The background study represents the first part of the deliverables of the Work Package 3.2. A for milestone one. It reflects the status of the power sector of Andhra Pradesh with specific consideration of Greater Hyderabad. Beside transport, electricity is the main application of energy sources in the areas of generation, transmission, generation and consumption. The study places particular attention, first, to the regulatory framework of the Andhra Pradesh power sector and the linkages to Hyderabad and, second, to the state of the sub-sectors. Based on this we identify sources for inefficient energy use and provide the basis for further analysis of consumption patterns of households and firms in the public and private sectors. The predominant problems of the power sector highlighted in the background study are huge supply gaps and growing peak deficits due to economic growth, insufficient incentives for energy saving investments and limited capacity expansions, because tariff structures fail to set price signals for energy saving measures and application of low emission technologies. The results of the background study indicate several reasons for inefficiencies and supply gaps arising from institutional, economic and technical issues, such as subsidies for irrigation and agriculture failing to set incentives for energy savings for farmers. The background study forms the basis for analysis of strategies to improve energy efficiency and to develop strategies and projects together with the stakeholder analysis in the entire energy sector.