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Challenges in Indian Power sector

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India's power sector is one of the key sectors which form the foundation of the growth of the country. Currently, installed power capacity of the country is around 330,860MW (331GW - 31st December 2017) of which Coal (193GW - 58.4%), Gas (25GW - 7.5%), Hydro (45GW - 14%) and rest contributes around 60GW - 18%. Despite the fact that India has surplus energy, it is facing huge problems which serve as an obstacle for supplying electricity to all needy people. One must note that the credit lending to the Indian power sector is poor. Of the USD 178 billion of debt in the power sector, $53 billion are already under severe stress. Among them, around USD $38 billion have the qualities of being written off as bad loans.

Problems in Indian Energy sector

Dependence of fossil fuel

Though India is not a strong player in the renewable sector, its over dependence on coal. Around 60 per cent of the generated power comes from thermal power plants. Despite the fact that India has the third largest coal reserves in the world, most of the domestic requirements are met through imports due to poor quality of coal, which is of low Gross Calorific Value, inefficient mining processing, environment problems in creating new mines. As a results the cost of generation of power is deeply connect upon the coal and import price of coal. In energy terms, the average cost of coal in Indian power plants is shockingly high, it has been 15-20 per cent higher than that in the US and Western Europe. According to various reports, the approved capital costs of building coal-based power plants in India is also high, China builds comparable plants at less than 60 per cent of the Indian costs.

Transmission and distribution problems

Around 25 per cent of the generated power is lost in transmission in India. This is very high when compared to a maximum of 5 % to other Asian giants like China and South Korea. The primary reason behind this is mainly due to lack of proper infrastructure. And, India has one of the highest levels of electricity transmission and distribution (T&D) losses in the entire world. What is T and D loss ? It represents the electricity which is generated but hasn’t reached the intended customers. India's T and D losses are more than twice the world average and nearly three times as large as T and D losses in the United States and other Western Countries. Though, technical losses occur due to poor and inefficient quality of high tension wires and equipment, the rest of the losses are due to theft. This is due to bypassing or tampering with the electric meter or some time bribing the electricity billing personnel.

Free electricity to farmer and political giveaways

Apart from the power theft, other biggest problem in India’s power sector is giveaways. In several states, it is considered impossible to charge farmers for power consumption. Besides, most of the power lines which are connected to the pump stations are directly connected to household and other industrial purposes. Since, most of the state governments are responsible for the power generation and distribution, they lack the political will to take action against the residences and shops in towns which are stealing the power. So political problems are posing a serious threat to legitimate functioning of the power sector.

Fuel Chart

Fuel type


% of Total

Total Thermal


64.8 %



57.3 %



7.2 %



0.2 %

Hydro Power (Renewable)


13.2 %

Nuclear (Non Renewable)


2.0 %



20.1 %




RES – Renewable Energy Source which include Small Hydro Project, Biomass Gasifier, Biomass Power, Urban and Industrial Waste Power, Solar and Wind energy. (Source: Power Ministry (19 July 2018))

What about the investment scenario in power sector?

Though Foreign Direct Investment (FDI), is around USD 12.97 billion (between April 2000 and December 2017), investment is very low when compared to other sectors. Some of the new investments and developments in the Indian power sector are as follows:

  1. Energy Efficiency Services Ltd (EESL) has managed to raise around USD 454 million from Global Environment Facility (GEF) for its energy-efficiency projects. These initiatives are primarily aimed at increasing India's move towards becoming a low carbon emission state.
  2. Nine hydro power projects in Jammu and Kashmir with a capacity of 2,000 MW has been approved. The deal was signed between IL & FS Financial Service Ltd and Jammu and Kashmir Bank Ltd has finalized which is around Rs 20,000 crore (USD 3.12 Billion).

What are the government Initiatives?

Government initiatives taken by the Energy Efficiency Services (EESL) have resulted in energy savings of 37 billion kWh. Besides emission of greenhouse gas (GHG) was reduced to around 30 million tonnes. In order to offer better targeting of subsidies scheme, the Union and state governments have agreed to implement the Direct Benefit Transfer (DBT) scheme.

The government has given its approval for commercial coal mining by allowing participation of private companies and also given a methodology of allocating coal mines via auction and allotment. Besides, the Ministry of Power has passed the guidelines for tariff based competitive bidding process for procurement of power from grid connected wind power projects.

Aiming to boost manufacturing of solar power equipment, the Government of India is planning to invite bids for the largest solar tender in the world, for installing 20 gigawatts (GW) of solar power capacity.


The Indian government is taking a number of serious steps to achieve 175 GW capacity in renewable energy by 2022. This step is highly appreciable since it includes 100 GW of solar power and 60 GW of wind power and removes the stress on nonrenewable sources. Besides, the steps and other initiatives like allowing 10 year tax exemption for solar energy projects are also good. Though these steps are good in terms of power generation, they can attain the goal if the power theft, free power, over dependency of fossil fuels, losses in power transmission and distribution losses are solved.

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