World Energy Outlook 2007

were shut down. Despite past problems with gas supply and the many
uncertainties surrounding future gas availability and pricing in India, many of
the recently announced power-generation projects are based on natural gas.
Since the beginning of reforms, the increase in IPP capacity has been lower
than the increase in captive power (power plants used by the industry for its
own needs). The increase in captive power was prompted by irregular and
insufficient public electricity supply and by high tariffs, and was facilitated by
certain provisions in the Electricity Act 2003. As a result, many industries now
use their own power plants for processes or for in-house power consumption,
using the grid only as backup. The government has plans to tap the excess
power of these plants. A total of 1 100 MW was offered by various industries
in 2005, but this level may increase in future, depending on tariffs and
technical issues (CEA, 2005). Open access – a provision of the Electricity Act
2003, which allows industrial autoproducers to sell excess power to the grid –
can be one way to improve national supplies. In practice, however, there is a lot
of resistance by the SEBs who fear that they will lose those customers who
actually pay their bill (notably large industries). It is anticipated that full
implementation of these measures could stimulate some investment, although
the level is likely to be rather small compared to the country's total needs
(Desai, 2004).
Power-Sector Finance
Financing for public-sector power projects in India comes mainly from the
federal government budget, in the form of equity or loans coming mainly from
the Power Finance Corporation (PFC), which operates under the Ministry of
Power. PFC provided about $2.5 billion in loans in 2005. The Rural
Electrification Corporation finances projects in rural areas. Multilateral lending
agencies, such as the World Bank and the Asian Development Bank, also lend
money to India's power sector.
The unprofitability of India's power sector generally remains the major obstacle
to attract private investment. Attracting private-sector investment in the
generation sector is not exclusively a question of financial performance. Private
generation projects have suffered from other factors. Foremost is the need to
ensure reliable and sufficient fuel supplies. Reforms in other fuel markets will
also need to move in line with reforms in the electricity sector. A concerted
reform effort in the coal sector is needed to ensure delivery of the quantity and
quality of coal required by a modern power sector. In the gas sector, the new
transmission policy that allows private investment, domestic gas finds made by
private companies, and increasing LNG import capacity should contribute to
addressing the problem. Other obstacles in attracting private investment into
generation are land acquisition and cumbersome procedures to obtain
statutory approvals. These have often contributed to substantial
528 World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS