The Future of the Power Sector in India

SCMHRD

The Future of the Power Sector An Analysis

Tushar Alva Roll No-2009A06

Executive Summary 

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The electricity sector in India is predominantly controlled by Government of India's India's public sector undertakings (PSUs) but the private sector is also catching up fast. India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India's economic rise, the demand for energy has grown at an average of 3.6% per annum over the past 30 years. In March 2009, the installed power generation capacity of India stood at 147,000 MW while the per capita power consumption stood at 612 kWH. The country's annual power production increased from about 190 billion kWH in 1986 to more than 680 billion kWH in 2006. India faces a serious shortfall in power generation. During the tenth plan, only 23,000 MW of capacity was added against the original target of 41,000 MW. During the 11th plan, a target of 78,000 MW has been set. Anil Kakodkar, Chairman, Atomic Energy Commission, India had estimated that the per capita electricity generation would reach about 5300 kWh per year in the year 2052 and total about 8000 TWh.

The Government of India has an ambitious mission of „POWER FOR ALL ‟ BY 2012. This mission would require that the installed generation capacity should be at least 200,000 MW by 2012 from the present level of 144,564.97 MW. Power requirement will double by 2020 to 400,000MW.

The ratio of energy generation and GDP growth should be 1:1. The growth in electricity consumption over the past decade has been slower than the GDP‟s growth. This could be due to high growth of the services sector or it could reflect improving efficiency of electricity use. Moreover, captive generation has also increased. However, as growth in the manufacturing sector picks up, the demand for power is also expected to increase at a faster rate. A new era of power on power competition will emerge by 2014 that will bring in at least 80-85 GW of new new capacity - 80- 90% of them thermal units targeting high PLF of 80-95% - reducing the base load deficit to a low of 1-2%. Accordingly, we expect pricing pressures in the generation space and a 40-50% decline in average short term/merchant prices by 2014-15. Renewable sources of energy and nuclear energy which are clean sources of energy usage is on the upswing and would contribute heavily in the times to come.

2 The Future of Power Sector in India

Contents 1.Introduct 1.Introduction ion ................................................................... ...................................................................................................... ............................................................ ......................... 4 2.The metrics for the Power sector: sector: ...................................................................... ............................................................................................... ......................... 7 3.Governmen 3.Governmentt Initiatives Initiatives .................................................................... ........................................................................................................ ........................................... ....... 8 3.1 Objectives Objectives....................................................................................... .......................................................................................................................... ..................................... .. 8 3.2 Strategies Strategies....................................................................... .......................................................................................................... ...................................................... ................... 8 4. Sector Sector Specific Opportunit Opportunities: ies: ........................................................................... .................................................................................................... ......................... 8 4.1 Coal ................................................................... ....................................................................................................... .................................................................. .............................. 8 4.2 Oil ....................................................................................... ........................................................................................................................... ................................................. ............. 9 4.3 Natural Natural Gas .................................................................... ....................................................................................................... ...................................................... ................... 9 4.4 Hydro Power ............................................... ................................................................................... ........................................................................ ...................................... 9 4.5 Wind Energy ........................................................................................ ...................................................................................................................... .............................. 10 4.6 Solar Energy ........................................... .............................................................................. ....................................................................... ......................................... ..... 10 4.7 Nuclear Energy Energy ........................................................ ........................................................................................... ........................................................... ........................ 11 5.Funding 5.Funding Trends Trends in the power sector ................................................. .................................................................................... ......................................... ...... 11 6.Forecast of sectorial electricity demand: Econometric models .................................................. 11 7. Conclusion Conclusion........................................................................ ............................................................................................................ ........................................................... ....................... 13 7.1 Power Sector SWOT Analysis.................................. Analysis...................................................................... ................................................................ ............................ 13 7.2 Predictions Predictions................................................................... ...................................................................................................... .......................................................... ....................... 14 8. Annexure: Annexure: ................................................................................. ..................................................................................................................... ............................................... ........... 14 9.Bibliograph 9.Bibliography: y: .................................................................. ..................................................................................................... .......................................................... ....................... 23


The Future of the Power Sector in India

1.Introduction Power as such is not traded as a commodity and is the most essential ingredient to provide the most critical infrastructure for all other sectors to work. The Power generation in India has constantly grown to 150,323 mw as on June, 2009. But this is not even comparable in any standard with per capita consumption of world average of 2,300 Kwh. The growth in electricity electr icity consumption over the past decade has been slower t han the GDP‟s growth. This could be due to high growth of the services sector or it could reflect improving efficiency of electricity use. Moreover, captive generation has also increased. However, as growth in the manufacturing sector picks up, the demand for power is also expected to increase at a faster rate. Demand will also increase along with electrification. The power generation capacity has to grow by at least 10 percent to sustain the current GDP growth of 9 percent, say industry experts. Ideally, they say, the ratio of energy generation and GDP growth should be 1:1.

A World Energy Council report has indicated that 44% of Indian household does not have electricity connection at all and nearly 90% of rural habitations rely on forest woods for primary energy. The prime force of energy generation in India is through thermal generation including gas which accounts for 70% of total generation. Nuclear energy constitutes only 2.4% and 26% is through hydel power. India is highly dependent and relying on fossil fuels for power generation and it has to concentrate in the coming years to focus on non-conventional method. The government has signed the nuclear deal in 2008 with USA to increase it production of energy through nuclear reactors, which are the most cleanest form of energy. However, the impediment in this sector is the high cost involved in erection and maintenance of the installation of nuclear reactors and availability of nuclear fuel. In this front, the most important development achieved is the co-operation being extended by almost all major nuclear fuel supply group of countries. With the Indian government signing the nuclear deal with the US, the power sector is all set to witness an explosion in the coming years in the country. Signs of this were clear when Prime Minister Manmohan Singh said the deal will help India tide over its energy crisis as the country needs a lot of investments in the energy sector. India will need around $250 billion investments in the power sector over the next 8-9 years, according to a CII-AT Kearney Study on „sustaining growth: future of Indian power sector ‟. The Indian power market is evolving rapidly from a „nascent‟ market phase to a „developing‟ phase. The power demand in the base case is expected to grow at a steady 7.5%-8% CAGR till 2017. Further, the low “power penetration” levels indicate large demand. The power markets will have to achieve consistent high growth rates to bring per capita consumption to comparable levels of some of the other developing countries like China and Brazil. The emerging dynamics of the Indian power market would require industry players to realign their strategies and operating models to the changing sectoral trends. The focus would need to 4 The Future of Power Sector in India

be both on project execution as well as efficient o perations, in line with the „growth‟ characteristics of the sector.

A new era of power on power competition will emerge by 2014 that will bring in at least 8085 GW of new capacity - 80- 90% of them thermal units targeting high PLF of 80-95% reducing the base load deficit to a low of 1-2%. Accordingly, we expect pricing pressures in the generation space and a 40-50% decline in average short term/merchant prices by 2014-15. Wind energy will continue to grow at 15-20% pa with new opportunities in offshore capacities and large capacity turbines. Government incentives will open up opportunities for solar farms/distributed generation as well as PV manufacturing. However, constrained fuel supplies present a major threat to the sector‟s growth: As per current trajectory, India, in spite of substantial reserves, is expected to confront a supply deficit of 25% (250 MTPA) of domestic coal by 2014. Similarly, there will be a seven fold increase in uranium requirement for meeting nuclear power ambitions of India.

Distribution, financing and manpower are other concerns that require immediate attention: High AT&C losses and slow rate of discom reforms will hurt the industry in the last mile. Financing may also present a challenge to industry growth. About $ 250 Bn investments will need to be undertaken in the power sector in the next 8-9 years to fuel the planned growth. Similarly, over 150,000 additional skilled and semi skilled personnel required over the next 5 - 7 years. Some critical success factors for the industry are: Strengthen project management & execution capabilities, to ensure on-time, at cost execution. Secure fuel supplies through well defined fuel sourcing plan especially coal (linkage, captive, imported) and its associated costs. Fuel logistics planning and implementation is also critical and should be a focus for project leadership. Realign market & customer strategy, by striking the right balance between long term PPAs and merchant trading. Reforms will also give rise to customer mix options (SEBs, traders, bulk buyers, etc), which will open up different possibilities. Alternate market facing models like power tolling, distributed generation, peaking power supplies should also be evaluated. Develop Capital and Operational excellence through selection of right technology and suppliers/manufacturers for the units. The asset availability and utilisation should be maximized through O&M best practices. Establish robust organizational enablers, across people - processes and systems. Many organisations will have to manage concurrent “projects” and “operations” stages. Accordingly, a flexible organisation structure should to be designed and implemented. Overall, the report is cautiously “optimistic” about the Indian power sector and its ability to support India‟s growth aspirations. Estimates by the Expert Committee on Integrated Energy Policy (Government of India [2006a]), indicate that the national power requirement (in billions of units (Kwh) generated) will triple over the next 15 years.


India has the potential to show the fastest growth over the next next 30 to 50 years. Growth rate could be higher than 5 percent over the next 30 years and close to 5 percent as late as 2050 if development proceeds successfully. Growth in capital stock together with growth in factor productivity will yield output growth of 5.4 percent. Over the next 20 years, the working age population is projected to grow at 1.9 percent per year. If educational attainment and participation rates remain unchanged, labor growth will contribute another 1.3 percent, yielding an aggregate growth rate of 6.7 percent per year, or a per capita growth rate of 5.3 percent. This is a lower bound estimate and, even so, would be significantly greater than the per capita growth rate of 3.6 percent achieved in the 1980s and 1990s. Over a 40-year period, a 5.3 percent growth rate would increase the income of the average person nearly 8-fold. Energy intensity of GDP, defined as the ratio of the energy consumption to the GDP, has been observed to follow a certain trend worldwide. Below a certain level of development, growth results in increase in energy intensity. With further growth in economy, the energy intensity starts declining. Based on data by International Energy Agency , overall energy intensity of GDP in India is the same as in OECD countries, when GDP is calculated in terms of the purchasing power parity (PPP). Energy-GDP elasticity, the ratio of the growth rates of the two, remained around 1.3 from early fifties to mid-seventies. Since then it has been continuously decreasing. Electricity is the most important component of the primary energy. Electricity-GDP elasticity was 3.0 till the mid-sixties. It has also decreased since then. Reasons for these energy – economy economy elasticity changes are: demographic shifts from rural to urban areas, structural economic changes towards lighter industry, impressive growth of services, increased use of energy efficient devices, increased efficiency of conversion equipments and inter-fuel substitution with more efficient alternatives. Based on the CMIE data , the average value of the Electricity-GDP elasticity during 1991-2000 has been calculated to be 1.213 and that of the primary energy- GDP elasticity to be 0.907. Estimating the future GDP growth rates of India from the projections taking the primary energy intensity fall to be 1.2 percent per year , extrapolating the electricity intensity fall from past data till 2022 and subsequently a constant fall of 1.2 percent year, the growth rates of the primary energy and electrical energy have been estimated as follows.

Period

Primary Energy

Electricity

Percent Annual Growth

Percent Annual Growth

2002-2022

4.6

6.3

2022-2032

4.5

4.9

2032-2042

4.5

4.5

2042-2052

3.9

3.9

These rates are the basis of the projections reported. It may be recalled that historical primary energy and electricity growth rates during 1981- 2000 were 6 percent per year and 7.8 percent per year respectively. Based on the growth rates given in the above table, per capita electricity generation would reach about 5300 kWh per year in the year 2052 and total about 8000 TWh. This would 6 The Future of Power Sector in India

correspond to an installed capacity of around 1300 GWe. Annual primary energy consumption would increase from about 13.5 EJ in 2002-03 to about 117 EJ in 2052-53. By then the cumulative energy expenditure will be about 2400 EJ.

2.The metrics for the Power sector: Per Capita Consumption of Electricity

Per capita consumption of electricity is expected to rise to over 1000 kilowatt hours per annum (kwh/ annum) in next 10 years (from present level of 580 kwh). Compare this against over 10,000 kwh/ annum in the developed countries! Plant Load Factor (PLF) ( PLF)

The actual all India PLF of Thermal Utilities during April 03- March 04 was 72.7% as against the target of 72.0%.The Plant Load factor should be as high as possible.(Annexure Room for productivity improvement) 16th Electric Power Survey (EPS) projections

By the year 2012, India‟s peak demand would be 157,107 MW with energy requirement of 975 BU. (Annexure Table 7: Source: Fig based on 17 th Electric Power Survey (EPS)) Unbalanced Growth & Shortages

Along with this quantitative growth, the Indian electricity sector has also achieved qualitative growth. This is reflected in the advanced technological capabilities and large number of highly skilled personnel available in the country. While this must be appreciated, it must also be realized that the growth of the sector has not been balanced. The availability of power has increased but demand has consistently outstripped supply and substantial energy & peak shortages of 7.1% & 11.2% prevail in India. Coupled with this is the urban-rural dichotomy in supply- as per Census 2001, only about 56% of households have access to electricity, with the rural access being 44% and urban access about 82%. In the case of those who do have electricity, reliability and quality are matters of great concern. The annual per capita consumption, at about 580 kWh is among the lowest in the world. These problems emanate from: - inadequate power generation capacity - lack of optimum utilisation of the existing generation capacity - inadequate inter-regional transmission links - inadequate and ageing sub-transmission & distribution network leading to power cuts and local failures/faults - T&D losses, large scale theft and skewed tariff structure - slow pace of rural electrification - inefficient use of electricity by the end consumer - lack of grid discipline


3.Government Initiatives The Government of India has an ambitious mission of POWER FOR ALL BY 2012. This mission would require that the installed generation capacity should be at least 200,000 MW by 2012 from the present level of 144,564.97 MW. Power requirement will double by 2020 to 400,000MW.

3.1 Objectives      

Sufficient power to achieve GDP growth rate of 8% Reliable power Quality power Optimum power cost Commercial viability of power industry Power for all

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Power Generation Strategy with focus on low cost generation, optimization of capacity utilization, controlling the input cost, optimisation of fuel mix, Technology upgradation and utilization of Non Conventional energy sources Transmission Strategy with focus on development of National Grid including Interstate connections, Technology upgradation & optimization of transmission cost. Distribution strategy to achieve Distribution Reforms with focus on System upgradation, loss reduction, theft control, consumer service orientation, quality power supply commercialization, Decentralized distributed generation and supply for rural areas. Regulation Strategy aimed at protecting Consumer interests and making the sector commercially viable. Financing Strategy to generate resources for required growth of the power sector. Conservation Strategy to optimise the utilization of electricity with focus on Demand Side management, Load management and Technology upgradation to provide energy efficient equipment / gadgets. Communication Strategy for political consensus with media support to enhance the genera; public awareness.

4. Sector Specific Opportunities:

4.1 Coal At 51%, Coal is the single-largest source of energy at the disposal of the power sector. (KPMG Report, November 2007)


By 2011 – 12, demand for coal is expected to increase to 730 MMT p.a., creating a supply shortage of over 50 MMT. India has the fourth largest proven coal reserves in the world, pegged at 96 billion tones, creating an investment opportunity of US$ 10 – 15 billion over the next 5 years. (Investment Commission of India)

4.2 Oil The demand for Oil – which is currently the second most important source of energy - is expected to grow from 119 MTOE in 2004 to 250 MTOE in 2025 at an annual growth rate of 3.6%.(India Brand Equity Foundation) However, domestic production for the corresponding period is expected to increase at approximately 2.6% only. (India Brand Equity Foundation) As a result, our reliance on oil imports is likely to increase from its present level of 72% to 90% by 2025. (Investment Commission of India) To combat this issue, the government has opened up the domestic oil sector for private participation under the New Exploration Licensing Policy (NELP). Under the competitive bidding process prescribed under the NELP, investment commitments of US$ 8 billion towards oil exploration projects have already been received. Bidding for more such projects is currently in progress and is expected to result in further investment inflows into this sector.

4.3 Natural Gas India has vast reserves of natural gas. More than 700 billion cubic meters of natural gas have been discovered in the last decade alone. (KPMG Report, November 2007) Demand for Natural Gas is expected to grow at a CAGR of 12% over the next 5 years to reach 279 MMSCMD by 2012. The importance of natural gas as an energy source has witnessed a significant increase over the past decade on account of the following two reasons: Rising popularity of compressed natural gas (CNG) as an alternative source of automotive fuel; Increased penetration through availability of “piped gas” at residences; a nd Imminent depletion of traditional energy sources such as coal and oil.

4.4 Hydro Power With it intricate network of rivers, substantial opportunities for generation of hydro-power exist in India. Only 22% of the 150 GW hydroelectric potential in the country has been harnessed so far. (Economic Times 2008) 9 The Future of Power Sector in India

Private participation will play a key role in meeting the target requirement of an additional 45 GW over the next 10 years.

4.5 Wind Energy India is the 4th largest country in the world in terms of installed wind energy. (KPMG Report, November 2007) India‟s potential of wind power is pegged at 45,000 MW while its current capacity stands at only 7,660MW. (Economic Times 2008)

Tax incentives, including availability of accelerated depreciation @ 80% under WDV method on cost incurred on setting up of wind turbine generators have resulted in significant private investment in this area. It is estimated that 6,000 MW of additional wind power capacity will be installed in India by 2012. Wind power accounts for 6% of India's total installed power capacity, and it generates 1.6% of the country's power. The Ministry of New and Renewable Energy (MNRE) has fixed a target of 10,500 MW between 2007-12, but an additional generation capacity of only about 6,000 MW might be available for commercial use by 2012.

4.6 Solar Energy Despite the prevalence of an inherent advantage in the form of solar insulation, the potential for solar energy is virtually untapped in India. India‟s installed solar – based capacity stands at a mere 100MW compared to its present potential of 50,000MW.

Based on the substantial investment opportunities that exist in this sector, it is estimated that by 2031 – 32, solar power would be the single largest source of energy, contributing 1,200 MTOE i.e. more than 30% of our total expected requirements. (India Brand Equity Foundation) High capital investment has kept solar power away from mass applications. However, capex has been steadily declining and is likely to touch $2 per watt by 2010 and, perhaps, hit $1.5 per watt by 2012 on account of high efficiency solar cells. By 2012, solar power could become more attractive than non-pithead coal and gas. Only hydro and nuclear will have lower delivered costs.

In July 2009, India unveiled a $19 billion plan to produce 20 GW of solar power by 2020.Under the plan, solar-powered equipment and applications would be mandatory in all government buildings including hospitals and hotels.


4.7 Nuclear Energy By 2032, the government plans to raise the contribution of nuclear energy from the current level of less than 3% to around 10% of the country's installed capacity (Angel Broking report) The signing of the Indo – US nuclear deal has created significant opportunities for several players across the entire power supply chain, with an estimated investment opportunity of US$ 10 billion over the next five years. (JP Morgan estimate) Further, India has among the world‟s largest reserves r eserves of alternative nuclear fuel – thorium. Accordingly, substantial investment opportunities are also likely to arise once commercial production based on thorium becomes feasible. When the Indo-US nuclear deal goes through, India is expected to generate an additional 25,000 MW of nuclear power by 2020, bringing total estimated nuclear power generation to 45,000 MW.

5.Funding Trends in the power sector

Source Bank credit Rs(billion) External commercial borrowing($ million) Private placement(only debt) Rs billion Public and rights issue(Rs billion) FDI

2006-07 126.59

2007-08 219.09

2008-09 293.80

2011-12 918

1346.00

865.00

1518.00

4765

52.75

34.68

127.38

410

0.30

137.09

9.58

265

157.50

968.00

984.80

1200

Source: Powerline Magazine September 09

6.Forecast of sectorial electricity demand: Econometric models Sectorial electrical energy demand can be represented by a logarithmic linear econometric model i.e., ln Eti = ai + bi ln Ati+ci ln Lti+pi ln Pt+ eti

where Eti is the electricity consumption (GWh) of sector i in year t. The Ati represents sectorial GDP (Rs.crore), i.e. agriculture, industry and service, for agricultural, industrial and other electrical energy sectors and GDP per capita (Rs.) for domestic, commercial and transport sectors. The Lti represents sectorial electricity consumption in year t-1 for agricultural and industrial sectors and number of consumers for domestic, commercial and 11 The Future of Power Sector in India

other sectors. Pt represents price indices (1993-94=100) of electricity for agricultural, industrial, domestic, commercial and transport sectors. eti represents error or residual term of sector i in year t. The coefficients ai, bi, ci and pi have to be estimated for respective sectors by regression models.SPSS 14.0 has been used for regression by taking data from the year 1970-71 to 2004-05(CMIE,2007) The time series estimate of the various sector of GDP, number of consumers in various sectors have been tested by using autoregressive time series methods and the result was compared with the original time series and the result was pretty good. The statistics of residual i.e. autocorrelation function and partial autocorrelation function was given good results. While a number of statistics are reported, we have focused on two: MAPE (mean absolute percentage error) and MaxAPE (maximum absolute percentage error). Absolute percentage error is a measure of how much a dependent series varies from its modelpredicted level and provides an indication of the uncertainty in the predictions. We have tested the various series for the MAPE and MaxAPE and the result shows the good agreement with the theory. The time series forecast of various sectors of GDP contribution are shown in Fig.2 up to 2044-45. Since the data from 1970-71 to 2004-05 were used to forecast the time series and compared with the original series they matched with great accuracy so the forecasted horizon in Fig 2 is also expected a good agreement with the actual electricity demand in future.As from the figure we see that the service sector has largest value in 2005-06 as compared to other two sectors but in the Forecasted horizon after 20034-35 the industry sector becomes largest component and shows faster growth as compared to other two sectors. It may be possible that service sector experience recession after forecast horizon. The time series forecasting of the natural logarithmic value of various consuming sector (number of consumers) is as shown in Fig.3.The same treatment have been repeated for the time series forecasting as in Fig.2.The forecasted result shows the good agreement with the original time series. As from the figure it is clear that the number of consumers in other sector increases rapidly as compared to commercial and domestic sectors.The number of commercial consumer curve has lowest slope. So in future number of commercial consumer may be stagnated. The Fig.4 shows the time series projection of natural logarithmic value of GDP per capita and the price indices of electricity. The forecast also shows the good agreement with the original time series. Price indices and GDP per capita increases with constant growth rate from 200506 to 2044-45. The correctness of the predicted data can be examined from the values of statistical parameters.The R2 and adjusted R2 value for all the sectors shows very high predictive power of the developed models. The Durbin-Watson (D-W) statistics, which is widely used for testing the serial correlation is estimated and shows very small positive autocorrelation for some of the sectors and in some sectors almost absence of autocorrelation. The value of D-W statistics in agricultural sector, industrial sector and other sectors are 1.91, 1.74 and 1.76 respectively which gives conclusive result for the absence of autocorrelation. The D-W statistics in commercial sector, domestic sector and transport sectors are 1.62, 1.4 and 1.4 respectively which gives a moderate absence of autocorrelation. According to econometric regression theory, if the residuals are not independent (or in other words the errors are serially correlated), the use of the F-and t-tests and confidence


intervals is not strictly valid and the estimate of the coefficients may be unstable (Makridakis et al, 1998).The t-statistics also shows almost satisfactory result for each variable in all sectors. Since we have used a logarithmic linear equation (5) to forecast sectorial electricity demand,the coefficients directly measures the elasticity.As in Table 1 the coefficients in forecasting industrial sector demand are very small than one.So these are inelastic in nature. For agricultural sector the long term price elasticity is -1.04 and elasticity with respect to GDP contribution by agriculture is 2.06 which show a strong elastic behavior.All other sectors shows inelastic behavior except number of consumer in domestic sector where the long term elasticity is 1.003. The forecasted electricity demand using econometric model (using the equation) for various sectors is shown in Fig.5.From the figure it is clear that the electricity demand by industrial sector is largest over the years and will be the dominating sector in the electricity consumption. As per the time series of sectorial consumption of electricity agriculture sector was dominating sector before 2003-04 as compared to the domestic sector but after that the domestic sector electric energy demand increases with high growth rate. The commercial sector electricity demand also shows substantial growth over time but less than in absolute with respect to industrial, agricultural and domestic sector demand. The transport sector and other sector shows very slow growth in the forecasting horizon. The industrial sector electricity demand in base year 2004-05 was 138 billion kWh which increases to 588 billion kWh with an average growth rate of about 8%.The Agricultural and domestic sector electric consumption were 89 and 96 billion kWh in year 2004-05 and increases up to 287 and 397 billion kWh with an average growth of 6% and 8% respectively. So each sector consumes electricity with different growth rate. The curve shows a constant slope over the forecasted period. The total electricity demand increases with an average growth rate of about 7% and becomes 1.52 PWh in 204445 which is four fold from 2004-05.

7. Conclusion

7.1 Power Sector SWOT Analysis Strengths India has the fifth largest electricity generation capacity in the world Transmission & Distribution network of 6.6 million circuit km - the third largest in the world Potential for growth in this sector (demand exceeding supply) Increasing focus on renewable sources of energy Government presence in the sector (encouraging entry of foreign players) No barriers to entry Weaknesses Public sector players are only into generation of power Large demand-supply gap: All India average energy shortfall of 9% and peak demand shortfall 13 The Future of Power Sector in India

of 14% Lack of exposure of entrepreneurs to handle international contracts Inexperience of SEBs to handle changing market environment in addition to their weak financial condition Unavailability of fuel and unwillingness of fuel suppliers to enter into bankable contarcts Lack of necessary infrastructure to transport and store fuel, high cost risk involved in transporting fuel Opportunities huge population base Opportunities in Generation Ultra Mega Power Plants (UMPP) – 9 projects of 4000 MW each. Coal based plants at pithead or coastal locations which are untapped. Hydel power potential of 150,000 MW is untapped as assessed by the Government of India. Renovation, modernisation, up-rating and life extension of old thermal and hydro power plants. Threats Competition to domestic players from foreign Pvt. players as 100% FDI permitted by government in Generation, Transmission & Distribution Not a lucrative option for investors(ROE ) Rise in price of raw materials Tariffs are distorted and do not cover cost

7.2 Predictions India requires an additional 90,000 MW of generation capacity by 2012. Opportunities in Transmission network ventures - additional 60,000 circuit km of Transmission network expected by 2012. Total investment opportunity of about US$ 150 billion over a 5 year. By end March 2008, India will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period. As per recent budget, Govt to will provide Rs.800 Crore for the Power Development and Reforms Project. Govt. propose to create a national fund for transmission and distribution reform in order to improve the poor state of transmission and distribution (T&D) that has been a drag on the sector. The fourth Ultra Mega Power Project (UMPP) at Tilaiya to be awarded shortly. Possibility of bring up five more UMPPs in Chhattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu. In Hydro projects, 77 schemes have been identified with a total of 33,000 MW capacity additions.

8. Annexure:






1200 1000 800 Energy demanded(MW)

600

Peak Energy(kWh)

400 200 0 2006-07

2009-09

2011-12

Table 7: Source: Fig based on 17 th Electric Power Survey (EPS)

Renewable energy(Wind Energy):Source- Powerline Magazine Sept 2009

Country

Total installed capacity-Top 10 countries

New capacity-Top 10 countries

India Italy France UK Denmark Portugal Rest of the World China Spain Germany Germany US Canada Total

8.0 3.1 2.8 2.7 2.6 2.4 13.8 10.1 13.9 19.8 20.8

6.70 3.70 3.5 3.1

120798 MW

2.6 12.2 23.3 5.9 6.2 30.9 1.9 27051 MW


Top Installed capacity

Total installed capacity-Top 10 countries 3.1

8

India 2.7

2.8

20.8

2.6 2.4

France UK Denmark

13.8

19.8

Italy

Portugal 13.9

10.1

Rest of the World China

New capacity

New capacity-Top 10 countries 1.9

India

3.7 6.7

3.5 3.1 2.6

30.9

Italy France UK

12.2

Denmark Portugal Rest of the World

6.2 5.9

23.3

China Spain

Tentative shelf of projects for the Twelfth Plan Source- Base Paper:International Conclave on Key Inputs for Accelerated Development of Indian Power Sector for the 12th Plan and Beyond Sector Central State Private Total

Coal 16470 14057 81873 124400

Lignite 2500

Nuclear 3400

2500

3400

Hydro 7034 5539 7761 20334

Total 29404 19596 89634 138634


Room for productivity improvement: improvement:

The plant load factor of thermal plants has risen from 72% in 2003 to over 77% in 2009. Plant load factor Year 2006-07 2007-08 2008-09

All-India 76.80 78.61 77.22

Central Sector 84.80 86.74 84.34

State Sector 70.60 71.89 71.20

Private Sector 86.40 90.77 91.04

Installed Generating Capacity(Utilities) MW

Year

Electric ity energy

Hydro electrici ty

Thermal electricit y

1970-71 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2006-07

14709 20117 30214 46769 66086 83294 101626 124287 132329

6383 8464 11791 15472 18753 20986 25153 32326 34654

7906 11013 17562 29967 45768 60083 73613 82411 86015

Coal based thermal electricit y 7508 10579 17122 28809 43004 53479 61011 68519 71121

Oil based thermal electricit y 230 226 166 180 212 335 2141 1202* 1202*

Gas based thermal electricit y 168 208 274 979 2552 6268 10642 12690 13692

Nuclear electricit y

420 640 860 1330 1565 2225 2860 3360 3900

Note: * Renewable energy sources excluded, but it is included in total energy. Source-Economic intelligence service CMIE Magazine November 2008


140000 120000 100000 80000

Electricity energy Oil based thermal electricity

60000

Gas based thermal electricity

40000

Nuclear electricity

20000

Hydro electricity

0 Thermal electricity


9.Bibliography: Powerline Magazine September 09 http://www.ignou.ac.in http://www.econ.ucsb.edu http://www.business-standard.com Dominic Wilson and Roopa Purushothaman, Purushothaman, “Dreaming with BRICs: the path pat h to 2050” st Global Economics Paper No 99, Goldmann Sachs, 1 October 2003. http://en.wikipedia.org http://www.scribd.com http://www.indiaenergyportal.org www.cygnusindia.com


The Future of the Power Sector in India

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