World Energy Outlook 2007

in power generation alone is estimated at $435 billion. Transmission networks
will need $164 billion and distribution networks another $357 billion. The
underlying assumption of the Reference Scenario is that investment will be
available and that this power infrastructure will be built in a timely fashion, but
many challenges remain. These are discussed in the section below.
Focus on Investment Challenges in India's Power Sector
Chronic underinvestment in India's power sector has been a major constraint
to the country's development. Nearly 40% of the country's population still
does not have access to electricity. 17 Demand for electricity from those who
have a supply is growing rapidly, but part of this demand is not being met. The
Indian government estimates that the current power deficit stands at about 9%,
reaching 14% for peak power, with both rates deteriorating (Ministry of Power,
2007). Many experts consider that these figures are largely underestimated. The
quality of power is a major concern, both for industrial and private consumers.
Power cuts, unstable voltage and low or high supply frequency are
commonplace.
The capacity addition targets set in the five-year plans have generally not been
met and performance has deteriorated over the past three plans. Performance in
the latest five-year plan period, which ran until March 2007, was the worst ever.
Less than half of the capacity envisaged by the government was built. Insufficient
investment resulted in electricity generation increasing at a rate well below the
rate of growth in GDP for five consecutive years between 2001 and 2006, a
situation never seen in the past and one that is not sustainable.
The pace of capacity additions stagnated in the 1990s (Figure 17.15). Until the
early 1990s, the power sector had received between 15% and 20% of the total
central government budget. This share declined after economic reforms were
introduced in 1991, in the expectation that part of the required investment
would come from the private sector (IEA, 2003). But many of the projects
proposed have not proceeded, in large part because of an inadequate legal and
commercial framework, involving lack of law and contract enforcement and
delays in obtaining regulatory approvals. More than fifteen years after the
reforms were initiated, only 6 GW of IPP plants have been put into operation.
Over the same period, total installed capacity increased by more than 60 GW.
There have, however, been some encouraging signs recently. Investment has been
on an upward trend since 2003 and is coming from both the public and private
sectors. Utilities had over 30 GW of capacity under construction in 2006, higher
than the 20 GW added in 2001-2005. Timely completion of plants has been a
problem in the past, but if problems are overcome, India's installed capacity
17. This is an IEA estimate based on National Census data for India and information obtained from
TERI.
522 World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS