate of technologies emission standards/caps

Regional analysis in a national model possible to account for differences in

availability, quality and cost of energy supply energy demand pattern technology characteristics

EEPS

Analysis with EEPS

Power Capacity: Scenario Results (2015)

0 50 100 150 200 250

Baseline

Reform

Efficiency

Environment

SusDev

GW

Coal Gas Oil Nuclear Hydro Renewables

Investment in Power Generation

0

3

6

9

12

15

2000 2005 2010 2015

$ B

illi

on

S.D. A.T. Efficiency

Base Env Reforms

Marginal Cost of Electricity Generation

4

5

6

2000 2005 2010 2015

Years

Co

sts

(c/k

Wh

r)

Ad. Tech Efficiency BaseEnv SusDev Reforms

Carbon Emissions

50

100

150

200

250

1995 2000 2005 2010 2015

Mil

lion

Ton

s

S.D. A.T. EfficiencyBase Env Reforms

Sulfur Dioxide Emissions

0

1.5

3

4.5

6

1995 2000 2005 2010 2015

Mil

lion

Ton

s

A.T. Efficiency S.D.

Env Reforms Base

Power Generation Capacity (Future)

0

50

100

150

200

250

300

1995 2000 2005 2010 2015

GW

Coal Oil Gas Hydro Nuclear Renewables

High economic growth can be less polluting.

Natural gas is a robust option for power.

Local pollution controls penetrate clean coal technologies, rather than substitute coal.

Capacity building for renewables is a good hedging strategy, but investing is not.

Regional co-operation for energy and power are effective economic and environmental strategies.

Policy Insights

Conclusions1. Power Sector has substantial mitigation potential.

Carbon Saving (2000 - 2015)

2. Local environmental policies have little carbon mitigation co-benefits.

3. Climate Change Mitigation policies for the Indian Power sector will have to be crafted for own sake.

0 200 400 600

Reforms

DemEff

AdTec

SusDev

India Power Sector:Analysis with

MARKAL Model

Electricity Capacity : BAU Scenario

From 1995-2035

Capacity Grows 4 times

Coal remains mainstay

Gas Penetrates

Hydro Triples

Nuclear and Renewable remain marginal

0

50

100

150

200

250

300

350

400

450

1995 2005 2015 2025 2035

Gig

a W

atts

RenewableNuclearHydroGasCoal

Electricity Price under Mitigation Scenarios

Average LRMC

0

1

2

3

4

5

6

7

8

9

10

1995 2005 2015 2025 2035

ce

nts

pe

r k

Wh

Reference 1 BT (5%) 2 BT (10%)

3 BT (15%) 4 BT (20%) 5 BT (25%)

Electricity Price Rises with Mitigation

In 2035, price can more than double

Reference 1 BT (5%) 2 BT (10%)3 BT (15%) 4 BT (20%) 5 BT (25%)

Electricity Price under Mitigation Scenarios

Peak LRMC

0

3

6

9

12

15

1995 2005 2015 2025 2035

cen

ts p

er k

Wh

Off-Peak LRMC

0

3

6

9

12

15

1995 2005 2015 2025 2035ce

nts

per

kW

h

Renewable Electricity Capacity

0

20

40

60

80

100

120

1995 2005 2015 2025 2035

Gig

a W

att

Share of Renewable

0

5

10

15

20

25

30

1995 2005 2015 2025 2035

Per

cen

tag

e

Reference 5 % Mitigation15 % Mitigation 25 % Mitigation

Implications of Mitigation TargetsRenewable Electricity

Insights from Scenario Analysis

Energy Supply/ Technology

Domestic coal will be the mainstay

Natural Gas is the robust option

Learning renewables is good hedging option, but high investment is not

Environment

Local Pollution Controls penetrate Clean Coal Technologies rather than substitute Coal

Global Climate Change policies can significantly alter the Indian Power Sector dynamics

Market Reforms Market reforms can save a billion $ each

year in the medium run, but can increase short run electricity cost

In short run, technology push policies are more effective than market reforms

High economic growth with market reform can be less polluting

Regional Co-operation

Regional co-operation for energy and power are effective economic and environmental strategies

Grid Integration and Regional Co-operation

Reduction in capacity requirements-6% in 2015

Investment savings - 14.5 billion $ between 2000 and 2015

Progressive reductions in marginal electricity costs

2005 2015

0

1.5

3

4.5

6

Red

uct

ion

(%)

Year

Marginal Cost Reduction

Grid Integration

Grid Integration + Regional Co-operation

Grid Integration and Regional Co-operation

CarbonSOX

0.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5

Red

uct

ion

(%

)

Year

Emissions Reduction (2015)

Grid Integration

Grid Integration + Regional Co-operation

Increased share of gas and hydro2% increase in gas

share in 20155% increase in hydro

share in 2015

Significant reduction in emissions

Proposed Oil & Gas Import Routes and Gas Pipelines in India

RISK: Political Uncertainties

FACTS: Turkmenistan to N. India 20 BCum, Inv. $2 Billion Piped Gas Price : $3.5/GJ LNG Price : $5/GJ Dom. Coal Price : $1-2/GJ Imp. Coal Price: $2-3/GJ

RISK COST: $1.5 Billion/ year

Proposed Oil & Gas Import Routes

Proposed Oil & Gas Import Routes