Comparitive analysis of different tariff policies ntpc

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Comparitive analysis of different tariff policies ntpc

  1. 1. Chronicle Order of the Project Report1 Front Page2 Certificate3 Acknowledgement4 Index- Page Numbering is essential5 Objectives of the study6 Introduction to the company/ topic7 Hypothesis, if any7 Literature Review8 Research Methodology9 Data Analysis10 Findings & Conclusion11 Recommendations12 References/ Bibliography13 Annexure- to include questionnaire if anySummer Training Project Report ON NTPC LTD. 1
  2. 2. Title Of the ProjectSubmitted in Partial fulfillment of requirement of award of MBA degree of GGSIPU, New Delhi Submitted By Name Enrolment No Semester/Batch Northern India Engineering College (Affiliated to GGSIPU) FC-26, Shastri Park, Delhi-110053 NTPC LTD. 2
  3. 3. TABLE OF CONTENTS1.1 EXECUTIVE SUMMARY1.2 GENERAL INTRODUCTION1.3 INDUSTRY PROFILE1.4 GENESISCHAPTER 2:RESEARCH METHODOLOGY2.1 OBJECTIVES2.2 RESEARCH DESIGN2.3 SOURCES OF DATA COLLECTION2.4 PRIMARY & SECONDARY SOURCE2.5 LIMITATIONSCHAPTER 3: BUINESS PORTFOLIOCHAPTER 4:DATA ANALYSIS AND INTERPRETATIONCHAPTER 5: FINDINGS & RECOMMENDATIONS4.1MAJOR FINDINGS4.2RECOMMENDATIONS4.3CONCLUSIONBIBLIOGRAPHY NTPC LTD. 3
  4. 4. EXECUTIVE SUMMARY Power is a concurrent subject under the Constitution. Due to paucity of resources withthe Central/State PSUs and SEBs and in order to bridge the gap between demand andavailability of power, a policy to encourage private sector participation was initiated in1991. The study was to make for the trends in tariff structure in power sector and to havea detailed look on the reforms in and restructuring of the power sector in last decade. Aspecial focus has been given to the Availability Based Tariff regime and its impact onNTPC. A comparative analysis between the previous tariff structure and the existingtariff structure is attempted in this study. NTPC LTD. 4
  5. 5. INTRODUCTIONIn this chapter the purpose of the study has been elaborated in the background demandfactor of electricity with special focuses on recent power sector reforms. Need of Tariffpolicies initialed by the government and the impact on the development of power sectorhas been discussed.Overview of Indian Power SectorIn general, the history of development Indian power sector has been discussed. Thischapter has given focus on the structure, key players and growth of them in the vicinity ofdifferent policies adopted.Tariff Structure Policy And NormsDeals with the evolution of tariff policy and discusses the basic concepts of tariff. It alsoexplains the need for establishing a comprehensive tariff policy in power sector. Variousimportant provisions, which govern the tariff determination, are discussed under this part.Tariff structure is based on the cost plus method of pricing. The methodology of tariffstructure is explained in detail. At the end of the chapter the features of a good tariff areexplained.Trends In Tariff StructureRefers to the historical methods of tariff structure. This chapter explains that initiallytariffs were structured on single part, and then a committee was constituted to make thetariff in Two-parts, which consists of fixed charges And Variable charges. K. P. Raocommittee constituted the Two-part tariff. It was evolved to formulate principles forgeneration tariff. After going through the historical methods of tariff structure we discussthe current tariff structure.Availability Based Tariff StructureDeals with the current tariff structure, which is based on CERC notification. This is theelectricity tariff based on the plant availability and frequency. Therefore it is calledAvailability Based Tariff. The components of Availability Based Tariff are explained in NTPC LTD. 5
  6. 6. detail; it is three-part tariffs, which consists of capacity charges, energy charges andunscheduled interchange charges. After discussing the current tariff structure comparativeanalysis of different methods of tariff structure has been attempted in the next chapter.Than this report covers definition of tariff.Tariff is the price charged for the sale ofelectricity from the state electricity boards by Central public centre units engaged inpower generation.There are two types of tariffs cost plus and market determined. In IndiaElectricity sector is operating in Cost Plus Regulated Tariff regime.Than three kinds oftariff structure are covered which are- Single-part-tariff,Two-part-tariff and AvailabilityBased Tariff(ABT). ABT is currently used by NTPC for tariff Determination.In ABTsystem if the average availability actually achieved over the year is higher than thespecified norm for plant availability, the generating company gets a higher payment. Incase the average availability achieved is lower payment is also lower. Hence it is calledavailability-based tariff.Than its various components are discussed in detail.After that various reforms occurred in power sector are discussed and certainrecommendations for improvement of Tariff structure are suggested. NTPC LTD. 6
  7. 7. National Thermal Power Corporation COMPANY PROFILE Our Vision "A world class integrated power major, powering India’s growth, with increasing global presence Our Mission "Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco – friendly technologies and contribute to society" Our Core Values (BCOMIT) • Business Ethics • Customer Focus • Organizational & professional Pride • Mutual Respect and Trust • Innovation and Speed • Total Quality for ExcellenceOBJECTIVE NTPC LTD. 7
  8. 8. .To realise the vision and mission, eight key corporate objectives have been identified.These objectives would provide the link between the defined mission and the functionalstrategies. Business portfolio growth o To further consolidate NTPC’s position as the leading thermal power generation company in India and establish a presence in hydro power segment o To broad base the generation mix by evaluating conventional and non- conventional sources of energy to ensure long run competitiveness and mitigate fuel risks o To diversify across the power value chain in India by considering backward and forward integration into areas such as power trading, transmission, distribution, coal mining, coal beneficiation, etc o To develop a portfolio of generation assets in international markets o To establish a strong services brand in the domestic and international markets Customer Focus o To foster a collaborative style of working with customers, growing to be a preferred brand for supply of quality power o To expand the relationship with existing customers by offering a bouquet of services in addition to supply of power – e.g. trading, energy consulting, distribution consulting, management practices NTPC LTD. 8
  9. 9. o To expand the future customer portfolio through profitable diversification into downstream businesses, inter alia retail distribution and direct supply o To ensure rapid commercial decision making, using customer specific information, with adequate concern for the interests of the customer Agile corporation o To ensure effectiveness in business decisions and responsiveness to changes in the business environment by  Adopting a portfolio approach to new business development  Continuous and co-coordinated assessment of the business environment to identify and respond to opportunities and threats o To develop a learning organization having knowledge-based competitive edge in current and future businesses o To effectively leverage Information Technology to ensure speedy decision making across the organization Performance Leadership o To continuously improve on project execution time and cost in order to sustain long run competitiveness in generation o To operate & maintain NTPC stations at par with the best-run utilities in the world with respect to availability, reliability, efficiency, productivity and costs o To effectively leverage Information Technology to drive process efficiencies o To aim for performance excellence in the diversification businesses o To embed quality in all systems and processes. NTPC LTD. 9
  10. 10.  Human Resource Development o To enhance organizational performance by institutionalising an objective and open performance management system o To align individual and organizational needs and develop business leaders by implementing a career development system o To enhance commitment of employees by recognizing and rewarding high performance o To build and sustain a learning organization of competent world-class professionals o To institutionalize core values and create a culture of team-building, empowerment, equity, innovation and openness which would motivate employees and enable achievement of strategic objectives. Financial Soundness o To maintain and improve the financial soundness of NTPC by prudent management of the financial resources o To continuously strive to reduce the cost of capital through prudent management of deployed funds, leveraging opportunities in domestic and international financial markets o To develop appropriate commercial policies and processes which would ensure remunerative tariffs and minimize receivables o To continuously strive for reduction in cost of power generation by improving operating practices NTPC LTD. 10
  11. 11.  Sustainable Power Development o To contribute to sustainable power development by discharging corporate social responsibilities o To lead the sector in the areas of resettlement and rehabilitation and environment protection including effective ash-utilization, peripheral development and energy conservation practices o To lead developmental efforts in the Indian power sector through efforts at policy advocacy, assisting customers in reform, disseminating best practices in the operations and management of power plants etc Research and Development o To pioneer the adoption of reliable, efficient and cost-effective technologies by carrying out fundamental and applied research in alternate fuels and technologies o To carry out research and development of breakthrough techniques in power plant construction and operation that can lead to more efficient, reliable and environment friendly operation of power plants in the country NTPC LTD. 11
  12. 12. 1. GENESISTill early Seventies, the power generation capacity addition, in India, was mainlydone by State Electricity Boards. The gap between the demand and supply of powerhad been on increase and the same was affecting the economic growth of thecountry. With a view to supplement the efforts of SEBs in the matter of integrateddevelopment of power; it was decided to set-up generating companies in CentralSector also. To pursue this objective,After incorporation in November 1975, NTPC has grown to become not only the largestutility National Thermal Power Corporation Limited was formed in November 1975 as agenerating company in the Central Sector. National Thermal Power Corporation is thelargest power generation company in India. The Forbes Global 2000 ranking for 2005ranks it as the 5th leading company in India and the 486th leading company in the world. Itis a public listed (Bombay Stock Exchange) Indian public sector company, with majorityshares owned by the Government of India. At present, Government of India holds 89.5%of the total equity shares of the company and the balance 10.5% is held by FIIs, DomesticBanks, Public and others. NTPC ranks amongst the top five companies, in terms ofmarket capitalisation. NTPC’s core business is engineering, construction and operation of power generatingplants and also providing consultancy to power utilities in India and abroad. As on datethe installed capacity of NTPC is 26, 404 MW through its 14 coal based (21,395 MW), 7gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW). NTPC’s share on 31 Mar 2006 in the total installed capacity of the country was 19.51%and it contributed 27.68% of the total power generation of the country during 2005-06.Thus, every fourth home in India is enlightened by NTPC. A total of 170.88 Bus of NTPC LTD. 12
  13. 13. electricity was produced across all the stations of the company in the financial year2005-2006. The Net Profit after Tax on March 31, 2006 was INR 58, 202 million. NetProfit after Tax for the quarter ended June 30, 2006 was INR 2004-2005) where the profitwas INR 13087 million.Pursuant to special resolution passed by the Shareholders at the Company’s AnnualGeneral Meeting held on September 23, 2005 and the approval of the CentralGovernment under section 21 of the Companies Act, 1956, the name of the Company“National Thermal Power Corporation Limited” has been changed to “NTPC Limited”with effect from October 28, 2005. The company, which has completed its thirty years of existence on November 7, 2005, has made its foray into hydro-power and is planning to go into nuclear too).2. GROWTH of the country but also a leading power utility of international acclaim.The installed capacity of NTPC as on March 31, 2004 is 21749 MW through its 13 coalbased (17480 MW), 7 gas/liquid fuel based (3955 MW) and 3 Joint Venture (coal based)Projects (314 MW). NTPC has generated 151357 million units (MUs)of electricity in 2003-04 including 2187 million units generated by JV Companies. NTPC LTD. 13
  14. 14. From the above graph it’s been clear that NTPC is creating that leading benchmark in allover the country, like above graph is dictating that the intensive and remarkable growthcovered by NTPC was started in year 1986-87 from 3000MW with 20000BU and goes toinconsistent growth in year 2006-07 by 30000MW with 200000BU. This shows theeffective installed capacity is leading a terrific generation of power.NTPC’s core business is engineering, construction and operation of power generating plants. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad. As on date the installed capacity of NTPC is27,904 MW through its 15 coal based (22,895 MW), 7 gas based (3,955 MW) and 4 JointVenture Projects (1,054 MW). NTPC acquired 50% equity of the SAIL Power SupplyCorporation Ltd. (SPSCL). This JV company operates the captive power plants ofDurgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33%stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture companybetween NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co.Ltd. The present capacity of RGPPL is 740 MW.NTPC’s share on 31 Mar 2007 in the total installed capacity of the country was 20.18%and it contributed 28.50% of the total power generation of the country during 2006-07.NTPC has set new benchmarks for the power industry both in the area of power plantconstruction and operations. It is providing power at the cheapest average tariff in thecountry. With its experience and expertise in the power sector, NTPC is extendingconsultancy services to various organizations in the power business. NTPC LTD. 14
  15. 15. NTPC is committed to the environment, generating power at minimal environmental costand preserving the ecology in the vicinity of the plants. NTPC has undertaken massive aforestation in the vicinity of its plants. Plantations have increased forest area and reducedbarren land. The massive a forestation by NTPC in and around its Ramagundam Powerstation (2600 MW) have contributed reducing the temperature in the areas by about 3°c.NTPC has also taken proactive steps for ash utilizations. In 1991, it set up Ash UtilisationDivision to manage efficient use of the ash produced at its coal stations. This quality ofash produced is ideal for use in cement, concrete, cellular concrete, building material.A "Center for Power Efficiency and Environment Protection (CENPEEP)" has beenestablished in NTPC with the assistance of United States Agency for InternationalDevelopment. (USAID). Cenpeep is efficiency oriented, eco-friendly and eco-nurturinginitiative - a symbol of NTPCs concern towards environmental protection and continuedcommitment to sustainable power development in India.As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-economic status of the people affected by the projects. Through its Rehabilitation andResettlement programmes, the company endeavors to improve the overall socio-economic status of Project Affected Persons.NTPC was among the first Public Sector Enterprises to enter into a Memorandum ofUnderstanding (MOU) with the Government in 1987-88. NTPC has been Placed underthe Excellent category (the best category) every year since the MOU system becameoperative.Recognising its excellent performance and vast potential, Government of the India hasidentified NTPC as one of the jewels of Public Sector ‘Navratnas’- a potential globalgiant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realiseits vision of being “A world class integrated power major, powering India’s growth, withincreasing global presence”. NTPC LTD. 15
  16. 16. SPREAD ACROSS THE COUNTRY NTPC projects/power stations are spread all over the country. The location map ofNTPC approved projects as shown below exhibits the wide presence of NTPC throughoutthe length and breadth of the country.The map below shows the locations of our existing power stations, as well as thosecurrently under construction, together with their respective capacities. KOLDAM (800 MW) LOHARINAG-PALA TAPOVAN VISHNUGADH (520 MW) (600 MW) DADRI (817 MW) LATA-TAPOVAN (108 MW) NCPP (840 MW) TANDA (440 MW) BADARPUR (705 FARIDABAD MW) (705 MW) ** (430 MW) UNCHAHAR AURAIYA (840 MW + 210 MW) (652 MW) KAHALGAON ANTA (840 MW+ 1500 MW)) FARAKKA (1600 MW) (413 MW) VINDHYACHAL (2260 MW + 1000 MW) RIHAND KAWAS (1000 MW + 1000 MW) (645 MW) SIPAT (2980 MW) KORBA TALCHER TPS SINGRAULI (2100 MW) (460 MW)) (2000 MW) JHANOR-GANDHAR (648 MW) TALCHER (2500 MW + 500MW) RAMAGUNDAM SIMHADRI (2100 MW + 500 (1000 MW) MW) COAL POWER STATION GAS POWER STATIONS HYDRO PROJECT (in italics) : Projects in progress KAYAMKULAM ** : Plants managed and operated by NTPC (350 MW) NTPC LTD. 16
  17. 17. NTPC has mostly built Regional power stations supplying power to the variousstates in the Region as per power allocation formula approved by Govt. of India.The list of completed projects, projects under construction and projects managed byNTPC is given below: COMPLETED PROJECTS S.No Name of the Project Capacity Location Primary Cost (MW) (State) Fuel (Rs. Million) 1. Korba 2100 Chhattisgarh Coal 16252.50 2. Ramagundam 2100 Andhra Coal 20592.20 Pradesh 3. Singrauli 2000 Uttar Pradesh Coal 11906.90 4. Farakka 1600 West Bengal Coal 31842.20 5. Vindhyachal 1260 M.P Coal 14603.70 6. Rihand 1000 Uttar Pradesh Coal 23874.00 7. Talcher -I 1000 Orissa Coal 25921.80 8. Kahalgaon 840 Bihar Coal 17158.90 9. NCTPP, Dadri 840 Uttar Pradesh Coal 16692.10 10. Talcher (taken Over) 460 Orissa Coal 3560.00 11. Unchahar–I (Taken Over 420 Uttar Pradesh Coal 9250.00 12. Dadri Gas 817 Uttar Pradesh Gas 9603.50 13. Auraiya 652 Uttar Pradesh Gas 6787.70 14. Jhanor-Gandhar 648 Gujarat Gas 25000.00 15. Kawas 645 Gujarat Gas 15995.70 16. Anta 413 Rajasthan Gas 4189.70 17. Kayamkulam 350 Kerala Naphth 13105.80 a 18. Tanda (taken over) 440 Uttar Pradesh Coal 10000.00 19. Vindhyachal- II 1000 Madhya Pradesh Coal 27533.80 20. Unchahar – II 420 Uttar Pradesh Coal 14120.90 21. Faridabad 430 Haryana Gas 11636.00 TOTAL 19435 329627.40 APPROVED / ON-GOING PROJECTS S. Capacity Location Primary Estimated Cost Completion No. Project (MW) (State) Fuel (Rs. Million) Schedule 22. Simhadri 1000 A.P. Coal 38834.50 Dec 2002 23. Talcher –II 2000 Orissa Coal 66488.30 Feb.2006 24. Rihand-II 1000 U.P. Coal 42162.40 May 2006 25. Ramagundam-III 500 A.P. Coal 22130.30 Aug.2005 TOTAL 4500 169615.50 NTPC LTD. 17
  18. 18. 4 NTPC’S SHARE IN INDIAN POWER SECTOR As at the end of March 2006 NTPC’s installed capacity is about 19.1% of the total installed capacity of the country and it has contributed about 26.7% of the total power generation of the country during 2003-07 NTPC IN INDIAN POWER SECTOR AS ON 31-03-2011 ALL INDIA: 112058 MW ALL INDIA: 558 BUsNTPC 21438 MW 19.1% NTPC 149.2 BUs 26.7% 5.FUNDING PATTERN OF NTPC:- NTPC is a Government of India Company. 89.50% of its equity is held by the Government of India and the balance 10.5% is held by FIIs, Domestic Banks, Public and others. The company was formed with an authorized capital of Rs. 1250 million which as on 31st March, 2005 stands at Rs. 100000 million. The paid equity capital as on 31.03.2005 was Rs 82455 million which includes 73796.3 million contributed by Government of India and Rs 8658.4 million held by public, employees and Qualified Institutional Buyers (QIB). The growth of share capital, reserve and surplus is given below: NTPC LTD. 18
  19. 19. “India’s growth, with increasing global presence”.6.FINANCIALS:-TURNOVER AND PROFITNTPC recorded a turnover of Rs.255,460.00 million during 2004-05 as against Rs.259,642.00 million during 2003-04. Net profit after tax is Rs.58,070.00 million ascompared to Rs. 52,608.00 million during the previous year.CAPITAL STRUCTUREAs on 31st March, 05 the authorized share capital of NTPC is Rs.100,000 million and thepaid up share capital Rs. 82,455 million.SELECTED FINANCIAL INFORMATION(Rs. in Million) NTPC LTD. 19
  20. 20. 2005-06 2004-05 2003-04 2002-03 2001-02A) Operating IncomeEarned fromSale of Energy 260701 225069 188178 190019 177697Consultancy & Other Income 26806 24110 61816 4492 7076Total 287507 249179 249994 194511 184773Paid & Provided forFuel 163947 137235 122150 110312 103991Employees Remuneration & Benefits 9684 8823 8835 8268 8036Generation, Administration & other expenses 12721 12062 9813 10814 11531Provision (Net) 334 (6160) (3813) 1567 1730Prior Period/Extra Ordinary Items 2488 (102) 183 803 (500)Profit before depreciation, Interest &Finance Charges and Tax 98333 97321 112826 62747 59985Depreciation 20477 19584 20232 15291 13784Profit before Interest & Finance Charges and Tax 77856 77737 92594 47456 46201Interest & Finance Co 17632 16955 33697 9916 8680Profit before tax 60224 60782 58897 37540 37521Tax (Net) 2022 2712 6289 1465 2125Profit after tax 58202 58070 52608 36075 35396Dividend 23087 19790 10823 7080 7079Dividend tax 3238 2680 1387 395 -Retained Profit 31877 35600 40398 28600 28317B) What is OwnedGross Fixed Assets 460396 431062 400281 366106 328912Less : Depreciation 229501 207914 187736 167456 152131Net block 230895 223148 212545 198650 176781Capital Work-in-progress,Construction Stores& Advances 136340 99285 74953 63863 65550Investments 192891 207977 173380 36674 40281Current Assets, Loans & Advances 157245 129073 135468 194132 167799Total Net Assets 717371 659483 596346 493319 450411C) What is OwedLong Term Loans 201195 166719 149415 127090 113161Working Capital Loans 778 4159 5113 5067 2651Current Liabilities & Provisions 61402 67467 80941 45850 48146Total Liabilities 263375 238345 235469 178007 163958D) OthersDeferred Revenue- Advance against deprectiaion 4408 3374 1591 271 -Development surcharge fund - - 3784 - -Total 4408 3374 5375 271 -E) Net WorthShare Capital 82455 82455 78125 78125 78125Reserves & Surplus 367132 335308 277376 237002 208400Miscellaneous Expenditure(To the extent not written off or adjusd) - - - (87) (72)Net Worth 449587 417763 355501 315040 286453F) Capital Employed 523572 500540 458267 386343 356526 NTPC LTD. 20
  21. 21. G) Value Added 97482 88415 66749 88084 80889H) No. of Shares 8245464400 8245464400 7812549400 7812549400 78125494I) No. of Employees* 21870 21420 20971 21408 21383J) RatiosReturn on Capital Employed (%) 12.46 12.77 12.93 10.88 11.93Return on Net Worth (%) 14.16 14.33 14.94 12.13 12.98Book Value per Share (Rs.) 54.53 50.67 45.50 40.32 3666.58Current Ratio 2.56 1.91 1.67 4.23 3.49Debt to Equity 0.45 0.41 0.43 0.42 0.40Value Added/Employee (Rs. Million) 4.46 4.13 3.18 4.11 3.78* Excluding JVs, Subsidiaries, BTPS (owned by NTPC w.e.f. 1st June, 2006) & BALCOSTATION-WISE GENERATION 2005-06 STATIONS Capacity(MW) Gen. (MU)Gross Northern Region 5280 36465 Singrauli 2000 15503 Rihand 2000 10591 Unchahar 840 7041 Tanda 440 3330 National Capital Region 3152 22206 Dadri ( Coal ) 840 6768 Anta ( Gas ) 413 2809 Auraiya ( Gas ) 652 4282 Dadri ( Gas ) 817 5394 Faridabad ( Gas ) 430 2953 Western Region 5653 41668 Korba 2100 16001 Vindhyachal 2260 18305 Kawas ( Gas ) 645 2884 Jhanor Gandhar ( Gas ) 648 4478 Eastern Region 5900 42751 Farakka 1600 11464 Kahalgaon 840 6572 Talcher - Kaniha 3000 21185 Talcher -Thermal 460 3530 Southern Region 3950 27791 NTPC LTD. 21
  22. 22. Ramagundam 2600 19691 Simhadri 1000 7742 Rajiv Gandhi CCP ( Liquid Fuel ) 350 358 Total 23935 170880 Badarpur (Owned by NTPC w.e.f. 1st June, 2006) 705 5380Performance highlights 2006 2005 Commercial Generation Million Units 169789 158271 Sale of Energy Rs Million 260701 225069 Profit before tax “ 60224 60782 Profit after tax “ 58202 58070 Dividend “ 23087* 19790 Dividend tax “ 3238 2680 Retained Earnings “ 31877 35600 Net Fixed Assets “ 230895 223148 Net Worth “ 449587 417763 Loan Funds “ 201973 170878 Capital Employed “ 523572 500540 Net Cash From Operations “ 62064 50998 Value Added “ 97482 88415 No. of Employees # “ 21870 21420 Value added per employee Rs Million 4.46 4.13 Debt to Equity Ratio 0.45 0.41 Return on Capital Employed % 12.46 12.77 Face Value per share Rs. 10.00 10.00 Dividend Per share “ 2.80* 2.40 Book Value per Share “ 54.53 50.67# excluding JVs, Subsidiaries and BTPS (owned by NTPC w.e.f. 1st June, 2006)* including final dividend recommended by the Board NTPC LTD. 22
  23. 23. 7. TURNAROUND CAPABILITYNTPC has also demonstrated its ability in turning around sub-optimally performingstations. The phenomenal improvement in the performance of Badarpur, Unchahar andTalcher by NTPC stand testimony to this.Badarpur (705 MW)The expertise in R&M and performanceturnaround was developed and built up byNTPC with the operational turnaround ofBadarpur TPS through scientificallyengineered R&M initiatives. .Unchahar (420 MW)The Feroze Gandhi Unchahar Power Stationwas taken over by NTPC as part of a win-windeal with the Uttar Pradesh Governmentwhereby the dues of UPSEB were adjustedwas used to and the expertise of NTPCturnaround the languishing station.The remarkable speed and the extent of theturnaround achieved can be seen in the Table. NTPC LTD. 23
  24. 24. Talcher (460 MW)An even more challenging turnaround storywas being scripted at the OSEBs old powerplant at Talcher, taken over in June 1995. Thetable indicates the dramatic gains in theperformance of the power plant after takeover.While NTPC bettered the PPA commitments,from the viewpoint of capital requirements, turning around such old units is a low cost,high and quick return option. These successes helped NTPC, the concerned SEBs and theentire nation in terms of economy and power availability.TandaTanda Thermal Power station was taken over byNTPC on the 15 Jan 2000.The PLF of the powerstation improved from 14.9% at the time of thetakeover to 91.14% for the year 2006-078. OPERATIONAL PERFORMANCE Since its inception NTPC has a record ofsustained high level of performance of all itsplants, which have facilitated All India PLF (Thermal) to rise from 55.3% in 1991-92 to84.4% in 2003-04. NTPC plants achieved a PLF of 70.59% in 1991-92, which hasincreased to 84.4% in 2003-04. NTPC LTD. 24
  25. 25. The following table presents the average PLF of our coal-fired plants compared to theaverage PLF for all coal-fired plants in India (including our plants) for the periodsindicated: NTPC LTD. 25
  26. 26. The operating performance of NTPC has beenconsiderably above the national average. Theavailability factor for coal stations has increasedfrom 85.03 % in 1997-98 to 90.09 % in 2006-07,which compares favourably with internationalstandards. The PLF has increased from 75.2% in1997-98 to 89.4% during the year 2006-07 which isthe highest since the inception of NTPC.It may be seen from the table below that while the installed capacity has increased by 56.40% inthe last nine years, the employee strength went up by only 3.34% NTPC LTD. 26
  27. 27. Regulatory and Policy EnvironmentOne key element of the regulatory reforms in the power sector is the establishment of atransparent and fair pricing mechanism for power with a thrust on efficiency inoperations. A central regulator has been constituted that governs the pricing of bulkpower sold by central generators to state utilities. In addition, state regulatory agencieshave also been formed/notified that are responsible for regulating operations of stateutilities including rationalization in tariffs for different categories of consumers. Centralpower utilities need to adapt to the twin challenge of working with multiple regulatoryagencies and a tariff regime with downward pressure on bulk supply tariffs.Further, regulatory reforms might pave the way for significant changes in the IndianPower sector, including trading of electricity, direct supply to HT customers, creation ofpower exchanges and “open access” to transmission infrastructure. As a leading player inthe power sector, NTPC would need to track these changes and also proactively assist theregulators in framing policies that enable development of the sectorBUSINESS PORTFOLIO NTPC LTD. 27
  28. 28. IntroductionOver the last two decades, NTPC has spearheaded the development of thermal generationcapacity in the Indian power sector. In this process, it has built a strong portfolio of coaland gas/liquid fuel based generation capacities. Recently, the company has also madeinitial forays in the area of hydropower. NTPC is also offering technical services throughits Consultancy Wing and has entered into joint ventures for offering some of theservices. However, till date thermal generation has been the single largest revenuegenerator for NTPC.The Indian power sector has witnessed and can anticipate several changes in the businessand regulatory environment as outlined in the previous chapter of this plan. Players suchas NTPC face significant uncertainties in the availability and economic viability ofthermal fuels. The challenged health of state utilities presents a threat to the cash flow ofgenerators. However, ongoing changes in the customer environment also provideopportunities for improving the customer mix. The policy framework has changedsubstantially with the recent clearance of the Electricity Bill by both houses ofparliament. The Indian power sector is on the road to becoming a viable investmentdestination with the recent thrust of the participants on speedy reform. This has alsoincreased the threat of competition. Thus the power sector offers a mixed bag ofopportunities and threats to players and NTPC needs to review its business strategy andportfolio in light of these changes.NTPC with its history of excellence in all aspects of its business is uniquely positionedfor growth. Continued growth in generation is relatively easy on account of NTPC’ssignificant learning curve benefits. However to capitalise on the changing face of thepower sector NTPC needs to consider a bolder target of becoming India’s leadingintegrated power utility. In addition, NTPC needs to target being the brand ambassadorfor the Indian power sector in overseas markets. This would call for controlled, urgentand successful entry into other businesses in the power value chain and targeting marketsoutside India. Therefore, NTPC’s business portfolio strategy would target three keydimensions: NTPC LTD. 28
  29. 29. o Capacity addition program (including changes in fuel mix, technology, etc)o Diversification along the power value chaino Dominance in the services business in the domestic and international marketsGrowth of the Generation BusinessDeveloping and operating world-class power stations is NTPC’s distinctive competence.Its scale, financial strength and significant learning curve benefits would also serve toprovide an advantage over competitors. Hence sustaining leadership in generation iscritical to the target of being the largest integrated power utility. Thus NTPC wouldcontinue to focus on making available reliable and quality power at competitive prices.To meet this objective, NTPC would continue to speedily implement projects andintroduce state-of-art technologies.Projected portfolio in 2017Total capacity portfolioIndia’s generation capacity can be expected to grow from the current levels of about 104GW to about 225-250 GW by 2017. NTPC currently accounts for about 19% of thecurrent installed capacity. Going forward, in its target to remain the largest generatingutility of India, NTPC would endeavour to maintain or improve its share of India’sgenerating capacity. Towards this end, NTPC would target to build an overall capacityportfolio of over 56,000 MW by the end of the 12th plan period. Of this, NTPC wouldtarget commissioning 9,370 MW in the 10th plan, 11,210 MW in the 11th plan period and15,540 MW in the 12th plan period. While NTPC is fully equipped to provide therequisite managerial resources such as engineering capability, ability to manage multipleprojects, etc the ability to arrange sufficient and timely funds would govern success inachieving the targets. NTPC LTD. 29
  30. 30. Energy mix for capacity additionCurrently, coal has a dominant share in the generation capacities in India and this is alsoreflected in the high share of coal-based capacities in NTPC’s current portfolio. However,going forward, NTPC would have to review the share of coal-based projects on accountof potential demand supply gap for domestic coal and the likely availability andcompetitiveness of alternate fuels such as gas. Efforts to reduce the variable cost ofpower would be critical to ensure dispatch of power plants under a merit order system.NTPC can also avail of opportunities to add hydropower to its portfolio subject tocompetitive tariffs and minimal R&R issues. A first step in this direction has alreadybeen taken with the investment in Koldam. As a leader in power generation, NTPC couldalso consider other energy sources such as biomass, cogeneration, nuclear power, fuelcells, etc for future development thereby reducing the dependence on thermal fuels.While a decision on the fuel/energy mix for NTPC in the future would be largelygoverned by their relative tariff-competitiveness, by 2017 the mix would be significantlydifferent from the existing portfolio.Thermal PowerTo revise NTPC’s thermal fuel strategy a study of the expected trends in availability andprices of domestic coal, imported coal and natural gas was carried out. The study alsocompared the long run competitiveness of landed power using these alternatives in eachof the three plan periods. This has helped in developing the long-term strategy forthermal fuels as detailed in this section.Goal• To own/manage/control a portfolio of about 42,000 MW of thermal power by 2017, retaining its position as India’s largest thermal power utility• To minimise the landed cost of power from new plants by selecting appropriate fuels to retain its long-run competitiveness in power generation, while keeping in mind NTPC LTD. 30
  31. 31. technical constraints such as evacuation of power, load balancing and other system constraintsStrategiesDomestic coal based projects: NTPC would continue its strategy of major portion ofcapacity addition through pithead based coal plants during the 10th and 11th plan periods.However, going forward, NTPC would consider alternate fuel options to domestic coal(including regassified LNG and imported coal) with a view to broadbase its fuel portfolioand minimise its cost of power generation.Gas based projects: NTPC would seek to develop gas-based combined cycle powerprojects subject to the assured availability of gas at a competitive price. Analysisindicates that gas could potentially be competitive to domestic coal in some parts of thecountry especially in states near to the coast. NTPC is already exploring various sourcesincluding regassified liquefied natural gas and is evaluating their competitiveness prior tomaking a decision in this regard.Imported coal based projects: During the 10th plan period, most of NTPC’sproposed plants are expected to be more competitive than projects based on importedcoal. However, going forward, imported coal based projects might be a more competitiveoption to domestic coal based projects at some coastal locations. In view of this, NTPCwould evaluate imported coal based projects (at the port) in the Southern/Western Regionfor the 11th and 12th plan periods.Other fuel options: The option of developing lignite-based capacities was alsoevaluated and compared with domestic coal based plants. The analysis revealed that inthe present scenario, domestic coal based capacities are more suitable for NTPC. Goingforward, NTPC would continue to evaluate lignite as a fuel and would consider setting uplignite based capacities, if found competitive. In addition, NTPC would trackdevelopments in alternate fuel options such as Orimulsion, Di-Methyl Ether (DME), Coal NTPC LTD. 31
  32. 32. Bed Methane (CBM) and heavy refinery residues. Capacities based on these fuels wouldbe developed in the event they are competitive with other fuel options. In addition,considering the potential for development of cogeneration plants in India, NTPC wouldexplore opportunities for the same.Maintaining a comprehensive database for review of mix: The thermal fueloptions detailed above would need to be constantly evaluated and further fine-tuned inline with the emergent fuel prices and availabilities and other system constraints. Inaddition, decisions on plant and fuel selection would need to be considered on a case-to-case basis. To facilitate this, a comprehensive database of fuels, their availabilities,pricing trends and impacting forces would need to be maintained. The responsibility fordesigning and maintaining the database and deriving implications for NTPC, wouldreside with the Fuel Management Group.Co-ordination with NTPC’s overall business plan: The information from thedatabase on fuel availability and price forecasts would also be a critical input indeveloping the overall business plans for NTPC. To facilitate review and fine-tuning ofthe capacity addition program based on fuel scenarios, the Fuel Management Groupwould work closely with the Corporate Planning group in the business plan revisionexercise.MULTI-PRONGED GROWTH APPROACH: Over the last three decades, NTPC has spearheaded development of thermal power generation in the Indian power sector. In this process, it has built a strong portfolio of coal and gas/liquid fuel based generation capacities. The company has made initial forays in the area of hydropowerdevelopment and plans to have a significant share of hydropower in its future generationportfolio. Although NTPC is also offering technical services, both in domestic and NTPC LTD. 32
  33. 33. international markets, through its Consultancy Wing, the generation business wouldcontinue to be the single largest revenue generator for NTPC.The Indian power sector is witnessing several changes in the business and regulatoryenvironment. The legal and policy framework has changed substantially with theenactment of the Electricity Act 2003. In the foreseeable future, India faces formidablechallenges in meeting its energy needs. Recently, a draft integrated energy policy hasbeen issued, which addresses all aspects including energy security, access, availability,affordability, pricing, efficiency and environment. To meet the twin objectives ofensuring availability of electricity to consumers at competitive rates, as well as attractlarge private investments in the sector, a new Tariff policy has also been issued. Thepower sector thus offers a mixed bag of challenges and opportunities to players andNTPC would continue to review its business strategy and portfolio in light of thesechanges.NTPC is adopting a Multi-pronged growth strategy for capacity addition throughGreenfield Projects, Expansion of existing stations, Acquisitio ns and takeovers and jointventures / subsidiaries, to accomplish its growth plans. NTPC LTD. 33
  34. 34. JOINT VENTURE PARTNERSThe following joint venture companies have been formed so far:NTPC -ALSTOM POWER SERVICES PVT. LTD. (NASL)(Incorporated in 1999 and formerly known as NTPC-ABB ALSTOM POWERSERVICES PVT. LTD)OBJECTIVE: Undrtake Renovation & Modernisation of power stations in India and other SAARC countriesPROMOTERS NTPC: 50%EQUITY: ALSTOM Power Generation AG : 50%UTILITY POWER TECH LTD(Incorporated in 1996)This JV has been promoted with Reliance Energy Limited (formerly BSES Limited)a private sector Indian power company.OBJECTIVE: To undertake project construction, erection and supervision in NTPC LTD. 34
  35. 35. power sector and other sectors in India and abroadPROMOTERS NTPC: 50%EQUITY: REL: 50%PTC(India) Ltd(Incorporated in 1998)This JV has been promoted with Power Grid Corporation of India Ltd (PGCIL), aGovernment owned transmission major in India. Power Finance Corporation (PFC),a power sector finance company owned by the Government of India and NationalHydro Electric Power Corporation Ltd. (NHPC), a Government owned hydro powerutility.OBJECTIVE: To trade, import, export and purchase power from identified power projects and sell it to identified SEBs/othersPROMOTERS NTPC: 8% Tata Power: 10%EQUITY: PGCIL: 8% DV: 10% PFC: 8% FII: 18.5% NHPC: 8%NTPC-SAIL POWER COMPANY (PVT) LTD (NSPCL)NSPCL, the Joint Venture Company of NTPC and SAILwith 50:50 equityparticipation,stood merged with BESCL(Bhilai Electric Supply Co. Pvt Ltd, anotherJV Co. of NTPC and SAIL with 50:50 equity participation.) w.e.f 2nd August2006,as per the scheme of Amalgamation approved by High Court of Delhi. As aresult of aforesaid merger of BESCL in NSPCL, all properties, licenses, permissions,debt, liabilities etc. with respect to BESCL now stand vested in NSPCL.OBJECTIVE: To supply power to the Bhilai, Durgapur and Rourkela Steel Plant of Steel Authority of India Limited (SAIL) from its Coal based power stations at Bhilai (Chhattisgarh), 2x30MW+1X14MW, Durgapur (West Bengal) 2x60MW and Rourkela (Orissa) 2x60 MW. For the purpose of its business development, NSPCL is carrying out the expansion of its installed capacity at Bhilai, by implementation of 500MW (2x250MW) power plant.PROMOTERS NTPC: 50%EQUITY: SAIL : 50%NTPC TAMIL NADU ENERGY COMPANY LIMITEDThis JV was incorporated on 23rd May, 2003 with Tamil Nadu Electricity Board, aState run Electricity Board in the State of Tamil Nadu engaged in generation, NTPC LTD. 35
  36. 36. transmission and distribution of electricity.OBJECTIVE: To set up a 1000 MW coal based power station at Ennore in Tamil Nadu utilising the existing infrastructure facility at Ennore and supply power mainly to Tamil Nadu and the states of Kerala, Karnataka and Pondicherry.PROMOTERS NTPC: 50%EQUITY: TNEB : 50%Vaishali Power Generating Company LimitedThis JV was incorporated on with Bihar State Electricity Board, a State runElectricity Board in the State of Bihar, engaged in generation, transmission anddistribution of electricity.OBJECTIVE: To take over Muzaffarpur Thermal Power Station (2x110MW), a coal based power station at Kanti, for carrying out restoration, R&M and supplying power mainly to the state of Bihar.PROMOTERS NTPC: 51-74%EQUITY: BSEB : 26-49%ARAVALI POWER COMPANY PRIVATE LTD(Joint Venture Agreement was signed on 14.12.2006 among NTPC Ltd,IndrapasthaPower Generatuion Company Ltd.(IPGCL) and Haryana Power GenerationCompany Ltd.(HPGCL).The Company was Incorporated on 21.12.2006.OBJECTIVE: To set up a coal-based power station of 1500MW capacity in Distt. Jhajjar, Haryana, in joint venture with IPGCL and HPGCL.PROMOTERS NTPC-50%, IPGCL-25%, HPGCL-25%EQUITY:PROPOSED JOINT VENTURES1.0 INDIAN RAILWAYSMOU signed on 18th February 2002. Indian Railways are the largest rail network inAsia and the worlds second largest under one management.OBJECTIVE: To set up power stations to meet traction and non-traction power requirement of Indian Railways.LIKELY EQUITY Yet to be finalisedCONTRIBUTIONFROM PROMOTERS NTPC LTD. 36
  37. 37. 2.0 SINGARENI COLLIERIES COMPANY LTD(SCCL)MOU was signed between NTPC and SCCL on 23.08.2006OBJECTIVE: To promote one or more Joint Venture Companies for undertaking acquisition of coal/lignite mine blocks including exploration, development, mining, beneficiation, processing, operation & maintenance, development, operation & maintenance and selling electricity generation thereof, besides providing consultancy services.LIKELY EQUITY 50% by each Company in the individual Joint VentureCONTRIBUTION CompanyFROM PROMOTERS RESEARCH METHODOLOGYRESEARCH OBJECTIVETo study the reforms that are brought in by CERC with special reference to thecomparison of traditional and modern tariff policies..RESEACH DESIGN NTPC LTD. 37
  38. 38. The study undertaken is exploratory, descriptive and analytical. The report also includesnumerical, statiscal data and it is qualitative and quantitative in nature.RESEARCH METHODOLOGYTo meet the above-mentioned objective, personal interviews were held with the SeniorExecutives & an extensive research study was carried out in NCR (HQ), Noida.Information has been collected from various sources that have been detailed in thebibliography.DATA COLLECTION TECHNIQUESInformation for the study has been collected from different Primary & Secondarysources.PRIMARY DATAPrimary Data is collected from the survey & for this survey Direct Personal Interviewswere organized with the Senior Executives of NTPC. While interacting the followingquestions were posed to the interviewees either implicitly or explicitely. • What is the significance of Power sector in any Economy? • How is the Power Sector been evolving for the last few years? • What has been the role of NTPC in Power Sector? • What have been the most important changes in the Power Sector in recent years? • What are the features of new Tariff Structure & how are these different from the existing Tariff Structure? What are its advantages • What are the most significant impacts of the power sector reforms on the industry as a whole • Are reforms giving the right impact as they are indented to give? • Which level of the power industry do you think needs more reform initiative? • How the New Tariff Structure would affect the Power Sector of your company? NTPC LTD. 38
  39. 39. • Have any action plans been made to recover the old dues from SEBs? • Any comments & suggestions?SECONDARY DATA Secondary Data has been collected from the following sources: -CERC NotificationsExpert’s ReportsReport of M.S.Ahluwalia CommitteeAnnual AccountsNTPC magazines like Damini & HorizonsMisc. Journals, newspaper, leaflets Sources of data are given in the bibliography and the end of the project reportLIMITATIONSNo study is free from limitations, which are caused by constraints of time, money,knowledge base and similar factors. An attempt was made to broad base the study as faras possible, however it is but naturals that this study also suffers from some limitationswhich are broadly mentioned below:  The regions are far away, thus the study has been confined to National Capital Region. Due to cost constraint visiting other regions, projects, SEBs etc. was not possible as it would involve huge expenditure. NTPC LTD. 39
  40. 40.  It was practically impossible to cover all the regions, projects, SEBs in a short span of two months. Hence time constraint was one of the limitations. Knowledge gained pertains to NTPC. Non availability of knowledge of working of SEBs, other regions also acted as a constraint. The availability of data was limited to National Capital Region. Moreover we had no access to confidential files etc. The conservative attitude of some of the employees was a limiting factor in gaining information. NTPC LTD. 40
  41. 41. BUSINESS PORTFOLIOIntroductionOver the last two decades, NTPC has spearheaded the development of thermal generationcapacity in the Indian power sector. In this process, it has built a strong portfolio of coaland gas/liquid fuel based generation capacities. Recently, the company has also madeinitial forays in the area of hydropower. NTPC is also offering technical services throughits Consultancy Wing and has entered into joint ventures for offering some of theservices. However, till date thermal generation has been thesingle largest revenuegenerator for NTPC.The Indian power sector has witnessed and can anticipate several changes in the businessand regulatory environment as outlined in the previous chapter of this plan. Players suchas NTPC face significant uncertainties in the availability and economic viability ofthermal fuels. The challenged health of state utilities presents a threat to the cash flow ofgenerators. However, ongoing changes in the customer environment also provideopportunities for improving the customer mix. The policy framework has changedsubstantially with the recent clearance of the Electricity Bill by both houses ofparliament. The Indian power sector is on the road to becoming a viable investmentdestination with the recent thrust of the participants on speedy reform. This has alsoincreased the threat of competition. Thus the power sector offers a mixed bag ofopportunities and threats to players and NTPC needs to review its business strategy andportfolio in light of these changes.NTPC with its history of excellence in all aspects of its business is uniquely positionedfor growth. Continued growth in generation is relatively easy on account of NTPC’ssignificant learning curve benefits. However to capitalise on the changing face of thepower sector NTPC needs to consider a bolder target of becoming India’s leadingintegrated power utility. In addition, NTPC needs to target being the brand ambassadorfor the Indian power sector in overseas markets. This would call for controlled, urgentand successful entry into other businesses in the power value chain and targeting markets NTPC LTD. 41
  42. 42. outside India. Therefore, NTPC’s business portfolio strategy would target three keydimensions:o Capacity addition program (including changes in fuel mix, technology, etc)o Diversification along the power value chaino Dominance in the services business in the domestic and international marketsGrowth of the Generation BusinessDeveloping and operating world-class power stations is NTPC’s distinctive competence.Its scale, financial strength and significant learning curve benefits would also serve toprovide an advantage over competitors. Hence sustaining leadership in generation iscritical to the target of being the largest integrated power utility. Thus NTPC wouldcontinue to focus on making available reliable and quality power at competitive prices.To meet this objective, NTPC would continue to speedily implement projects andintroduce state-of-art technologies.Projected portfolio in 2017Total capacity portfolioIndia’s generation capacity can be expected to grow from the current levels of about 104GW to about 225-250 GW by 2017. NTPC currently accounts for about 19% of thecurrent installed capacity. Going forward, in its target to remain the largest generatingutility of India, NTPC would endeavour to maintain or improve its share of India’sgenerating capacity. Towards this end, NTPC would target to build an overall capacityportfolio of over 56,000 MW by the end of the 12th plan period. Of this, NTPC wouldtarget commissioning 9,370 MW in the 10th plan, 11,210 MW in the 11th plan period and15,540 MW in the 12th plan period. While NTPC is fully equipped to provide therequisite managerial resources such as engineering capability, ability to manage multipleprojects, etc the ability to arrange sufficient and timely funds would govern success inachieving the targets. NTPC LTD. 42
  43. 43. Energy mix for capacity additionCurrently, coal has a dominant share in the generation capacities in India and this is alsoreflected in the high share of coal-based capacities in NTPC’s current portfolio. However,going forward, NTPC would have to review the share of coal-based projects on accountof potential demand supply gap for domestic coal and the likely availability andcompetitiveness of alternate fuels such as gas. Efforts to reduce the variable cost ofpower would be critical to ensure dispatch of power plants under a merit order system.NTPC can also avail of opportunities to add hydropower to its portfolio subject tocompetitive tariffs and minimal R&R issues. A first step in this direction has alreadybeen taken with the investment in Koldam. As a leader in power generation, NTPC couldalso consider other energy sources such as biomass, cogeneration, nuclear power, fuelcells, etc for future development thereby reducing the dependence on thermal fuels.While a decision on the fuel/energy mix for NTPC in the future would be largelygoverned by their relative tariff-competitiveness, by 2017 the mix would be significantlydifferent from the existing portfolio.Thermal PowerTo revise NTPC’s thermal fuel strategy a study of the expected trends in availability andprices of domestic coal, imported coal and natural gas was carried out. The study alsocompared the long run competitiveness of landed power using these alternatives in eachof the three plan periods. This has helped in developing the long-term strategy forthermal fuels as detailed in this section.Goal • To own/manage/control a portfolio of about 42,000 MW of thermal power by 2017, retaining its position as India’s largest thermal power utility• To minimise the landed cost of power from new plants by selecting appropriate fuels to retain its long-run competitiveness in power generation, while keeping in mind technical constraints such as evacuation of power, load balancing and other system constraints NTPC LTD. 43
  44. 44. StrategiesDomestic coal based projects: NTPC would continue its strategy of major portion ofcapacity addition through pithead based coal plants during the 10th and 11th plan periods.However, going forward, NTPC would consider alternate fuel options to domestic coal(including regassified LNG and imported coal) with a view to broadbase its fuel portfolioand minimise its cost of power generation.Gas based projects: NTPC would seek to develop gas-based combined cycle powerprojects subject to the assured availability of gas at a competitive price. Analysisindicates that gas could potentially be competitive to domestic coal in some parts of thecountry especially in states near to the coast. NTPC is already exploring various sourcesincluding regassified liquefied natural gas and is evaluating their competitiveness prior tomaking a decision in this regard.Imported coal based projects: During the 10th plan period, most of NTPC’sproposed plants are expected to be more competitive than projects based on importedcoal. However, going forward, imported coal based projects might be a more competitiveoption to domestic coal based projects at some coastal locations. In view of this, NTPCwould evaluate imported coal based projects (at the port) in the Southern/Western Regionfor the 11th and 12th plan periods.Other fuel options: The option of developing lignite-based capacities was alsoevaluated and compared with domestic coal based plants. The analysis revealed that inthe present scenario, domestic coal based capacities are more suitable for NTPC. Goingforward, NTPC would continue to evaluate lignite as a fuel and would consider setting uplignite based capacities, if found competitive. In addition, NTPC would trackdevelopments in alternate fuel options such as Orimulsion, Di-Methyl Ether (DME), CoalBed Methane (CBM) and heavy refinery residues. Capacities based on these fuels wouldbe developed in the event they are competitive with other fuel options. In addition, NTPC LTD. 44
  45. 45. considering the potential for development of cogeneration plants in India, NTPC wouldexplore opportunities for the same.Maintaining a comprehensive database for review of mix: The thermal fueloptions detailed above would need to be constantly evaluated and further fine-tuned inline with the emergent fuel prices and availabilities and other system constraints. Inaddition, decisions on plant and fuel selection would need to be considered on a case-to-case basis. To facilitate this, a comprehensive database of fuels, their availabilities,pricing trends and impacting forces would need to be maintained. The responsibility fordesigning and maintaining the database and deriving implications for NTPC, wouldreside with the Fuel Management Group.Co-ordination with NTPC’s overall business plan: The information from thedatabase on fuel availability and price forecasts would also be a critical input indeveloping the overall business plans for NTPC. To facilitate review and fine-tuning ofthe capacity addition program based on fuel scenarios, the Fuel Management Groupwould work closely with the Corporate Planning group in the business plan revisionexercise.Hydel PowerIndia has a vast, untapped potential for hydropower development. Apart from being anenvironmentally clean source of power, hydropower would also provide a peaking poweroption for the country. While in the current scenario NTPC has plant specific pricing andpower purchase agreements, in the future, portfolio presence of hydropower could helpNTPC in bundled pricing and peak demand management. Executing hydro projectswould have the added benefit of price stability in the long term on account of the lowshare of variable costs in the tariff. Global utilities have recognised the advantages ofhydropower in the generating portfolio and many of the top utilities own and operatesignificant hydropower capacities. Amongst the top ten global thermal generating NTPC LTD. 45
  46. 46. companies, NTPC is the only one without any hydro capacities in its portfolio. However,NTPC has already initiated action and is already building capabilities in hydropower byexecuting an 800 MW hydroelectric station at Koldam. Going forward, NTPC wouldseek to expand the share of hydropower in its generating portfolio. Towards this endNTPC may also consider replacing any proposed coal based capacity addition withhydropower capacity subject to tariff-competitiveness and minimal Resettlement andRehabilitation issues.Goals• To build a hydropower portfolio comprising 20% of the overall generation portfolio by 2017, adding about 11,000 MW during the 10th, 11th and 12th plan periods. Out of this, NTPC would target adding about 4,500 MW by the end of the 11th plan period• To reduce the dependence on thermal fuels, and build peaking power capacities, thereby generating competitive advantage for the future• To develop and leverage organizational capabilities in the area of erecting, commissioning and operating hydropower plantsStrategiesGradual build-up of a large hydro portfolio: NTPC would seek to gradually increase itshydro capacity portfolio. It has already commenced work on the Koldam project. In theimmediate term, projects would be added gradually in order to leverage experiencegained and to mitigate risks in hydropower development. After developing required skillsin the initial years, the pace of hydropower addition would be ramped up, if necessaryreplacing proposed thermal capacity additions (subject to being competitive). In all,NTPC would target building a portfolio of 4,500 MW of hydropower by the end of the11th plan. During the 12th plan period, hydropower additions would comprise close to NTPC LTD. 46
  47. 47. 40% of the planned capacity addition. Thus by 2017 NTPC would target about 11,000MW of hydropower, comprising close to 20% of the projected generation portfolio.Type of plants: To begin with, NTPC would focus on ‘run of the river’ hydel projects.Pumped storage plants have been evaluated and have not been found to be commerciallyviable in the current scenario. Policy measures such as differential pricing for peakingpower would be critical pre-requisites for NTPC to undertake PSPs. Thus, NTPC wouldconsider pumped storage plants during the 11th and 12th plan periods and pursue themonly subject to commercial and technical viability.Small hydropower plants would also be considered and a wholly owned subsidiarynamed “NTPC Hydro Limited” has already been formed to facilitate focus. As part of the11,000 MW goal for hydropower development, NTPC would target adding about 1,000MW through the small hydro subsidiary by the end of the 12th plan period.Large reservoir-type hydropower plants typically face issues related to impact onirrigation, environmental damage and resettlement and rehabilitation. As such, the initialfocus would exclude reservoir projects till such time NTPC has sufficient experience inhydropower development and operation.Organisational preparedness: NTPC would take various initiatives to prepareitself for the increased thrust on hydropower. NTPC would work closely with theregulator(s)/Ministry of Power to ensure an appropriate and remunerative tariff regimefor hydropower, encompassing issues such as differential tariff for peaking power. Inorder to provide internal focus on hydro capacity development a separate hydropowergroup headed by an Executive Director has already been formed. This group wouldfunction similar to the regional set-up and would have the responsibility for development,execution and operation of hydropower projects. A separate group in the EngineeringDivision has been formed that would concentrate on developing skills in engineering ofhydropower plants. NTPC LTD. 47
  48. 48. Nuclear PowerNuclear power is expected to enjoy a growing share of the developing world’s electricitygeneration during the next two decades. The overall cost of nuclear power is seen to befavourable as compared to thermal fuels in countries that do not have access to cheapsources of coal or gas. However, nuclear power offers other advantages including higherenvironmental cleanliness, lower exposure to fuel price risk and longer plant life. InIndia, as on March 31, 2002, Nuclear Power Corporation of India (NPCIL) had fourteenreactors in operation with a combined capacity of 2,720 MW. Developmental efforts ofNPCIL have led to substantial indigenisation and presence of competent domesticvendors of nuclear plant equipment. India is also endowed with sufficient reserves ofthorium. On account of these advantages, nuclear power has the potential to contributemeaningfully to the future base load capacity in India.However, the development of nuclear projects in India has been constrained by severalfactors. These include high gestation periods for project execution and difficulty inobtaining adequate funds. NTPC’s strong project management skills and balance sheetstrength could help in offsetting these roadblocks and thereby prove to be a source ofcompetitive advantage in establishing nuclear power generation capacities.During the 12th plan period, NTPC would consider the option of adding about 2,000 MWof nuclear capacities in joint venture with Nuclear Power Corporation of India. Towardsthis end, NTPC would also continuously evaluate the policy environment covering thenuclear capacity addition programme and the relative competitiveness of nuclear power.Future Generating OptionsApart from thermal, hydro and nuclear power, NTPC would also keep track ofdevelopments in alternate energy sources such as Wind, Fuel Cells, cogeneration, etc.Especially with the advent of distributed generation, these technologies that offer smallercapacity installations could become lucrative. Towards this end NTPC would target NTPC LTD. 48
  49. 49. adding about 1000 MW by 2017 through a mix of these energy sources based on theircommercial viability, competitiveness, technology availability. The NTPC R&D divisionwould also be responsible for both fundamental and applied research in these areas.Wind Energy: India is the fifth largest wind power-producing nation in the world(after Germany, USA, Spain and Denmark) with an aggregate commercial capacity of1444 MW. The presence of significant incentives for setting up wind power projects likethe central incentives of tax holiday, 100% accelerated depreciation, concessional customduty, etc. make it an attractive proposition for consideration by NTPC. However, theentry into wind power would be contingent on addressing some critical issues such as theneed for significant investments and the need for cost effective ways to tackle variableand unpredictable nature of wind power in order to make the venture commercially viableFuel Cells: Fuel cells could provide an attractive option for NTPC to consider in thefuture, especially if the business environment renders distributed generation as a viablebusiness model. There are several types of fuel cells under development currently, indifferent stages of commercial availability for e.g. Phosphoric Acid Fuel Cells (PAFC)that are commercially available and can be used to power small buildings such as officebuildings, hospitals etc and Direct Methanol Fuel Cells (DMCF) that are still in the pre-prototype stage. NTPC would continuously track developments in distributed generationand fuel cell technology for adoption at a later date, when viable. NTPC’s R&D divisionwould track technological developments, conduct fundamental and applied research andevaluate viability of fuel cells and distributed generation for the future.CERC ORDER (CENTRAL ELECTRICITY REGULATORY COUNCIL)OPEN ACCESS REGULATIONS REVISED NTPC LTD. 49
  50. 50. In February, the Central Electricity Regulatory Commission (CERC) has announcedstreamlining of the norms for seeking open access in inter-State transmission. This isbased on the operational feedback received from stakeholders. The existing regulationswere introduced in February 1, 2004, in pursuance of the Electricity Act, 2003.CERC has introduced a monthly timetable for advance reservation of transmissioncapacity. In its amendments to the open access regime, which is applicable from April 12005, the regulator has also proposed part-day transmission charges to reduce the cost ofwheeling peaking power. Under the part-day charges introduced by CERC, thetransmission cost for short-terms customers is only a fourth of the daily charges, if theyuse the transmission lines for six hours or less in a day. Similarly, for usage of up to 12hours a day, only half of the per-day charges shall be applied. Under the monthlytimetable that has been introduced for the grant of transmission access to short-termcustomers, there will be a provision for advance reservation of lines for three months.Applications must be submitted by the 19th day of the month. They will be processedtogether and access shall be granted by the 26th. For advance reservations for short-termcustomers, congestion management will be done through electronic bidding. The CERChas also announced an exit option to short-term customers, whereby a customer cansurrender the reserved transmission capacity by paying a minimum of seven-day chargeor the charge for the balance period of reservation, whichever is shorter. CERC has notchanged the pricing scheme for intra-regional transmission access.In line with the original open access norms applicable from February 2004, transmissioncustomers have been divided into two categories — long-term and short-term. A long-term customer will be allowed access based on the transmission planning criteriastipulated in the Indian Electricity Grid Code. Allotment priority of long-term customerswill be higher than that of short-term customers. Short-term customers will be the firstones to be curtailed in the event of transmission constraint, according to the norms. Toavoid pan caking, the Commission has decided that for short-term intra-regionaltransactions, the short-term customer shall be charged at the rate of 25 per cent of the last NTPC LTD. 50
  51. 51. years effective rate for long-term customers, and average transmission losses shall beapplied.COMPETITIVE BIDDING FOR POWER PURCHASE BY DISCOMSIn January, the government notified guidelines for tariff determination via competitivebidding, for procurement of power by distribution licensees. As per the guidelines, adistribution company can call for bids for supply of power through a competitive processand identify a supplier. The regulator will not scrutinize tariff determined via thisprocess. The tariff structure in the notification mentions a formula for energy charges,which will depend on the price of fuel and scheduled generation, among other things aswell as capacity charges.APPLICATIONS FOR TRANSMISSION LICENSEIn December, Reliance Energy Ltd (REL) has applied to the CERC seeking license fortransmission of power in western India for 20 lines and 13 sub-stations in western India.It is also reported that a Malaysian company in joint venture with an Ahmedabad-basedcompany has also approached the CERC seeking a similar license in Bina-Nagda sector.CERC has said that it would consult all the parties, including Power Grid CorporationLtd and consumers (in this case State Governments) and after that an advertisementwould be made in newspapers. It has been reported earlier that POWERGRID, the stateowned transmission utility has approached the MoP seeking authority to decide entry ofprivate players into transmission.FIXING OF TRADING MARGINSThe CERC has taken steps to regulate trading margins The trading margins has beenfixed at Re 0.04 per unit for electricity traders exclusive of transmission charges,unscheduled charges, application fees and transmission losses. NTPC LTD. 51
  52. 52. The commission had, for the past few months, been keeping close tabs on the tradingbusiness. The high amount of trading margins that some companies had been makingnecessitated greater scrutiny.The CERC noted that nearly 90% of trading during 2004-05 was done at a margin of Re0.05 per unit or less, but in the first half of 2005-06,it increased to a weighted average ofRe. 0.10 per unit. About 68 per cent of the volume traded during the period carried amargin of Re 0.06 per unit. Significantly, the highest trading margin in a singletransaction in 2004-05 was Re 0.04 per unit, he earns revenue of Rs. 12 million.The regulator feels that traders have taken advantage of deficit situation prevailing inmost parts of country. Therefore fixing the trading margin is necessary to avoid arbitraryfixing of profit margins and thus leaving consumers to their whims and vagaries. Thecommission states that the trading margin should not be fixed keeping in mind therequirement of traders alone. It has to be fair to consumers as well, particularly when atrader buys power for resale, without making any value addition.As expected, electricity traders are not pleased with the regulation. Their view was thatfixing margins would stifle trading activity and push them out of the business. It wouldalso prove detrimental to the electricity sector as a whole.It is ironical at a time when the power ministry has strongly recommended 100 percentFDI in trading of electricity through the automatic approval rate, trading margins havebeen capped. This will hinder investments as well as stifle competition in the sector.Power trading is still at a nascent stage and there is a long way to go. As of now powertrading amounts to just 2.5% of country’s existing power consumption. NTPC LTD. 52
  53. 53. Average Frequency UI Rate (Paise per kWh)of time block50. 5 Hz and above 0. 0Below 50.5 Hz and up to 50.48 Hz 8.0Below 49.04 Hz and up to 49.02 Hz 592.0Below 49.02 Hz 600.0Between 50.5 Hz and 49.02 Hz linear in 0.02 Hz step(Each 0. 02 Hz step is equivalent to 8. 0 paise /kWh within the above range)The following rates shall apply with effect from 1.10.2004 : Average frequency of the UI Rate time block(Hz)Below Not Below (Paise per kWh)------ 50.50 0.050.50 50.48 6.050.48 50.46 12.0------ ------ ----------- ------ -----49.84 49.82 204.049.82 49.80 210.049.80 49.78 219.049.78 49.76 228.0------ ------ ----------- ------ -----49.04 49.02 561.049.02 ------ 570.0 NTPC LTD. 53
  54. 54. (Each 0. 02 Hz step is equivalent to 6.0 paise /kWh in the 50.5-49.8 Hz frequencyrange,and to 9.0paise/kwh in the 49.8-49.0 Hz frequency range.)Note :-The above average frequency range and UI rates are subject to change through a separatenotification by the Commission.(i) Any generation up to 105% of the declared capacity in any time block of 15 minutesand averaging up to 101% of the average declared capacity over a day shall not beconstrued as gaming, and the generator shall be entitled to UI charges for such excessgeneration above the scheduled generation (SG).(ii) For any generation beyond the prescribed limits, the Regional Load Despatch Centreshall investigate so as to ensure that there is no gaming, and if gaming is found by theRegional NTPC LTD. 54
  55. 55. U.I.RATES (OLD Vs. NEW) U.I.RATE U.I.RATE(N)600500 Load Despatch Centre, the corresponding UI charges due to the generating station on400 account of such extra generation shall be reduced to zero and the amount shall be adjusted in UI account of beneficiaries in the ratio of their capacity share in the300 generating station.200100 0 50.6 50.6 50.5 50.3 50.2 50.0 49.9 49.7 49.6 49.4 49.3 49.1 49 49 50.4 50.2 50.1 49.8 49.8 49.5 49.4 49.2 48.9 NTPC LTD. 55
  56. 56. DATA ANALYSIS AND INTERPRETRATION COMPARATIVE ANALYSIS OF TARIFFA comparative chart of availability based tariff used in NCR since 1-12-2002 and two-part tariff has been presented as below:Description Two-part tariff AvailabilityBased Tariff (GOI notified tariff) (CERC orders of Dec, 2000)1.Components of Two parts – namely Fixed Three parts – namely Fixedtariff Charges and Variable charges, variable charges and UI charges. charges.2.Components of ROE, Depreciation, Interest Same as in the case of two-partfixed charges on loans, O&M exp, Interest tariff. on working capital.3.Fixed charges In proportion to the drawls. In proportion to the capacityallocation to SEBS allocations.4.Recovery of Fixed 62. 78 % PLF (including 80 % Availability.charges deemed generation).5.Buffer (dead – 62. 78 % to 68. 49 % PLF. No buffer.band) zone betweenincentive anddisincentive6.Disincentives For PLF below 62. 78 % in a For availability below 80%, pro- graded manner. At 0 % PLF, rata reduction in fixed charges. 50 % of charges are payable.7.Incentives 1ps for every 1 % increase in For PLF above 77 % (calculated PLF and applied on from schedule) incentive @ 50 incremental units over 68. 49 % fixed charges / kwh (subject % PLF. to maximum of 21. 5 Ps. kwh) is applied to incremental units generated over 77 % PLF. For PLF beyond 90 %, incentive is reduced by 50 % of above.8.Variable charges Based on normative operation Based on same normativerecovery norms and applicable to operation norms and applicable NTPC LTD. 56

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