History of Indian Power Sector

The first demonstration of electric light in Calcutta was conducted on 24th July 1879 by P.W. Fleury & Co. Mumbai had seen electric lighting for the first time in 1882 at Crawford Market. First hydro-electric installation in India was setup by Crompton & Co. for the Darjeeling Municipality in 1896. The Bombay Electric Supply & Tramways Company (B.E.S.T.) set up a generating station in 1905 to provide electricity for the tramway. In November, 1931, electrification of the meter gauge track between Madras Beach and Tambaram was started.

Milestones achieved:


First hydro (130 kW) Darjeeling / thermal (1MW) in Calcutta by CESC.


Indian Electricity Act 1910 enacted to regulate supply by the Licensees to the consumers.


Indian Electricity (Supply) Act 1948’ (ES Act). Formation of State Electricity Boards with full powers to control generation, distribution and utilization of electricity within their respective states and Central Electricity Authority for planning and development of power system.


Five Regional Electricity Boards (REBs) were formed by the Government of India with the concurrence of State Governments with a view to ensure integrated grid operation and regional cooperation on power.


Creation of Central Generating Companies for development of super thermal power stations at coal pit heads and large hydroelectric stations leading to creation of NTPC, NHPC, NPC, NLC & NEEPCO.


ES Act 1948 amended to pave the way for the formation of private Generating companies. CEA empowered to fix the norms for determining the tariff of all generating companies. RBI allows 100% foreign investment in power sector without any export obligations.


First Gazette Notifications on the criteria for fixing the tariff for sale of electricity by the Generating companies to SEBs or any other agency.


Electricity Regulatory Commission Act 1998 enacted paving the way for the formation of Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERC). Regulatory power of the State governments transferred to SERC. Consequently, Tariff regulatory function of CEA transferred to CERC.


Act amended to provide for of Central Transmission Utility (CTU) and State Transmission Utilities (STU).


Electricity Act 2003 enacted by the Parliament.

Electricity Act 2003 repeals the following Acts:

The Indian Electricity Act 1910-: It provided the underpinnings for the structure of power industry. The production and distribution of power was allowed through licenses granted by the state government. Provisions were made for laying down of wires, and the relationship between the power generator and consumers was defined.

The Electricity (supply) Act, 1948-: It allowed the creation of State Electricity Boards (SEBs). The SEBs was responsible for the generation, transmission and distribution of power within the state periphery. Central Electricity Authority (CEA) was established to oversee the planning and development of power sector and guide SEBs.

In 1975, amendments were made to enable central government to set up and maintain power plants. Thus was formed the National Thermal Power Corporation (NTPC) which is the biggest power generation company in India till date. Private sector investment was opened for power generation sector as late as in 1991.

Electricity Regulatory Commission Act, 1998: Act to provide for the establishment of a Central Electricity Regulatory Commission and State Electricity Regulatory Commissions, rationalization of electricity tariff, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies and matters connected therewith or incidental thereto.

In 1998 transmission of power was opened for private investment and regulatory commissions were set up at Central and State level to frame the policies and ensure their implementation in their areas of jurisdiction. Central regulatory commissions were established for inter-state matters and state commissions for intra-state matters.

The Electricity Act 2003-: Repealed all previous acts and brought a paradigm shift in Indian power market. No license was required for setting up generation capacity. Distribution was made license free for notified rural areas. Development of power market was envisioned. Trading of electricity was recognised as a distinct activity. Open access was granted for bulk producers and consumers. It was amended further in 2007 to bring in modifications. The prominent ones are regarding subsidy and combined responsibility of state and central regulators. Power sector reforms are being pursued since then and continue till date.


The power sector in India has the fifth largest electricity generation capacity in the world, and it is among the core sectors of the country with an installed capacity of 253.39 Gigawatt (GW) as of Aug 2014 (Thermal power plants constitute 69.50 % of the installed capacity, hydroelectric about 16.10 % and rest being a combination of wind, small hydro, biomass, waste-to-electricity, and nuclear. Also, captive power plants generate an additional 39.38 GW). It facilitates development in various other sectors like agriculture, manufacturing, construction and services among others. Between April 2000 and January 2014, it has attracted Rs. 404 billion worth of Foreign Direct Investment (FDI) inflows. India’s fast paced economic growth and its increasing rate of industrialisation has fuelled the demand for energy. During the Eleventh Five Year Plan (2007-12), about 55 GW of generation capacity was added, which was around two times the capacity addition during the Tenth Five Year Plan (2002-07) and a target of 88537 MW has been set for the Twelfth Plan period in which 46766 MW has been achieved up to Aug’14. This highlights the significant development in the capacity addition. The distribution sector which is mainly dominated by the state owned utilities has been dealing with losses. Also, even after actual capacity addition exceeding targets in the recent years, the country still faces significant power shortages throughout the year due to losses in distribution (overall power deficit in FY2013 was 8.7% and peak deficit was 9.0%).

Power sector has been moved from being a mostly vertically integrated structure with the State Electricity Boards (SEBs) owning the generation, transmission and distribution businesses to a more unbundled corporate structure. There are about 23 integrated utilities or SEBs that existed before the electricity reforms began and now more than 90 utilities/companies. These comprise state owned generation, transmission and distribution companies; private utilities engaged in generation and distribution in particular cities and central government owned power generation and transmission companies. This also includes industrial power generators (captive power units) that own small plants that cater to the electricity needs of their companies and Independent Power Producers (IPPs). Trading of power is facilitated by inter-state and intra-state trading licensees and the two power exchanges. At present, out of 21 states in which all matters relating to generation, transmission and distribution of electricity were managed by the respective SEBs, all the states except Jharkhand and Kerala have reorganised their SEBs.

Intra-state transmission system is the responsibility of the state transmission utilities (STUs), while Power Grid Corporation of India Limited (POWERGRID) handles most of the inter-state transmission system. As of now, only a few transmission lines were developed and managed by companies in the private sector or joint sector.

Distribution of power was mostly owned by state distribution companies (discoms) in the past, now there are also privately owned companies that undertake distribution of power in some states or cities (for e.g. NPCL, Torrent, Tata Power etc.). Most states have set up State Electricity Regulatory Commissions (SERCs), which regulate the electricity sector and determine the tariff for distribution and transmission companies as well as the tariff of the generation plants which sell the power to the distribution companies in the state. The Central Electricity Regulatory Authority (CERC) fulfils this responsibility for the central power utilities. The Appellate Tribunal for Electricity is established to hear appeals against the orders of the adjudicating officer, SERCs, JERC and CERC. Apart from these organisations, there are privately owned power trading companies that facilitate the trading of power.

The declining financial condition of SEBs and power shortages in the country led the Government of India (GoI), in 1991 to amend the Electricity Act (EA), 1910 and the Electricity (Supply) Act (ESA), 1948. This was also done to attract private investment in power generation and distribution.

After this recognising the need for accelerating the reform, the Electricity Act, 2003, was enacted in June 2003. The Act replaced the three existing legislations governing the power sector, namely Electricity Act, 1910; Electricity (Supply) Act, 1948, and the Electricity Regulatory Commissions Act, 1998 (ERC, 1998). Following the Electricity Act, 2003, several additional rules and laws have been passed relating to the overall framework under which the sector must operate, tariffs, treatment of displaced people, and hydro power development. The corresponding laws and policies are The National Electricity Policy, 2005; The Tariff Policy, 2006; The Resettlement and Rehabilitation Policy, 2007; The New Hydro Policy, 2008. The revised Mega Power Policy and the Ultra Mega Power Policy have started an era of high capacity installations in the country.

Ministry of Power launched Accelerated Power Development Programme (APDP) in 2000-01 wherein additional central plan assistance was made available to states undertaking distribution reforms in a time bound manner. In March 2002, APDP was rechristened as APDRP with urban focus and introduction of reforms element. Incentive scheme was introduced to incentivise utilities achieving cash loss reduction. Then Restructured Accelerated Power Development and Reforms Programme (R-APDRP) started in 2008 which is a revised version of the Accelerated Power Development Reforms Programme (APDRP). The Power Finance Corporation (PFC) is the nodal agency to operationalize the scheme under the guidance of Ministry of Power. PFC will act as a single window service provider under the scheme and coordinate with the different stakeholders like Ministry of Power, APDRP Steering Committee, Central Electricity Authority, Financial Institutions, State Electricity Boards/Utilities and Consultants.  

In the last few years, the Indian power sector has witnessed an economic downturn, along with problems like high borrowing costs; funding crunch amid delays in land acquisition and project approvals such as environmental clearances. Other problems include lack of power purchase agreements; fuel shortages that increased the dependence on imports of coal and also an increase in the price of foreign coal. Although thrust is being accorded to maximise generation, both from conventional and non-conventional sources, coal based generation will continue to be the main stay of electricity generation. The dominance of coal in India’s generation capacity is mainly because of significant reserves of coal. A significant proportion of future capacity additions are expected to be based on coal, however, over the long-term, the share of coal-based generation is expected to decline.

There is high potential for generation of renewable energy from various sources such as wind, solar, biomass, small hydro and cogeneration bagasse. India faces a significant challenge in providing access to adequate, affordable and clean sources of energy, especially cooking fuel to a large section of the population, most of who live in rural areas. As per the 2011 Census, almost 85% of rural households were dependent on traditional biomass fuels for their cooking energy requirements.

India’s installed grid-interactive renewable power systems have increased steadily from about 2,860 MW in 2000-01 to 31,692 MW in August 2014. Wind installations have increased from 1,348 MW to 21,136 MW during this period. Though, the industry is fairly new in terms of growth, it is less prone to economic cycles because of the high demand in the country as well as fixed tariffs and off-take contracts. Significant capacity potential, favourable incentives, technology advantage, ease of installation and substantial development capabilities have made wind farm development more attractive to investors. Consequently, the trend is expected to continue in the medium to long term until other competing systems are able to offer similar benefits.

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