India’s First World dreams hampered by Third World power infrastructure

Bedevilling its emerging-economy aspirations, India is hobbled with an electricity system that remains decidedly Third World, with a staggering under-capacity in generation and transmission that leaves 400 million people with no access to power and much of the country accustomed to frequent outages.

India got a vivid reminder of those shortcomings as a massive blackout hit the northern and eastern parts of the country, leaving about 650 million customers without power on Tuesday and bringing much of the transportation and commerce to a halt.

It was the world's largest blackout, affecting a population almost the size of North and South America combined. The outage on Tuesday was preceded by a blackout affecting 369 million people in the north on Monday.

While officials were investigating the precise cause, the system was severely strained as individual state utilities drew more power than they were allocated, as a shortage of coal, a lack of rainfall for hydroelectricity and high demand from soaring temperatures crippled the system.

Even before the power failure, the country's top regulator, the Central Electricity Regulatory Commission in New Delhi, had reprimanded state officials for over-drawing electricity from the grid, with India's most populated state, Uttar Pradesh, singled out for the most blatant violations.

Indian authorities moved quickly to restore power, particularly in major cities such as New Delhi. But the country remains vulnerable to further disruptions.

"At a more fundamental level, the blackouts are a symptom of stalled reforms and under-investment in all segments of the Indian power sector – generation, transmission and distribution," said Seema Desai, an analyst with Eurasia Group, a U.S.-based political risk firm.

The shortcomings of the power system represent a fundamental challenge for India, which has benefited from a wave of entrepreneurial activity and global investment in industries such as information technology and customer-call centres to boast high economic growth rates and a growing middle class. But the growth has slowed recently, and critics worry the country is increasingly in the grips of a sclerotic bureaucracy that has not kept pace with modernization in the private sector.

That is particularly true in the electricity sector, which is highly decentralized and regulated at the state levels, but at the same time dependent on a national coal monopoly that has failed to meet the utilities' demand for fuel. Coal fuels more than half of India's electricity generation.

Even the central regulator has complained that the rate structures do not allow for companies to build power plants designed to meet peak demand, meaning the most dramatic shortage of power occurs when it is most needed.

In an open letter dated last Saturday, the country's top energy regulator urged an overhaul of the planning and tariff structures that are the norm across the country.

"Traditionally, planning for capacity addition has been done keeping in view only the base load demand and no conscious effort has been made to set up capacities dedicated for meeting peak demand," wrote Pramod Deo, chair of the central regulatory commission.

In the absence of the kind of peaking capacity that exists in North America, India's local distribution companies resort to load shedding by forcing customers off the system, or overdraw from the grid, which can cause system-wide failure.

Meanwhile, the country's grid – a network of five interconnected regional systems – suffers some of the highest losses of power in the world, from a combination of technical factors and outright theft from the grid.

Ms. Desai said the massive blackout should be a "wake-up call" for policy makers. But she worries that the decentralized nature of the system will make it impossible for reform to occur, particularly when local regulators are under huge pressure to keep the price of power down below the level that would justify investment in generation or transmission lines.

India's growing affluence depends on the country's ability to power its own growth.

The Paris-based International Energy Agency forecasts that Indian power supply and demand will have to grow five-fold over the next 40 years to fuel its recent pace of economic growth.