1. Long-term Power Options for India: Modelling and Policy Analysis P.R. Shukla

2. Indian Power Sector Dynamics u Government Ownership u Tariff Distortions u Demand - Supply Disequilibrium u High Reliance on Domestic Coal u Restricted Primary Energy Market u Cautious Reform and Restructuring

3. Indian Power Sector Overview

4. Power Capacity in India (GW)

5. Power Generation Capacity CoalOilGasHydroNuclearRenewables GW 0 20 40 60 80 100 197019751980198519901995

6. Plant Ownership and Performance Plant Load Factor : 1996 (Thermal Power Plants) 60.3 71 71.2 64.4 0 20 40 60 80 SEB’sCENTRALPRIVATEOTHERS  Ownership affects Performance  SEB Plants have remained inefficient

7. Sectoral Electricity Consumption (GWh)  Electricity Consumption has grown at 8 % in past few years  Share of Agriculture has reached 30%

8. Power Gap and T&D Losses (1995)  Rising Peak Deficit is major problem  Peak Deficit varies across zones  Inefficient technologies and pilferage cause high T&D Losses

9. Electricity Cost & Tariff 1990 1991 1992 1993 1994 1995 1996 1997 Cost 0 50 100 150 200 250 Tariff 1996-97 (Paise/kwh)  Cost - Tariff Gap: 24%

10. Subsidy in 1997 (Rs. Billion) 0 20 40 60 80 100 120 140 160 180 DomesticAgriculturalCross SubsidyNet Subsidy  80% Subsidy to farmers  20% to Households (mainly Rural)  Industries Cross Subsidizes  > 1 percent of GDP

11. Share of Power Sector in Total Emissions (%) Carbon Emissions N2O / NOX/ SO2 Emissions 0 20 40 60 19901995 0 20 40 60 80 N20NOXSO2 1990 1995

12. Energy and Power in Indian Economy

13. Indian Power Sector Institutional Structure

14. Power Sector Institutions (Pre 1990) InstitutionFunctions CEA1950Arbitration, Advice, Power Policy CPRI1960Power Engineering Research Equipment Testing and Certification REC1969Finance and Planning for Rural Electrification MOEF1974Policy, Legislation NTPC1975Thermal Power Generation NHPC1975Hydro Power Generation PFC1986Finance for Power Projects, T&D and Renovation PGCIL1989Regional Grid Monitoring, Transfer of Power, Transmission Line Construction EMC1989Energy Conservation Information, Research,Training

15. Central Power Organization NJPCNTPC NHPC NEEPCO PLANNING COMMISSION NRB AECNPC MINISTRY OF POWER STATE GOVERNMENT DEPT. OF ATOMIC ENERGY NATIONAL DEVELOPMENT COUNCIL MNES ENERGY MANAGEMENT CENTRE NPTI CPRI GOVERNMENT OF INDIA PFC REC PGCILTHDC CENTRAL ELECTRICITY AUTHORITY DVC BBMB CERC

16. State Power Organization PRIVATE SECTOR LICENSEES STATE ELECTRICITY BOARDS STATE ELECTRICITY DEPARTMENTS STATE ELECTRICITY INSPECTION ORGANISATION MINISTRY OR DEPARTMENT OF POWER STATE GOVERNMENT SERC

17. Power Sector Reforms An Overview

18. Why Reforms? The Symptoms  Demand-Supply Energy Gap  Peak Power Gap  System Inefficiencies  Financial Losses  Vintage Technology  Poor Supply Quality  Environmental Quality

19. What reforms aim at?  Remove Barriers and reduce òRisk òTransaction Costs  Enhance Technology Choices  Enhance Financial Flows  Enhance Efficiency òCompetition

20. Early Reforms  Corporatization of SEBs  Privatization  Unbundling  Regulatory Changes

21. Slow Changing Reality  Weak Electricity/ Energy Market  Weak Grassroots Democracy  Strong Urban-Rural Divide  Antiquated-Inverse Bureaucracy  Corruption (High Transaction Costs)  Regional Conflicts

22. Future Power Sector Trends: Model Analysis

23. Economic and Environmental Power Planning Software (EEPS)

24. User Inputs Exogenous Power Plant Characteristics (cost, performance, emission control) Transmission Grid Characteristics (cost, geometry, performance) Environmental Damage (Optional) (emission externalities) Existing Power System (capacity, generation, emissions, plants under construction) Levelized Cost Calculations Least-Cost Optimization of New Power Plants Power Demand Fuel Availability (coal, gas, oil) Fuel Characteristics (cost, heat value, composition) Emission Caps or Limitations Renewable Energy Availability (hydro, wind, bio) Equipment Manufacturing and Import Limitations OUTPUT: Power Plant Capacity Mix, Emissions Profile, Total Costs EEPS: Model Structure

25. EEPS u Excel spreadsheet program using Solver based on Simplex linear programming algorithm u Driven by exogenous electricity demand assumptions u Analysis over 20 years at 5 year time steps u Spread- National as well as regional analysis u Determination of power supply options needed to meet future electricity demand.

26. u Minimization of present value of system costs. u Costs- Capital, O&M, Fuel and Environmental costs u Levelized cost determination of power generation technologies u Fourteen power generation technologies are modeled EEPS

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

28. Analysis with EEPS

29. Power Capacity: Scenario Results (2015)

30. Investment in Power Generation

31. Marginal Cost of Electricity Generation

32. Carbon Emissions

33. Sulfur Dioxide Emissions

34. Power Generation Capacity (Future) 0 50 100 150 200 250 300 19952000200520102015 GW Coal OilGasHydro NuclearRenewables

35. u High economic growth can be less polluting. u Natural gas is a robust option for power. u Local pollution controls penetrate clean coal technologies, rather than substitute coal. u Capacity building for renewables is a good hedging strategy, but investing is not. u Regional co-operation for energy and power are effective economic and environmental strategies. Policy Insights

36. Conclusions 1. 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.

37. India Power Sector: Analysis with MARKAL Model

38. Electricity Capacity : BAU Scenario From 1995-2035 2 Capacity Grows 4 times 2 Coal remains mainstay 2 Gas Penetrates 2 Hydro Triples 2 Nuclear and Renewable remain marginal

39. Electricity Price under Mitigation Scenarios Average LRMC 0 1 2 3 4 5 6 7 8 9 10 19952005201520252035 cents per kWh Reference1 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

40. Reference1 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 19952005201520252035 cents per kWh Off-Peak LRMC 0 3 6 9 12 15 19952005201520252035 cents per kWh

41. Renewable Electricity Capacity 0 20 40 60 80 100 120 19952005201520252035 Giga Watt Share of Renewable 0 5 10 15 20 25 30 19952005201520252035 Percentage Reference5 % Mitigation 15 % Mitigation25 % Mitigation Implications of Mitigation Targets Renewable Electricity

42. Insights from Scenario Analysis

43. 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

44. Environment  Local Pollution Controls penetrate Clean Coal Technologies rather than substitute Coal  Global Climate Change policies can significantly alter the Indian Power Sector dynamics

45. 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

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

47. 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 Reduction (%) Year Marginal Cost Reduction Grid Integration Grid Integration + Regional Co-operation

48. Grid Integration and Regional Co-operation Carbon SOX 0.0 1.5 3.0 4.5 6.0 7.5 9.0 10.5 Reduction (%) Year Emissions Reduction (2015) Grid Integration Grid Integration + Regional Co-operation âIncreased share of gas and hydro ò2% increase in gas share in 2015 ò5% increase in hydro share in 2015 âSignificant reduction in emissions

49. 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

50. Proposed Oil & Gas Import Routes