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Must-know: India’s transmission and distribution sector

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India’s transmission sector

With over 280,000 circuit kilometers (or cKm), India’s transmission network is one of the largest and most complicated in the world. The majority of inter-state and inter-regional transmission is carried out by the PowerGrid Corporation of India. It’s owned by the state. It has a network of ~110,000 cKm. It’s taken care of by the state utilities.

Transmission growth has been slower than generation growth. This has led to inefficiencies. For every dollar invested in power generation, $0.50 should be invested in transmission infrastructure. However, the investment in transmission infrastructure in India is much lower. It’s 30% of generation’s investment. As a result, transmission losses are higher. This results in energy loss. The peak summertime power deficit in April 2014 was 7,556 megawatts (or MW)—or 5.4%.

Distribution

Just like transmission, the distribution sector has been controlled by state utilities. State utilities still control a large portion of the distribution network. However, newer models are being tested. They’re tested through a public-private partnership.

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Distribution is the consumer-facing sector in the power supply value chain. There haven’t been enough tariff hikes. Also, high aggregate technical and commercial (or AT&C) losses have hit the distribution entities hard. This caused a large debt pile and cash losses. India’s AT&C losses are high at ~25%—compared to the world average of ~15%. The AT&C losses measure how much electricity gets wasted due to transmission and billing inefficiencies.

The opportunity

India’s transmission and distribution infrastructure up-gradation will require a huge investment—over $75 billion by 2022—according to Booz and Company. The transmission line network needs to expand and modernize. Also, an efficient distribution mechanism needs to be established. This will benefit companies like Eaton Corp. (ETN) and ABB (ABB). They’re already active in the Indian market. India’s newly formed government is focusing on infrastructure. If the government sticks to its plan, it will create many opportunities for power equipment manufacturers across the world.

The power generation capacity  is growing. India’s government is taking steps to improve the infrastructure. However, fuel security is still a key issue. In the next part of the series, we’ll discuss India’s coal industry. We’ll analyze how it impacts U.S. coal producers like Cloud Peak Energy (CLD) and Arch Coal (ACI). We’ll also see how it impacts exchange-traded funds (or ETFs) like the VanEck Vectors Coal ETF (KOL).

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