Electricity Regulation Commissions and Unviable Power Projects

Shankar Sharma

Consultant to Electricity Industry

1. Preamble:

Many of the ill-conceived coal based power projects in the country are facing wide spread opposition on social and environmental grounds. When elected governments refuse to listen to their sentiments the concerned people keep looking for innovative ways of opposing such projects, which have the potential to threaten their very livelihoods. Recently Mysore Grahakara Parishad (MGP), which is an NGO based in Mysore, used the good offices of Karnataka Electricity Regulatory Commission (KERC) to oppose the proposal by the state govt. to set up a coal based thermal power station in an ecologically sensitive environment in Chamalapura village of Chamarajanagara district. This article is based on the gist of such a petition and KERC’s order thereof.

This petition by MGP is probably only one of its kind in the country to come up before a State Electricity Regulatory Commission, and can be viewed as a test case in the exercise of relevant powers vested by IE ACT 2003 in Electricity Regulatory Commissions.

2. Petition by MGP

Petition was filed as an application under Sec. 86(2 & 4) of IE Act 2003, and Sec. 11 (b), (d), (e), (f), (i), (j), (l) of Karnataka Electricity Reforms Act 2000.  In addition the requirements of the National Electricity Policy were also referred to.

The petition sought advice from KERC to the Government of Karnataka on the suitability of establishing 1,000 MW coal based power projects at different places in Karnataka, including one at Chamalapura near Mysore.  The following were quoted as the grounds for the petition:

-          According to media reports, the Government of Karnataka has a proposal to set up 1,000 MW coal based power plants at three locations in Karnataka including one at Chamalapura village near Mysore.

-  The policy of the Government of Karnataka to establish and to encourage the establishment of more coal based power plants is unviable as there is no known reserve of any type of fossil fuels in the state.

- The Government of Karnataka has provided many concessions, including large chunk of lands and other facilities, to set up these coal based power plants.

- These power projects are not in the overall interest of the public in the state as they will burn enormous amounts of coal and result in rapid deterioration of the environment, rapid depletion of our natural resources, and in social tensions and upheavals due to population displacement.

- They will result in the deterioration of quality of life for all sections of society.
- Such large coal power projects will also aggravate the pressure on land and fresh water.

- Investment in such large polluting plants without first harnessing all the benign alternatives to meet legitimate demands for electricity will be in complete violation of the letter and spirit of IE Act 2003, KER Act 2000, and the National Electricity Policy.

- When suitable alternatives are available, establishing such costly power stations will make the cost of electricity prohibitively high rendering many commercial and industrial enterprises uneconomical and will adversely affect the competition, efficiency and economy in developmental activities of the state.

3. Detailed arguments in support of the petition

The following arguments were offered in support of the petition:

3.1. There are many technically and economically viable and environmentally benign alternatives with lower gestation periods than additional coal power plants to meet the legitimate demand for electricity in the state. 

3.2. Alternatives such as (i) bringing down the AT&C losses to international level, (ii) effective Demand Side Management to ensure the optimum usage of electricity, (iii) energy conservation and (iv) economical deployment of new and renewable energy sources will enable development of all sections of society on a sustainable basis, and will also minimize the social and environmental impact on society.

3.3. The State of Karnataka has no known reserve of coal. All the coal required for these power plants will have to be either transported over long distances within the country or will have to be imported at considerable cost.

3.4. Whereas additional coal power will increase the average price of delivered electricity to the end consumers, the alternatives mentioned in section 3.2 will not only reduce the cost of supply immediately but will also assist in controlling the price of electricity in future.

3.5. Sec. 86 (2) of IE Act 2003 says: "The State Commission shall advise the State Government on all or any of the following matters, namely:-

(i)                 promotion  of competition,  efficiency  and economy in activities  of the electricity industry;  

(iv) matters concerning  generation, transmission,  distribution  and trading  of electricity“.

3.5 Section 86 (4) of IE Act 2003 says: “In discharge of its functions the State Commission shall be guided by the National Electricity Policy, National Electricity Plan and tariff policy published under Sec.3.”

3.6. The National Electricity Policy aims at achieving the following objectives:

* Availability of power: demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available.

* Supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates.

* Financial turnaround and commercial viability of electricity sector.

* Protection of consumers' interests.

Among others, the National Electricity Policy aims to address the following issues:
* Energy conservation

* Environmental issues

* Co-generation and non-conventional energy sources

 
3.7. If these aims of the National Electricity Policy are kept in mind, the aim of the Policy of fully meeting the power demand and keeping adequate spinning reserve will be impossible to achieve without drastically improving the overall efficiency of the electricity industry including Demand Side Management and energy conservation. Without vast improvements in the use of power available now, and without optimizing the energy conservation, the environmental issues and consumer interests cannot be adequately protected.

3.8. The electricity supply companies in the state are already under heavy financial losses due to inefficiency in operations and poor revenue collection. A higher share of thermal power will increase the average cost of supply, and the commercial losses of these electricity supply companies will further increase to a level at which it can collapse the whole supply system. The financial burden on the state due to inefficiency in the electricity industry is already heavy and will become much larger, adversely impacting various developmental activities.

3.9. The huge inefficiency and lack of transparency in the electricity sector are forcing the authorities to conceive uneconomical power projects, and are also creating a scenario wherein KERC may be indirectly pressurized to approve Power Purchase Agreements (PPAs) that will eventually place a heavy tariff on consumers.

3.10. Having already lost a considerable portion of thick rain forests in the environmentally sensitive Western Ghats and lots of agricultural lands in the name of various developmental activities, the State cannot afford to lose anymore of such environmentally sensitive forests or fertile agricultural lands for such high impact projects. 

3.11. Since these issues are against the letter and spirit of IE Act, KER Act and the National Electricity Policy, there is an urgent need for the society to apply course correction immediately to the way the electricity companies in the state are operating by improving the efficiency of the industry as a whole to make them technically strong, commercially viable, and operationally sustainable in the overall interest of the consumers in the state.

4. Additional facts of the Case

The following points were made during the public hearing:

4.1 Whereas the IE Act, KER Act and the National Electricity Policy have put huge emphasis on providing reliable and quality power of specified standards in an efficient manner and at reasonable rates for protecting the consumer interests and the environment, the actual scenario of the power sector in the state has been one of noncompliance in all respects.

4.2 Since 1947, the state agencies entrusted with the supply of electricity have continuously failed to live up to the expectations of the public. Except for a short period in 1970, the power supply scenario in the state has been one of continuous power cuts, either during peak hours or in the case of annual energy.  While Karnataka's own generating capacity has increased by about 7,600 times during the last 100 years; its total power availability including the central sector share has increased by about 10,800 times. Despite such phenomenal increase in the capacity addition, there have been power cuts almost continuously since mid 70s.

4.3 Establishment of additional generating capacity based on large dams or coal or gas or diesel can be only at a huge cost to the state because of avoidable economic, social and environmental issues.

4.4 The average direct cost of establishing additional power stations based on large dams or coal or gas or diesel is known to be in the range of Rs. 4 to 6 crores per MW, which does not include the indirect costs like additional transmission system costs, R&R costs for displaced people, environment costs, community health costs, etc. All these costs plus various subsidies and tax holidays provided to the electricity generating companies put together can result in very heavy costs to the end consumer. In contrast, the technically and economically viable alternatives mentioned in 3.2 above can be of much lower societal costs, of much shorter gestation period, have minimal or nil recurring costs, and are sustainable because their economic, social and environmental impacts on society will be minimal.

4.5 Whereas the objective for setting up the additional coal based power stations is said to be meeting the peak demand, the coal based power stations are essentially base load power stations in nature. Large addition of such coal based power stations without proper analysis of Karnataka's power situation will render the addition irrational, as they will lead to surplus base load capacity with low overall Plant Load Factor (PLF) in the near future. Such a situation will lead to gross underutilization of the state's resources, and higher delivered cost of power to the end consumers.

4.6 An objective analysis of the power scenario in Karnataka will reveal that its existing infrastructure including the generating capacity is not being utilized to the full extent possible. With reference to Tables 1, 2 & 3 below, it can be safely averred that whereas the net potential power capacity available to the state has been about 7,800 MW, the state could not even meet a gross peak demand of about 6,300 MW in 2006-07.  The situation is identical in the case of annual energy.

                       Table 1: Available power capacity in Karnataka as on 28.2.2007 (MW)

                                        (Source: CEA website as on 21.4.2007)

Table 2: Net power availability in Karnataka as on 28.2.2007 (MW)

                              (Source: compiled from different sources)

            Table 3: Electricity Demand, supply and shortage in Karnataka:

                                                                                                           (April 2007 - Oct 2007)

                                                         (Source: CEA Website as on 1.12.07)

4.7 The fact that the AT&C loss of about 32% if brought down to the international level of less than 10%, can alone result in virtual additional capacity of about 22% or about 1,400 MW. 

4.8 The losses in utilization sector in the consumer categories like agriculture, domestic, commercial, industrial etc. are known to be of the order of about 30%, which if brought down to international levels can yield substantially huge virtual additional capacity.  Replacement of old and inefficient IP Sets with modern high efficiency IP sets and change to PVC pipes, if necessary through government subsidies, is certain to save substantial power. Collectively, all these measures to improve the efficiency of utilization can yield virtual additional capacity of more than 20% or about 1,300 MW.

4.9 The Demand Side Management measures like peak hour demand reduction, wide spread usage of CFLs, solar water heaters etc. can reduce both the peak demand and annual energy demand by about 10% or about 650 MW.

4.10 Credible energy conservation measures can provide savings of about 10 % of the existing installed capacity.

4.11 All these measures put together can provide virtual additional capacity of more than 40% at a cost approximately equal to 25% of the cost of additional installed capacity based on conventional generating sources.  These measures have least deleterious impact on the society, very low gestation period and are people and environment-friendly.  These measures will provide additional electricity needed at much lower societal cost and higher benefits than by constructing additional coal power stations.

4.12 Large scale coal power projects generally result in agricultural land acquisition and displacement of a number of rural people. Having failed to formulate & implement a comprehensive rehabilitation policy for such displaced people, society is weary of such projects, which displace large numbers of rural people who are not skilled / trained to take up other professions.

4.15 The authorities seem to be turning a blind eye to the poor economy behind coal based power stations. While it is common knowledge that even with the best technology available the conversion efficiency of coal energy to electrical energy is only about 35%, if we take the high AT&C losses and poor efficiency at the end user level into objective account, the overall efficiency of the usage of coal energy could only be less than 10%. For such poor efficiency in energy usage, compromising the economic, social and environmental health of the state cannot be a good policy.

4.16 The coal power stations need massive amounts of fresh water. The state of Karnataka, which is already the most water-stressed state in the country, can allow the setting up of additional coal power stations only at the expense of affecting the minimum water availability to its public. 

4.17 In contrast to the poor efficiency of the usage of coal energy, solar PV technology has nearly 20% efficiency of conversion of sunlight into electricity. This efficiency is rapidly increasing due to advancement in material technology; and reports suggest that commercial production is soon to start with light conversion efficiency of about 40%. For a state like ours, which has plenty of sunlight throughout the year, solar PV panels are eminently suitable as distributed or decentralized sources of energy.  These, when efficiently deployed on the roof top of buildings, can effectively reduce the demand for grid electricity, which will in turn reduce the need for additional large scale conventional power plants.

4.18 Similarly, the state is richly endowed with wind, bio-mass and wave energy sources, which have the potential to meet a considerable portion of our electricity needs on a sustainable basis. 

4.19 Massive requirement of fresh water for the coal power stations will transform the situation of fresh water availability in the state from bad to worse. The popular protests which are being witnessed in the state opposing the land acquisition for various industrial activities, can only become worse if more lands are to be acquired for establishing coal based power stations.

4.20 Whereas the state has no known reserve of fossil fuels and the establishment of coal or diesel or gas based power stations will impose huge costs on society, the contribution of such conventional power stations to Global Warming & Climate Change are considerable and avoidable.  At a time when the international community is putting pressure on India to reduce its total GHG emissions, and when Government of India has already declared that reducing the GHG emissions is a top priority, to continue to add coal power stations without first harnessing all suitable alternatives will be a huge let down not only for our own people, but also for the international community.

4.21 The harmful impact on the general environment, agricultural crops, water bodies and community health because of the emissions from coal power stations are well established as being enormous.  Negative impacts on the flora and fauna is well recorded, and if unchecked will affect the food crops to a large extent. There are well-documented examples of this all over India and even in Karnataka.

4.22 While KPTCL and ESCOMs are reported to be making attempts to obtain Carbon Credit by the route of Clean Development Mechanism, which is basically off-setting the CO2 emission elsewhere, the electricity companies under the control of the state government are at the same time contributing to the GHG emission directly by establishing more and more fossil fuel power stations, and indirectly through inefficient operation of electricity supply services.

4.24 Taking an objective and critical view of the massive negative impacts of fossil fuel power stations on the social, economic and environmental aspects of the state, coal based power stations should be considered only as a last resort after fully harnessing all the better alternatives listed in earlier sections.

5. Prayer to KERC

The petitioner prayed for the following remedies:

a. To deliberate and seek wider public opinion on the suitability of establishing additional coal based power stations in the state by issuing a Consultative Paper on the subject.

b. To commission a detailed study by an expert group on the relative costs and benefits of establishing coal fired power stations in the state and that of suitable alternatives like efficiency improvement, energy conservation and Demand Side Management, to overcome the chronic deficit of power experienced by the people in the state.

c. To commission a detailed study by an expert group on the costs and benefits of deploying new and renewable energy sources to meet a considerable part of the additional demand in future.

d. To hold public hearing(s) on all the relevant issues including the economic, social and environmental impact of establishing coal fired power stations in the state.

e. To seek the opinion of experts with regard to the effect of coal based power projects on the environment and on global warming, and elicit their opinion on mitigation measures to be adopted, including the future electricity supply options for the state.

f. To advise the Government of Karnataka against establishment of coal based Power Generating Stations in the State until all the better alternatives as listed in section 3.2 are fully harnessed, before considering fossil fuel based power stations; and

g. To pass such other orders as the Commission may deem fit, in the facts and circumstances of the case.

6. Deliberations of KERC

KERC held three public hearings, including one at the proposed project location of Chamalapura.  The members of KERC also visited the project site at Chamalapura to get a first hand impression of the local environment. Adequate opportunities were given to all those who wanted depose before the Commission. The state agencies such as energy department, Electricity Supply Companies, the state generating company, state transmission Company etc. were given adequate time to present their case.

The civil society was well represented by a number of intellectuals including local MP, a Gnana Peetha award winner, NGOs, people from the project areas etc. The arguments presented against the project proposal and the vast data submitted in support of the arguments was very impressive.

Most of the arguments were based on the localized issues such as ecologically sensitive environment, large no. of fresh water bodies, fertile agricultural lands, places of archeological and tourist importance etc., and how the concerned agencies have flouted the norms for such a proposal.

The Commission issued its order on 19^th May 2008.  Salient points of its order are reproduced verbatim below.

“The Commission has noted that the proposed project at Chamalapura is opposed tooth and nail by the local people and also people of the surrounding areas.  It has generated lot of public unrest and has created law and order problems in the area.  The proposal involves   many serious matters relating to environment, agriculture, health of the local population and fear of dispossession of their lands resulting in unrest among farmers etc.   Such being the case and when the public approaches the Commission and urges it to hear the petition and advise the government in the interest of the protection of the environment and its own well being, the Commission cannot shirk its responsibility to exercise the powers conferred on it by law.  

Hence, after hearing both the parties, the Commission admitted this petition and decided to render advice to the State Government in exercise of its duty as conferred vide section 86(2)(IV) of EA 2003. “    

“The Commission has confined its examination of the issues in respect of proposed Chamalapura thermal power project. It has not examined the issues in regard to all other proposed thermal power projects in the State in view of paucity of time and also human resource available at its command. Further the Commission has also considered that the examination of the issues relating to all other proposed thermal power projects would be very bulky and roving exercise.

The Commission expects the State Government to consider all other proposed thermal projects keeping the Commission’s advice relating to Chamalapura project in mind.”

“The petitioners and the other participants to the proceedings have strongly contended that reduction of T & D losses would go a long way in supplementing the additional energy requirement. In this regard the Commission notes that it has been fixing targets for loss reduction to KPTCL and all the ESCOMs based on the studies conducted from time to time. While MESCOM has been achieving the targets set by the Commission, the other ESCOMs have failed to achieve the targets though considerable amount of capex is being spent year on year. Reduction of Commercial and Technical losses would considerably reduce the additional requirement of power in the State. “

“The Commission, while bringing the above facts to the notice of the Government of Karnataka notes that:

i) The bidding guidelines issued by the GoI have not been complied with and replies to the Commission by PCKL are misleading. The bidding process initiated by PCKL  lacks transparency and the whole process is carried out in a very casual manner. If it had been done following the guidelines of the GoI, so much of controversy would not have been generated.

ii) The issues raised during the proceedings by the petitioners and the public, which have been discussed in the relevant sections of these proceedings, should have been considered before the decision for setting up of a plant at Chamalapura was taken.”

“Having regard to the above facts, the Commission, in discharge of its functions under section 86(2)(iv) of the Electricity Act 2003, hereby advises the Government to:

i) Take a de-novo decision for establishing a thermal power plant at Chamalapura after duly considering the observations of the Commission in para XIII.

ii) Look into all the aspects involved in the project such as environment and heritage, Land Acquisition, Fuel linkage, water supply etc.

iii) Direct the PCKL to strictly comply with the bidding guidelines issued by the MoP in letter and spirit,

iv) The establishment of thermal power projects in the State and hydro power projects involving submersion of forests and displacement of local people are getting involved into environmental and other issues. Though the Commission, for the reasons stated in para  X (2 and 3) above, have not consented to set up an expert committee as requested by the petitioners for a detailed study of

the desirability or otherwise of establishing thermal power plants in Karnataka, it would advise the Government to set up such a committee as it falls within the domain of the Government.”

7. Conclusions

This petition by MGP has brought out the fact that there are enough mandates to the State Electricity Regulatory Commissions under the IE ACT 2003 to advise the state governments on issues concerning any aspect of electricity industry, which may have the potential to adversely affect the society. The process surrounding the above said petition also has demonstrated that no issue under the electricity sector is beyond the comprehension of a determined public. Hence the concerned government agencies would be well advised to make use of the vast experience/ expertise available amongst the public in order to make every project fully accountable to the welfare of the society.

The advise of KERC in this regard is clear, and may have far reaching consequences if taken to a logical conclusion. It is also expected that unless the concerned authorities strictly follow all the necessary procedures with due diligence in conceptualization and detailed planning of the project, there can be more and more of such petitions before various State Electricity Regulatory Commissions.

Industry observers are of the opinion that the IE ACT 2003 provides adequate provisions for the larger society to protect the socio-environmental aspects from the perils of the mismanaged electricity industry, provided the Electricity Regulatory Commissions decide to exercise the powers vested in them on a regular basis.

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