Firms gear up for bigger role in transmission

With the role of state-owned Power Grid being diluted, private players see big opportunity in the sector

After a long phase of neglect, action is now shifting to the transmission sector. The realisation has finally sunk in that in the absence of adequate transmission capabilities, a single-minded focus on power generation can be disastrous.

With the states increasing their focus on distribution and transmission in line with Union Power Minister Piyush Goyal's target of achieving '24X7 electricity for all' by 2019, private companies are slowly starting to warm up to the sector. Several companies, including Adani Power, Vedanta group's Sterlite Grid, Tata Power and Larsen & Toubro, have set up separate transmission businesses to take advantage of the huge investment plan to ramp up transmission capacity.

The central government plans to offer projects worth Rs 1 lakh crore under tariff-based competitive bidding to private companies. In the new bidding system, anyone quoting the best tariff will bag the project. The states too are expected to pitch in. Five states - Uttar Pradesh, Rajasthan, Gujarat, Madhya Pradesh and Jammu & Kashmir - will cumulatively invest Rs 50,000 crore for enhancing power evacuation facilities in 2015-16.

This has attracted the private sector. These companies are especially looking at states which want to strengthen their last-mile connectivity. With 4 million homes un-electrified in the country, the scope for private participation in the sector is indeed massive.

At the moment, the transmission business is dominated by state-owned Power Grid Corporation. Even though the transmission business was opened to private companies in 2010, Power Grid Corporation continues to be the largest player in the business. It gets preference when it comes to executing large sensitive projects - often, such projects are awarded to it on a nomination basis.

As a result, the company has got a huge backlog of orders. Projects have got delayed, leading to power not being fully evacuated. According to government data, Power Grid Corporation has 15 lines pending for the past three years against 8 major lines awarded to the private sector.

This is why private participation could help unclog the network. "Power Grid Corporation controls 95 per cent of the transmission business. It has a natural monopoly. The scope for private players needs to be widened so that there are more than one growth drivers," says a senior executive of a power infrastructure company.

But for that to happen, the private sector needs to be provided a level playing field. In other words, the special treatment to Power Grid Corporation will have to stop. Aware of this, the government is planning to set up a new planning body for transmission. So far, Power Grid Corporation has performed the dual role of planning and executing projects.

Some experts believe that it was because of this dual role, which also caused a conflict of interest, that the power generation and transmission projects have not grown in tandem.

In a recent report on power supply congestion, the Central Electricity Regulatory Commission, or CERC, highlighted that while power generation capacity has grown 50 per cent in the last five years, transmission lines have increased by only 30 per cent. The lack of transmission network led to 3 billion units of electricity remaining unsold in 2014-15.

GROWING MISMATCH

• 3 billion units of electricity remained unsold in 2014-15 due to lack of transmission facilities
• Over the past five years, power generation capacity has grown 50 per cent, whereas transmission capacity has increased by only 30 per cent
• Private sector contributes 38 per cent to generation capacity and only 3 per cent to the transmission capacity

DELAYED PROJECTS

• Power Grid has extended the deadline of 15 projects from 2012 to 2015
• 8 major lines awarded to the private sector have been delayed due to regulatory hurdles

DOMINANT PLAYER

• Power Grid has won more than 50 per cent projects awarded after competitive bidding
• Some of the large players such as L&T, KEC and IVRCL have stopped bidding in transmission sector due to uneven competition
• Last year, a Rs 26,000-crore transmission line was awarded  to Power Grid on a nomination basis
• Power Grid also won Rs 6,000 crore Gadarwara project by outbidding private firms

Poor planning of projects has made matters worse. Many transmission projects, for instance, were commissioned to evacuate the hydro-power proposed to be generated in the northeast and north to the states in north and central India. However, these power plants ran into trouble midway and the transmission lines are now lying unused.

As things stand today, power plants are concentrated in one part of the country and transmission capacity in another. For instance, several coal-based power projects have come up in mineral-rich states in the east without a corresponding increase in transmission capacity, leading to power being wasted.

The southern states' refusal to be a part of the national grid, citing self-reliance on renewable energy, has added to the problem. At present, the western region is stuck with overcapacity, but the southern states, which are grappling with supply shortages, are unable to use that power because they do not have the transmission capacity.

Similarly, the power plants in east & central India await a transmission network to reach out to power deficit states in the north.

"As decided in the 11th Five-Year Plan, we prepared transmission projects for 100,000 Mw of additional capacity but only 70,000 Mw came up. Transmission capacity of 8,000 Mw is lying idle in the east and north east. The 7,000-Mw connectivity to the southern grid didn't come up and there is no connection between the western grid, which has a surplus, and the deficit northern grid," says a senior Power Grid Corporation official.

Power Grid Corporation says its problems stem from a lack of data from the states. "The states need to tell their load forecast in advance - how much power they will set up, how much they'll import - because building transmission infrastructure is not an overnight job," says the official quoted above.

CERC has suggested a common transmission network as the way out. "When all the states come on board and discuss a common transmission network for all regions, there can be some headway in dealing with the congestion. The states need to have a say and enhanced participation in the central transmission utility," adds a CERC member.

Experts say the government's plan to stimulate private sector investment in the sector is a step in the right direction. "Changes in bid documents are made with risks getting allocated to parties best suited to address it; issues around right of way have been resolved. With experience of over five years, sector participants are expected to be mature in making reasonable bids to win projects," says Sambitosh Mahapatra, partner (power & utilities), PwC India.

The private sector on the whole has shied away from infrastructure projects so far because of problems associated with land acquisition, regulatory ambiguity and government-run companies abusing their monopoly power. The onus, therefore, says a Delhi-based analyst, will be on the government to win back the trust.