IEEJ: August 2012 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (97)

August 3, 2012

Background and Impacts of World's Largest Blackout in India
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn July 30 and 31, the world's largest blackout hit India. First, the electricity
supply-demand balance tightened in the northern state of Uttar Pradesh in the early morning of July
30. Troubles spread in a chain reaction, causing a blackout for the entire northern grid (one of India’ssix grids). The blackout hit the Delhi metropolitan region and six northern states and affected 300
million people before ending at around 7 p.m. on the same day. Another blackout came at 1 p.m. on
July 31 and spread, covering the northern, eastern and northeastern grids for 22 of India’s 29 states.
The largest blackout in the world reportedly affected 600 million people, close to half of the total
Indian population. Transportation services were disrupted as railway trains were suspended withtraffic signals failing to work. Coal miners were stranded in mines as the blackout cut off electricity
to elevators. Air conditioning was suspended, damaging the livelihood of citizens. Hospitals andfactories had to operate emergency power systems. The blackout thus exerted great social andeconomic impacts.
Direct causes of the large blackout include electricity supply capacity failing to meetgrowing demand in India. Particularly, hydroelectric power output, which accounts for 12% ofIndia’s total electricity generation, was some 20% less than usual due to droughts. Furthermore,droughts worked to increase demand for electricity to pump up groundwater for agricultural
irrigation. In some states including Uttar Pradesh that was hit first, electricity demand exceeded thesupply allocated by the central government. Grid troubles contributed to spreading the blackout in achain reaction nationwide. Concerned by the great impacts of the blackout, the Indian government
has reportedly launched a panel of third parties to investigate the accident and find its causes.
While efforts are under way to trace the causes of the large blackout, we can point to somestructural problems. First, electricity demand has been expanding robustly in India. As annual
economic growth has remained close to 10%, electricity demand has expanded rapidly on the fastdiffusion and rising utilization of electricity-consuming goods amid income growth as well as
swelling electricity consumption for industrial and agricultural production. Under the 12th five-year
development program lasting until fiscal 2016, electricity demand is estimated to expand to 1.4
trillion kilowatt-hours in fiscal 2016 on precondition of an annual economic growth rate at 9% andelectricity demand’s elasticity to gross domestic product at 0.9 (electricity demand growth at 8.1%).
Contributors to the electricity demand expansion include not only economic growth and income
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effects but also cheap subsidized electricity prices for the agriculture and household sectors.
Particularly, agricultural and household electricity prices have been held down to very low levels.
The distorted electricity pricing system is viewed as one of the factors behind the demand growth.
While electricity demand has been growing rapidly, India has failed to secure sufficient
capacity for electricity generation, transmission and distribution. According to a report by the Indian
Ministry of Power, electricity supply capacity has persistently fallen 10% short of peak demandsince 2000, causing prevalent rolling blackouts. Therefore, many factories, hospitals and hotels have
had to install private power generation facilities. The abovementioned problem of subsidized
electricity prices has had a great impact on the supply side as well. Cheap electricity prices under
government policy have forced power utilities, including state distributors, to remain in the red.
According to an Indian government report released in December 2011, electricity distributors in 15major Indian states (accounting for 91% of Indian electricity consumption) had a total of 566.4
billion rupees in losses (excluding those covered by government subsidies). Due to structural losses,
the electricity industry’s capital investment capacity has been limited. This is a major problem.
Under such situation, efficiency in the Indian electricity sector has been internationally low.
The power generation efficiency for coal thermal power plants, a main electricity source in India,
stands at less than 30%, over 10 percentage points lower than in Japan. The electricity transmission
and distribution loss rate in India is around 25% against some 5% in Japan. Electricity stealing andfailures to bill and collect electricity charges, as well as low technological efficiency levels, havecontributed to the lower overall efficiency. As for coal and gas power thermal power plants as a mainelectricity source in India, there are problems with the development of domestic resources and theprocurement of relevant fuels. While the 12th five-year development program calls for increasing
electricity generation capacity by 76,000 megawatts, Coal India Limited, a state-controlled coalmining company, has promised to supply fuel for only a small portion of the new capacity. The
electricity source development target is viewed as difficult to attain.
The large blackout came under these complicated diverse problems, leading India’svulnerable electricity system to be taken up as a global topic. Given the significance of stableelectricity supply, responses to the blackout problem and short- to long-term solution-finding efforts
are likely to have some effects on Japanese and other foreign companies’ expansion into the Indianmarket and their enhancement of engagement with India, as well as on India’s future economicdevelopment. In this sense, the Indian government’s investigations into the causes of the blackout
and its relevant responses are attracting global attention.
Stable electricity supply is the most important basic factor for stabilizing and sustaining
economic operations and citizens’ livelihood. Japan is set to consider its own electricity system
reforms. I hope that the government will fully understand Japan’s present electricity supply anddemand challenges and proceed with reforms to solve these challenges with top priority given tostable electricity supply. Institutional and systemic reforms can greatly affect the development of2

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electricity sources and transmission/distribution grids, which require long lead times. It is importantfor Japan to discuss and consider electricity system reforms meeting its own present conditions,based on objective and realistic analyses of actual U.S. and British reforms (including both
successful and unsuccessful cases) as well as electricity supply challenges including the latest Indianaccident.
Contact: report@tky.ieej.or.jp
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