Economy

Karnataka’s Energy Sector – The Journey

Energy Sector

The past year has been eventful for the power sector in Karnataka. NTPC’s super thermal plant in Kudgi came online on 31st July. Earlier in July, the government approved tendering of additional 200 MW at the Pavagada Solar Park. On 9th August, Energy Minister DK Shivakumar tweeted that Karnataka has the 3rd highest installed capacity in renewable energy in the country and is on its way to reaching the position of 2nd. 2017 also marked the year when Karnataka entered a stage of having a surplus availability of 4.6% over its annual requirement after years of dealing years of deficit. Reaching a state of surplus is no mean feat while many states still struggle with shortages and deficits.

Karnataka has had an illustrious history when it comes to power. One of the first hydropower projects for commercial use in Asia was set up in Shivasamudram in 1902 to meet the requirements at Kolar Gold Fields. A transmission line spanning 140 km (one of the longest in the world at that point) was constructed to meet the needs at Kolar. It was also one of the first state to separate its generation and distribution activities before the ‘unbundling’ wave of reforms swept the power sector across the country in the late 1990s. Transmission and distribution (generation – in certain cases) was handled by Karnataka Electricity Board (KEB) and generation was handled by Karnataka Power Corporation Limited (KPCL).

The Journey
The journey towards achieving a better power sector started off in 1995. The government of the day recognized the strain the power sector was putting on the state finances as well as the people. The power sector was a ‘major bottleneck’ in the development of the state. The demand for energy grew at a rapid rate. The supply side was plagued with problems of availability and reliability of power, high cost of transmission, high transmission and distribution losses, etc. Rural electrification was also a problem with many parts not having access to electricity. All this was affecting growth as well as the state’s ability to deploy resources to other sectors.

After studying the situation and much deliberation, in 1997, the Reforms Policy Statement was introduced. The strategy laid out in the policy document was to create an energy market in the state. In that direction, the following were the steps:
• Creation of a regulator
• Reorganization of the current electricity architecture by ‘unbundling’ the transmission and distribution function
• Creation of economically viable distribution entities
•  Eventual culmination in privatization

In 1999 the Karnataka Energy Reforms Act was passed with a view to reform the sector and to put this vision into effect. The Karnataka Electricity Regulatory Commission (KERC) was set up to regulate the sector. KERC is considered one of the most effective regulators in the country. The 1999 reforms led to the ‘unbundling’ of state utilities into 2 entities that manage transmission and distribution separately. Karnataka Power Transmission Corporation, set up 1999, was tasked with transmission as its major objective. All distribution activities were delegated to 4 distribution companies – Bangalore Electricity Supply Company, Mangalore Electricity Supply Company, Hubli Electricity Supply Company and Gulbarga Electricity Supply Company. An additional DISCOM, Chamundeshwari Electricity Supply Corporation Limited was created later in 2005. This division of activities allowed for specialization and focus on particular activities.

In 2007, Power Company of Karnataka Limited (PCKL) was created to help KPCL in its capacity addition mission and also procure power on behalf of the various supply companies through the energy exchange and bilateral transactions. The state has actively encouraged private participation in the sector. Over the years, the installed capacity has steadily increased at over 7% CAGR with old projects coming online and new projects being started. At a time when most of the DISCOMs are in financial trouble, a study by CRISIL in 2015 found the DISCOMs in Karnataka to have a low risk profile coupled with a high ability of the state government to support them. DISCOMs have come a long way from Aggregate Technical & Commercial losses (AT&C) losses at 37% in 2005-06 to 17.9% in 2014-15. The government has projected the losses to drop to 14% by 2021-22 and is committed to it. AT&C losses have been steadily dropping.

Evidently, the Karnataka energy sector, with time and effort, grew into what it is today, and seeks to maintain its current supremacy, which admittedly involves overcoming current impediments. Follow the next article on this series to delve into the current picture.

 

Picture Credits: Claroenergy



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