CHAPTER 3

3.1 Introduction
Competition in supply and consumer choice are the hallmarks of a functioning market. These are relatively new concepts for the electric power industry worldwide. Where they have been introduced as in the UK, Norway, parts of the US, Argentina and Chile the industry had necessarily to go through a major restructuring to create the enabling conditions. Vertical unbundling separating generation, transmission and distribution, at the basic level, and horizontal unbundling of generation and distribution, creating multiplicity of players within each of these industry segments, have become the standard reform components. This is the reform package, which has already been adopted in India. At the central level, transmission was segregated from generation in 1989. In most states this task has been initiated under the reform programs started since 1995. These reform programs, in addition, target the separation of distribution from transmission. Orissa, Haryana and Andhra Pradesh have replaced the erstwhile SEB with unbundled entities. Orissa has privatised thermal generation capacity and the distribution companies, which succeeded the SEB. However even here monopolies remain in existence. Open access to the grid is not permitted. The second level of reforms, aiming at the development of power markets, will need to introduce a market for bulk power, open access to the transmission grid and choice of supplier for the retail consumer. Constraints in transmission capacity, imbalances in demand and supply, inadequate metering arrangements and irrational tariffs are some of the barriers to an early introduction of these markets.

3.2.1 Demand
Low per capita consumption of electric power, an increasing population, high income elasticity of demand, unexploited potential for energy efficiency improvements and the potential for economic growth, in the 7% to 8% per annum range, are the primary drivers for growth of electric power demand in India. Power generation capacity of the utilities in 1998-99 was about 93,000 MW while energy generation was around 450 billion units. Since 1990, the average annual growth of generation has been around 7% p.a. while growth in peak demand has been 4.5%. Demand growth without commensurate supply has kept electricity in a sellers market. Peaking shortage is 11% while energy shortage is 5.5%. The CEA estimates power demand in 2012 at 176,647 MW and energy demand at 1058.4 billion units¹. However, control of theft at the retail level and tariff, reflective of costs, would be the factors which would influence the future of demand profile.