Power failure exposes India's challenges

02-08-2012 | Insight | Corné Zandbergen In India hundreds of millions of people were left without power on Tuesday July 31, in one of the world's biggest power failures, trapping miners, stranding train travelers and plunging hospitals into darkness. The electricity grids collapsed for the second time in two days. Stretching from Assam, near China, to the Himalayas and the northwestern deserts of Rajasthan, the blackout affected states accounting for half of India's 1.2 billion people and painfully exposed the government’s failure to build up enough power capacity to meet rocketing demand.

Areas affected by the power failure in India on July 31 (in red):
 
08-india.jpg India's electricity distribution and transmission are mostly state-run, with private companies operating in a few of the large cities. Less than a quarter of generation capacity is privately owned. The country has an installed base of over 205.000 MW. Some 57% of the country's electricity is generated by coal, with hydro power (about 19%), gas fired power stations (9%) and nuclear (2%) also contributing. Per capita consumption in 2008 was some 780 kWh versus some 13.600 kWh in the US.

The power shortages are the result of the high economic growth the country has experienced in the past decade. Power consumption has been increasing for years and supply has been unable to keep up. Reasons for the slow build-out of power generating facilities are lack of funding, complicated and long lasting procedures, environmental issues and corruption. Only 50% of the generation capacity planned in the past three five-year plans was actually built; only 18,000 MW of the 41,000 MW projected in the 10th five-year plan was realized. The current blackouts are also caused by extreme weather; it has been very warm and dry. This resulted in extra electricity demand for cooling and pumping water to the fields.

The government is fully aware of the issues and has earmarked USD 1 trillion in new investments for infrastructure over the next five years. This is not only power-related, but also includes roads, railways, airports and ports. In the 11th five-year plan (2007-2012) 78,700 MW of new capacity was initially planned, of which over 60% coal fired. This figure has already been scaled down to 62,000 MW, of which around 52,000 MW is expected to be realized.

India electricity generation, 1985 – 2011, in TWh
08-india-2.jpg
Source: BP Statistical Review of World Energy 2012

“A strong infrastructure is the backbone for an economy such as India”, says Karnail Sangha, Portfolio Manager Emerging Markets Equities. “The current blackout reflects the inferior quality of the infrastructure in place. Hopefully the massive infrastructure spending plans will be fast-tracked as the sense of urgency is now greater than ever. A better infrastructure will also stimulate industrial investments and activity and bring India back to a higher growth platform.”

In the emerging markets portfolio we have exposure to the Indian electricity market. Not a significant position, but Robeco Emerging Markets Equities does own Rural Electrification Corp of India and China’s Harbin Power. REC is engaged in the financing of transmission lines and power plants in the country. Harbin offers a wide range of thermal and hydropower equipment and is very active in the Indian market.
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