Department of Business Administration

University of Lucknow

Business Policy & Strategic Analysis

Term Paper
Industry Profile on: Electrical Power Sector in India

Submitted to:

Submitted by:

Prof J. K. Sharma
Dept. of Business Administration
University of Lucknow

Damishk verma
M.B.A. III sem
Finance

ACKNOWLEDGEMENT
I would like to take this opportunity to thank all those people who have contributed
towards the completion of this term paper.
First of all I would like to thank my teacher, Prof. J. K. Sharma for the informative
and interactive class sessions on strategic management.
I would also like to thank all my friends who help me to complete the term paper.
]
-Damishk Verma

CONTENTS
Topic
Page No.
1. Industry Overview4
2. A Brief History.4
3. Factors that affect growth5
4. Government Regulations....6
5. LEGISLATIVE, POLICY AND REGULATORY DEVLOPMENT....6
6. Leading Businesses in the Industry...7
7. Size of the Industry.9
8. Revenue..10
9. Value chain of the Industry..11
10. Demand and Supply12
11. Competitive Scenario.14
12. PESTEL ANALYSIS....15
13. The Road Ahead..17
11. REFERENCES18

Industry: Electrical Power Sector Industry

Industry Overview
As economys growth, development, ability to handle global competition is all dependent on
availability, reliability and quality of power sector. The demand for power growing
exponentially and the scope of growth in this sector is immense. India is presently 11th
largest producer of energy and 6th largest user of energy in the world. India accounts for
3.4% of global energy consumption. Electrical power sector industry may be breakdown
into three parts: Generation, Transmission and Distribution. These 3 parts are interdependent.
Without the generation, transmission and distribution sector is useless and without
distribution, generation would be useless because there is no end user.

A. A Brief History: The power sector in India has gone through significant progress after
the Independence. When India became independent in 1947, the country had only power
generating capacity of 1,362 MW. In March 2000 production capacity increased to
97,000MW. In July 2016 production was 304,760 MW. Hydro power and coal based
thermal power have been the main sources of generating electricity. Generation and
distribution of electrical power was carried out primarily by private utility companies.
Like Calcutta Electric is still in existence. Power was available only in a few urban cities
like Delhi, Bombay, Madras etc. Rural areas and villages did not have electricity.
After 1947, all new power generation, transmission and distribution in the rural
sector and the urban centers came under the purview of State and Central government
agencies. State Electricity Boards (SEBs) were formed in all the states. Nuclear power
development is at very slower growth, which was introduced, in late 60s. The concept of
operating power systems on a regional basis crossing the political boundaries of states
was introduced in the early 60s. In spite of the overall development that has taken place,
the power supply industry has been under constant pressure to bridge the gap between
supply and demand.
During the pre-reform period, the commercial energy sector was totally regulated
by government. The economic reform and liberalisation, in post 90s, has opened the
doors for private sector participation in coal, oil, gas and electricity sectors.

B. Factors that affect growth: These are the following factors that affect the growth of
Power sector.
Industrial expansion and growth
Continuous increase in demand
100% FDI is allowed in power sector
Low allocation of budget by the Government
Different pricing regimes and distribution policies by states.
Increasing growth in power demands due to industrial expansion, per capita
income growth.
Environmental laws, issues and restrictions
Accelerated exploitation of natural resources
Increased Competition
Innovation in renewable energy sector
Waste management issues due to fly-ashes, micro particles etc.
Homelessness and relocation issues due to installing new power plants
Poor health level of citizens
Regulatory issue regarding the tariff, power generation, and infrastructure
development.
Lower efficiency of power plants
High transmission and distribution losses
Electricity theft issue is very serious
Low availability of fuel like coal, natural gas, petroleum etc.
Limited stock of non-renewable resources(hydrocarbon reserves 0.4%).
Technological restrictions and advancements
Introduction of low power consumption devices
Ageing and improperly maintained infrastructure

C. Government Regulations: There are mainly two regulatory authorities.

1. Central Electricity Regulatory Commission (CERC)
2. State Electricity Regulatory Commission
CERC, a key regulator of power sector in India, is a body functioning with quasijudicial status under sec 76 of the Electricity Act 2003. CERC was initially constituted
on 24 July 1998 under the Ministry of Powers Electricity Regulatory Commissions Act,
1998 for rationalization of electricity tariffs, transparent policies regarding subsidies,
promotion of efficient and environmentally benign policies, and for matters connected
Electricity Tariff regulation.
CERC operating at the central level and SERC at various state level. CERCs primary
function was to regulate the tariffs of central generating stations as well as for all
interstate generation, transmission and supply of power. Whereas SERCs primary
function was to determine bulk and retail tariffs to be charged to customers, regulate the
operations of intrastate transmission.

D. LEGISLATIVE, POLICY AND REGULATORY DEVLOPMENT

E. Leading Businesses in the Industry: The major power utilities in the country
which is currently dominated by the state run PSUs. However the next decade should see
the rise of private electricity companies.
1) NTPC with around 33 GW of power generation capacity is Indias largest power utility
by far and is planning to more than double that capacity to 75 GW by 2017 .The company
mainly depends on coal and gas based power but is diversifying into gas, hydel, nuclear and
solar power as well.
2) NHPC State owned like NTPC, this hydro power focused Power Company aims to
double its electricity generation of 5 GW in the next 5 years.
3) Tata Power The largest private utility in India has interests in electricity distribution as
well. Tata Power has a presence in thermal, hydro, solar and wind areas of power generation,
transmission and retail with a capacity of nearly 3 GW.
4) Reliance Power Reliance Power part of the ADAG Group came out with the biggest
IPO of its time before the Lehman crisis. The company is raising huge amounts of capital
from Chinese banks and placed the largest power equipment order with Dongfang Electric.
The company is currently constructing 3 4000 MW projects and has plans of building 35 GW
capacity with a mix of hydel, gas and coal based plants.
5) Adani Power Power Limited is part of Adani Group with capacity of 1980MW. The
company currently operates Indias only super-critical power plant in Gujarat. The company
is currently implementing 16500 MW at different stages of construction. The Adani Group
has bought coal mines outside the country and with its port and shipping companies forms an
integrated coal to power story.
6) Damodar Valley Corporation DVC is a state owned organization with interests in
flood control, irrigation, generation, transmission and distribution of electricity located in the
Damdoar Valley in the east of the country. DVC operates thermal power stations at with total
capacity of 2745 MW.
7) Lanco Infratech Lanco is fast emerging Andhra Pradesh based Group and has become a
top private sector power developer with 2 GW capacity and another 18 Gw under
development. Lanco through its step down Australian subsidiary, Lanco Resources Australia,
has acquired Griffin Coal Mining Company and Carpenter Mine Management.

8) Nuclear Power Corporation of India( NPCIL) Another state owned company,NPCIL is

focused on generating Nuclear Power.The company operates around 4.5 GW of Nuclear
Capacity in 6 locations.
12) Torrent Power Like Adani Power,it is a Gujarat based company with interest in both
transmission and generation.Torrent has a generation capacity of 1647.5 MW.

F. Size of the Industry:

India is the worlds 5th largest energy market

Primary Energy Consumption ~387 MMTOE (per capita 2.4 / BOE) low compared to
world average of 11.3/BOE
Projected growth at 9.4% CAGR

Key drivers include GDP growth at 7-9% p.a.

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G. Revenue:

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12

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H. Value chain of the Industry:

Prior to 2003, the market was vertically integrated with state owned boards, causing
monopoly and price regulation.

The value chain starts from the producers.

Forwarded to generation facilities where they are converted to power.

Generators pass it on to the transmitters and distributors.

Supplied to the consumers over the network.

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I. Demand and Supply:

Suppl
y

Demand Gap

: 9.8 % Peak

8.5% Average

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Supply:
The addition to total installed capacity during FY15 was 26 gigawatt (GW), a growth of 10.8%
over the previous years installed capacity. The capacity addition during the first three years of
12th plan stood at 61 GW which has not only exceeded the capacity addition of the entire 11th
plan, but also constitutes 68.9% of the total 12th plan target of 89 GW. Hence, sufficient capacity
is being built to meet the demand requirements.
Demand:
The long-term average demand growth rate is expected to remain in the higher single digit
growth levels given the much lower per capita power consumption in India as compared to the
global average.

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J. Competitive Scenario: The key problems hindering the growth of the power sector
are land, fuel, environment, and forest clearances. Even the government is finding it very
difficult to get the required land for allotting to power projects. One of the key problems
in getting land is Naxalism in the eastern and central states, where a large number of
projects are being planned owing to abundance of fuel resources.
PORTERS MODEL
i.

THREAT OF NEW ENTRANTS

But as many companies are entering into power industry Each company has to keep
the price per unit low and to boost investments to deter new enterants.

For Adani Power threat of new entrant is medium because it has already set up
functional power plants(Eg: 4620 MW thermal power plant in Mundra, Gujarat).

ii.

BARRIERS TO ENTRY
Barriers to entry are high, especially in the transmission and distribution segments,
which are largely state monopolies.
Also, entering the power generation business requires heavy investment initially.
The other barriers are fuel linkages, payment guarantees from state governments that
buy power and retail distribution license.

iii.

BARGAINING POWER OF SUPPLIERS

Not very high as government controls tariff structure. However, this may change in
the future.
The bargaining power of suppliers is low for the fully integrated power plants as in
case of Adani power as they have their own mines of key raw materials(coal,oil).
However, those who are non-integrated or semi integrated has to depend on suppliers.

iv.

BARGAINING POWER OF CUSTOMERS

Bargaining power of retail customers is low, as power is in short supply.

v.

However government is a big buyer and payments from it can be erratic, as has been
seen in the past.

COMPETITION

High: Getting intense, but there is enough room for many players.

The Electricity Act 2003 aims to encourage investments, thereby increasing

competition.

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Adani power cant afford to digress from its future plans of generating 20,000 MW
by 2020 if it has to remain in the race.

K. PESTEL ANALYSIS:
Political / Government policies Analysis:

The low allocation of budget in power sector hampered the rural & urban electrification,
and power generation capacity.

The different pricing regimes and distribution policies of state governments further
aggravated the power situation.

As the state government paid these subsidies irregularly, the SEBs did not plan any long
term project implementation i.e. capacity expansion, network extension, regular
maintenance and system improvement. This also affected the T&D losses of SEBs.

Economic Analysis:

Multiple drivers (industrial expansion, growing per-capita incomes) leading to growth in

power demand - this is set to continue in the future.

During FY1015, GDP growth is likely to average 8.08.5 %

India set to become a global manufacturing hub with investments across the value chain

Power consumption estimated to increase from 821.2 TWh in 2013 to 1,433.2 TWh by
2022

Indias power demand expected to rise up to 1,915 TWh by FY22

Technological Analysis:

India to face significant challenges in achieving high

CO2 reduction in power generation, while also meeting the
in demand and supply.

predicted growth

Accelerated exploitation
of
natural resources
and more transmission
distribution (T&D) capacity are essential to overcome the current problems.

Increased competition, additional equipment supply capacity and other actions to involve
the private sector can help to accelerate investments.

and

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Environmental Analysis:

Openness towards renewable energy

Effect on flora and fauna

Air and Water pollution

Waste Management

Environment Laws

Poor health level

Social Analysis:

Poor health level

Food insecurity

Homelessness

Loss of assets

Landlessness

Joblessness

Legal & Regulatory Analysis:

If government doesnt own sufficient resources to develop power projects, it has option
to issue the license to others for these projects.

There is legal frame work for laying down wires and other works but there was no
regulation regarding the tariff, power generation, and infrastructure development.

There are some provisions to maintain the relationship between licensee and consumer
but there was no regulation for efficiency of power plant, tariff, environmental issues, and
infrastructure development.

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The Road Ahead

The Indian power sector has an investment potential of Rs 15 trillion (US$ 223.67 billion) in the
next 45 years, thereby providing immense opportunities in power generation, distribution,
transmission, and equipment, according to Union Minister.
The governments immediate goal is to generate two trillion units (kilowatt hours) of energy by
2019. This means doubling the current production capacity to provide 24x7 electricity for
residential, industrial, commercial and agriculture use.
The Government of India is taking a number of steps and initiatives like 10-year tax exemption
for solar energy projects, etc., in order to achieve India's ambitious renewable energy targets of
adding 175 GW of renewable energy, including addition of 100 GW of solar power, by the year
2022. The government has also sought to restart the stalled hydro power projects and increase the
wind energy production target to 60 GW by 2022 from the current 20 GW.

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REFERENCES
Modern Power System Analysis By D P Kothari and I J Nagrath
Power System by Aswathappa
www.iiie.org
www.wikipedia.com

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