Lights Are Back on in India, So What's Next?

By Ed Silverstein August 01, 2012

The power getting back on to over 600 million people in India – after two days of massive outages – sheds light on a nation beset with an inadequate energy infrastructure and a struggling economy.

Despite widespread skepticism, several politicians in India this week were upbeat on avoiding such outages in the future. The government’s new power minister, Veerappa Moily, told the media, "I can reassure the entire nation that what has happened in these two days will not recur."

One theory as to why the power went out is that some states were consuming too much power from the grid, according to a report from TechZone360. Moily said “[if states] overdraw, this is the result. They can see for themselves. The entire grid will go black,” The Associated Press reported.

His arguments were rejected by some state leaders who denied going over their quota of power.

Moily also said generation capacity needs to increase and the government says it will add 80,000 megawatts over the next five years. Prime Minister Manmohan Singh wants $400 billion spent on energy infrastructure over the next five years.

But what caused the outages anyway? For starters, several energy analysts said there is inadequate coal and natural gas, which are both used to run power stations in India. India relies on coal for more than half its power generation. Most of the coal-fueled plants have less than seven days of coal stock, which was described as “a critical level” and many power plants are “running below capacity,” The AP reported, citing statements from Samiran Chakraborty, head of research at Standard Chartered.

But it goes beyond that. Bloomberg News reported that on average there is a 9-percent shortfall in meeting peak power in India. “Fixing the nation’s electricity supply will take decades,” Bloomberg cautioned.

"The blackouts are a symptom of stalled reforms and underinvestment in all segments of the Indian power sector – generation, transmission and distribution," the Eurasia Group said in a note to investors, quoted by The Wall Street Journal.

Also, Reuters said hot weather and a shortfall in monsoon rains had increased recent demand for energy. There are close to drought conditions in India, according to news reports.

There was more use of diesel in India during the blackouts, as well. "Diesel demand is very high, about 25 percent growth in some states, mainly due to power shortages," Bharat Petroleum Corp chairman R. K. Singh told Reuters.

Added AP: “Vast amounts of power bleeds out of India’s antiquated distribution system or is pirated through unauthorized wiring.” In addition, farmers are offered free electricity leading to state electric boards declaring bankruptcy.

The long-term impact of the outages was summed up by a skeptical front-page headline in the Economic Times of India, "Superpower India, RIP.”

“Repeated occurrences of Grid failures carry a very negative image of India, when already sentiments about the country are low on account of the current economic situation and related developments,” Chandrajit Banerjee, director general, Confederation of Indian Industry, said on Tuesday. “As one of the emerging economies of the world, which is home to almost a sixth of the world population, it is imperative that our basic infrastructure requirements are in keeping with India’s aspirations. The developments of yesterday and today have created a huge dent in the country’s reputation that is most unfortunate.”

Overall, problems with India's infrastructure cuts some 2 percentage points from its GDP growth a year, The Journal said. India also lost 6.6 percent in sales due to power outages in 2006, according to The World Bank.

The economy faces high interest rates, weak global demand, inflation and budget deficits, as well as a weak currency, according to news reports. India's manufacturing last month also slowed to its slowest growth in eight months, according to data from the HSBC Purchasing Managers' Index.

The Reserve Bank of India lowered the nation’s projected growth to 6.5 percent from 7.3 percent – for the year ending March 31, 2013. Moody's predicts a slower growth rate of 6 percent for the current year.

Meanwhile, the Confederation of Indian Industry (CII) said the two recent outages cost businesses hundreds of millions of dollars.

But that means little for some 400 million people in India do not have access to electricity any time, Bloomberg reported. That represents the highest number of people without access to electricity in the world, according to the International Energy Agency.

On the other hand, the sporadic power outages in India, has led to success for some businesses, such as Microtek, which sells power backup inverters, and has 100 million "satisfied customers," The AP said.

"Every year in the summer months demand peaks and there are power failures, so most middle-class families purchase an inverter. That's why we're in business," said Manoj Jain, vice president at Microtek, told The AP.

The nation now has what was described as a “wide-ranging shadow grid for backup power,” Bloomberg said. “It ranges from crude personal generators to self-contained microgrids powered by wind, sun and diesel that keep the power on for multinational corporations. This inefficient patchwork of electricity may help relieve the shock of the world's biggest blackout. It doesn't end the burden of lasting energy poverty.”

Victor Shum, an analyst at Purvin & Gertz, also predicted in the Reuters report there will be “increased use of diesel-fuel power generators in the near term when the government tries to find solutions to the power grid failure."

Edited by Braden Becker

TechZone360 Contributor

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