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Jayant Deo, an expert in energy sector and the advisor to the Indian Energy Exchange, is a multi faceted personality with knowledge of almost every field. He joined the Maharashtra Electricity Regulatory Commission (MERC) in August, 1999, as a member. Deo strongly believes that the regulatory framework is essential for democratic working. He always advocated introduction of ERCs in India.

During his 34 year stint with industrial engineering, Jayant Deo was exposed to various aspects of electricity industry. As an independent resource optimisation consultant, he has helped several industrial units in India improve their bottomline. For the past three years he has been promoting the concept of power exchange a common platform for buying and selling power under Electricity Act 2003.

His efforts have been fruitful and India's first power exchange will go Live in the first quarter of 2008. He is also member of various institutions, including World Energy Council, Institution of Engineers India and Energy Conservation Committee of GOM.

Deo spoke to Commodity Market Editor in Chief Binu Alex on various issues in the energy sector.

How will a consumer benefit from MCX's Indian Energy Exchange?

The Electricity Act 2003 is based on the philosophy that consumers benefit through competitive markets. The Act has de licensed generation, encouraged captive power by allowing them to sell almost half of the generation, without any licence requirements. Multiple players are required for competitive markets. This is done by allowing multiple licences in the same area and also allowing 'Open Access' to all consumers needing more than one megawatt power and to all generators and also to Licences. '

Open Access' means non discriminatory use of wires and related infrastructure, on payment of user charges and subject to availability of capacity. Thus, the consumer is provided with choice of suppliers, including his own captive unit, which can be located anywhere in the country. Even group of consumers can come together (even without any incorporation) for setting up captive units. This is certainly going to help build up competition, and increase in supply.

How can the captive power plants get benefit from energy trading?

By selling surplus capacity through trader and/or on exchange the capacity utilisation can be raised to optimum level thereby reducing fixed cost component. This will in turn attract those captive plants which cannot be economically justified on self use. Also by buying power whenever captive plant is down for maintenance, the need for standby capacity and capital for it is eliminated.

The Indian government has committed affordable power for all by 2012. Will trading of energy help achieve this? How?

The trading platform of Indian Energy Exchange has already started attracting merchant power plants, which was not financed earlier, for lack of assured market. Thus capacity additions by captive and merchant power plants are going to help increase availability of power. As far as affordability is concerned, the competition is bound to give benefits as is the case with mobile telephony.

Normally energy trading comes into play when you have sufficient energy to exchange. Here, the situation is reverse? How do you think this will work out?

I think the very purpose of exchange in deficient scenario, is to attract investment for capacity addition. All other exchanges in developed countries where supply is more than demand, are primarily to find out competitive price. Even in India, shortages are specific to region, weather and time of the day and of year specific. By having national level exchange, it is possible to exchange energy during such complimentary periods of each region.

Now as far as production is concerned, where does India stand in terms of producing energy and where do you think the energy companies will source it from?

Coal and gas, local as well as imported are the main sources of fuel. India is also tapping hydel sources in a big way. Atomic power has a definite role but it is dependent on political economy. In the mid term, by 2015 solar thermal will become another source. Bio mass and wind are already helping in capacity addition. With investment in storage technology, wind energy will become dependable.

Dye sensitised solar cell will help small consumers to be independent of grid in cost effective manner in next 5 to7 years. Presently, with 1,35,000MW of capacity the country produces about 800 BUs of electricity. This is the fifth largest electricity generating country in the world after USA, China, Japan, Germany and France.

India's exploration and licensing policy needs a competitive natural gas price but this is in conflict with extensive fertiliser and power subsidies, which rely on guaranteed gas supply at lower prices. So unless the policy is in place, where do you get the power from?

If there are subsidies then economy can handle it. Also, switch over to capital subsidy from revenue subsidy particularly in power sector will be the most efficient economic method to reach targeted beneficiary.

Is privatisation an answer to energy crisis?

Each sector has a role to play for overcoming energy crisis. The present role of private sector is marginal and needs to be multiply several fold for increasing competition.

China and India already account for 45 per cent of global coal use. Where do you see this reach to fulfil the demand for more power generation? Is India self sufficient in coal?

Coal will become transport fuel once coal to gas technology matures in 2011.This will result in price spiraling of coal and it can compete with oil and gas. The imposition of CO2 tax in near future will also curb use of coal.

Government is targeting to increase the power generation from renewable energy sources to 14,000 MW by 2012. Many say this is just a lip service since there has not been a proactive step to harness non conventional energy. What could be the reason?

The MNES ministry has to take the role of producer apart from canvasser, as is the case with Ministry of Power. Until a critical mass is reached and scale benefits are established, MNES will have to be a producer like NTPC, NHPC etc.

India's current level of energy consumption is very low compared with the rest of the world? Is it because of the poor availability or poor penetration or both?

Heating and cooling energy requirement in the households and offices is one of the reasons for high per capita consumption. In large parts of India climate conditions, do not demand any artificial heating/cooling. Secondly, use of manual work against gadgets needing energy is much more efficient in many activities like manual sweeping vs vacuum cleaners in households. Therefore, even with better availability and penetration India's per capita consumption will be significantly less compared to others.

India's energy sector is estimated to require investment to the tune of $120 150 billion over the next five years to build increased capabilities and upgrade technology. Where will this fund come from?

I have been pursuing a theory of power financed by users, for many years. I have written articles about it and explained it in many fora. In fact, in the name of power connection builders are taking Rs 40 to 50 per square foot, when you buy a flat or an apartment. The requirements are less than 5 Watt per square foot. The capital cost of 5 Watt capacity is less than Rs 40, even at the rate of Rs 8 crore per megawatt for generation, transmission and distribution.

In reality, this contribution is required to be channelised towards capacity addition. A scheme of compulsory purchase of bonds for each unit of annual consumption can also raise the required capital. The wealth with Indian investors is adequate to take care of investment. FDI can also help. Reliance Power IPO is testimony to this. Right revenue potential should exist in the project through revenue models. The money will follow the project.

Now consider that energy sector will attract huge investments, what about the energy transport infrastructure such as ports, railways, pipelines and power transmission networks which are in disarray?

There has to be co coordinated developments with a horizon of at least 10 years. A National Infrastructure Board or Authority for this purpose is necessary

Will CERC handle Futures markets of electricity trading too?

The spot market is regulated by CERC while Futures and forward market is regulated by FMC. The forward contract part under FMC and if it goes for delivery then delivery part by CERC is quite logical and there is no conflict. CERC is well equipped to deal with Exchange Spot market Trading.

Will distribution be a problem while setting up an exchange?

The exchange is neither required nor can put up a distribution system, the exchange has to be neutral and also de mutulised. This brings credibility and working to ensures trust that is a must for any successful marketplace. No interested party like Power Grid is part of the exchange. Any generator OR distributors can be members of exchange for trading but should not have significant ownership which is likely to cast doubt on neutrality of the platform. and bull

This interview has been appeared in COMMODITY MARKET, India s No.1 news magazine on commodities