Power Sector

Opportunities and Issues

Contents

Power Sector -Overview

Policy Initiatives

Measures Undertaken

IDBIs Exposure in Power Sector

Top Private Players Announcements

Investment Opportunities

Issues & Concerns

Suggestions

Power Sector Overview

Indian Power System
Fuel
Input

Boiler
R
+
Turbine
Y
+
Generator
B
Power
Generation

Reactive
Power
Control
Power
Transformer

SSI

Houses

Grid
control
(Load
Dispatch
Centre)

400/220KV AC
Transmission Lines

High voltage Substation

switchgear 132/110/66KV

Service lines

Distribution Lines
33/11/0.44KV

LT Consumers
Distribution
Transformers
SSI

HT Consumers

Large/Medium
Industries

Power Sector Overview

Technology
Thermal Power Plant (Coal, Lignite, Natural gas, Naphtha, Diesel)
Hydel Power Plant (Water)
Nuclear / Atomic Power Plant (Radio-active fuels)
Non-conventional Power Plant (Wind, Solar, Biomass, Tidal, Co-generation)
Emerging Technologies
Coal based (Circulating Fluidized Bed Combustion, Integrated Gasification
Combined Cycle)
Nuclear Power Based (Pebble Bed Modular Reactor)
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Power Sector Overview

Global Scenario

Structure of the Indian Power Industry

Generation

Transmission

SEBs

SEBs/ STUs

Distribution

Input
(KWh)

CPSUs

PGCIL

IPPs &
Private
Licenses

Private Utilities

Captive

Consumption

SEBs
Discoms
Pvt. Licensee
Energy sold =
Energy available
Energy lost

Agriculture
Domestic
Commercial
Industries Others

Transformation,
transmission &
Distribution
Losses including
unaccounted
energy

open
Power Trading Companies

Captive

Power Sector Overview

- Present Indian Scenario
Power Segment wise break-up

Power Sector Overview

Contractual Structure of a Power Project

Power Sector Overview

- Installed Capacity
Installed capacity increased from 1362 MW in 1947 to 1,50,323 MW at end
of June 2009
Hydro

- 36,917 MW
Thermal
- 96,044 MW
Nuclear
- 4,120 MW
Renewable
- 13,242 MW
Sector-wise Installed Capacity
Total
1,50,323 MW

Coal
- 78,459 MW
Gas
- 16,386 MW
Diesel - 1,200 MW

Sector-wise Installed Capacity

Private Sector
24,988 MW
17%
State Sector
76,364 MW
50%

Central Sector
48,971 MW
33%

Power Sector Overview

Demand-Supply Gap
Per Capita Consumption

: 704.2 Kwh

Power Supply Position (2008-09)

Energy (in MU)

Peak (in MW)

Demand

7,77,039

1,09,809

Availability

6,91,038

96,785

Shortage

86,001

13,024

% shortage

11.1%

11.9%

Average Plant Load Factor (PLF)

: 77.19 % (Thermal, 2008-09)

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Power Sector Overview

Demand Supply Position

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Power Sector Overview

Capacity Addition
Target & Achievements
Five year plan

Year

Target

Achievement

Eight plan

1992-1997

30,538

16,423 (54%)

Ninth plan

1997-2002

40,245

19,025 (47%)

Tenth plan

2002-2007

41,110

21,180 (51%)

Eleventh plan

2007-2012

78,700*

Twelfth plan

2012-2017

82,200

* 12,716 MW added during last two years

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Power Sector Overview

- Present Scenario
Unsatisfactory Financial health of SEBs
Poor quality of Supply
Un-scheduled load shedding, low voltages, voltage and frequency fluctuations
High T&D losses
Metering, Billing & Collection
Energy audit
Average tariff lower than cost of supply
Commercial Losses without subsidy of SEBs Approx. Rs.265 billion (for
2008-09)
Slow progress in T&D reforms
Subsidies
Escrow Cover

Political involvement
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Power Sector Overview

Policy Initiatives
Indian Electricity Act 1910

Technical & Operating Standards

Licenses for supplying power in specific areas
The Electricity (Supply) act 1948 -

Development of State sector

Creation of SEBs, CGUs & CEAs
Amendment to Electricity (Supply) Act 1991

Private sector participation in generation

Awarding the IPPs through Pass Through Cost Basis route
100% foreign Equity participation: full dividend repatriation .
Two part tariff structure - 16 % return on equity at PLF of 68.5%,
incentives for PLF above 68.5% with FX pass through
Guaranteed Off-take by SEBs
Counter guarantee by Central Government for 8 fast track IPPs
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Power Sector Overview

Policy Initiatives
Competitive Bidding Process (tariff) for IPPs was adopted since 1995
The Electricity Laws (Amendment) Act, 1998

Transmission of Electricity
Granting of transmission license

Electricity Regulatory Commission Act, 1998

Establishment of CERCs & SERCs.

Creation of CTUs & STUs

Mega Power Policy, 1999

100% Customs duty waiver

PTC to buy power from Mega Projects & supply to SEBs

The Accelerated Power Development and Reform Programme (APDRP), 2000

Financial assistance/ incentives for T&D upgrades & SEB

profitability

Availability based tariff (ABT) notified by CERC

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Power Sector Overview

Policy Initiatives

Montek Singh Committee - Securitisation of SEBs over dues by CPSUs

However, capacity creation through private sector participation did not happen as
desired mainly due to the following:

SEBs reforms tardy

SEBs financial health continued to be poor
Dishonoring legally binding agreements
Pulling out by number of foreign utility companies

MOAs with Govt. of India to undertake reforms

The Electricity Act, 2003 enacted
The Electricity Amendment Act, 2007

Access to Electricity to all areas

Sale from captive units - No license required
Removal of provision for elimination of cross subsidy
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Power Sector Overview

The Electricity Act, 2003
Delicensing of generation including captive but excluding hydro and nuclear
Captive generation freely permitted

Non-discriminatory open access to network subject to surcharge: No surcharge for

captive use
Private transmission licensees allowed
Generation companies can undertake distribution activities and vice versa for
distribution licensees
Open access consumers permitted to purchase electricity from generators and other
distribution licensees
100% metering made mandatory
CERC and SERCs would be the licensing authorities for T & D and trading

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Power Sector Overview

The Electricity Act, 2003
Power trading is recognized as a regulated activity
Preparation of National Electricity Policy and Tariff Policy
An appellate tribunal would be set up for appeals against decisions of CERC and
SERCs
Setting up SERC made mandatory for all states
T & D surcharges are permitted but subsidies would be required to be phased out
gradually
Stringent penalty for power theft

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Power Sector Overview

Impact of Electricity Act
Entry of more private players in generation
Captive power capacities by industrial players

Entry of few private players in transmission segment (JV with PGCIL)

16 states have unbundled the distribution (May 2009)

Orissa & Delhi privatized

Bhiwandi, Nagpur , Pirthipur Franchise route

Progress in reduction of T&D losses

Improvement in the system efficiency
Grid discipline in the system
Cross subsidization of consumers still continuing
Implementation of open access at retail level would take some more time (being
tested in Mumbai)

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Power Sector Overview

Measures undertaken
Ultra Mega Power Projects

Large sized projects, approx. 4000 MW

Estimated investment Rs.16,000 crore

Minimum Net Worth Rs.200 crore

Maximum 3 projects can be awarded to a bidder

Developed on BOO basis

Use of Super Critical Technology

Dedicated captive coal blocks for pithead projects (4 projects)

Imported coal for coastal projects (5 projects)

Co-ordination from Ministry of Power

Power Finance Corporation identified as the nodal agency

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Power Sector Overview

Budget Impact
2009-10 Union Budget Impact on Power Sector

Take-out financing of 60% of bank loan by IIFCL ( up to Rs. 1 lac crore)

The budgetary allocations for the APDRP has been increased from Rs.800
crore to Rs.2080 crore
The allocation for RGGVY has been increased from Rs.5500 crore to
Rs.7000 crore
Customs duty on permanent magnet used in wind power generation reduced
from 7.5 per cent to 5 per cent

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Power Sector Overview

Merchant Power Plants (MPP)
MPPs generate electricity for sale at market driven rates in the open
wholesale market.
Include sale of power under short-term PPAs and on spot basis
Can generate higher returns (vis-a-vis selling power through long term PPA)
Can sell power to the power trading companies (like the Power Trading
Corporation), the SEBs and industrial and bulk customers
Sale Price & Volume of Electricity Traded by the Trading Licensees
(12 licensee holders) are given in next slide

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Power Sector Overview

Top Private Players Announcements
CRISIL estimates

Balance of total
announcements

Announcements

Eleventh Plan

expected in Twelfth
Plan

MW

MW

MW

Reliance Power

28195

900

27295

JSW Energy

15000

15000

IndiaBulls
Power
Services (JV)

11000

11000

Tata Power

10000

250

9750

Lanco

10000

970

9030

Adani

10000

10000

Jaypakash Power

5275

700

4575

Videocon

5000

5000

4670

1000

3670

Torrent Power

4500

1100

3400

CESC

4250

250

4000

Essar power

4000

4000

GVK Power

3660

600

3060

GMR Energy

3440

3440

Sterlite Energy

2400

2400

Visa Power

1200

1200

122590

5770

116820

Total
Top private players

Jindal
(JSPL+JP)

Top players

Power

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Power Sector Overview

Fund Requirement
Year wise investments in power (Eleventh Plan)
Total capacity (MW) Generation Transmission
2007-08
9,263
417
163
2008-09
7,745
349
143
2009-10
8,014
361
147
2010-11
12,663
570
215
2011-12
12,120
545
207
Total
49,805
2,241
876
Source: CRISIL Research

Distribution
Total investments
73
653
61
553
63
571
100
885
95
848
392
3,510

Transmission Target 37,150 MW (Present 20,750 MW)

Cost
Capital Cost
(Rs.crore/MW)

Levelised Tariff (15 years)

(Rs. Per Kwh)

Coal

4.00 5.00

2.70

Naphtha

2.50 4.00

6.74

Gas

2.50 4.00

2.18

Fuel

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Power Sector Overview

Issues in Financing Power Projects
Large Capital Costs
Long gestation period
Sector vulnerable to regulatory and policy changes;
Projects are contract driven leading to a lot of legal complexities
Sponsors
Technology
Fuel & Transportation
Evacuation
Market
Off takers (Financial health of SEB)
Payment Security
Approvals & clearances
Foreign Exchange risk
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Power Sector Overview

Suggestions

Enforcement of implementation of the reform process by SERCs

High level of cross subsidy surcharge to be progressively reduced/eliminated
Effective implementation of the restructured APDRP in distribution sector in all States
Critical review and rationalization of duties & taxes
Single window clearance/ automatic clearances, needs to be introduced
Delay in securing clearances, commitments from state utilities for power purchase,
resistance from environmentalists, demand for free power by states need to be
appropriately addressed for all power projects
There is an urgent need of a Regulator in Coal Sector. The Union coal ministry has
initiated work on setting up a regulatory body, which will be responsible for domestic
coal pricing
Opening up of coal sector to private sector participation to promote competition
Open access to the Gas network should be ensured to promote competition in gas sourcing
Role of Regulator in Oil & Gas sector needs to be expanded to include gas pricing.

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Power Sector Overview

Suggestions
Augmentation of capital base of the banks

Raising of tax-free infrastructure bonds by FI/Banks.

Effective take-out financing mechanism [In the recent budget, FM has announced
a scheme for take-out financing of 60% of bank loan by IIFCL].
Softer provisioning norms for infrastructure projects. RBI has recently permitted a 2-

year period (originally COD) for determining asset classification of infrastructure

projects
Reintroduction of benefit of sec 10(23G) of IT Act 1961 (tax exemption on net
interest income in respect of infrastructure projects).
Review of ECB guidelines including allowing banks/institutions to extend guarantees
for financing infrastructure projects to make available cheaper foreign funds.
Reduction and harmonization of state level taxes and duties

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Thank You

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