Total Installed Power Capacity (As on 31 January 2013)
Thermal - 141 GW (Coal - 121 GW; Gas - 19 GW; Oil - 1 GW)
Hydro - 39 GW
Nuclear - 5 GW
Renewable - 26 GW
Note: GW - Giga Watts and Renewable includes small hydro projects, bio-mass gassifier, bio-mass power, urban and industrial waste power
Source: Ministry of Power, Government of India
The present installed generation capacity of India is about 211 GW of which 54 GW had been added during the 11th five year plan (2007-12). Almost 66% of this capacity is based on thermal (Coal: 85%; Gas: 14% and Oil: 1%), 19% on hydro, 12% on renewable sources, and 2% on nuclear. Chinese power equipment manufacturers had a share of about 35% of India’s power market during the 11th plan period.
In India power projects are implemented by the central and provincial governments and the private sector companies. Of the total installed capacity, 40% is by the provincial governments and 30% each by the central government and the private sector companies. The share of the private sector in the capacity expansion has gone up substantially from 10% in the 10th plan (2002-07) period to 42% in the 11th plan period. As per official figures, the private sector invested US$ 9.9 billion in 2009-10, US$ 15.3 billion in 2010-11 and US$ 19 billion in 2011-12. In 2013-14, the private sector is expected to invest an estimated US$ 15.1 billion in the power sector.
Power is a vital input for rapid growth of the Indian economy. A GDP growth rate of 8% over the 12th Five-year plan (2012-17) will require power supply to grow at around 6% per year. Further, to meet the target of providing electricity for all and achieving per capacity availability of 1000 units, supply needs to grow at a much higher rate. India faces a peak power shortage of 8.7%, causing distribution firms to ration supply to industrial and household consumers in several parts of the country. Losses on account of theft, transmission and billing inefficiencies are pegged at around 24.8% of the total. Moreover, the operating environment over the last few years has not been favorable for the power industry. For instance, the economic downturn, funding crunch, delay in land acquisition and securing of environmental clearances, fuel shortages etc. have added to the woes of the power sector in India.
Fuel supply has been crucial to the overall profitability of India’s power sector. Power plants have been operating below production capacity because of the inability of state-owned company - Coal India Ltd. to meet demand and declining gas production. 78% of India’s domestic production of coal is consumed by the power sector. However, domestic production has not kept pace with the growing demand. Demand for coal in India is expected to grow from 649 million tons a year currently to 730 million tons a year in 2016-17. However, only 550 million tons per year is currently available making the country heavily reliant on more expensive, imported coal.
In order to improve the situation, the Ministry of Power has mandated Coal India Ltd, a public sector enterprise to sign fuel supply pacts with power companies and meet at least 80% of the domestic demand for the mineral from the power sector. A total of 143 such pacts have to be signed by the company by 2015, out of which 55 have so far been signed.
Power tariffs in India have not been reflective of cost structures for some time and they are further distorted by cross-subsidies. The government is currently debating the idea of allowing power producers to pass on the cost of rising fuel costs to the customers. These steps will help kick-start idling gas- and coal-fuelled power generation capacity. Increasingly, sections of the consumers have also realized that higher tariffs with better quality of supply are in their interest and, hence, the decisions by some state-owned utilities to hike tariffs have not been resisted as may have been expected.
The health of the power distribution sector holds the key to the success of generation projects in a sector seen as a key bottleneck in efforts to sustain and boost economic growth. The central government announced a bailout plan in September 2012 for power distribution companies which included regular tariff revisions as part of the conditions to be met. Under one of the most important policy initiatives of the government, provincial governments in India are to take over 50% of the outstanding loans of state electricity distribution companies, and convert them into bonds, which would then be issued to banks backed by state government guarantees. The remaining 50% debt was to be restructured by banks with a three-year moratorium.
On the policy front, the government has also started the process of providing full autonomy to the Power System Operation Corp. Ltd (Posoco), which is responsible for the reliable, secure and efficient operation of the power grid.
The sector will also get a boost from the finalization of new standard bidding documents (SBD) for new power projects. The revised norms have called for separate bidding norms for coal linkage and captive coal projects for the domestic fuel-based projects whereas no changes are being proposed for projects based on imported coal. The new documents have proposed that the projects where the location of the plant is not specified the bidding would be done amongst the domestic coal linkage holders who have uncontracted capacities under long term PPA (Power Purchase Agreement) through competitive bidding.
In the coming months, the government has laid out broad policy strategies to improve the power situation in the country. These include:
• Power Generation Strategy: focusing on low cost generation, optimization of capacity utilization, controlling input costs, optimization of fuel mix, technology upgrades and utilization of non-conventional energy resources.
• Transmission Strategy: focusing on developing the National Grid, including interstate connections, Technology upgrades and optimization of transmission cost.
• Distribution Strategy: achieving distribution reforms by focusing on system upgrades, loss reduction, theft control, consumer service orientation, quality power supply commercialization, decentralized distributed and supply for rural areas.
• Conservation Strategy: to optimise the utilization of electricity with a focus on demand side management, load management and technology upgrades to provide energy efficient equipment; and Communication Strategy;
Focus of the 12th Five Year Plan:
During the 12th plan period (2012-17) a capacity addition of 88 GW is envisaged. This target is 63% more than the 11th five year plan achievement. Of the 88 GW, 72 GW or about 92% of capacity addition will be fuelled by coal. The target of 88GW would mean the addition of 17.5 GW every year from 2012 to 2017. In 2012-13, India had a target of adding 16.5 GW, but a total of 20.5 GW of capacity addition was achieved. Approximately 60% or 53 GW of capacity addition in the 12th plan (2012-17) is expected to come from the private sector.
The focus of the 12th Five Year Plan will be on highly efficient super-critical and ultra-critical power technology. The plan also favors domestic manufacture of power equipment including high voltage transformers with capacities higher than 765 kilo volts and high voltage transmission lines. During the 12th Plan, Power Grid Corporation of India Ltd., will invest about US$ 17.6 billion in new high-voltage transformers and transmission lines. The government is also putting into place a National Unified Grid. The existing national grid is presently demarcated into five regional grids - Northern, Southern, Eastern, Western and North-eastern. Except for the Southern grid, all other grids in the country are operating in unison since August 2006 and have a single frequency. The national grid synchronization is expected to be completed by July 2014.
In view of the large thermal capacity addition programme envisaged mostly through super-critical units; efforts have been made to create indigenous manufacturing capacity for super-critical equpment. India's capacity for manufacturing power equipment is also set to increase four-fold to around 43 GW by 2015. A number of foreign companies have tied up with Indian manufacturers. Notable among them include: L&T and Mitsubishi; JSW and Toshiba; Bharat Forge and Alstom; Ansaldo Caldie and GB Engineering Company etc.
Focus on Environment:
India hopes to reduce emissions intensity (carbon emissions per unit of GDP) by 20%-25% from the 2005 levels by 2020. A contributing factor to the increased focus in renewable energy targets is energy security in connection with coal supplies. As the current electricity supply is mainly from coal sources, the requirement for coal consumption and imports is likely to rise rapidly over the medium term, which augments for a focus on the renewable energy sector.
The Indian renewable energy market is estimated to be worth over US$ 17 billion this year and is growing at an annual rate of 15%. Wind, hydro, solar, biomass, and waste-to-energy all have huge potential. However, only 19,973 MW of total renewable energy potential estimated at 200,000 MW has been tapped in India thus far leaving a huge opportunity for potential future market growth. The Ministry of New & Renewable Energy announced a rise in the country’s renewable energy targets fourfold to 72,400 MW by 2022. The revised renewable energy target includes the existing solar power initiative - the Jawaharlal Nehru National Solar Mission, a three-stage plan to generate 22,000 MW of solar power, 2000 MW of which will come from off-grid distributed solar capacity in addition to the construction of 20 million square meters of solar thermal projects by 2022. Further the government is planning to have more than 20,000 MW of wind generating capacity by 2022. Wind energy is presently one of the largest sources of renewable electricity in the country, accounting for 70% of current installed capacity from renewable sources. It is estimated that the country has the potential for 49.1 GW of installed capacity. However, recent estimates by the Center for Wind Energy Technology (CWET), Chennai indicate that India’s wind potential could be much higher at ~103 GW. The Indian market is also emerging as one of the major manufacturing hubs for wind turbines in Asia.
India today stands among the top four countries in the world in terms of renewable energy capacity and it offers some attractive incentives in this area.
• Wind: India plans to increase fifty percent share of capacity addition in renewable energy by 2017. Approximately US$ 20 billion investments expected during 2012-17. Foreign companies can take advantage of India’s wind energy market, which is one of the world’s largest as India imports wind turbines, windmill blades, wind battery chargers, wind energy converters etc.
• Hydro: The hydropower generation potential for India is 300,000 MW out of which only 145,000 MW can be exploited due to limited resources and difficult geographical terrain. Government of India has firmed up an investment of US$ 20 billion for the development of hydro projects by 2020.
• Biomass: The Indian government announced a target of creating 10,000 MW of biomass power generation by 2020 and will shortly release a biomass power policy to chart out a roadmap for supporting biomass generated power.
• Waste to Energy: Government of India has developed a National Master Plan for Development of Waste to Energy in India. The Indian government estimates that the potential to generate power from municipal solid waste will more than double by 2020, while the potential from industrial waste is likely to increase by more than 50 percent. In a country with high population density and limited landfill capacity, waste to energy power generation is a major priority.
• Solar: The goal of the National Solar Mission is to install 20 GW of grid-connected and 2 GW off-grid solar power by 2022. Other targets include installation of solar thermal collectors over an area of 20 million square meters and to install 20 million rural households with solar home lighting by 2022. Developers of solar farms in India have shown preference for thin-film solar cells offered by foreign suppliers. Investors in thin-film solar cells will find the Indian market full of opportunities.
The market potential for industrial energy efficiency products and services is projected to be approximately US$ 27 billion in 2018. Opportunities in efficiency improvement include smart grid metering and smart grids, IT and operation improvement.
• Smart Grids: At present the smart grid market in India is at a nascent stage but is projected to grow rapidly with plans to install several million smart meters in the next few years.
• Green Buildings: India has emerged as one of the world’s top destinations for green buildings and has implemented a number of home-rating schemes and building codes, which open up a wide range of opportunities for foreign companies in the energy efficiency sector.
India is also developing new technologies and products in the power sector through in-house R&D initiatives. Having introduced 765 kV as the highest transmission voltage, the country is planning 1200 kV voltage transmission networks during the 12th plan (2012-17) period. India has recently commissioned the nation’s first 1200 kV Ultra High Voltage Alternating Current (UHVAC) Transformer of 333 MVA rating at Bina in the state of Madhya Pradesh. A network comprising 1200 kV transmission superhighways is being planned as part of the National Transmission Network. The world’s longest b800kV High Voltage Direct Current (HVDC) multi-terminal bi-pole link of 2,000 km from Biswanath Chariali in the northeastern region to the city of Agra is currently under implementation. In the coming years, the country will see rising demand for high voltage transformers, shunt reactors, instrument transformers, capacitors, extra high voltage circuit breakers, disc insulators and medium voltage switchgears.
The total investment required in capacity creation, along with necessary investments in transmission and distribution segments during the 12th five year plan perios is estimated at over US$ 350 billion. This quantum of investment calls forth public-private partnerships in the sector. Thus new business opportunities exist across the value chain from generation, transmission, distribution, core fuel supplies, and equipment manufacturers. Opportunities for investment exist in Hydro / Thermal / Ultra Mega Power projects, Non-Conventional Energy and also in the transmission and distribution sectors.
Foreign Investment in Power Sector:
India’s power market is the fifth largest in the world. The power sector offers tremendous potential for investing companies based on the sheer size of the market and the returns available on investment capital. The Indian government is taking various steps to facilitate reforms in the power sector. The Electricity Act 2003 allowed the sector to align itself with market dynamics and facilitate greater participation by the private sector. Foreign direct investment (FDI) up to 100% is permitted under automatic route for:
i. Generation and transmission of electric energy produced in hydroelectric, coal / lignite-based thermal, oil-based thermal and gas-based thermal power plants
ii. Non-Conventional Energy Generation and Distribution
iii. Distribution of electric energy to households, industrial, commercial and other users and
iv. Power Trading
New Initiatives in the Power Sector:
• The budget for 2012-13 allows External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects.
• The rate of withholding tax on interest payment on external commercial borrowings (ECB) has been reduced from 20% to 5% for a period of 3 years.
• Basic customs duty (BCD) exemption for import of natural gas and liquefied natural gas for power generation
• Basic Customs duty has been reduced to 5% on import of raw materials required for manufacturing parts of rotor blades for wind energy generators.
• BCD has also been reduced to 7.5% on pipes/ tubes for boilers.
• Customs duty exemption continues for equipment imported for mega power projects (MPP) and ultra-mega power projects (UMPP – power projects with a capacity of 4 GW or more).
• Customs has been increased from 21% to 23% on equipment imported for Non-mega power projects.
• Exemption from Additional Customs Duty on import of equipment for setting up solar thermal projects.
• The terminal date of availing 100% deduction of profits for 10 years for power companies engaged in business of generation and distribution of power, transmission and distribution of power by laying network of transmission and distribution lines, undertaking renovation or modernization of existing distribution lines is extended from 31 March 2012 to 31 March 2013.
• More emphasis will be given to the use of environmentally clean renewable, hydro and nuclear energy in the 12th plan. The plan will also see increased use of super critical technology and will push for initiatives on energy conservation.
• Ministry of Power: http://www.powermin.nic.in/
• Ministry of New and Renewable Energy: http://www.mnre.gov.in/
• Bureau of Energy Efficiency: http://www.beeindia.in/
• Department of Industrial Policy and Promotion: http://dipp.nic.in/
• Renewable Energy Certificate Registry of India: https://www.recregistryindia.in/