2010 11 - Indian Energy Sector by ibef

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According to the Central Electricity Authority (CEA), the average per capita electricity consumption in India is about 704 kWh as compared to global world wide per capita consumption of 2,752 kWh. The Government of India is keen to increase per capita consumption of energy to raise living standards in the country. An average Indian consumes 0.53 tonnesof oil equivalent (TOE) of energy compared to the global average of 1.82 TOE.Higher economic growth is driving income growth, which in turn is driving up industrial investment and fuel consumption. In general, demand exceeds supply and there is a broad-based energy shortage, which is either met by imports or remains unmet.

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2010 11 - Indian Energy Sector by ibef

  1. 1. INDIA: ENERGY SECTORSeptember 2010
  2. 2. INDIA: ENERGY SECTOR September 2010 Contents … (1/3)  Executive Summary  Industry overview – power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 2
  3. 3. INDIA: ENERGY SECTOR September 2010 Contents … (2/3)  Boilers  Conductors, wires and cables  Transformers  Turbines  Switchgears  Transmission towers  Wind turbine generators  Diesel engines  Capacitors  Energy meters 3
  4. 4. INDIA: ENERGY SECTOR September 2010 Contents … (3/3)  Control panels  Oil exploration and drilling equipment  Storage batteries  Industry overview – oil and gas  International interest  Demand supply projections  Demand supply scenario  Government organisations  Trends and opportunities  Companies 4
  5. 5. INDIA: ENERGY SECTOR September 2010 List of tables … (1/8)  Gross Domestic Product from Electricity Supply  Energy Indicators  Fuel-wise Generation Capacity  Sector-wise Installed Utility Capacity  Capacity of Thermal Power Plants by Fuel  Hydroelectric Potential and Development  RES Potential and Achievements  Growth in Transmission Lines (Ckm)  Growth in Sub-stations (MVA)  Growth in Inter-regional Transmission Capacity 5
  6. 6. INDIA: ENERGY SECTOR September 2010 List of tables … (2/8)  Rural Electrification  Electricity Consumption  Electricity Demand and Supply  Projected Requirement of Electricity  Installed Capacity Addition Plan  Projected Transmission Line Length  Energy Saving Potential  Fund Requirement for R & M Activities  Fund Requirement for Distribution and Rural Electrification  FDI in Energy Equipment and Related Industries 6
  7. 7. INDIA: ENERGY SECTOR September 2010 List of tables … (3/8)  Investments as of March 2010  Major Projects Expected to be Complete in 2010  Types of Utility and Industrial Boilers  Production of Boilers  Production, Import, Export and Consumption of Boilers  Technological Partnership for Supercritical Technology  Production of Various Types of Cables and Wires  Export and Import of Cables and Wires  Production of Transformers  Imports and Exports of Transformers 7
  8. 8. INDIA: ENERGY SECTOR September 2010 List of tables … (4/8)  Production,Trade and Consumption of Turbines  Snapshot of Power Generation Scenario  Production of Switchgears and Circuit Breakers  Exports and Imports of Switchgears  Domestic Production of Transmission Towers  Exports of Transmission Towers  Installed Wind Power Capacity  Export and Import of Wind Turbine Generators  Production, Imports, Exports and Consumption of Diesel Engines  Production of Capacitors 8
  9. 9. INDIA: ENERGY SECTOR September 2010 List of tables … (5/8)  Production of Energy Meters  Production, Import and Export of Storage Batteries  Gross Energy Generated  GDP from Petroleum Sector  Realisation of Excise and Customs Duties  Employment in Petroleum Sector  FDI Inflows to Petroleum Sector  Proven and Indicated Crude Oil Reserves  Basin-wise Hydrocarbon Area  NELP and CBM Achievements 9
  10. 10. INDIA: ENERGY SECTOR September 2010 List of tables … (6/8)  The Krishna-Godavari Basin  Recent Discoveries  Planned Petroleum and Natural Gas Demand-Supply  Gas Production – Eleventh Five-Year Plan Projection  Projected Natural Gas Demand – Eleventh Plan Period  LNG Supply – Eleventh Five-Year Plan Projection  Crude Oil Production – Eleventh Five-Year Plan Projections  Crude Oil Imports  Net Exports of Petroleum Products  Import and Export of Crude Oil and Petroleum Products 10
  11. 11. INDIA: ENERGY SECTOR September 2010 List of tables … (7/8)  Product Import Price vs Gross Export Realisation  Consumption of Petroleum Products  Natural Gas Demand Sectors  Share of Fuel Imports in Total Merchandise Imports  India‟s Share in World Oil and Gas Market  Percentage Demand Met from Domestic Sources  Refinery Capacity  Domestic Production of Petroleum Products  Gross Refining Margins for Domestic Refineries  NCI of Domestic Refineries 11
  12. 12. INDIA: ENERGY SECTOR September 2010 List of tables … (8/8)  Crude Oil Production  Natural Gas Production  LNG Imports  Major Equipment Players  Major Energy Sector Players 12
  13. 13. INDIA: ENERGY SECTOR September 2010 List of figures  Structure of Indian Power Sector and Ownership  Hydroelectric Electricity Generation Capacity  Nuclear Power Capacity  Category wise growth in Consumption  Fuel-wise capacity addition in Eleventh Plan Period  Price Revisions in Delhi 13
  14. 14. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 14
  15. 15. EXECUTIVE SUMMARYIndia: Energy Sector September 2010 Executive Summary … (1/2) The average growth rate of India‟s gross domestic product (GDP) during the period 2006-09, was about 8.6 per cent. The corresponding average growth rates of net national income and personal disposable income were 14.5 per cent and 14.7 per cent, respectively. The average growth in the index of industrial production (IIP) during this period was 7.2 per cent. IIP growth was 10.2 per cent in 2009-10. A high- growth economy has resulted in increasing demand for energy. In terms of purchasing power parity (PPP), Indian economy is the fourth-largest in the world. The country accounts for over 17 per cent of the total global population and about 7 per cent of world‟s GDP. However, according to the International Energy Agency (IEA), India‟s energy production accounts for just 4 per cent of the global energy production.The country accounts for 5 per cent of the total global energy consumption. According to the Central Electricity Authority (CEA), the average per capita electricity consumption in India is about 704 kWh as compared to global world wide per capita consumption of 2,752 kWh. The Government of India is keen to increase per capita consumption of energy to raise living standards in the country. An average Indian consumes 0.53 tonnes of oil equivalent (TOE) of energy compared to the global average of 1.82 TOE. Higher economic growth is driving income growth, which in turn is driving up industrial investment and fuel consumption. In general, demand exceeds supply and there is a broad-based energy shortage, which is either met by imports or remains unmet. 15
  16. 16. EXECUTIVE SUMMARYIndia: Energy Sector September 2010 Executive Summary … (2/2) Energy reforms and policy changes in recent years have not only opened up avenues for investments in the sector, but have also resulted in private participation across its various segments. To attract foreign investment in infrastructure, including energy, foreign direct investment (FDI) norms have been relaxed over the years. Government of India has not only allowed 100 per cent FDI in the energy sector but also amended previous norms and practices to provide a climate conducive to investment. The reforms of last twenty years have yielded positive results. By 2012, India requires an installed capacity of about 200,000 MW, which entails a huge capital investment. This has created opportunities in the power generation, transmission, and distribution segments. Private participation and public-private partnerships are being encouraged to pool in investments and expertise. Apart from conventional fuel-based plants, renewable energy development has been placed on equal priority. Significant opportunities in the oil and gas sector relate to exploration and discoveries under the New Exploration Licensing Policy (NELP), refinery product and natural gas transmission infrastructure development, and market development for oil and gas products. The overall growth in India‟s energy sector has drawn investments into the electrical equipment industry, not only in the form of capacity expansions and green field projects from existing players, but overseas as well. The scope for expansion is significant as the energy sector itself offers investment opportunities in the next decade and beyond. 16
  17. 17. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 17
  18. 18. INDUSTRY OVERVIEW-POWERIndia: Energy Sector September 2010 Industry overview – Power … (1/5) Background India‟s power sector has had a remarkable growth in past few decades. There has been a significant push towards opening the electricity sector to competition and to redesign the electricity markets to achieve more efficient outcomes. Consequently, the sector has moved from a mostly vertically integrated structure – with the state electricity boards (SEB) owning the generation, transmission and distribution businesses – to a more unbundled corporate structure. As compared to 23 integrated utilities, i.e. SEBs, that existed before the electricity reforms began in the 1990s, there are now more than 80 utilities or companies with varied ownership structures and mandates, viz., central government‟s power generation and transmission companies; state governments‟ generation, transmission and distribution utilities; city-specific private utilities; captive power units of companies; and independent power producers (IPP). Intra-state power transmission is the sole responsibility of the state transmission utilities (STU) while inter- state and inter-region transmission is entrusted to Power Grid Corporation of India Limited (PGCIL), a central public sector unit (CPSU). Distribution of power is mostly controlled by state distribution companies (discoms) though there are also a few private companies in this business in a few states and cities. To comply with the provisions of Electricity Regulatory Commission Act, 1998, most states have set up state electricity regulatory commissions (SERCs), which regulate tariffs for the generation, transmission and distribution companies. The Central Electricity 18
  19. 19. INDUSTRY OVERVIEW-POWERIndia: Energy Sector September 2010 Industry overview – Power … (2/5) Regulatory Authority (CERC) fulfils this responsibility for the central power utilities. There is an appellate tribunal for disputes resolution.There are also a few power trading companies that facilitate the exchange of power between regionally separated companies and utilities at a price/margin determined by CERC. Section 246 of the Indian Constitution puts power sector on the `concurrent list‟, which implies that both the state legislatures and the Parliament have the power to create policies for the sector. However, in the event of a conflict, the central law prevails. In recent decades, the Government of India has focused on infrastructure development with top priority given to the power sector. Figure 1: Structure of Indian Power Sector and Ownership Power Sector Utilities: Generation companies: Transmission companies: SEBs, State -owned gencos Distribution companies: SEBs IPPs SEBs STUs CPSUs Private licensees PGCIL Private licensees State discoms Private companies Captive units 19
  20. 20. INDUSTRY OVERVIEW-POWERIndia: Energy Sector September 2010 Industry overview – Power … (3/5) The history of governance in the sector dates back to The Electricity Act, 1910, which provided the initial legal framework. It was followed by an amended Electricity (Supply) Act, 1948, which provided the overall regulatory framework for the sector. Recognising the need for accelerating reforms, the Electricity Act, 2003 was enacted in June 2003. It repealed and replaced the earlier laws. Although, since then several additional rules and laws have been passed to regulate the sector, the Electricity Act, 2003, remains the basis for all legal provisions and guiding principles for the sector. Importance to Economy Electricity is a key driver of rapid economic growth and industrialisation of the country. Decades of economic planning have placed significant emphasis on developing the power sector. Rapid economic growth and higher standards of living depend considerably on the availability of adequate and reliable power at an affordable price. The gross domestic product (GDP) from electricity supply at constant prices was US$ 14.71 billion in 2008-09, accounting for 1.63 per cent of GDP. The employment generated by the sector is in excess of 1 million. 20
  21. 21. INDUSTRY OVERVIEW-POWERIndia: Energy Sector September 2010 Industry overview – Power … (4/5) Table 1: Gross Domestic Product from Electricity Supply (US$ million) 2004-05 2005-06 2006-07 2007-08 2008-09 Constant Prices 11,159.29 12,046.67 14,380.95 16,395.52 14,723.91 Current Prices 11,158.85 12,262.44 14,980.24 16,722.14 15,078.91 External investment in India‟s electricity sector has also had a strong growth. Despite global economic problems, India has had only marginal variation in FDI inflows, and the inflows to power sector increased from US$ 157 million in 2006-07 to US$ 1.44 billion in 2009-10. However, as demand growth and power supply shortages increase, there is scope for even more investment in the sector. The average per capita electricity consumption in India is only 704 kWh as compared to worldwide per capita consumption of 2,752 kWh. 21
  22. 22. INDUSTRY OVERVIEW-POWERIndia: Energy Sector September 2010 Industry overview – Power … (5/5) Table 2: Energy Indicators Indicator Unit India World Energy Production MTOE 450.92 11,939.53 Energy Consumption TWh 609.74 18,186.94 Total Primary Energy MTOE 594.91 12,029.27 Supply (TPES) TPES/Population TOE/capita 0.53 1.82 TPES/GDP (PPP) TOE/2 million US$ 0.15 0.3 Electricity Consumption* kWh/capita 704.4 2,752 CO2/TPES Tonne CO2/TOE 2.23 2.51 CO2/Population Tonne CO2/capita 1.18 4.38 Source: International Energy Agency – 2007 indicators, CEA Empirical analyses have confirmed that demand for electricity is closely linked to changes in GDP and this relationship is remarkably stable and broadly linear. The Central Electricity Authority (CEA) has identified that at a GDP growth rate of 9 per cent, the power sector must grow at over 7.2 per cent, annually. 22
  23. 23. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 23
  24. 24. GENERATIONIndia: Energy Sector September 2010 Generation … (1/10) Overview The total generation capacity of the grid-connected power utilities was 159,398 megawatts (MW) as of March 2010. The thermal power capacity of utilities was 102,453.98 MW, followed by hydropower (36,863.40 MW), renewable energy sources or RES (15,521.11 MW) and nuclear power (4,560 MW). The following table summarizes the growth in installed capacity. Table 3: Fuel-wise Generation Capacity FY Capacity (MW) Share (%) Thermal Hydro Nuclear RES Total Thermal Hydro Nuclear RES 2003 76,762 26,767 2,720 1,628 107,877 71.2 24.8 2.5 1.5 2004 77,969 29,507 2,720 2,488 112,683 69.2 26.2 2.4 2.2 2005 80,902 30,942 2,770 3,811 118,426 68.3 26.1 2.3 3.2 2006 82,411 32,326 3,360 6,191 124,287 66.3 26 2.7 5 2007 86,015 34,654 3,900 7,761 132,329 65 26.2 2.9 5.9 2008 91,907 35,909 4,120 11,125 143,061 64.2 25.1 2.9 7.8 2009 93,998 36,878 4,120 13,243 148,238 63.4 24.9 2.8 8.9 2010 102,454 36,863 4,560 15,521 159,398 64.3 23.1 2.9 9.7 Source: CEA, IMaCS Research 24
  25. 25. GENERATIONIndia: Energy Sector September 2010 Generation … (2/10) As of March 2010, the state government utilities owned 49.8 per cent of the total installed generation capacity of 159.39 gigawatts (GW). The remaining was owned by central utilities (32 per cent) and private utilities (18.2 per cent). In the past decade there has been a shift in the trend of capacity addition. After many decades of near monopoly of state utilities in fresh capacity creation, private utilities‟ share has grown significantly. Clearly, the reforms have succeeded in inducing private investment in the sector. Table 4: Sector-wise Installed Utility Capacity At end-FY 2002 2003 2004 2005 2006 2007 2008 2009 2010 State 62,995 66,582 67,380 65,942 70,184 70 095 74 689 76,388 79,392 Central 31,335 29,944 32,979 38,790 39,959 45,121 48,361 48,971 50,993 Private 10,717 11,351 12,325 13,688 14,144 17,108 20,010 22,879 29,014 Total 105,047 107,877 112,684 118,420 124,287 132,324 143,060 148,238 159,398 Source: CEA, IMaCS Research 25
  26. 26. GENERATIONIndia: Energy Sector September 2010 Generation … (3/10) Thermal Generation India‟s electricity generation capacity is mainly coal-based. It is considered good for base-load power generation. An estimated 82.2 per cent of the installed thermal power capacity is based on coal as the fuel. In fact, the power sector accounts for about 75 per cent of India‟s coal demand. Table 5: Capacity of Thermal Power Plants by Fuel FY 1985 1997 2002 2003 2004 2005 2006 2007 2008 2009 2010 MW 27,030 61,010 74,429 76,762 77,969 80,902 82,411 86,014 91,907 93,725 102,454 Coal 26,311 54,154 62,131 63,951 64,956 67,791 68,519 71,121 76,049 77,649 84,198 Gas 542 6,562 11,163 11,633 11,840 11,910 12,690 13,691 14,656 14,877 17,056 Diesel 177 294 1,135 1,178 1,173 1,202 1,202 1,202 1,202 1,200 1,200 Share (%) 63.5 71.1 70.9 71.2 69.2 68.3 66.3 65.0 64.0 63.4 64.3 Coal 61.8 63.1 59.1 59.3 57.6 57.2 55.1 53.7 53.2 52.4 52.8 Gas 1.3 7.6 10.6 10.8 10.5 10.1 10.2 10.3 10.2 10.2 10.7 Diesel 0.4 0.3 1.1 1.1 1.0 1.0 1.0 0.9 0.8 0.8 0.8 Source: CEA, IMaCS Research 26
  27. 27. GENERATIONIndia: Energy Sector September 2010 Generation … (4/10) The dominance of coal in India‟s generation capacity is mainly because of significant domestic reserves. As of April 2009, the coal reserves of India (to the depth of 1,200 m) have been estimated at 266 billion tonnes by the Geological Survey of India. The proven reserves are of 105 billion tonnes, indicated reserves of 123 billion tonnes and inferred reserves of 38 billion tonnes. India‟s proven reserves at current levels of production are enough to last about 200 years. Natural gas is now finding a greater role in India‟s energy mix. Its share in the total installed power generation capacity has increased from 4.4 per cent at end of 1991-92 to 10 per cent at end of 2008-09. Compared to coal-based plants, natural gas plants emit only about half as much carbon dioxide (CO2) per kWh. Also, with production starting at some recently developed gas fields in India, there is a greater potential for development of gas-based power plants. Hydroelectric Power Hydroelectricity is clean and its generation is largely free of the concerns of fuel supply and price volatility of imported fuels. However, its share in the fuel mix for power generation has declined because of high initial costs and development risks. In recent years, the government has tried to address many of the concerns in hydroelectric power project development to improve the share of hydropower in the hydro-thermal electricity generation mix. 27
  28. 28. GENERATIONIndia: Energy Sector September 2010 Generation … (5/10) Figure 2: Hydroelectric Electricity Generation Capacity Source: CEA, IMaCS Research India‟s hydroelectric potential has been estimated to be 600 billion kWh per annum, corresponding to a capacity of 148.7 GW. States with high potential are Arunachal Pradesh (50.3 GW), Himachal Pradesh (18.8 GW), Uttarakhand (18.2 GW), and Jammu & Kashmir (14.1 GW). However, only 23 per cent of the potential has been realised so far. 28
  29. 29. GENERATIONIndia: Energy Sector September 2010 Generation … (6/10) Table 6: Hydroelectric Potential and Development April 2009 Potential Capacity Per cent of Capacity under Per cent of Region (MW) Developed Potential Construction Potential North 53,395 13,772 25.8 7,064 13.3 West 8,928 5,804 65 400 4.5 South 16,458 9,395 57.1 786 4.8 East 10,949 3,049 27.9 2,211 20.2 North-East 58,971 1,203 2 2,724 4.6 Total 148, 701 33,223 22.3 13,185 8.7 Source: CEA, IMaCS Research A vision paper prepared by the Ministry of Power envisages harnessing the entire hydro potential of 148.7 GW by 2025-26. Moreover, renovation, modernisation, up-rating and life extension of some of the existing hydropower plants are expected to yield additional capacity of 4,300 MW during the Eleventh Five-Year Plan period (2007-2012). Renewable Energy Renewable energy sources (RES) have great potential to contribute to improving energy security of the country and reducing green-house gas (GHG) emissions. Using renewable sources to generate electricity has several advantages –a perennial energy source, potential for lower reliance on imported fossil fuels and lower CO2 emissions. However, at present, the principal constraint facing rapid expansion of renewable 29
  30. 30. GENERATIONIndia: Energy Sector September 2010 Generation … (7/10) power is high initial cost as compared to the competing fuels. India‟s renewable energy resources are summarised below. Table 7: RES Potential and Achievements (MW) Achieved as of March 31, Source/System Potential 2010 Grid Interactive Renewable Power Bio-power (woody biomass) 62,000 866 Wind Power 45,000 11,807 SHP 15,000 2,735 Cogeneration – Bagasse 5,000 1,334 Waste to Energy 5,000 65 Solar Power 4-7 kWh/sq m/day 10 Sub Total 132,000 16,817 Distributed Renewable Power Rural 30,000 405 Captive generation-industrial, commercial 20,000 Sub Total 50,000 405 Total 222,000 17,222 Source: Ministry of New & Renewable Energy, IMaCS Research 30
  31. 31. GENERATIONIndia: Energy Sector September 2010 Generation … (8/10) India is among the five largest wind power generators in the world. The share of RES in the country‟s total generation capacity has increased from 1.1 per cent at the end of 2001-02 to about 9.7 per cent at the end of 2009-10.The total renewable capacity is expected to increase to 23,476 MW by the end of March 2012.Wind power is expected to contribute almost 74 per cent of this capacity. Nuclear Power India‟s nuclear power self-sufficiency runs across the entire value chain: uranium exploration and mining, fuel fabrication, heavy water production, reactor design and construction, reprocessing and waste management. India‟s reserves in the reasonably assured resources (RAR) category are estimated at 77,185 tonnes of U308, the estimated additional resources (EAR)-I reserves are about 23,525 tonnes of U308.The remaining reserves are categorised as speculative resources (SR), which could become available for nuclear power programme with further exploration. After accounting for various losses, including mining (15 per cent), milling (20 per cent), and fabrication (5 per cent), the net uranium available for power generation is about 61,000 tonnes. The available uranium has electricity potential of 328 GWe of pressurised heavy water type reactors (PHWR) and 42,231 GWe of fast breeder reactors (FBR). The Atomic Energy Act, 1962, allows setting up of nuclear power stations only by government companies. Two government companies, Nuclear Power Corporation of India Limited (NPCIL) and Bharatiya Nabhikiya Vidyut Nigam Limited (BHAVINI), are responsible for setting up and operating nuclear power reactors. 31
  32. 32. GENERATIONIndia: Energy Sector September 2010 Generation … (9/10) As of March 2010, nuclear power plants accounted for 2.9 per cent of the total installed capacity. Though nuclear power is under government-controlled entities, options are being explored to attract investment from private sector. Figure 3: Nuclear Power Capacity Source: CEA, IMaCS Research 32
  33. 33. GENERATIONIndia: Energy Sector September 2010 Generation … (10/10) The Planning Commission‟s expert committee on an Integrated Energy Policy has suggested in its report that there is a possibility of reaching a nuclear power capacity of 21-29 GW by 2020 and 48-63 GW by 2030 through a mix of indigenous PHWRs, FBRs, and light water reactors (LWR). In July 2005, India and the US signed a joint statement designed to give India access to the global market for nuclear fuel and reactors. This was followed by a nuclear exports waiver by the Nuclear Suppliers Group (NSG) in September 2008. Subsequently, India has entered into deals with France and Russia to source fuel for its existing nuclear plants. 33
  34. 34. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 34
  35. 35. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (1/7) Power Transmission Adequate capacity addition and optimum utilisation are important aspects of power sector development. Commensurate with the capacity addition, an extensive network of transmission and distribution has been developed for evacuation of power and supply to consumers. Notwithstanding the substantial progress, many regions in the country still suffer from shortage of electricity. The new generation capacity additions as well as targeted increase in per capita consumption call for further strengthening and expansion of the transmission system. The capacity additions to transmission lines (220 kV and above) until the end of 2008-09 are indicated in the following table. Table 8: Growth in Transmission Lines (Ckm) Up to 2nd year Particulars 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan of 11th Plan 765 kV - - - 1,160 2,184 3,118 ± 500 kV HVDC - 1,634 1,634 4,738 5,872 7,172 400 kV 6,029 19,824 36,142 49,378 75,722 89,496 220 kV 46,005 59,631 79,600 96,993 114,629 112,960 Source: CEA, IMaCS Research 35
  36. 36. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (2/7) With adoption of new technology, there has been a significant addition of transmission capacity at the extra- high voltage levels of over 500 kV. The 765 kV and 500 kV-HVDC technologies have raised grid efficiency and have strengthened the grid at the inter-regional links. Table 9: Growth in Sub-stations (MVA) Up to 2nd year Particulars 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan of 11th Plan 765 kV - - - - - 4,500 ± 500 kV HVDC - - - 5,200 8,200 8,700 Converter/BTB Station 400 kV 9,330 21,580 40,865 60,380 92,942 111,202 220 kV 37,291 53,742 84,177 116,363 156, 497 177,189 Source: CEA, IMaCS Research At present, the country has five regional grids - one each for the Northern, North-Eastern, Southern, Eastern and the Western region. Except for the Southern region, all other regional grids have been synchronised. Expansion of the regional transmission networks is essential for transmission of power across the country, from the abundant generation areas to deficit areas. As part of its ambitious mission to provide electricity to the entire country by 2012, the Government has set a target of adding over 60,000 circuit kilometres (37,200 miles) of new transmission lines at a cost of about US$ 146 million. The integrated grid is expected to carry as much as 60 per cent of the power generated in the country. The government is also 36
  37. 37. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (3/7) carrying out US$ 126-million expansion of the five regional systems as well as the inter-regional grid to boost transmission capacity from 17,000 MW to 37,000 MW. Table 10: Growth in Inter-regional Transmission Capacity (Ckm) Year 2,002 2,005 2,007 2,010 2,012 765 kV - - 1,100 2,200 9,200 400 kV 1,000 2,400 7,800 11,400 16,400 HVDC bi-pole - 2,000 2,500 2,500 6,500 HVDC B-T-B 2,000 3,000 3,000 3,000 3,000 HVDC mono-pole 200 200 200 200 200 220 kV 1,850 1,850 1,850 1,850 1,850 Total 5,050 9,450 16,450 21,150 37,150 Source: CEA, IMaCS Research To facilitate greater private sector participation in transmission and to leverage advantages of competition, the central and state electricity regulatory commissions have harmonised their regulations for grant of transmission licenses. These regulations provide the framework for procurement of transmission licenses through competitive bidding. 37
  38. 38. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (4/7) Overall, the CEA has estimated a fund requirement of US$ 33.33 billion for implementation of transmission schemes during the Eleventh Plan period. This includes requirement of US$ 17.86 billion for the regional and the national grid transmission schemes and US$ 15.48 billion for the state sector transmission schemes. Power Distribution Distribution is a vital component of the electricity-supply chain, but this segment has lagged in operational efficiency as well as financial performance. Under-recovery of costs and poor collection efficiency of the power utilities have been a key concern. The consequent deterioration in operational efficiency has further aggravated the situation.With the restructuring of electricity utilities from their monolithic structures to separation of generation, transmission and distribution, the focus has finally shifted to making the distribution segment more efficient and financially viable. This has created significant opportunities in the segment. Recognizing the urgent need for reforms in the distribution sector, the Government of India introduced the Accelerated Power Development Programme (APDP) in 2001.The APDP was aimed at strengthening transmission and distribution networks and reduction in aggregate technical and commercial (AT&C) losses. Subsequently, incentive financing was integrated with the existing investment programme to achieve commercial viability of SEBs and power utilities and link it to the reform process. APDP was renamed Accelerated Power Development & Reforms Programme (APDRP) in 2002-03 for Tenth Plan period (2003- 07). The main objectives of the programme were to achieve financial viability of state utilities, reduce AT&C losses, improve customer satisfaction, and increase the reliability and quality of power supply. After a re- examination of the APDRP, The Cabinet Committee on Economic Affairs (CCEA) approved a restructured 38
  39. 39. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (5/7) APDRP (R-APDRP) for the Eleventh Plan period as a central sector scheme in July 2008. The focus of this programme is on actual, demonstrable performance in terms of AT&C loss reduction. Projects under the scheme are to be taken up in three parts. The activities covered under the three parts are: • Part A: Preparation of baseline data for project area, covering consumer indexing, geographic information system (GIS) mapping, metering of distribution transformers and feeders, automatic data logging for all distribution transformers and feeders, supervisory control and data acquisition (SCADA) and distribution management system (DMS). Initially, 100 per cent of the funds for the approved projects are to be provided through loans from the Government of India on terms decided by Ministry of Finance. The amount allocated for these activities is US$ 2.48 billion. • Part B: Renovation, modernization and strengthening of 11 kV level substations, transformers/transformer centres, re-conductoring of lines at 11 kV and lower levels, urban-rural load bifurcation, feeder separation, load balancing, HVDS (11 kV); laying aerial bunched conductor in high population-density areas; replacement of electromagnetic energy meters with tamper-proof electronic meters; installation of capacitor banks and establishing mobile service centres. 39
  40. 40. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (6/7) Initially, up to 25 per cent funds for the projects are to be provided through loans from the Government of India on terms decided by Ministry of Finance. For special category states, loan amount would be 90 per cent of the project cost. However, the project-wise requirement of gross budgetary support is to be decided by a Steering Committee. The remaining funds are to be raised from financial institutions.The amount allocated for these activities is US$ 9.95 billion. • Part C: Funding of activities related to promoting reforms in the power sector. The fund allocated for these enabling activities is US$ 292.78 million. Guided by various regulatory and policy initiatives for efficiency improvements in the distribution sector, several Public Private Partnership (PPP) models have been proposed. Successful PPP models include first corporate distribution franchise model in Bhiwandi and distributed-generation based franchise in Pune. The franchisee model is being promoted by state governments that are keen to improve their networks and collection efficiencies without complete privatisation. Private companies have also shown interest in distribution franchises offered by several states. 40
  41. 41. TRANSMISSION AND DISTRIBUTIONIndia: Energy Sector September 2010 Transmission and distribution … (7/7) Rural Electrification In April 2005, the Government of India launched the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), a scheme for developing rural electricity infrastructure and household electrification. The scheme was aimed at achieving the incumbent government‟s National Common Minimum Programme (NCMP) promise of providing access to electricity to all households in five years. Rural Electrification Corporation (REC) is the nodal agency for implementation of the scheme. A capital subsidy of US$ 1.2 billion was budgeted for implementation of Phase I of the scheme during the Tenth Plan period. The scheme was reviewed towards the end of plan period and modifications were made for its implementation during the Eleventh Plan period. Accordingly, the Ministry of Power approved a capital subsidy of US$ 6.6 billion in February 2008. The current status of rural electrification is as mentioned in the following table: Table 11: Rural Electrification Rural Electrification Status* Total No of Villages 593,732 No of Villages Electrified 498,080 % of Village electrified 83.9% Source: CEA, Ministry of Power *As of May 2010 41
  42. 42. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 42
  43. 43. DEMAND-SUPPLY POSITIONIndia: Energy Sector September 2010 Demand-supply position … (1/5) Overview For the past two decades, India has had to face increasing deficit in power supply, both for meeting its normal energy requirements as well as its peak load demand. The problem is acute during peak hours and summers, and necessitates planned load shedding by many utilities to maintain the grid in a healthy state. The average all-India shortages in 2009-10 were at 10 per cent in terms of normal energy requirement and about 13 per cent in terms of peak load. Table 12: Electricity Demand and Supply Energy Peak Demand FY (MU) (MW) Demand Availability Shortage % Demand Met Shortage % 2002-03 545,983 497,890 48,093 8.8 81,492 71,547 9,945 12.2 2003-04 559,264 519,398 39,866 7.1 84,574 75,066 9,508 11.2 2004-05 591,373 548,115 43,258 7.3 87,906 77,652 10,254 11.7 2005-06 631,024 578,511 52,513 8.3 93,214 81,792 11,422 12.3 2006-07 693,057 624,716 68,341 9.9 100,715 86,818 13,897 13.8 2007-08 737,052 664,660 72,392 9.8 108,866 90,793 18,073 16.6 2008-09 777,039 691,038 86,001 11.1 109,809 96,785 13,024 11.9 2009-10 830,594 746,644 83,950 10.1 118,472 102,725 15,747 13.3 Source: CEA 43
  44. 44. DEMAND-SUPPLY POSITIONIndia: Energy Sector September 2010 Demand-supply position … (2/5) With the shortage at both the normal and the peak levels, Indian power industry does not exhibit much cyclicality. Further, with assured returns, the margins of players and their profitability is almost independent of the economic cycles. Electricity is the most important component of primary energy. India‟s electricity consumption has grown at an average rate of 7.3 per cent during the period 2002-07 to about 577.9 TWh. Consumption has increased at a faster rate since 2002-03, reflecting buoyant industrial demand. Industrial consumers are the largest group of electricity consumers, followed by the domestic, agricultural and commercial consumers, in that order. India‟s per capita electricity consumption increased from 178 kWh in 1985-86 to 704.4 kWh in 2007- 08. Over the period, 2001-08, per capita consumption has increased at an average rate of 4.45 per cent. It is still much lower compared to the international standards. Table 13: Electricity Consumption FY Consumption (GWh) Dom. Comml. Indl. Agri. Others Total 2003-04 89,736 28,201 181,970 87,089 31,338 418,334 2004-05 95,659 31,381 199,488 88,555 32,950 448,033 2005-06 100,090 35,965 214,121 90,292 33,983 474,451 2006-07 111,002 40,220 241,216 99,023 34,210 525,671 2007-08 120,981 46,685 265,407 104,182 40,706 577,960 Source: CEA, IMaCS Research 44
  45. 45. DEMAND-SUPPLY POSITIONIndia: Energy Sector September 2010 Demand-supply position … (3/5) Electricity Requirement The demand for power is expected to increase to 975 billion kWh by 2011-12. However, at an average GDP growth rate of 8 per cent, the overall demand is expected to increase to about 1,097 billion kWh in 2011- 12, including the demand from non-utilities. Table 14: Projected Requirement of Electricity Energy Requirement Peak Demand Installed Capacity Required (Billion kWh) (GW) (GW) GDP growth at 8.0% 9.0% 8.0% 9.0% 8.0% 9.0% 2003-04 633 633 89 89 131 131 2006-07 761 774 107 109 153 155 2011-12 1,097 1,167 158 168 220 233 2016-17 1,524 1,687 226 250 306 337 2021-22 2,118 2,438 323 372 425 488 2026-27 2,866 3,423 437 522 575 685 2031-32 3,880 4,806 592 733 778 960 Source: IMaCS Research The 17th Electric Power Survey (EPS) has forecast a peak demand of 152,746 MW for 2010-11.That means a capacity addition requirement of about 72,000 MW during the Eleventh Plan period. Though the target set for capacity addition during the Eleventh Plan period is 78,700 MW, only 62,000 MW is expected to be added by the end of the period. 45
  46. 46. DEMAND-SUPPLY POSITIONIndia: Energy Sector September 2010 Demand-supply position … (4/5) Capacity Addition Plan The following table provides the Eleventh Plan targets for adding generation capacity. In a reversal of the trend witnessed during the 1990s, a substantial contribution is expected from the hydropower sector. Also, the private sector is expected to account for 15 GW of the planned capacity addition of 78.7 GW during this period. Table 15: Installed Capacity Addition Plan (MW) Sector Thermal Hydro Nuclear Grand Total 11th Plan Total 59,693 15,627 3,380 78,700 Central 24,840 8,654 3,380 36,874 State 23,301 3,482 - 26,783 Private 11,552 3,491 - 15,043 Source: CEA, IMaCS Research Recognising the large potential of coal reserves in the country as an economic and readily available resource, a significant proportion of the future capacity additions is expected to be based on coal. Further, to reduce the environmental impact and to increase efficiency, the strategies proposed by the power ministry include introduction of large-sized units (660-800 MW) employing the super-critical technology. The source-wise capacity addition as envisaged under Eleventh Plan period is as given below: 46
  47. 47. DEMAND-SUPPLY POSITIONIndia: Energy Sector September 2010 Demand-supply position … (5/5) Additional generation capacity would require Figure 5: Fuel-wise capacity addition plan (2007-2012) (%) commensurate investments in transmission infrastructure as well. Huge transmission capacity 4% enhancement is required under Phase-III of National Grid Programme, which targets an inter-regional 20% exchange capacity of 37,700 MW by 2012. With Thermal rapid industrialization and growing power Hydro requirements, many states have decided to set up Nuclear high-capacity intra-state power transmission systems. PPP model is being adopted by many 76% utilities to attract private investment in transmission sector. The future capacity addition plan envisaged is as given in the table below: Table 16: Projected Transmission Line Length (Ckm) Sector 11th Plan 12th Plan 765 kV 5,428 8,000 500 kV HVDC 5,206 4,500 400 kV 49,278 51,000 220 kV 35,371 50,000 Total 95,283 113,500 Source: CEA, IMaCS Research 47
  48. 48. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 48
  49. 49. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (1/10) Overview Prior to 1991, power markets in the country were completely in the hands of the State Electricity Boards (SEBs).Their poor financial health and the wide-spread inefficiencies in the system resulted in the initiation of reforms in 1991. The reforms initially focussed on the generation side of the business. Power was removed from the list of activities reserved for the public sector in the Industrial Policy Resolution, and the Electricity Supply Act, 1948 was amended to lift many of the regulatory impediments to private investment in the sector. The policy allowed full local and foreign private ownership of power companies and offered a thirty-year license with the prospect of twenty-year renewals and higher financial returns. Subsequently, it was felt that reforms were also required on the distribution side of the business, as the SEBs were in a poor financial condition and unable to invest in fresh capacity. In addition to direct loans to SEBs, the state governments also provided substantial guarantees to financial institutions for enabling SEBs to raise requisite resources. Reform of power distribution was, and still is, a fundamental requirement for improving commercial performance and financial viability of the power sector in India and attracting public and private investment. Improvement in cost recovery in power sector also assumed significance, particularly in the context of provision of free or subsidised power to certain consumer segments by the state governments. The setting up of CERC and the state electricity regulatory commissions (SERC) was a key element of the reform process, whereby the regulatory control was passed on to independent regulators. The commissions 49
  50. 50. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (2/10) are mandated to regulate the tariffs charged to consumers, promote investment and advise the government on power sector policies. The next step was separating the generation, transmission and distribution functions of the integrated SEBs. Starting with Orissa, many states have unbundled their SEBs to form separate entities. This has enabled independent functioning of the three segments in terms of every-day operations, investment assessment, project identification and deployment of funds. Key Policies The Electricity Act, 2003 The Electricity Act, 2003, provides a comprehensive yet flexible legislative framework for power sector development.The key objectives of the Electricity Act, 2003 are as follows: • Consolidation of the laws relating to generation, transmission, distribution, trading and use of electricity with broad measures conducive to development of the entire electricity industry • Promotion of competition in the industry • Protection of consumers‟ interest and facilitation of electricity supply in all areas 50
  51. 51. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (3/10) • Rationalisation of electricity tariffs • Ensuring transparency of subsidies • Promotion of efficiency and environmentally benign policies • Constitution of CEA, regulatory commissions and establishment of an appellate tribunal National Electricity Policy, 2005 The National Electricity Policy (NEP), 2005 aims to achieve accelerated development of the power sector, supply of electricity to all, and protection of interests of consumers and other stakeholders. It has tried to address the issues pertaining to availability of energy resources, technologies for using those resources, economics of generation using different resources, and the country‟s energy security. The salient objectives of the policy are as follows: • Access to electricity for all households in next five years • Power demand to be fully met by 2012 • Energy and peaking shortages to be overcome and spinning reserve to be made available 51
  52. 52. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (4/10) • Supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates • Per capita availability of electricity to be increased to over 1,000 units by 2012 • Minimum lifeline consumption of 1 unit/household/day by year 2012 • Financial turnaround and commercial viability of the electricity sector • Protection of consumers‟ interests The policy requires the state governments to prepare a five-year plan with annual milestones to bring down AT&C losses. It also aims to facilitate investment in distribution by ensuring adequate returns for utilities. National Electricity Policy, 2005 In January 2006, the Government of India notified the National Tariff Policy, 2006, which aims to ensure the following: • Financial viability of the power sector 52
  53. 53. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (5/10) • Attract investments • Availability of electricity to consumers at reasonable rates • Transparency and consistency in regulatory approach to tariff determination The regulatory commissions are guided by the Tariff Policy, which stipulates that procurement of future requirement of power is to be done through competitive bidding. A two-part tariff structure is to be followed for awarding all long-term contracts to facilitate merit order despatch. Furthermore, power purchase agreements (PPA) are required to ensure adequate and bankable payment security mechanism to mitigate the risk of default. Integrated Energy Policy, 2006 The broad vision behind the Integrated Energy Policy is to meet the energy demand of all, including the lifeline energy needs of vulnerable households.The emphasis is on safe and convenient energy at the least cost in a technically efficient, economically viable and environmentally sustainable manner. 53
  54. 54. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (6/10) National Action Plan on Climate Change In 2008, India announced its first National Action Plan on Climate Change (NAPCC) outlining existing and future policies and programmes to address climate change mitigation and adaptation.The plan includes the National Solar Mission, National Mission for Enhanced Energy Efficiency, National Mission on Sustainable Habitat, National Water Mission, National Mission for Sustaining the Himalayan Ecosystem, National Mission for a “Green India”, National Mission for Sustainable Agriculture and National Mission on Strategic Knowledge for Climate Change. Industrial Policy for Renewable Energy The Government of India is promoting medium, small, mini and micro enterprises for manufacturing and servicing of various types of renewable energy systems and devices. The industrial policy measures include the following: • Exemption from industrial clearance for setting up renewable energy units. • Exemption from CEA clearance for power generation projects of up to US$ 238.1 million. • Five-year tax holiday for renewable energy power generation projects. • Soft loan made available through IREDA for renewable energy equipment manufacturing. 54
  55. 55. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (7/10) • Facilities for promotion of export-oriented units for renewable energy industry. • Financial support extended to renewable energy units for taking up R&D projects in association with technology institutions. • Permission to private sector companies to operate as distribution licensees or generating entities. • Custom duty concession given for renewable energy parts and equipment, including for machinery required for renovation and modernisation of power plants. Excise duty on a number of capital goods and instruments in the renewable energy sector has been reduced or exempted. • Excise duty reduction or exemption on a number of capital goods and instruments used in the renewable energy sector. The Mega Power Policy Under the Mega Power Policy, projects of more than 500 MW (and 350 MW in special category states) with inter-regional power transmission capabilities qualify to receive financial incentives. Under the policy, a qualifying project can avail of financial concessions such as zero customs duty on import of capital equipment and deemed export benefits under the Foreign Trade Policy and income tax holiday under Section 80-IA of the Income Tax Act. Tax holidays are available to such projects for 10 years within 15 years of commissioning. States can also provide exemptions on local taxes and duties. Projects in the public sector get 15 per cent price preference. 55
  56. 56. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (8/10) The Ultra Mega Policy The government has launched an initiative for developing 4,000 MW coal-based ultra mega power projects (UMPPs). The objective behind this initiative is to obtain cheaper tariffs using economies of scale and mitigate the risks related to acquisition of land, fuel, water and statutory clearances. These projects are awarded to developers on the basis of tariff-based competitive bidding. Project-specific shell companies (SPVs) have been set up as wholly-owned subsidiaries of Power Finance Corporation Limited to tie up necessary inputs such as land, captive mining blocks for fuel and water, and to facilitate in-principle environment and forest clearances. Each SPV is transferred to the selected developer along with the clearances obtained and resources secured. So far, nine sites have been identified by CEA for the proposed UMPPs.These include four pit-head sites, each, in Madhya Pradesh, Jharkhand, Orissa and Chhattisgarh, and five coastal sites, each in Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and Karnataka. Some states are keen to have additional UMPP sites. The New Hydro Policy, 2008 A new hydro policy was approved by the Union Cabinet in January 2008.The key features of the policy are as follows: • Both the public sector and the private sector developers can be allocated projects without having to go through the tariff based competitive bidding route. The tariff would be decided by the appropriate regulatory commission. 56
  57. 57. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (9/10) • The developers have been allowed merchant sales of up to 40 per cent of the saleable energy. This allows them the flexibility of diversifying revenue realisations instead of being bound by fixed PPAs. • The policy allows 12 per cent free power to the local state government and an additional 1 per cent for a local area development fund that would provide a regular source of income to build replacement infrastructure for the displaced people and to fund welfare schemes for them. • For the families affected by projects, the policy provides for 100 units of free electricity per month for a period of 10 years. In addition, the policy stipulates that at every project site, an industrial training institute would be set up six months before the beginning of the project work to train the affected people to undertake skilled and semi-skilled jobs on project. The 50,000 MW Hydroelectric Power Initiative The Central Government launched a 50,000 MW hydropower initiative in May 2003. It was felt that an ideal hydro-thermal mix in the ratio of 40:60 is necessary for building flexibility in power system operations to suit varying load patterns during a year. Both base-load and peak-load requirements can be sufficiently met with such a mix while maintaining the grid stability. The Electricity Act, 2003, requires hydropower developers to obtain approval from CEA, which in turn is required to assess whether a proposed project‟s river works could jeopardize the prospects of the best development of the river or its tributaries for power generation while being consistent with the requirements of drinking water, irrigation, navigation, flood-control or other public purposes. CEA must 57
  58. 58. GOVERNMENT POLICY AND REFORMSIndia: Energy Sector September 2010 Government policy and reforms … (10/10) make this assessment in consultation with the central and the concerned state governments. Under this initiative, a pre-feasibility report (PFR) is completed by CEA before a project is offered to a developer. PFRs have been prepared for 162 projects with a cumulative capacity of 34,020 MW and now detailed project reports (DPR) are under preparation.The projects are located in Andhra Pradesh, Arunachal Pradesh, Chhattisgarh, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Orissa, Sikkim and Uttaranchal. Open Access and Power Trading Open access is a key feature of the Electricity Act, 2003. Open access to transmission and distribution on payment of charges to utilities enables a variety of licensees to use spare capacities to transmit power from generation points to load centres. Power trading through the open access system allows freedom to buy and sell electricity. This has also helped develop power exchanges in the country. 58
  59. 59. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 59
  60. 60. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (1/10) Regional Cooperation South Asian countries have a great potential for electricity generation and have complementary endowments on a contiguous landmass, which is a prerequisite for developing an integrated power infrastructure, including power grids and gas pipelines. If India has an edge in producing coal-based energy, Pakistan and Bangladesh have the benefit of gas-based power generation, while Nepal and Bhutan have abundant potential for hydropower. These regional complementarities can be exploited for mutual benefit. A regional network of gas pipelines and power grid is expected to enhance energy security of India. It is also likely to significantly benefit the neighbours by reducing their cost of fuel transportation and help them in harnessing their energy resources optimally. Bangladesh has substantial reserves of gas – about 22.9 trillion cubic feet (TCF) – of which 16 TCF is proven reserves. There is potential for Bangladesh to export gas to India. There is a huge potential for hydroelectricity in the Hindukush-Himalayan region, of which only 11 per cent has been exploited so far. Bhutan has hydroelectric potential to generate 30,000 MW and Nepal could produce 43,000 MW, and the two could export power to India and Bangladesh. India is in the process of upgrading transmission lines to fetch power from Nepal and Bhutan to its states of West Bengal, Bihar and Uttar Pradesh. However, it may require a corridor through Bangladesh for transmission lines. 60
  61. 61. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (2/10) Merchant Power Merchant power plants (MPP) are a product of the restructured electricity industry. MPPs fill different niches in the market: some provide steady supply to the grid while others fire up only when there is high peak- demand. Given this strong incentive of high returns, MPPs strive to produce power efficiently and supply to locations where it is needed the most. Private sector interest in power also stems from the possibility of selling power at high prices in the present supply-constrained scenario. Renewable Energy Option The country has an estimated renewable energy potential of 85,000 MW from commercially exploitable sources. The potential for wind power is 45,000 MW, for small hydro 15,000 MW and for biomass and bio- energy it is 25,000 MW. In addition, India has the potential to generate 35 MW per sq km using solar photovoltaic and solar thermal energy. The Central Government has proposed an addition of 15,000 MW of renewable energy generation capacities during the Eleventh Five-Year Plan period. The total investment on development of renewable energy sources during the plan period is expected to be about US$ 2 billion. The renewable energy industry is identified as a priority lending sector by the Reserve Bank of India. 61
  62. 62. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (3/10) Government Incentives • SERCs have been mandated to promote renewable energy through renewable purchase obligations, which require distribution companies to source up to 10 per cent of their power from such sources. • The key incentives for wind energy include a provision for 80 per cent accelerated depreciation in the first year, a 10-year tax holiday, income tax waiver on power sold to utilities and privileged tariffs. • Projects that do not claim accelerated depreciation benefits are entitled to generation-based incentive of US$ 0.011 for each kWh of power sold to IPPs with capacity of more than 5 MW. • India offers several subsidies to solar power products, such as solar lanterns, home lighting systems besides generation-based incentives of up to US$ 0.286/kWh to solar power plants. • For small hydropower projects (less than 3 MW), incentives include concessions on customs duty, capital subsidies, 10-year tax holiday and other state-level incentives such as exemptions from sales and electricity tax and preferential tariffs. • Incentives for biomass energy include accelerated depreciation, import duty concessions, excise duty exemption, capital subsidies and a 10-year tax holiday. Several export incentives have made India a key player in the global market for wind turbine generators (WTG) and solar photovoltaic cells and panels. 62
  63. 63. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (4/10) Policy Incentives • 100 per cent accelerated depreciation in the first year of the installation of projects and systems • No excise duty on manufacture of most of the finished products • Low import tariffs for capital equipment and most of the materials and components • Soft loans to manufacturers and users for commercial and near commercial technologies • Five-year tax holiday for power generation projects • Remunerative price for grid-feeding renewable energy units under the alternate power purchase policy of state governments • Facility for banking and wheeling of power • Facility for third-party sale of renewable energy • Financial incentives and subsidies for devices with high initial cost • Involvement of women in implementation of renewable energy programmes 63
  64. 64. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (5/10) • Encouragement to NGOs and small entrepreneurs • Special thrust on renewable energy in the North-Eastern region of the country; 10 per cent of planned funds earmarked for North-East for enhanced and special subsidies • For municipal waste-to-energy projects, allotment of land on long-term basis at token lease rent and supply of municipal waste at project site free of cost In addition, the Central Government gives financial assistance to develop solar cities in the following manner: • Up to US$ 0.12 per city for a period of five years • Up to US$ 0.03 million for preparation of a master plan • Up to US$ 0.03 million for institutional arrangements • Up to US$ 0.5 million for awareness generation, capacity building and other promotional activities • Up to US$ 0.03 million for oversight of implementation during five years The government has created a liberal environment for foreign investment in renewable energy projects. Key highlights of the foreign investment policy are: 64
  65. 65. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (6/10) • Permission for foreign investors to form joint ventures with Indian partners for financial and/or technical collaboration and for setting up of renewable power generation projects • Liberalised foreign investment approval regime for easy investment and technology flows to joint ventures • Automatic approval for proposals for up to 74 per cent foreign equity participation in a joint venture • Permission for 100 per cent foreign equity with special approval from the Foreign Investment Promotion Board (FIPB) • Permission for setting up liaison offices in India • Encouragement for foreign investment in renewable energy generation projects on build-own-operate basis State governments have also announced promotional policy packages in the form of wheeling, banking and buyback guarantee in addition to considerable tariff escalations for energy from wind, co-generation, small hydro, and biomass projects. In order to promote the sector, some state governments provide concession and exemption in state sales tax and octroi. In addition, state renewable energy development agencies play a hand-holding role in the development of renewable energy projects. 65
  66. 66. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (7/10) Private Participation To enable the private companies to enter the power sector, the government has introduced many policies and regulations under the Electricity Act and the National Electricity Policy. By 2012, India requires an installed capacity of about 200,000 MW. A huge capital investment is required to meet this target. This has created investment opportunities in power generation, transmission, and distribution through the PPP mode. India‟s power sector is still ridden with a large demand-supply gap. This has necessitated some strategic initiatives. There are strong opportunities in transmission network area – additional 60,000 ckm of transmission network is expected to come up by 2012 with a total investment of about US$ 200 billion. Coal Linkages In 2003, the Government of India issued guidelines for allocation of coal blocks to power plants to ensure commensurate fuel supply for sustained generation at cheaper prices. Coal blocks are allocated to projects of CPSUs, state PSUs, joint venture companies, IPPs, UMPPs, captive power plants supplying at least 25 per cent of their capacity to the grid and MPPs: 66
  67. 67. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (8/10) • Projects proposed to be executed by the CPSUs, state PSUs and SEBs are accorded the first priority. Moreover, their expansion projects get a higher priority over new projects. • Joint venture projects between the centre and a state or between the two states have the next priority. Joint ventures between private sector and the centre or a state have the same priority if the public sector partner has substantial say in the management. Carbon Credit Market The Clean Development Mechanism (CDM) is well accepted in India, which is among the leaders in the carbon credit market. The country is expected to generate 573 million Certified Emission Reduction (CER), or carbon credits, by 2012. The Government of India and industry have been very proactive in their approach to the carbon credit market. This has helped India gain an early mover advantage in CDM. As of July 2010, 520 projects have been registered, which is 22.5 per cent of the total projects registered with CDM Executive Board of UNFCCC. The majority of the CDM projects have come from renewable energy industry. Most of the CDM projects in India are undertaken on a unilateral basis – developed independently by local stakeholders. Indian companies in the power sector are involved in development of alternative sources of energy and have reaped benefits from carbon trading. 67
  68. 68. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (9/10) Energy Efficiency and Conservation Under the Energy Conservation Act, the Bureau of Energy Efficiency (BEE) has begun to enforce mandatory energy audits and establish consumption norms for nine specified energy-intensive industries. In addition to government policies, efforts of multilateral and bilateral organizations to conserve energy across a wide range of sectors have attracted new domestic and international energy efficiency companies to this market. The increasing appeal of energy efficient processes and products over the past few years has led to investors‟ interest in funding the energy efficiency sector. The potential for energy savings is enormous: an estimated 183.5 billion kWh per year, according to reports prepared by the Asian Development Bank and the BEE. The sector-wise energy consumption on an all-India basis for the year 2007-08 is given in the following table. A conservative estimate of potential for savings from energy efficiency is about 15 per cent of the electricity consumption. 68
  69. 69. OPPORTUNITIES IN THE INDIAN POWER SECTORIndia: Energy Sector September 2010 Opportunities in The Indian power sector … (10/10) Table 17: Energy Saving Potential (Billion kWh) Sector Consumption Saving Potential Agriculture Pumping 92.33 27.79 Commercial Buildings* 9.92 1.98 Municipalities 12.45 2.88 Domestic 120.92 24.16 Industry (Including SMEs) 265.38 18.57 Total 501.00 75.36 Source: Bureau of Energy Efficiency, IMaCS Research *Establishments with connected load >500 kW 69
  70. 70. INDIA: ENERGY SECTOR September 2010 Contents  Executive Summary  Industry overview – Power  Generation  Transmission and distribution  Demand-supply position  Government policy and reforms  Opportunities in the Indian power sector  Investment opportunities  Industry overview – equipment industry 70
  71. 71. INVESTMENT OPPORTUNITIESIndia: Energy Sector September 2010 Investment opportunities … (1/3) Investment in Power Sector Government of India‟s estimate of the required investment in the power sector to meet the targets of the Eleventh Plan period is US$ 245.62 billion. It comprises funds required for adding power generation capacity, renovation and modernisation of existing power plants, expansion and up-gradation of transmission and distribution infrastructure, and decentralized distributed generation. The total requirement of funds for generation projects during the Eleventh Plan period is estimated at US$ 97.83 billion. Of that, US$ 48.11 billion are required by the central government projects, US$ 29.47 billion by state government projects and US$ 20.25 billion by the private sector. Opportunities in Generation, Transmission and Distribution Generation According to the 17th Electric Power Survey (EPS) of CEA, electricity demand is expected to grow to 968.7 billion kWh in 2011-12 and is further expected to grow to 1,392.06 billion kWh by the end of Twelfth Five- Year Plan period (2012-17). The estimated cost of non-conventional energy sources and captive power projects during the Eleventh Plan period is estimated as follows: • Non-conventional energy sources (13,500 MW at US$ 0.95/MW) US$ 16.07 billion • Captive power plants (12,000 MW at US$ 1.19/MW) US$ 11.43 billion 71
  72. 72. INVESTMENT OPPORTUNITIESIndia: Energy Sector September 2010 Investment opportunities … (2/3) The Government of India has identified coal blocks with reserves of 3.2 billion tonnes for allotment by the screening committee of Ministry of Coal for MPPs and captive power plants. About 10,000 MW is expected to be developed through this initiative. The estimated funds required for this initiative are US$ 9.52 billion, at 1.19 per MW. Based on current prices, the fund requirement for renovation and modernisation (R&M) of thermal and hydro power stations for the Eleventh Plan period is estimated as US$ 3.78 billion. Table 18: Fund Requirement for R & M Activities Capacity Estimated Cost Particulars (MW) (US$ Billion) R & M of Hydropower 11,278.00 0.83 R & M of Thermal Power 12,389.00 2.95 Total Funds Requirement 3.78 Source: CEA, IMaCS Research Transmission Total fund requirement for inter-state transmission system has been estimated at US$ 17.9 billion and for intra-state transmission at US$ 15.5 billion. In order to mobilise resources from private sector, the Government of India issued guidelines for private sector participation in transmission sector in January 2000. These guidelines envisaged two distinct routes for private sector participation in transmission: the joint venture route (wherein the CTU/STU shall own at least 26 per cent equity and the remaining is to be contributed by the joint venture partner) and the Independent Private Transmission Company (IPTC) route (wherein 100 per cent equity shall be owned by the private entity). 72

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