Understanding the key technical and economic concepts Prayas - EGI Skill-share workshop for Tajikistan and Kyrgyzstan Delegates November 16-18, 2010, Pune, India Prayas Energy Group

Prayas - EGI Workshop Pune Interaction Plan Overview Operation & Planning Discussion

Prayas - EGI Workshop Pune Overview Electricity is a key infrastructure sector 6-7% steady annual growth Strong linkages with fuel, environment, development Electricity sector is capital intensive Large investment for construction and operation Long lead times

Prayas - EGI Workshop Pune Electricity is a key infrastructure sector – Strong linkages -1 Fuel Fossil, non-renewable Coal, Natural Gas, Nuclear, Diesel Excavation, processing, transport/import, depletion Large scale renewable ( > MW) Big Hydro, Big Wind, Big Solar, Big bio-mass Bio-mass: Land & resource use competition with agriculture Small renewable Hydro, Wind, Solar, Bio-mass

Prayas - EGI Workshop Pune Electricity is a key infrastructure sector – Strong linkages -2 Environment - Rehabilitation, Pollution, Ground water, Global warming Coal Huge land and water needed leading to displacement and loss of livelihoods Pollution: Ash, Sulphur Oxides The largest contributor for GHG emissions Large hydro Submerges forests and villages Effect river flow and impact livelihoods Seismic impacts due to dams, reservoirs and tunnels Nuclear Safety, waste disposal

Prayas - EGI Workshop Pune Electricity is a key infrastructure sector – Strong linkages -3 Development - Catalyst to development by meeting the social & economic needs Social needs Household, Water pumping, Health, Education, Research Strong link to quality of life Economic needs Home industry, agriculture activities, manufacturing, service industry Multiplier effect and hence linked to economic growth

Prayas - EGI Workshop Pune Strong Linkages – 4: Correlation between HDI & Electricity 7 Source: Dr. Steve Chu, US Department of Energy

Prayas - EGI Workshop Pune Strong linkages -5: Balancing act of the roles of electricity - commodity or development input Commodity perspective Pricing as per market terms, No subsidy Short term financial viability is the key Electricity markets possible: complex to design & operate; hard to achieve perfect competition Development input perspective Multiplier effect for supply to agriculture, industry, commercial; Quality of life improvement for household, community services Essential: Low demand – price elasticity Subsidy to supply to the poor Long term socio-economic return is key

Prayas - EGI Workshop Pune Electricity sector is capital intensive Capital and time intensive sector Investment Approximate US$ 1million/MW for Generation, Equal amount for Transmission & Distribution Cost varies based on fuel, technology, size, location Typical thermal power plant needs 3-4 years to become operational Hence need to plan investments well in advance Generation planning and cost recovery High capital investment and long pay back periods, uncertainty of fuel prices, etc Operational cost Generation : 70%, Transmission: 15%, Distribution: 15% Cost recovery: Fixed and variable charges 9

Prayas - EGI Workshop Pune Operation & Planning – Generation, Transmission & Distribution

Prayas - EGI Workshop Pune Operation & Planning – Electricity is special Cannot be stored Demand keeps changing with time Generation to match demand at every instant Persistent mismatch -> grid failure and system collapse Flows according to the laws of Physics, not commercial contracts Travels at the speed of light Large geographical spread - Integrated Grid operation Needs constant supervision and control Generation Plant Control Transmission Load Dispatch Distribution Control

Prayas - EGI Workshop Pune Operation & Planning – Electricity is special Supply and demand matching Grid management: frequency control, Load Dispatch operation, grid failure Fast coordinated actions needed Some without human intervention (protection, speed governor, capacitor switching..) Some by the operator (opening a line for maintenance, changing generation schedule, hierarchy..) System reliability is a common interest, though individual players may act in contrary fashion

Prayas - EGI Workshop Pune Load Dispatch snapshot 13

Prayas - EGI Workshop Pune Large mismatch between load and generation can lead to Grid Collapse Pole= Generator Tent weight = Load Tent rope = Grid

Prayas - EGI Workshop Pune Operation & Planning Planning Long (5-30 years), Medium (1-5 years), Short (few hours to 1 year) Demand Forecast Generation Planning Base load, Peak load, Intermediate load Conventional centralised and Renewable decentralised Firm and non-firm power (eg. solar or wind) Integrating end use efficiency and development perspective into planning

Prayas - EGI Workshop Pune Discussion: Complex electricity sector is crucial for development Technically complex, large investment, long lead times, multiple linkages Many agencies involved and requires team work of persons with diverse skills Technical Legal Finance Economic Environmental Socio-political Management

Prayas - EGI Workshop Pune Discussion: Electricity sector and politics High political implications Touches most lives Crucial for livelihood and quality of life Instances of political ‘ storms ’ based on electricity issues Kyrgyzstan, many Indian States High scope for corruption & inefficiency, with major decisions having big impact on common people Power purchase contract: 1 c/Unit increase in generation tariff of a 1000 MW thermal plant = increase of annual power purchase cost by US$ 60m MW system, reduction of commercial T&D loss by 5% = Annual savings of over US$ 100 m (assuming cost of 6 cents/Unit)

Prayas - EGI Workshop Pune Discussion: Good Governance in Electricity Sector Good governance in Electricity sector essential To address development challenge To address climate/environment challenge To handle political issues To address corruption and inefficiency Good Governance through developing processes and capacities to ensure: Transparency: Systems and procedures to ensure complete transparency Accountability: Of utilities and government to investors and public Participation: Informed, meaningful public participation in planning and operation of the sector