With the coming of Electricity Act 2003, the power sector, which was highly regulated with lot of licensing requirements, is in the throes of a long awaited change.

The licensing requirements have been reduced, as the generation company will be free to enter distribution business and vice-a-versa. Read more

Key Positives In order to plug the existing demand supply gap, India [ Images ] has plans to add nearly 150,000 MW capacity over the next decade. So demand growth is not a constraint. But adding capacity has various limitations. If government is willing, investment in the power sector could grow at a faster rate. The Electricity Act 2003 provides great opportunity for power companies, given its abolishment of various licensing norms, liberalisation on the power distribution side business and opening of power trading for private power companies continues to be a big positive. Provision for unbundling of power generation, transmission & distribution companies has been laid. This will result in reducing T&D losses, as incentives to these private players are directly linked to reduction in T&D losses. Passage of the Securitisation Act was another major development, as power companies will be able to pursue their expansion plans with ease.		Key Negatives With the allies of the newly formed government demanding changes to some of provisions of the Electricity Act 2003, the reform process may be delayed. The T&D losses, which are still on the higher side, results in lower effective realisation of per unit of power produced by generation companies. Poor T&D infrastructure remains a cause of concern. It is due to the poor T&D infrastructure and few other factors, the losses are on the higher side as compared to other countries. As a result, the industry is able to deliver much than its actual potential. This in turn has also affected the ability of players to reinvest in the sector. Poor financial health of SEBs continues to be cause of concern. Though some measures have been taken to address this issue but the measures have been half backed. Inability to take hard decisions has been impacting industry fortunes.

Equitymaster.com is one of India's premier finance portals. The web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.