Studying demand, supply and gaps and exploring technical, social and institutional factors
Kaushik Deb* Anjali Garg* Kai Rommel†‡
May 2009
Abstract
The background study represents the first part of the deliverables of the Work Package 3.2. A for milestone one. It reflects the status of the power sector of Andhra Pradesh with specific consideration of Greater Hyderabad. Beside transport, electricity is the main application of energy sources in the areas of generation, transmission, generation and consumption. The study places particular attention, first, to the regulatory framework of the Andhra Pradesh power sector and the linkages to Hyderabad and, second, to the state of the sub-sectors. Based on this we identify sources for inefficient energy use and provide the basis for further analysis of consumption patterns of households and firms in the public and private sectors. The predominant problems of the power sector highlighted in the background study are huge supply gaps and growing peak deficits due to economic growth, insufficient incentives for energy saving investments and limited capacity expansions, because tariff structures fail to set price signals for energy saving measures and application of low emission technologies. The results of the background study indicate several reasons for inefficiencies and supply gaps arising from institutional, economic and technical issues, such as subsidies for irrigation and agriculture failing to set incentives for energy savings for farmers. The background study forms the basis for analysis of strategies to improve energy efficiency and to develop strategies and projects together with the stakeholder analysis in the entire energy sector.
Key words: background study, energy management, demand, supply, technology, institutions, Hyderabad, India
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* The Energy and Resource Institute (TERI), Lodhi Road, New Delhi
† Corresponding author. Tel.: +49 30 2093 6305. Email: kai.rommel@ism.de
‡ Division of Resource Economics, Humboldt Universität zu Berlin, Philippstraße 13, 10099 Berlin
Table of Contents
1 Introduction
2 Synthesis of the background study and the stakeholder analysis
3 Regulatory framework, market structure and prices
3.1 Regulatory framework
3.2 Functions of APERC
3.3 Approaches adopted by APERC
3.3.1 Approach to tariff determination
3.3.2 Private sector participation and competition
3.3.3 Renewable energy
3.4 Supply per source, sectoral demand structure, peak deficit
3.5 Price developments
4 The structure of electricity generation, transmission, distribution, consumption
4.1 Power generation in Andhra Pradesh
4.1.1 Description and salient features of APGENCO and private generation companies
4.1.2 Generation by source in Andhra Pradesh and description of generation plants
4.1.3 Investments
4.1.4 Pollution standards
4.2 Power transmission and distribution in Andhra Pradesh and Hyderabad
4.2.1 Power transmission in Andhra Pradesh
4.2.2 Power distribution in Andhra Pradesh and Hyderabad
4.3 Power consumption in Hyderabad
5 Options for efficiency improvements in the energy sector
6 Efficiency monitoring and further steps of the background study
References
Appendix
The main objective of the background study is to identify inefficiencies in the energy sector and to reveal the various reasons for supply gaps, high emissions and high losses in transmission and distribution. Based on this, schemes for the implementation of energy saving measures and for cost minimised market regulation are developed. In accordance with the consortium’s project schedule, the background study to WP3.2A is subdivided into two parts. The first part represents the deliverable for the first milestone by May 2009 and describes the features of the energy sector including generation, transmission, distribution, and consumption. Energy regulation is under the authority of GoAP, therefore energy market analysis of Hyderabad takes into consideration the regulatory framework of AP. For data review we consult the relevant literature on market and regulation analysis and consider information provided by the relevant stakeholders, “APGENCO”, “APTRANSCO”, “IPP´s”, “NEDCAP”, “DISCOM”, especially the “AP Central Power Distribution Comp. Ltd.” (APCPDCL) and the “Energy Conservation Mission” (ECM). Assessment of failures and sufficient efficiency improvements in the energy sector is based on information gained from expert interviews with the stakeholders conducted in February and March 2009. The first part of the background study gives detailed information about failures and shortcomings within the energy sector and, therefore, reduces the complexity of efficiency issues in the energy sector.
Building on the first part, which is mainly descriptive, the second part of the background study is scheduled for the second milestone in 2010 and will provide dynamic sector analysis of production and consumption patterns based on explorative analysis of consumer and producer behaviour. Chapter 4.3 of the background study gives a detailed description of the methodology used in order to generate reliable expert knowledge on individual preferences concerning energy savings and mitigation technology and, in addition, a more clear-cut picture of the various determinants of consumer and firm behaviour.
Both parts of the background study yield a reference scenario of the energy market in Hyderabad, which is embedded in an analysis of the energy sector of Andhra Pradesh and scheduled for milestone two. The reference scenario comprises, first, descriptive elements regarding the energy sector and developments during the last decade. Second, the background study provides an analysis of production and consumption patterns using econometric models in order to identify efficiency optimised paths for further modelling scheduled for the period after the second milestone. Furthermore, the reference scenario illustrates drivers of and obstacles to efficient generation, transmission, distribution, and consumption of electricity and heat. Finally, this knowledge is fundamental for the development and implementation of demonstration projects in order to reduce complexity and to show how to apply energy efficiency measures and policies in households and firms related to adaptation and mitigation of climate change.
After the introduction the presented background study continues with a synthesis of the background study and the stakeholder analysis in Chapter 2. Chapter 3 pictures the regulatory framework in Andhra Pradesh with specific consideration of regulation, market structure, and price developments in Hyderabad. The structure of generation, transmission, distribution, and consumption is the subject of Chapter 4, including an outlook on market behaviour analysis. Chapter 5 summarises required changes and the current plans of stakeholders in terms of efficiency improvements in the energy sector of Andhra Pradesh and Hyderabad. In Chapter 6 we draw some conclusions followed by an outlook on further analysis in the second part of the background study. Detailed data on the energy sector are listed in the annex.
The deliverable of the WP3.2A comprises the background study and the stakeholder analysis. The background study of the energy sector of Andhra Pradesh pictures the detailed structure of the state energy sector and places particular attention on the areas of electricity generation, transmission, and distribution. The stakeholder analysis provides data on the actors in the energy market of Andhra Pradesh and Hyderabad regarding their objectives and interests, organisational structure, incentives, power and resources, and their relation to other stakeholders as well as towards the project’s objectives. Stakeholder mapping, the analysis of stakeholder relationships, and the comparison of power and interests regarding the project objectives serve to identify the relevance of stakeholders for project implementation. Stakeholder capacities are considered with project objectives for pilot projects, capacity building, and the planning processes of the Urban Energy Management Plan (UEM) and the Energy Master Plan (EMP) to create the most suitable “winning coalitions” for mitigation and adaptation strategies. The stakeholder analysis plays a significant role for identification of rural-urban linkages in the energy sector. Energy use from generation to consumption serves as cross-cutting issue because access to electricity and other energy sources affects virtually all economic and social areas. Therefore, degree of energy efficiency affects local and social groups in different ways. For example, power cuts are treated different between rural and urban areas. This often affects rural firms stronger compared to other firms, i.e. income effects of power cuts differ between rural and urban areas.
The background study and the stakeholder analysis take these issues into consideration and provide the basis for further analysis and scenario building measures in the energy sector regarding institutional changes towards sustainable efficiency improvements.
In 1998 India has passed an electricity reform with the Electricity Regulatory Commissions Act followed by the Electricity Act 2003. The entire reform comprises unbundling of the energy sector and establishment of an independent regulator, the AP Electricity Regulatory Commission (APERC) which was set up by the Government of Andhra Pradesh under the Electricity Regulatory Commissions Act.1