Power Developments India: Initiatives & Challenges
The Indian economy is growing at a rapid pace. It is estimated that the GDP will grow at 8-9% per annum over the next decade. This can only be sustained if the power sector grows at a much faster rate as power is a primary resource needed for socio-economic development. The multiplier effect of growth in the power sector on the overall economy is high.
By Rahul Banerjee T
he Indian power sector is abuzz with activity in all spheres. In recent years, following the introduction of new legislation (Electricity Act 2003), significant steps
have been taken in the direction of power sector reforms. One of the crucial policy and regulatory initiatives has been the development of markets and encouragement of competition.
Where Are We Now? In earlier years, where generators had to sell power to
bankrupt State Electricity Boards under long-term Purchasing Power Agreements (PPAs) backed by government guarantee and no third-party sale was possible, generators had little comfort and could not attract investments. The fact that today a power generator has an alternative route to sell power –through the market in the case of a default in the long-term PPAs – acts as strong risk mitigation for the business. The market acts as a default security mechanism. Availability to a market is changing the complete risk profile of the power industry. The perceived risk reduction not only helps to attract capital more easily but also reduces its cost, making the business more competitive. This is evident in the enthusiasm of private generators in setting up new generation capacity, and this interest is not just on paper but with actual investments on the ground. New power generation capacity additions of 78,000 MW are expected to be commissioned by 2012 as per the 11th
Five Year
plan. In the year 2009 - 2010, 9,600 MW of new generation was commissioned. By the end of 2011, approximately 20,360 MW of generation will come onstream. Even if there are slippages, it is expected that 65,000 MW will come on stream by 2012. Historically, capacity addition has been made by government
owned companies since generation was a licensed activity. After the new legislation (Electricity Act 2003, which de- licensed generation), private sector participation has increased
Hydro Total Thermal Coal
Central Sector State Sector
Private Sector All India
8,654 3,482 3,491
15,627
22,600 19,535 8,435
significantly. Of the new capacity additions 15,000 MW is being developed by private companies. One of the new approaches followed by the central
government for new capacity additions has been the adoption of a competitive bidding system to set up generation plants for long-term power supply to beneficiary states. The prices discovered through the competitive bidding route have been significantly less than the tariffs of the central generating stations – which goes to show the benefit of competition. Under this mechanism 16,000 MW of new capacity addition (four Ultra Mega Power Plants of 4,000 MW each) is expected in the next 3-4 years. State distribution utilities have also started adopting the competitive mechanism route to new capacity addition. Independent Power Producers (IPPs) are bidding through this route. Other than this new merchant power plant, captive power plant expansion is also taking place. Electricity is a concurrent subject and both central and state governments need to play their role in the development of the power sector. It may be relevant to mention that the critical bottleneck in
the power sector has shifted from raising capital to obtaining clearance on environmental, land and water, fuel linkage, trained manpower, timely procurement of equipment, power evacuation from generation facilities and the like. These are all related to logistics and not finance. However, markets induce price volatility. A good mix of long-
term and short-term contracts in gencos or discom portfolios is healthy. Long-term contracts helps to manage both volumetric risk and price risk. The volumetric risk is mitigated as these contracts bring surety of supply/procurement for a defined period. Price risks are managed as electricity prices are fixed for the contracted period. Short-term contracts provide offtake flexibility but expose the participant to price risk. It is important for participants to clearly formulate their risk management
Thermal Breakup Lignite
750 450
Nuclear Gas/LNG
Planning Commission Target: 78,700 MW 24,840 23,301 11,552 59,693
50,570
1,080 2,280
Source: Central Electricity Authority. Liquid Fuel ... no additional capacity expected. worldPower 2010 125
1,490 3,316 2,037 6,843
3,380 0 0
3,380
36,874 26,783 15,043 78,700
Total (MW)
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148