Power Center Capacity ramp-up for conventional generation

There has been a record capacity addition of 53,922 MW during the 11th Five Year Plan (2007-11), out of which 19,459 MW has been added in the financial year (2011-12), the highest ever capacity addition in a single year... The last decade has seen a tremendous change in India's electricity sector, from being 10th largest in the world to 5th largest now. The industry is moving away from negotiated and guaranteed arrangements to a more open market and performance based competition. The approach now is more pro-investment, although the legacy problems of cross-subsidies, losses and rural access remain a challenge. The private sector has emerged as a key player in both conventional and renewable power, and increasingly in other parts of the business. The sector has evolved from a nascent market to a developing market, led by policy reforms and increased private sector participation. There is strong growth opportunity in the power generation sector, led by exponential growth in economy, increasing propensity for electricity consumption and urbanization. In recent years, Indian companies have shown a huge interest in power generation and the recent change in power procurement landscape towards competitive bidding is expected to drive investments and efficiency in the sector. Compared to the 10th Five Year Plan, the capacity additions have increased considerably in the 11th Five Year Plan as India Inc. is slowly developing execution capabilities. According to the Union Minister of Power, Shri Sushilkukmar Shinde, there has been a record capacity addition of 53,922 MW during the 11th Five Year Plan (2007-11), out of which 19,459 MW has been added in the financial year (2011-12), the highest ever capacity addition in a single year. This is more than two and a half times of the achievement of 21,180 MW capacity addition in the 10th Five Year Plan. The total installed capacity as on March 29, 2012 stood at 1,92, 792 MW. In fact, the capacity addition in the 11th Plan stands close to the total cumulative achievement of 56,617 MW in the last 15 years from the 3 plans i.e. 8th, 9th and 10th Plan. In 2010-11, the generation was 811 billion units (BU). In addition, the sector achieved its electricity generation target for the year 2011-12, of 855 BU on March 23, 2012 one week before the close of the financial year. The Union Power Minister has declared that the planned capacity addition for the 12th plan is 75,785 MW. INDIAN COAL SECTOR India's power requirement over the years has largely been dominated by coal based generation, with close to 55 per cent of the 182 GW of installed capacity being coal based power plants, accounting for over 80 per cent of the total units generated in the country. However, more stringent rules and norms brought about recently by the Ministry of Environment and Forests (MoEF), over award of coal blocks have left many developers devoid of coal linkages. Even state generation companies (Gencos) are repeatedly under pressure due to lack of adequate and timely supply of fuel. The recent change in international markets, most notably, the enactment of the new mining law in Indonesia has significantly impacted the cost of imported coal for Indian companies, many of which were relying on supply of coal from this south-east Asian nation. Recently, both Krishnapatnam and Mundra UMPPs expressed their concern over rising cost of imported coal, which would make the projects unviable at the tariffs quoted by them. This has been aggravated by the fact that changes in international law and regulations are not currently covered under change in law in Indian Power Purchase contracts. Domestic Coal On the domestic production front, Coal India Limited is the largest contributor, accounting for 81 percent of the country's total coal production. Of the balance, 9.5 per cent comes from the Singareni Collieries Company Limited (jointly owned by the central government and the state government of Andhra Pradesh). The remaining coal comes from privately operated collieries and captive coal mines. Small mines in the northeastern state of Meghalaya also add about 6 million tons to the total production. There are many issues with regard to domestic coal production, including its quality, beneficiation of lower grades, transportation to distant consumers, environment impacts (both in mining and burning of coal), efficiency of thermal power plants and so on. The coal that can be extracted, taking into account geological, technical and economic aspects is only a small fraction of our total coal inventories, without taking into account no-go areas where coal mining may not be permitted. An assessment by the Geological Survey of India states that coal is inaccessible because it lies in protected areas or beneath forests, villages, towns or water bodies and even includes coal that has been extracted and burnt during

the past 200 years (estimated at about 10 billion tonnes). Furthermore, much of the coal is at a depth of 1200 meters, whereas mining of coal, either currently or in the near future, is not likely to go beyond 300 meters. Hence, despite India having abundant coal reserves, the critical point is how much of that coal is technically feasible to extract and can be economically mined. Imported Coal Presently, India imports about 85 million tons of coal. Out of this, nearly 25 million tons is metallurgical coking coal for the iron and steel industry. The balance forms thermal coal used by power generating plants (50 per cent), cement industry (17 per cent) and other industries (33 per cent). Presently, the main sources of thermal coal imports are Indonesia, Australia, New Zealand and South Africa. It is to be noted that Canada, Mozambique and USA are amongst the emerging supply sources. It is projected that by the end of the 12th Plan, India's coal import requirement will be more than 200 million tons. Indonesia contributes about 70 per cent to India's thermal coal import. This is because the geographical proximity of Indonesia and the suitability of its coal for power generation in India makes it very competitive. For coking coal import Australia is the prime destination. It accounts for more than 80 per cent of the total coking coal import by India. Even if India augments its production capacity, the import of coking coal seems to be inevitable as the country has small reserves of coking coal and production is insufficient to meet the demands of the steel sector. Besides, the poor quality of domestic coking coal requires it to be blended with imported, high quality coking coal to make it useful for the steel industry. Captive Coal Mining With over 90 per cent of domestic coal production coming from government controlled mines, the present institutional structure is a near monopoly. Although the government has allocated over 200 coal blocks for development by private/public entities, outside the government owned coal companies, progress has not been promising on the front. Captive coal mining was introduced in 1993 as an interregnum to full and unrestricted opening of coal sector to private investment. Due to various reasons, over 200 coal bocks containing coal reserve of over 50 billion tons and with an aggregate annual production capacity of 550 million tons, have not yielded promised coal production. Only some 30 odd mines have commenced production that contributed merely 36.30 million tons in 2010-11 against a target of 104 million tons. This shortfall has also led to a shortage of coal in the country. The primary issues pertaining to captive mining that require immediate attention of the government and other stakeholders include: * Augmentation of exploration efforts * Expediting land acquisition and resolution of R&R issues * Expediting forestry, environment and related clearances * Getting mining leases, etc. * Contentious issues to be resolved * Facilitating availability of geological data OIL AND GAS SECTOR Oil and gas resources form a major part of India's primary energy mix. In 2010, oil and gas accounted for over 40 per cent of India's total primary energy consumption, next only to coal, which accounts for close to 53 per cent. India is dependent on imported crude oil to the extent that recently, the US Energy Information Administration (EIA) observed that India was the world's fifth largest net importer of oil in 2010, importing more than 2.2 million bbl/d or about 70 per cent of consumption. This provides immense opportunity to investors to develop business opportunities in a country where demand exists. India's upstream policies such as the New Exploration Licensing Policy (NELP) are focused at increasing investments in domestic exploration and production (E&P) activities. In the last ten years, nine rounds of acreage awards have been completed, in which over 260 blocks were licensed out to companies. In the coming years, additional rounds of awards are expected to be rolled out for investors to bid. Local companies like ONGC, OIL, GAIL, IOC, BPCL and HPCL have actively participated in the bidding, along with private companies. However, despite many promising discoveries in the NELP blocks, the policy has had limited success in reducing the dependence on foreign imports. The policies have also not been able to attract oil majors with experience and other technical expertise to invest in India. More than 50 per cent of India's proven oil reserves are located in the western offshore Mumbai High and in the onshore northeast of the country. In addition, substantial underdeveloped reserves are located in the offshore Bay of Bengal Krishna Godavari basin and in onshore Rajasthan. Natural Gas Potential

According to BP Statistical Review 2011, natural gas is currently approximately 10 per cent of India's total primary energy basket. Also, the country's proven gas reserves currently stand at 1.45 trillion cubic meters, which are 0.77 per cent of the world's proven gas reserves, placing India at 22nd position in the world. At existing production levels of 50.9 bcm per year, the country has a gas R/P ratio of about 28.5 years. It is expected that the contribution of natural gas production by ONGC, OIL and NOCs would reduce from 54 per cent in 2012 to 51 per cent by the end of Twelfth Five Year Plan (2012-2017), despite growth in ONGC production. It is also estimated that over 50 per cent of the natural gas requirement would be met through imports in 2012-17. Gas Production and Supply In India, the current gas supply is approximately 140 MMscmd against an estimated demand of approximately 262 MMscmd in 2010 and 279 MMscmd as per Eleventh Five Year Plan. India meets three-fourth of its current gas consumption from its own production, with the balance being met by Liquefied Natural Gas (LNG) imports. Recently, the government in its Union Budget 2012-13 has announced withdrawal of import duty on natural gas, used as fuel in power plants. This will offset sharp spikes in the price of imported natural gas and help in setting up gas-based capacity in the country. During FY2011-12, natural gas production in India has been severely impacted due to the drastic reduction of natural gas production from Reliance Industries' D6 field at KG basin. Several new plants are yet to be commissioned due to lack of natural gas supply, besides the reduced generation from existing natural gas based operational power plants. Shale Gas According to the preliminary studies by the US Energy Information Administration in April 2011, India has technically recoverable shale gas resources of nearly 63 trillion cubic feet (tcf). The draft shale gas licensing policy has been circulated to various industry members and the government expects the licensing round to be conducted during the first half of the 12th Plan. TESTING TIMES FOR NUCLEAR The Fukhushima nuclear disaster has raised a big question on the viability and future of nuclear power for electricity generation, for reasons pertaining to safety and cost. After last year's triple disaster-earthquake, Tsunami and nuclear meltdown, the faith of not just Japan, but also many other countries has been shattered in the power of nuclear. Japan, which has been using nuclear power since 1960s, and in 2010, got nearly 30 per cent of its electricity from the source, is already in the process of shutting down nuclear plants in the country. Nuclear power has a very important role to play in India's future energy. Nuclear power is economically competitive and therefore can provide large base load generation, while contributing significantly to decarbonization of the power sector, being devoid of greenhouse gas emissions, with life cycle emissions comparable with hydro and wind power. While many countries are going non-nuclear, India is showing strong faith in the segment. Nuclear power is the fourth-largest source of electricity in India after thermal, hydroelectric and renewables. India has only moderate reserves of uranium, but is endowed with large reserves of thorium. Therefore, the country's indigenous nuclear programme is focused on using the large resource base of thorium through three stage nuclear power programme. The three stages of India's nuclear programme are: * Natural uranium fuelled Pressurised Heavy Water Reactors. * Fast Breeder Reactors (FBR) utilizing plutonium based fuel. * Breeder Reactors for utilization of thorium. Status of Nuclear Power in India With the commencement of operation of Kaiga- 4 (220 MW) in January 2011, a capacity of 4780 MW with 20 nuclear reactors is now in operation. Nuclear Power Corporation of India Limited (NPCIL) achieved power generation of 26,473 million units - the highest ever, in the year 2010-11. This was an increase of 41 per cent over the power generation in the previous year. For the financial year 2011-12, the power generation up to June 30, 2011 stood at 7993 million units. NPCIL's operating reactors MAPS-2 and TAPS-2 recorded continuous operation of more than a year without outage. During the year 2010- 11, thirteen of the twenty operating units achieved availability factor of more than 85 per cent. The overall availability factor of the full fleet for the year was 89 per cent and capacity factor was 71 per cent. The operating reactors have registered over 340 reactors-years of safe operation so far. In addition to the 20 operating reactors, 7 reactors units with total capacity of 5300 MW are under construction. This includes the Kudankulam Atomic Power Project units 1 and 2, Kakrapar Atomic Power Project - units 7 and 8 and Rajasthan Atomic Power Project units 7 and 8.

Kudankulam Atomic Power Project Work at the Kudankulam nuclear power station in Koodankulam in the Tirunelveli district of Tamil Nadu is in progress. The construction at the site has been delayed due to anti-nuclear protests by the locals and movements against nuclear energy. NPCIL is currently setting up two 1,000 MW reactors supplied by Russia at Kudankulam. The first unit was supposed to go on stream in December, however, according to recent update, employees are working day and night to get the atomic regulator's nod to reopen the first reactor vessel and remove the dummy fuel. ULTRA MEGA POWER PROJECTS The Government of India launched an initiative for the development of coal-based Ultra Mega Power Projects (UMPPs), each with a capacity of 4,000 MW. These projects were to use super critical technology to reduce the emission of GHG gases. The objective of the initiative was to obtain cheaper tariffs, utilizing economies of scale and to mitigate the risk relating to tie up of land, fuel, water and other statutory clearances. The UMPPs were projected to help the government achieve its ambitious plan 'Electricity for All by 2012'. The projects were awarded to developers on the basis of tariff-based competitive bidding. To facilitate tie-up of inputs and clearances, project-specific shell companies have been set up as wholly owned subsidiaries of the Power Finance Corporation (PFC) Limited. These companies undertake preliminary studies and obtain clearances relating to water, land, fuel and power offtake tie-up, prior to award of the project. Originally, nine sites were identified by CEA in various states for the proposed UMPPs. These included four pithead projects, with Alkatara in Chhattisgarh, Tilaiya in Jharkhand, Sasan in Madhya Pradesh and Sundergarh in Orissa. In addition, five coastal UMPPs - Krishnapatnam in Andhra Pradesh, Mundra in Gujarat, Tadri in Karnataka, Girye in Maharashtra and Cheyyur in Tamil Nadu were identified. The four projects bid out so far, will cater to the need of 14 states, namely Madhya Pradesh, Gujarat, Andhra Pradesh, Jharkhand, Punjab, Haryana, Maharashtra, Rajasthan, Delhi, Uttar Pradesh, Uttarakhand, Tamil Nadu, Karnataka and Bihar. Seven years after the UMPPs started being awarded in 2005, the first four projects have run into various troubles and roadblocks. The Mundra UMPP is being developed by Tata Power's wholly owned subsidiary, Coastal Gujarat Power Limited (CGPL). The first unit of the project was recently commissioned, in March 2012. The other three major UMPPs - Sasan, Krishnapatnam and Tilaiya are being developed by Reliance Power Limited. HYDRO POTENTIAL IN INDIA India has a huge potential in hydro power generation, however, we have not been able to harness it to the fullest capacity. In the current scenario of massive coal deficit, there is an urgent need to focus on development of hydroelectric power projects. Given the large infrastructure bottlenecks and R&R (rehabilitation and resettlement) issues, the development of hydro power projects is in a challenging situation in India. The need of the hour is for the government to announce benefits/incentives for cleaner hydro power, along with the support for infrastructure development. The potential of small hydro power projects, up to 25 MW capacity for power generation is projected at 15,384 MW at 5,718 potential sites, but, technically and economically viable capacity addition is projected to be 6,000 MW only. A project has been sanctioned to set up a small hydro turbine R&D laboratory with an objective of creating international level facilities for testing, design and R&D in the area of hydraulic turbines, hydro mechanical equipments, control and instrumentation of small hydro electric power plants. The on-line monitoring system that adds to longevity of uninterrupted power supply from large hydro power systems worldwide is also being considered for adoption.