Indian Power Sector - Performance Analysis

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Executive Summary

The regulation of Indian Electricity Industry commenced from Indian Electricity Act, 1910. It was a comprehensive piece of legislation to “regulate the generation, supply and use of electricity and dealt with licensing, regulation and safety”, giving considerable authority to the provincial governments.
In 1948, the Electricity (Supply) Act, 1948 was passed “to facilitate the establishment of the regional co-ordination in the development of electricity transcending the geographical limits of the local bodies”.
Amendments in 1976 enabled generation companies to be set up by the central and state governments resulting in the establishment of the NTPC, NHPC, NEEPCO, Mysore (now Karnataka) Power Corporation and the consulting firms WAPCOS.
Ministry of Power (MOP) is the apex body governing the power industry in the country. The Central Electricity Authority (the ‘CEA’), constituted under the Electricity (Supply) Act, 1948 (the “Supply Act”), is the technical wing of the MOP assisting on technical and economic matters.
By amendment in 1991 generation was opened to private investment, including foreign investment. Tariffs in cases of interregional movements and transmission charges were to be determined by the central government on the advice of the CEA.
Further amendments in 1998 opened transmission to private investment subject to the approval of the Central Transmission Utility (CTU) with a license to be issued by the CERC.


The Central Electricity Regulatory Commission (the “CERC”) is the regulatory body constituted under The Electricity Regulatory Commission Act, 1998 (the “ERC ACT”) to bring into effect rationalization of electricity tariff and transparent policies regarding subsidies for regulation of inter state transmission of energy and promotion of efficiency and environmentally benign policies. The ERC Act also provided for formation of State Electricity Regulatory Commission (“SERC”) in the respective states for the rationalization of electricity tariff and formulation of policy within each state.
The challenges and opportunities faced by Indian Power sector are:
• Low per-capita consumption of electricity
• Estimated demand growth of Power at 6-7%
• Estimated investment of Rs. 8,00,000 crores in power sector over next 10 years
• Privatization of SEBs
• Rationalization of the tariff structure
• Politically-sensitive issues such as subsidies

Indian Power Sector has some of the major strengths such as abundant coal reserves to support thermal power generation, huge potential for hydro-electricity generation and abundant engineering skills to commission and run large-scale projects and a large consumer base.

But at the same time Indian Power Sector has number of weaknesses/problems such as,
• Inadequate power generation capacity
• SEBs’ weak financial health
• Lack of optimum utilization of existing generation capacity
• Inadequate inter regional transmission links

• Alarming level of Transmission and Distribution Losses
• Abysmally low level of collection efficiency
• Inadequate metering of consumers
• Large-scale theft
• Cross subsidization of Power and Skewed tariff structure
• Energy shortage of about 7.3% and peaking demand shortage of 12.5%
• Low PLF of Generating stations

The proposed reforms/restructuring is aimed at resolving these issues, which will improve sector health. Power reforms are happening though the pace is slower than desired. The direct financial implications of most of the changes are not yet visible but as states progress further on reforms, the investment scenario would improve.

The reform strategy adopted by Ministry of Power, GoI comprises of Power Generation Strategy, Power transmission Strategy, Distribution and supply Strategy, Regulation Strategy, Financing Strategy, Conservation Strategy, Communication strategy, Legislative Initiatives.
The Chief Ministers met on 16th October and 3rd December, 1996 to discuss and deliberate upon the issues pertaining to the power sector. A national consensus evolved for improving the performance of the power sector in a time bound manner covering National Energy Policy, Setting up of SERCs, CERCs, Rationalisation of Tariffs, Distribution Privatization etc.