Power Sector

The history of power generation in the country is over a century old. Merely, fifteen years after the first country in the world, United States started generating power in New York, India’s CESC Ltd pioneered the generation of electricity in the country. In 1899, it commenced power generation and distribution in Kolkata.

Today, with 1.2 billion people in India, where one fifth of the world lives, the task of bringing light to the vast country of over 6 lakh villages is no mean task. However, its rich history in power generation has stood the country well. According to the 2011 census, already over 5 lakh villages have been electrified.


The Indian power sector has been regulated, throughout its history of over a century now. To regulate the generation, supply and use of electricity, the first legislation was the Electricity Act of 1887 which was repealed and replaced by the Indian Electricity Act, 1910. The Act primarily covered the technical and operating standards of the Indian power sector. The Electricity (Supply) Act, 1948 was introduced after the country’s independence and provided an elaborate institutional framework and financing norms for the performance of the electricity industry in the country. The Act envisaged the creation of State Electricity Boards (SEBs) for planning and implementing the power development programmes in their respective states. The Electricity (Supply) Act, 1948 was amended in 1991 to provide for the creation of private generating companies for setting up power generating facilities and selling the power in bulk to the grid or other persons.

In 1998, the government promulgated the Electricity Regulatory Commissions Act, 1998 for setting up of independent regulatory bodies both at the Central and State levels. The Electricity Laws (Amendment) Act, 1998 was passed with an intent to make transmission a separate activity for inviting greater participation in investment from public and private sectors.

The Electricity Act, 2003 was the turning point in the power sector evolution process. It consolidated all the previous Acts, thereby streamlining the power sector and improving efficiency. The foundation for large scale private investments in power generation was laid out with the de-licensing of generation. Tariff determination was made a transparent process where stakeholder participation, including consumers, was provided for in the tariff determination. Competition was also encouraged through the concept of Open Access in distribution and transmission.

Thus over the past two decades, the Indian power sector has moved away from vertically integrated state-owned utilities to a competitive market-oriented framework. This trend has been almost universal among developed nations, but not restricted to them. A large number of developing countries in Latin America, Eastern Europe and Asia have also ushered market reforms. However, a fair distance still needs to be travelled in order to achieve the objectives behind the reforms as brought about by the Electricity Act 2003. While there is full competition in the generation space, the distribution and transmission segments remain dominated by the State and Central utilities, respectively. The figure highlights the value chain in the Indian power sector.

The current installed generation capacity of the country is 206,456 MW as of 31st July 2012. In spite of significant augmentation in generation, transmission and distribution capacity, the growth in demand has always outstripped the capacity additions.

While India’s per capita electricity consumption as of 819 kWh (as per provisional 2010-11 data) is still a fair distance away from the National Electricity Policy target of 1000 kWh per capita by 2012, it is undeniable that huge strides have been made in the power sector during the 11th Plan period. A record generation capacity of 54,964 MW was added during the 11th Plan, which is almost equal to the capacity addition during the 8th, 9th and 10th Plan periods put together. The private sector played a very important role in this feat with over 42% of the capacity being commissioned by private power developers. In fact, the private achieved more than double of its 11th Plan target while both the Centre and State power generation utilities were unable to meet their planned targets.

The boost in the private sector participation in the generation segment was brought about by the Electricity Act 2003. It consolidated all the previous policies, thereby streamlining the power sector and improving efficiency. The foundation for large scale private investments in power generation was laid out with the de-licensing of generation. Tariff determination was made a transparent process and competition was encouraged through the concept of Open Access and competitive bidding for procurement of power. The figure below traces the rise in importance of the private sector with respect to generation capacity addition.

The private sector is expected to play an even more important role in the 12th Plan. Out of the planned generation capacity addition of 78,000 MW, the private sector is expected to contribute around 56%. However, there are several viability issues plaguing the private investments already made in the sector and which threaten to leave precious power generation capacity stranded. Unless these issues are resolved, the power developers and the banking community are likely to remain wary of further investments in the sector, thereby affecting the power needs of the nation in the years to come.

India’s primary energy consumption is one of the lowest in the world. The table below shows the primary energy consumption for different countries in Million Tonnes of Oil Equivalent (MTOE).

  2009 2010
USA 2204.1 2285.7
Brazil 234.1 234.1
Russia 654.7 690.9
China 2187.7 2432.2
(Source : BP Energy Report 2011)

Per capita consumption of electricity in any country shows the maturity of its economy. In 2010, per capita power consumption of India was 778 kWh. This is quite low in comparison to other major economies in the world including China and Russia which are part of BRICS along with India.

The figure below shows per capita power consumption (kWh) of various countries in the year 2010. Where the world average is 2782 kWh, China and India occupies the 13th and 14th position.

The Electricity Act 2003 has played a pivotal role in encouraging a steady increase in the country’s generation capacity addition programme. The installed generation capacity in the country has crossed 186,000 MW as of December 2011.

However, the country is still faced with a scenario of power deficits during peak hours. While India aspires for an 8-9 per cent economic growth rate, it faces many challenges in attaining this goal. The quantity and quality of energy required by the nation for a sustained economic growth are a few of those challenges.