Impact of Power Sector Reforms on Technology, Efficiency and Emissions: Case Study of Andhra ...

39 Pages·2004·0.25 MB·English

Impact of Power Sector Reforms on
Technology, Efficiency and Emissions:
Case Study of Andhra Pradesh, India

P.R. Shukla, Debashish Biswas, Tirthankar Nag,
Amee Yajnik, Thomas Heller and David G. Victor

Working Paper #20

March 2004
The Program on Energy and Sustainable Development at Stanford University is an
interdisciplinary research program focused on the economic and environmental consequences of
global energy consumption. Its studies examine the development of global natural gas markets,
reform of electric power markets, and how the availability of modern energy services, such as
electricity, can affect the process of economic growth in the world’s poorest regions.
The Program, established in September 2001, includes a global network of scholars—
based at centers of excellence on four continents—in law, political science, economics and
engineering. It is based at the Center for Environmental Science and Policy, at the Institute for
International Studies.

Program on Energy and Sustainable Development
At the Center for Environmental Science and Policy
Encina Hall East, Room 415
Stanford University
Stanford, CA 94305-6055

http://cesp.stanford.edu/pesd
About the Authors

P.R. Shukla is a professor in the Public Systems Group at the Indian Institute of Management,
Ahmedabad, India. He obtained Ph.D. from Stanford in 1979. He is an advisor to Government of
India and consultant to several international organizations and corporations. Prof. Shukla has co-
authored 11 books and numerous publications in international journals in the areas of energy and
environment modeling and policy.

Debashish Biswas is in the doctoral program in Public Systems Group at He holds a bachelor’s
degree in Architecture and a master’s degree in Town and Regional Planning. His research interests
include Energy Systems, Electricity sector, Environmental sector, Transport, Telecom, Urban
Infrastructure and Public Finance.

Tirthankar Nag is in the doctoral program in the Public Systems Group at the Indian Institute of
Management, Ahmedabad, India. He holds a bachelor’s degree in electrical engineering and he has
worked in the Indian electricity sector for a number of years. His research interests include the
electricity sector, public policy, public finance, reforms and restructuring, energy systems, and the
environmental sector.

Amee Yajnik is a lawyer practicing in the High Court of Gujarat, India. She holds JSM degree from
Stanford University Law School. Her doctoral work at Stanford involves “Legal and Institutional Issues
for Electricity Sector Investments in India”. She has published in the areas of environment and legal
rights. Her research interests include emerging international environment, business and law regimes.

Thomas C. Heller is the Lewis Talbot and Nadine Hearn Shelton Professor of International Legal
Studies at Stanford Law School in California. His research interests include international law and
political economy, legal theory and environmental law. In addition to publishing widely on these
topics he has consulted for several international organizations, including the Intergovernmental
Panel of Climate Change, the Electric Power Research Institute and the World Business Council
for Sustainable Development. Prof. Heller holds a Bachelor’s degree from Princeton University
and a LLB from Yale Law School.

David G. Victor is the Director of the Program on Energy and Sustainable Development at
Stanford University. His research interests include energy and climate change policy and the role of
technological innovation in economic growth. His publications include: The Collapse of the Kyoto
Protocol and the Struggle to Slow Global Warming (Princeton University Press, April 2001),
Technological Innovation and Economic Performance (Princeton University Press, January 2002,
co-edited with Benn Steil and Richard Nelson). Dr. Victor holds a Bachelor’s degree from Harvard

University and a Ph.D. in political science from MIT.
About the PESD – IIM Study

Since 2002 the Program on Energy and Sustainable Development (PESD) has been
engaged with the Indian Institute of Management in Ahmedabad (IIM-A) to study reforms
in the electric power sectors of two key Indian states: Gujarat and Andhra Pradesh. These
are critical states as India works to translate visions of power sector reform adopted at the
Central (Federal) level into state and local practice. This work, funded by the US Agency
for International Development, has involved surveying every unit of every thermal power
plant in both states. In addition, we have surveyed a sample of the captive power plants in
Gujarat state. We have been particularly interested in computing the "baseline" of fuel
consumption and emissions of key pollutants, including carbon dioxide; our studies also
explore how those baselines change over time and may change in the future as the reform
efforts proceed. The baseline is a key measure of the efficiency of the sector; it is also the
core concept needed to make operational such schemes as the clean development
mechanism (CDM) of the Kyoto Protocol, which seeks to encourage investment in projects
that result in emissions that are lower than the baseline level.
Abstract

The study traces the pattern of development of the electricity sector in India through
a case study of the state of Andhra Pradesh. The main objective of the study is to
assess the impact of reforms on the electricity generation industry at the state level.
The state is selected as a unit of study to bring out the regional variances that may
not be captured at a more aggregate or country level study. The study finds that there
has been a steady improvement in the efficiency of generation from coal and gas.
However, generation from clean sources like hydro has been declining. This
changing generation mix has led to a steady increase in emission intensities. The
carbon intensities so obtained is used for construction of a baseline for the state. The
study reports an increase in the baseline intensity and explores the causes for such an
increase.
Impact of Power Sector Reforms on Technology, Efficiency and
1
Emissions: Case Study of Andhra Pradesh, India

P.R. Shukla, Debashish Biswas, Tirthankar Nag, Amee Yajnik, Thomas Heller
and David G. Victor

1. INTRODUCTION

The study examines the development of the electricity sector at the state level in India
during the past decade and assesses the impact of reforms on technology, efficiency, and
global emissions. For this purpose, the state of Andhra Pradesh has been chosen as a case
study. Another paper evaluates the state of Gujarat with these same objectives. Most of the
studies on the impact of reforms on technology, efficiency, and greenhouse gas emissions
have concentrated on analysis of national policies and national approaches. However, in
many countries much of the energy policy is controlled at the sub-national level. This is
particularly true in case of electricity, not only in developed countries but also in India,
whose importance as a source of greenhouse gas emissions is large and growing. In India,
electricity is on the concurrent list, thereby making it the responsibility of both the centre
and the state. The state is selected as the unit of study specifically to examine the issues
that are specific to the sub national level governments.

The study addresses a number of issues related to changing trends in electricity generation
and its impact on greenhouse gas emissions in the state. First, the study focuses on the
changing behavior of the efficiency and fuel structure of the power generating stations in
the state. Second, the study analyzes the reasons behind these changes and examines
different parameters, which affect them. Finally, the study analyzes how the changes
taking place in the sector has an impact on the global emissions and estimates the energy
intensities, which are then used to construct a carbon abatement baseline for the state.

The study begins with a description of the development of electricity sector in the state by
analyzing the pattern of development. This has been taken up in section 2. Later sections
cover the impact of reforms on technology and efficiency and link it with the changing
energy intensity in the state. The study design and the methodology followed for
conducting the study are explained in section 3. Sections 4 to 6 brings out the changes
associated with the power sector reforms. These include changes in the fuel structure
(Section 4), and changes in efficiency of the thermal plants (Sections 5 and 6). In section 7,
the factors that influence the efficiencies of thermal plants in Andhra Pradesh have been

1 Working Paper, not for citation or quotation
1
analyzed. In Section 8, the effect on greenhouse gas emissions due to the power sector
reforms process has been highlighted. Finally, section 9 draws conclusions from the
Andhra Pradesh experience, which reveals that the reforms have been associated with
changes in ownership structures, shift in technology, improvement in energy efficiency and
decreasing carbon intensities.
2
2. Electric Power Industry in Andhra Pradesh
2.1. ECONOMIC PROFILE OF THE STATE

Andhra Pradesh is a state in the southern part of India with an area of 275 thousand square
km. and supports a population of around 76 million. The state was formed in 1953 from
parts of Madras and Hyderabad states. Later it was extended in 1956 to include the
majority of Telugu speakers in the Hyderabad area.

The total population of the state in 2001 was 75.7 million. The population growth in the
state in the last decade (1991-2001) is 14 percent.

Table 1: Andhra Pradesh and India (20002)
AP India
Population (million) 75.7 1027
Area (1000 sq. km) 275 3287
GDP Growth Rate (%) 3.79 5.57
Per capita Income (Rs.)3 18,306 19,476
Source: 1)MoF, 2000. Economic Survey 1999-2000.
2)CMIE, Energy, May 2003.
3) CMIE, Monthly Review of the Andhra Pradesh Economy, Jan 2004.

2.2. DEVELOPMENT OF THE ELECTRICITY SECTOR

The last decade has witnessed a number of changes in this sector. These constitute capacity
expansion and production, evolution of new institutions and shifts in ownership structures
and fuel mixes. All these developments have mainly taken place on the generation side
because the initial reforms started with particular focus on the supply side. Transmission
and distribution issues have been taken up in the later stages of the reforms. This has
caused the transmission and distribution to remain mostly under state control. The present
discussion focuses mainly on the generation sector.

Since Independence, electricity has been placed in the concurrent list in the Constitution of
India, implying that both the Parliament and State Legislature have the authority to

2 Here 2000 is used to refer to the period from April 2000 to March 2001. The same terminology has been
used elsewhere in the paper.
3 Per capita income uses Gross State Domestic Product for the state and Gross National Product for India.
Distribution of central income and other related issues may cause problems in comparison among the state
and national figures.
3
legislate on the subject. The central government adopted a policy of development of
electricity through the public sector after the Industrial Policy Resolution of 1956 leading
to the creation of State Electricity Boards, which looked after the power sector at the state
level. Prior to the formation of the state, small power stations served the area with a total
installed capacity of 100 MW. This capacity mainly consisted of local thermal and hydro
plants supplying power to the towns and villages. Among these small plants, the Nizam
Sagar (15 MW) hydro plant and Husseinsagar (22.5 MW) plants were notable. A joint
venture was also conceived with the state of Orissa to set up a hydro plant on the
Machikund river flowing through the two states. However, with the absence of the grid,
power supply was confined to localized areas.

With the formation of the state in 1953, diesel sets were installed in all the districts and
other local areas to quickly build up an autonomous state capacity and deal with the
usually associated long gestation periods and transmission constraints. Existing supply
constraints had led to a very low per capita consumption in the state and measures were
needed to boost it up for the overall development of the state. In accordance with the
Electricity Supply Act (1948), the Andhra Pradesh State Electricity Board (APSEB) was
created in April 1959 as a vertically integrated entity in charge of generation, transmission,
and distribution of electricity in the state. The different divisions under the state
government of AP draw their own five year plans along with the central plans. The state
plans are supported by tax revenues, central assistance and other resources managed by the
state. In the period from 1960 to 1982, APSEB was the sole generator of electricity. 1983
onwards the central sector plants managed by NTPC also started contributing the
generation in the state. Post 1990, after the initiation of the reforms that allowed private
sector participation in generation, a number of Independent Power Producers (IPP) set up
generating stations in the state which were mostly based on gas or naphtha. There was also
a growth in capacity following the setting up of mini hydro and wind based plants by the
private players.

Earlier the state government had control over fixing the tariff. The enactment of the
Electricity Regulatory Commission Act (ERC), 1998 led to the setting up of the Central
Electricity Regulatory Commission and State Electricity Regulatory Commissions, which
took over the state’s power of deciding the tariff. The Government of AP. passed AP
Electricity Reforms Act in 1998. The main objectives of the act was setting up of the AP
Electricity Regulatory Commission, restructuring the electricity industry and provide
avenues for more private sector participation. Following this, the AP Electricity Regulatory
Commission was set up as an independent and autonomous body to set the tariff and create
an environment for dynamic and equitable growth of the electricity sector in the State.
APSEB was also restructured into two independent corporations: Transmission
Corporation of Andhra Pradesh Limited (APTransco) and Andhra Pradesh Power
Generation Corporation Limited (APGENCO). The distribution function was later
separated from APTransco and divested with four distribution companies as subsidiaries to
APTransco.
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These policy changes have been accompanied by a steady growth in capacity and
consumption between 1990 and 2000. The installed capacity of the state increased over
sixty percent and the generation available to the state increased over hundred percent
during this period.

Figure 1: Electricity capacity and generation in AP

10 50
Generation
8 40
) Capacity G
W e
n
G e
y ( 6 30 rat
it io
c n
pa (
a 4 20 T
C W
h
)
2 10
0 0
1990 1992 1994 1996 1998 2000
Source: CMIE, Energy, May 2003.
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