Electricity retail tariff projections in selected states

KARNATAKA JULY 2017

© 2016 CRISIL Ltd. All rights reserved.

CRISIL Infrastructure Advisory is a leading advisor to regulators and governments, multilateral agencies, investors, and large public and private sector firms. It is a division of CRISIL Risk and Infrastructure Solutions Limited, a wholly owned subsidiary of
CRISIL Limited, an S&P Global Company.
 Key Findings

Factor FY 17 FY 22 FY 27 FY 32 FY 37 FY 42 CAGR

Average Power Purchase

Cost (Rs./kWh) excluding
transmission charges

© 2016 CRISIL Ltd. All rights reserved.

and losses
Likely case 3.3 3.6 4.0 4.4 4.8 5.3 1.9%

Optimistic case 3.3 4.0 4.7 5.6 6.7 8.0 3.6%

Commercial Tariff
(Rs./kWh)

Likely case 8.9 8.9 8.9 9.0 9.9 10.8 0.8%

Optimistic case 8.9 10.7 12.0 13.9 15.7 16.8 2.6%

Industrial Tariff (Rs./kWh)

Likely case 7.3 7.6 8.4 8.6 9.4 10.4 1.4%

Optimistic case 7.3 8.7 9.7 11.2 12.8 14.0 2.7%

2
3
Demand & Supply Assessment

© 2016 CRISIL Ltd. All rights reserved.

 Historical electricity demand
End consumer sales grew at 6.8% while total energy requirement grew at 5.0%
Energy Requirement (BU)

66.6 CAGR • The agricultural segment which was also the

5.0%
largest segment recorded a moderate growth
60.8 1.8% -1%
25% rate of 5.7% which was in line with the growth
rate of GDP for primary sector (5.4%)

© 2016 CRISIL Ltd. All rights reserved.

8.3% 33%
27% 5.7%
40.8 • The commercial and domestic segments
recorded healthy CAGRs of 9.9% and 7.9%
30% 24% respectively
16% 7.9%

27% 14% • The industrial segment noted a moderate

23% 6.5%
CAGR of 6.5%
14% 16%
9.9%
16% 4%
7%
8%
7.0% • The state has seen success in its efforts to
6% 5% 5%
reduce the T&D losses from levels exceeding
FY07 FY12 FY17
30% in FY07 to ~16% in FY16
Others Commercial Industrial Domestic Agricultural T&D Losses

Source: CEA+ CRIS analysis

4
 Demand forecasts
End consumer sale is expected to grow at 7.9%; total energy requirement at 7.8%

Energy Requirement (BU) • The growth in demand is expected to be driven by the

commercial and domestic segments which are
projected to witness strong growth till FY22 at a CAGR
CAGR of ~10%
7.8% 96.4

© 2016 CRISIL Ltd. All rights reserved.

89.9 7.1% • The agricultural and industrial segments may note
16%
83.2
16%
tepid growth at the rates of 6.5% and 5.5%
76.8 respectively
71.5 16%
16% 6.5%
16% 28%
28% • The state has introduced policies which can provide a
28%
29% fillip to the demand from various sectors:
29% 10%
21%  Tourism policy 2015-20 (electricity at domestic
20%
19%
20% segment rates) – Commercial segment
19%
17%
5.5%  Industrial policy 2014-19 (exemption from electricity
17%
18% 18% 18% duty) – Industrial segment
10%
12% 12% 12%
11% 12% • The T&D loss levels during the period are predicted to
7% 7% 7% 7% 7% 8.2%
improve marginally from ~16.36% in FY17 to ~15.57%
FY18 FY19 FY20 FY21 FY22 in FY22
Others Commercial Industrial Domestic Agricultural T&D Losses

Source: CRIS Analysis

5
 Historical trends in supply
Owing to strong capacity expansion by the private sector, installed capacity grew at a healthy CAGR
of 7.6%
Owner-wise Supply (GW) • The installed capacity by private sector more
CAGR than doubled during the last 10 years-from 18%
7.6% 16.8
12.4 21% 10.8% in FY 07 to 37% in FY 17
12%
8.0 37%
•

© 2016 CRISIL Ltd. All rights reserved.

34% 15.7% Share of renewable installed capacity has
18% 16%
66% 54% 42% 2.9%
increased from 15% in FY 07 to 31% in FY 17
FY07 FY12 FY 17 • Thermal projects remain significant source of
State Private Central power, contributing close to 43% of total
Source: CEA installed capacity
Fuel-wise Supply (GW)
CAGR
16.8 16.1%
12.4 31%
24% 13.8%
8.0 23%
15% 27% 1.3%
43%
47% 43%
41% 8.0%
FY07 FY12 FY17
Thermal Hydro Nuclear RES
Source: CEA

6
 Projected supply
Major portion of electricity supply expected through thermal power followed by renewable energy
plants
Fuel wise supply (GW) CAGR
25 26 7.8% • The total installed capacity is predicted to record an
24
19 21 increment of 40% between FY18 and FY22
33% 31% 35% 13%
31% 30%
19% 17% 16% • Thermal energy is expected to remain the leading
23% 20% 0.0%
contributor to the total installed capacity and account

© 2016 CRISIL Ltd. All rights reserved.

42% 46% 45% 48% 46%
6.1% for more than 40% the installed capacity in FY22
FY 18 FY 19 FY 20 FY 21 FY 22 o 4300 MW thermal capacity addition from FY 18
Nuclear Renewables Hydro Thermal to FY 22 based on existing contracted capacity
Source: CRIS Analysis
• Renewable energy capacity addition (including wind
Owner-wise Supply (GW)
and solar) expected to be 4200 MW (solar 2900 MW
25 26 CAGR solar and 1300 MW wind) over next 5 years in line
24
19 21 1.0% with renewable energy capacity targets under the
38% 36%
45%
42% state’s wind and solar policy
42%
45%
15% o RE policy targets 3600 MW capacity addition
37% 42%
38% 36% (excluding solar)
21% 20% 21% 20% 19% 5.2% o Solar policy targets 6000 MW solar capacity
FY18 FY19 FY20 FY21 FY22
• The ownership wise sectoral composition is expected
Source: CRIS Analysis
Central Private State to remain fairly constant over the years with the private
sector leading with 47% of the capacity in FY22

7
Historic demand-supply scenario
Peak deficit still provides room for improvement

Demand Supply Scenario (MW)

• The state was reeling under significant power
deficit (~19%) in FY 12
12.0
10.5 10.5 10.1 • Driven by significant capacity addition of ~
10.0 9GW, the state has managed to reduce peak
8.5

© 2016 CRISIL Ltd. All rights reserved.

deficit to 4% by FY 17
8.0 6.9 6.5
6.0

4.0

2.0

0.0
FY07 FY12 FY17
-6% -19% -4%

Peak Demand Demand Met

Source: CEA
 Demand supply scenario
State is expected to remain peak surplus in the short term which may change into a deficit in the
medium to long term
Peak Demand v/s Peak Met (GW)

16 • With expected capacity addition of ~2.5 GW in

14 15 15 15 FY 18, the state is expected to turn marginal
13

© 2016 CRISIL Ltd. All rights reserved.

12 12 13 power surplus
11

• Driven with growth in demand (at ~8%), the

state is expected to witness marginal peak
deficit again by FY 21 onwards

• However, the state is projected to remain

energy surplus by FY 22, on account of
considerable addition in renewable energy
FY18 FY19 FY20 FY21 FY22
capacity addition
Peak Demand (MW) Peak Met (MW)

4% 1% 7% -1% -8%

Source: CRIS Analysis

9
 Power purchase trends and projections
The Average Power Purchase Cost is expected to grow at 1.9% in the next 5 years

Pooled Power Purchase Cost (Rs./kWh)

• The present average power purchase cost is
1.9% close to Rs 3.3/kWh
3.7
3.7 • The average power procurement cost is
3.6

© 2016 CRISIL Ltd. All rights reserved.

expected to grow at a CAGR of 1.9% to reach
close to Rs 3.64/kWh in FY22
3.5
3.4

3.3

3.1

FY 16 FY17 FY18 FY19 FY20 FY21 FY22

Source: CRIS Analysis

10
 Merit order dispatch bands

• Currently (FY17), ~75% of power is procured at

a variable cost less than 3 Rs./kWh; expected
to increase to ~89% in FY 22 driven by lower
renewable tariffs

© 2016 CRISIL Ltd. All rights reserved.

While a significant power (26%) is currently
procured at a variable cost between Rs 3-
4/kWh, the same is expected to reduce to 11%
by FY 22.

Source: CRIS Analysis

11
 Power purchase scenarios

Average Power Purchase Cost (Rs./kWh) Scenarios Growth Basis

projections
8.0
Likely case 1.9% a) Coal price escalation at
1.1% in line in last 5 CAGR
6.7 for all commodities

© 2016 CRISIL Ltd. All rights reserved.

5.6 b) Solar tariffs in the range of
5.3
4.8 Rs 2.50/kWh and wind
4.7
4.4 tariffs at Rs 3.50/kWh
4.0 4.0
3.6 Optimistic 3.6% a) Coal price escalation at
case 4.9% in line in last 10 year
CAGR for coal

a) Solar tariffs in the range of

Rs 2.50/kWh and wind
tariffs at Rs 3.50/kWh

FY 22 FY 27 FY 32 FY 37 FY 42
Optimistic Likely
Source: CRIS Analysis

12
13
Retail Tariff projections

© 2016 CRISIL Ltd. All rights reserved.

 Retail tariff projections till FY 22

 Average cost of supply which is Rs 5.64/kWh in FY 17, to grow as below:

o Likely case- 1.9% to reach Rs 6.2/kWh by FY 22
o Optimistic case-3.6% to reach Rs 6.7/kWh by FY 22

© 2016 CRISIL Ltd. All rights reserved.

 The current ratio of industrial and commercial tariffs to average cost of supply is 128% and 158%
respectively. Expected to improve to going forward
o Likely case -123% and 143% respectively by FY 22 (Based on improvement trends in cross-subsidy levels over last 5 years)
o Optimistic case-128% and 158% respectively by FY 22 (Cross-subsidy levels to show limited improvement)

 Therefore, average billing rate for industrial and commercial consumers by FY 22 is projected as
below:
o Likely case- Industrial-Rs 7.6/kWh; Commercial- Rs 8.9/kWh
o Optimistic case-Industrial-Rs 8.7/kWh; Commercial-Rs 10.7/kWh

14
 Retail tariff scenarios beyond FY 22

Industrial tariff projections (Rs./kWh) Scenarios Growth Basis

14.0
12.8 projections
11.2
9.7 9.4
10.4 (from FY 17)
8.7 8.4 8.6
7.6 Likely case Industrial-1.4% a) Cross-subsidy to
Commercial-0.8% reach within +20%

© 2016 CRISIL Ltd. All rights reserved.

band by FY 32

a) Growth in ACS at
FY 22 FY 27 FY 32 FY 37 FY 42 1.9% from FY 17
Likely Optimistic onwards
Commercial tariff projections (Rs./kWh)
16.8
15.7 Optimistic case Industrial-2.7% a) Cross subsidy levels
13.9
12.0 Commercial-2.6% to reach within +20%
10.7 9.9 10.8 band by FY 42
8.9 8.9 9.0

a) Growth in ACS at
3.6% from FY 17
onwards
FY 22 FY 27 FY 32 FY 37 FY 42
Likely Optimistic
Source: CRIS Analysis

15
 CRISIL Privacy Notice
CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide
you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view the
Company’s Customer Privacy at https://www.spglobal.com/privacy

© 2016 CRISIL Ltd. All rights reserved.

Last updated: April 2016

Disclaimer
This report is prepared by CRISIL Risk and Infrastructure Solutions Limited (CRIS). This report may have been prepared by CRIS at the request of a client of CRIS
(client). This report may include or refer to information and materials provided by the client and/or obtained by CRIS from sources that CRIS considers reliable
(together, “materials”). In preparing this report, CRIS does not independently validate any such materials and assumes those materials are accurate. CRIS does not
guarantee the accuracy, adequacy or completeness of any material contained in or referred to in the report. While CRIS takes reasonable care in preparing the report,
CRIS shall not be responsible for any errors or omissions in or for the results obtained from the use of or the decisions made based on, the report. The user takes full
responsibility for the use of and the decisions made based on the report. While portions of materials are included in the report, CRIS makes all reasonable attempts to
attribute credits to the source of the materials; however, even if a particular source of a material is not so attributed, CRIS stakes no claim to any such material in the
form as provided to or made accessible to CRIS. No third party whose material is included or referenced in this report under credit to it, assumes any liability towards
the user with respect to such material. Neither CRIS nor its directors, employees and representatives accept any liability with regard to any access, use of or reliance
on, the report and that CRIS expressly disclaim all such liability. Any third party brands, names or trademarks contained in the report belong to the relevant third parties.
The report contains CRIS’ view as at the date of the report based on available material. CRIS does not assume an obligation to update the report where updated
materials are available or to notify anyone that an updated report is available. By accessing and/or using any part of the report, the user accepts the foregoing
disclaimers and exclusion of liability which operates to the benefit of CRIS.

16