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CII Report on India Power Transmission Industry

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The global power and utilities sector is undergoing significant transformation, which is challenging traditional business models, and paving way for new technologies. In all major developed economies, utility companies face a tough operating environment, and this is resulting in several new business models that are mainly based on technological advancements and customer services.

Electricity transmission grid, historically a regulated and traditionally run entity, is also moving in the same direction, and adopting several new technologies, such as Smart, energy storage, and high voltage capacity corridors. Evolution is mostly seen in developed regions with a mature power and utility sector, such as Germany, the UK and the US. However, developing economies too are looking to leapfrog to new models, and currently building plans for the future. The global smart grid market is considered as the grid of the future and is pegged at US$70 billion by 2023.

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CII Report on India Power Transmission Industry

  1. 1. India power transmission industry October 2016 Transmission Line Conference 2016 “Electricity for all” 14 October 2016 - New Delhi Knowledge partner
  2. 2. Contents Executive summary 05 India focus 11 Global focus 07 Outlook21
  3. 3. | India power transmission industry4
  4. 4. The global power and utilities sector is undergoing significant transformation, which is challenging traditional business models, and paving way for new technologies. In all major developed economies, utility companies face a tough operating environment, and this is resulting in several new business models that are mainly based on technological advancements and customer services. Electricity transmission grid, historically a regulated and traditionally run entity, is also moving in the same direction, and adopting several new technologies, such as Smart, energy storage, and high voltage capacity corridors. Evolution is mostly seen in developed regions with a mature power and utility sector, such as Germany, the UK and the US. However, developing economies too are looking to leapfrog to new models, and currently building plans for the future. The global smart grid market is considered as the grid of the future and is pegged at US$70 billion by 2023. Positive outlook with reforms to drive private sector investments The Indian electricity transmission sector has recently undergone a series of reforms, with competitive project allocation being the most important of the lot. Lack of level playing field for private investors was one of the major concerns in the sector. However, the same has now been alleviated, and close to INR18,300 crore of projects went under tariff-based competitive bidding during 2015–16. Integration of large-scale renewables Balancing supply with demand, energy with reactive power, and voltage levels with frequency becomes more difficult as renewables become a more significant component of regional and local generation capacity. Flexible Alternative Current Transmission System (FACTS) technologies are being used in almost all interconnection projects to mitigate these issues. With the cost of battery storage dropping, vendors are now providing hybrid solutions with large-scale battery storage in order to stabilize reactive power and level out the valleys inherent in many types of renewable source generation. IT infrastructure critical to support the infrastructure build As we move into the next five-year plan, there is likely to be a significant increase in transmission investments, primarily to accommodate rising renewable energy, connect remote/un- electrified areas, modernize grid, and set up smart cities. In order to support the rapidly rising renewable energy, there is a need to set up an enabling IT framework along with reforms and enabling policies. Current government initiatives such as green energy corridors, UDAY reform, smart grid vision, ISA, hybrid/electric vehicles, strengthening of national grid, etc., are positive steps in this direction. With focus on “Digital India” and “Make in India” and other such programs, the entire ecosystem looks promising to provide a comprehensive, cheap and scalable solution to support the electricity grid of the digital age. We can expect a conducive operating environment to attract investments from a broad array of investors, including foreign institutional investors who are currently looking at stable cash flows and infrastructure assets to diversify their investment portfolio. Executive summary1 India power transmission industry | 5
  5. 5. | India power transmission industry6
  6. 6. Global focus Overview Global electricity demand is expected to increase by 71.1% from 20,140 TWh in 2013 to approximately 34,460 TWh by 2040 at an average of 2.6% per year.1 This is primarily driven by electrification and economic growth in emerging markets, especially in India and China. The anticipated increase in demand will, in turn, lead to growth in global installed capacity by 71.5% from 6,163 GW in 2014 to approximately 10,570 GW by 2040, with the generation mix increasingly shifting toward clean sources of energy. The share of fossil fuels is estimated to decline from 67% in 2013 to 54% in 2040 whereas the contribution of renewable and nuclear is expected to increase from 6% to 18% and 11% to 12%, respectively during the same period.2 1 World Energy Outlook 2015 2 World Energy Outlook 2015 Additional power transmission lines will be required to facilitate the evacuation as utilities and governments across the world develop new generation projects, particularly in renewable energy. While transmission and distribution (T&D) investment will be significant in all major geographies, the largest new investment over the next decade will be in China and India, since they seek to meet rising electricity demand while also modernizing their grids. Out of the total estimated T&D investments from 2015 to 2040, 70% is expected to be contributed by non-OECD countries. According to World Energy Outlook (WEO) 2015, a total of US$19.7 trillion investments are expected to flow in the power sector between 2015 and 2040, averaging US$760 billion per year. The global electric power transmission network is set to expand from 5.5 million circuit kilometers (ckm) of high- voltage transmission lines in 2014 to 6.8 million ckm by 2020, representing a CAGR of 3%. Source: WEO 2015, IEA 1,092 Americas 494 842 Asia Oceanic Africa 284 524 3,783 Middle East 893 469Europe Eurasia Asia Latin America Exhibit 1: Region-wise T&D investment distribution (2015-2040) (US$ billion) 2 India power transmission industry | 7
  7. 7. Key drivers The investment in T&D infrastructure will be essentially attributable to requirement for new infrastructure in emerging economies while in developed nations, refurbishment of an aging infrastructure will be the key focus. Rising renewable penetration across the globe runs as a common theme driving investments in the transmission infrastructure. Aging infrastructure According to WEO, approximately 40% (US$3.4 trillion) of the total T&D planned investments will be dedicated to the refurbishment and replacement of existing assets. This is especially relevant for OECD countries, such as the US, the UK, and Germany, where around 50% of the current grid infrastructure will reach 40 years of age by 2035. For instance, in the US, investments in replacing old transmission lines out of the total transmission investments will increase from 15% (US$3.1 billion) in 2015 to 17% (US$3.7 billion) by 2017.3 Similarly, Nigeria needs US$7.5 billion investments to improve its aging infrastructure. Capacity expansion With more than 1.14 billion people still to be connected to the grid, there is a significant focus on expanding electrification thus necessitating the infrastructure build-out in countries, such as India, Indonesia, Africa, and Vietnam. Around 55% (US$4.6 trillion) of the total investments in T&D will be driven by the need to expand transmission lines to 75 million km in order to fulfil the new rising demand. 3 “Actual and Planned Transmission Investment by Investor-Owned Utilities (2009 – 2018)” By EEI 4 “Energy overview,” World Bank, http://www.worldbank.org/en/topic/energy/ overview#1, accessed 9 September 2016. China’s state owned utility is planning to invest 28% more over the next five years as compared to the previous period to expand its power-transmission network. The utility will spend CNY2.3 trillion (US$350 billion) between 2016 and 2020, surpassing the CNY1.8 trillion invested in the previous five- year period. Similarly, Indonesia is planning to expand the transmission network to 50,000 ckm by 2020.5 Integration of renewables The global electricity generation from renewable energy is expected to grow from 5,150 TWh in 2013 to 13,400 TWh by 2040 leading to a growing need for renewable integration. Approximately 5% (US$0.4 trillion) of the global investment in T&D will represent the investment for integration of renewable from 2015 to 2040. There is a considerable impetus from governments across the globe to move away from thermal generation sources, and adopt wind, solar, and hydro into the generation mix. However, such a move requires robust transmission infrastructure, to permit the integration of high shares of variable renewable energy technologies into the power system. In the European Union, around 9% of T&D investment is expected to be dedicated to renewable integration. Similarly, in the US, 76% of US$50 billion projects are expected to support renewable integration by 2023 and more than 13,000 miles of transmission lines are projected to be upgraded for renewable integration.6 Furthermore, in China, the grid companies have been mandated in March 2016 to plug in all renewable power that comply with their respective technical standards.7 5 “Summary Of Indonesia’s Energy Sector Assessment” By ADB 6 “US Transmission Investment Will Peak at $14 Billion in 2013” By GTM research 7 “China pushes for mandatory integration of renewable power” Reuters, http:// www.reuters.com/article/us-china-power-renewables-idUSKCN0WU0RF, accessed 11 September 2016 11.3 8.4 Exhibit 2: 2015-40 investment in power sector (US$ trillion) Transmission and distribution Source: WEO 2015, IEA Generation Source: WEO 2015, IEA 8.4 1.5 2.0 2.5 2.8 1.5 1.1 0 5 10 T&D Fossil fuels Wind Solar Hydro Nuclear Other renewables Exhibit 3: Global power sector investment in New Policies Scenario, 2015-2040; Total: US$19.7 trillion | India power transmission industry8
  8. 8. Grid transformation underway in several major economies, with focus on digital/ smart grid With utilities in the middle of several disruptive advancements such as widespread distributed energy, high capacities of intermittent grid-connected renewables, microgrids, storage and electric vehicles, the traditional grid needs technology advancements to ensure reliable and uninterrupted power transmission. The smart grid has been gaining acceptance widely and is being implemented in phases across Europe and has been, to a large extent, implemented in the US, where the ageing grid is considered a major challenge to be tackled. The global market for smart grid technology and services is forecasted to grow to reach US$70.2 billion by 2023. The smart grid is considered as the grid of the future, which can operate safely despite multiple and some two-way loads (EVs/ storage) connected to it. The communication infrastructure will enable utilities to have access to real-time data, which can not only help in outage management, but also allow them to take pre-emptive action to secure assets. The significant amounts of data generated by a smart grid will produce insights (with big data analytics), which will allow utilities to enhance operations, improve the topline and manage assets better. Latin America is expected to register highest CAGR growth of 10.5% for smart grids followed by Middle East and Africa (7.8%), and Asia Pacific (5.8%) by 2023. However, smart grids are vulnerable to the risk of cyberattacks, which can compromise critically important grid power system. Therefore, increasing rate of cybercrime poses a major threat to the expanding market. The cyber security market is estimated to be US$120.1 billion by 2017, while the estimated annual cost to protect against cyberattacks is US$100 billion. Source: WEO 2015, IEA Exhibit 4: Global T&D investment in New Policies Scenario, 2015-2040; Total: US$8.4 trillion 4.6 3.4 0.4 0 2 4 6 Capcity addition Aging infrastructure Intergration of renewables Source: Navigant Exhibit 5: Global smart grid revenue (2014-2023) (US$ billion) 7.6 10.1 10.2 11.2 13.0 20.1 16.7 17.3 18.1 17.8 25.8 30.2 2.3 3.3 4.4 5.0 3.3 3.3 6.5 6.5 2014 2017 2020 2023 North America Europe Asia Pacific Latin America Middle East & Africa India power transmission industry | 9
  9. 9. | India power transmission industry10
  10. 10. Power sector overview India’s GDP has grown at a rate of 7.6% in 2015–16 in tandem with an increase in industrial and commercial activity in the country. With the growth in the economy, electricity consumption is set to grow rapidly in the next decade driven by population growth, as well as increasing urbanization. This is particularly relevant given increased expectations for economic growth and reforms. India has the fifth-largest power generation sector globally, with a total installed capacity of 304.8 GW (as on 31 July 2016). The country has added 88.1 GW of capacity as part of the Twelfth Five Year Plan, achieving 98.6% of its capacity addition targets (88.5GW). Thermal power dominates the generation mix with total installed capacity of 211.9 GW (69.5%), followed by renewable power with 44.2 GW (14.5%), hydro with 42.9 GW (14.1%), and nuclear power with 5.8 GW (1.9%). The sizeable coal power project pipeline and the widespread availability of coal — from low cost Asia seaborne imports and growing domestic production — is likely to ensure that coal will remain the dominant fuel choice for India’s power sector, despite growth in renewable sources. The contribution of the private sector in terms of total capacity addition is increasing, and has now surpassed 126.6 GW (41.6%) followed by state governments and the Central Government with respective contribution of 101.9 GW (33.4%) and 76.2 GW (25.0%) at the end of July 2016. India focus Source: CEA Exhibit 6: Installed capacity mix Total capacity: 304.8GW (as on 31 July, 2016) 211.9 44.2 42.9 5.8 Thermal RES Hydro Nuclear Source: Ministry of Power Exhibit 7: Installed power capacity (GW) 159 174 200 223 243 268 298 FY10 FY11 FY12 FY13 FY14 FY15 FY16 3 India power transmission industry | 11
  11. 11. Power transmission Industry India‘s power transmission network has expanded rapidly in the last five-year plans with 32.7% growth in transmission lines, and 61.1% in AC transformation capacity from FY12 to FY16. Total transmission lines in India stood at 350,792 ckm and 6,190 ckm of transmissions lines were commissioned between April 2016 and July 2016 representing 26.5% of FY16–17 annual targets (23,384 ckm). In addition, total transformation capacity stands at 686,384 MVA at the end of August 2016 and 22,675 MVA of transformation capacity was added during April–July 2016 thus achieving 50.2% of the FY16–17 annual targets (45,188 MVA). Significant expansion of inter-state transmission system is under way to cater to the transmission requirement of new generation projects. India has an inter-regional power transfer capacity of 61,050 MW as of August 2016 as compared to a targeted capacity of 68,050 MW by FY16–17. The transmission sector has taken up several initiatives in order to expand the grid resource efficiently. For instance, to reduce Right Of Way (ROW) requirements for transmission lines, 765 kV transmission voltage is increasingly being adopted. This is due to the fact that a single-circuit 765 kV line can carry as much power as three single-circuit 500 kV lines, three double- circuit 345 kV lines, or six single-circuit 345 kV lines, reducing the overall number of lines and rights of way required to deliver equivalent capacity. Moreover, gas-insulated substations (GIS) are preferred, since the total space required for a GIS is 10% of that needed for a conventional substation. This will help combat the problem of land requirement. Competitive landscape/industry structure Power Grid Corporation of India Ltd. (PGCIL), owns 80% of interstate transmission networks while accounting for 95% of state transformation capacity. It is accountable for wheeling power that is generated by central generating utilities (CGU) and inter-state mega independent power producers. Although state-owned PGCIL dominates the power transmission segment, efforts are under way to attract increased private sector participation. Ministry of Power (MoP) announced mandatory procurement of transmission services through competitive bidding thereby, encouraging private sector investments in the industry. The private players can enter the power transmission industry via two routes — joint ventures and independent power transmission projects. Some of the key players investing in the transmission industry are Kalpataru Power, Adani Power, Essel Infra projects, Tata Projects and Sterlite Grid. The Government planned to attract an investment of INR1 trillion by offering projects under tariff- based competitive bidding (TBCB) to private companies in 2015, of which only INR183.0 billion was tendered out.8 Three projects each were won by Sterlite Grid, Essel Infra, Adani Power and PGCIL, while one was won by Kalpataru Power. These projects were shortlisted by the Central Electricity Authority, 8 Power transmission fails to attract investment”, Business Standard, http:// www.business-standard.com/article/economy-policy/power-transmission-fails- to-attract-investment-116042100375_1.html, accessed 5 September 2016 Exhibit 8: Growth of transmission sector (at end of each FYP period) Source: Ministry of Power 52 79.5 117.3 152.2 198.4 257.4 347.7 46.6 75.3 125 181.9 257.6 409.6 681.6 6th plan 7th plan 8th plan 9th plan 10th plan 11th plan as on 31 June 2016 AC Transmission lines (000' ckm) AC Substations Transformation capacity ('000 MVA) ► In collaboration with CTU and STU ► CTU and STU to hold min 26% ► 100% holding of private company ► Bid out under a competitive environment Joint ventures ModelsforPSPin transmission IPTC Exhibit 9: Models for private partnerships Source: EY analysis | India power transmission industry12
  12. 12. and Power Finance Corporation and Rural Electrification Corporation conducted the auctions. The companies are now focusing on setting-up a separate transmission business, since a significant investment is yet to be tendered by the Government.9 The scope of participation is further supported by presence of 18,452 un-electrified villages across India.10 9 “Firms gear up for bigger role in transmission”, Business Standard, http://www. business-standard.com/article/companies/firms-gear-up-for-bigger-role-in- transmission-115063001243_1.html, accessed 5 September 2016 10 “112 more villages electrified, total now 7,766”, Indian Express, http:// indianexpress.com/article/india/rural-electrification-narendra-modi-india- village-indian-government-power-ministry-2803510/, accessed 5 September 2016 Evolution of power transmission sector The year-wise development of Indian power transmission sector is explained in Exhibit 10 below. Exhibit 10: Major milestones in Indian transmission sector Source: Power Ministry 1991 2003 2011 Electricity Laws Amendment Act The Electricity Act National Tariff Policy (Amendment) 1998 2006 2016 Electricity Laws (Amendment) Act National Tariff Policy National Tariff Policy (Amendment) 1 2 3 64 5 • Private participation allowed in generation • Up to 100% foreign ownership allowed • Operators and SEBs entered power purchase agreements • SEBs to be responsible for transmission and distribution of power • Replaced earlier laws, aiming to enable reforms and restructure power sector • Released National Electricity Policy, mandatory creation of SERCs, emphasis on rural electrification, open access in transmission and distribution • Introduced non-discriminatory open access in the transmission • Exemption to intra-state transmission sector from mandatory competitive bidding up to 5 January 2013 • Exemption of select experimental works/urgent/ compressed time schedule work from tariff-based competitive bidding • Private participation enabled in transmission • CTU and STUs set up • Electricity Regulatory Commissions Act • CERC and SERCs formed • Regulator to protect and promote consumer interest, fair competition, transparency • Provide a level-playing-field for all players • Mandatory competitive bidding of all transmission projects after January 2011 • Framework to determine tariffs and rate of return for projects under generation, transmission as well as distribution • Developing transmission projects through competitive bidding process to ensure faster completion at lower cost. • Inter-State transmission charges and losses for renewable power (solar/wind) have been exempted. India power transmission industry | 13
  13. 13. Regulatory environment Power System Operation Corporation Limited (POSOCO), manages the National and Regional grid from National Load Despatch Centre (NLDC) and its five Regional Load Despatch Centres (RLDC). The transmission lines are operated in accordance with regulations/standards of Central Electricity Authority (CEA)/Central Electricity Regulatory Commission (CERC)/State Electricity Regulatory Commissions (SERC). There have been a series of reforms announced in the last two years to remove current bottlenecks, and encourage private sector participation in the sector. The Power Ministry has already proposed to move the Union Cabinet for separation of central transmission utility function from PGCIL. According to the proposal, after separation, an independent non-profit organization will carry out transmission planning and organize bidding process for projects under tariff-based bidding competition. The separation was envisaged to provide a level-playing field for all bidders of transmission projects. Some of the major initiatives taken by the GoI to improve the power sector and increase generation capacity/transmission capacity include: •• The 10-year tax holiday has been extended until 31 March 2017 for utilities that commence generation, transmission or distribution of power within the period.  •• In January 2016, the Union Government made amendments to the National Tariff Policy for electricity. The amendments include the following: • All transmission projects will be awarded through tariff- based competitive bidding and all the intra-state projects, which are above a stipulated cost will also follow a bid regime thus allowing increased flow of private capital in the power sector. • For renewable power (solar and wind), no inter-state transmission charges and losses will be levied leading to better capital utilization. • Regulators need to mandate compulsory purchase of power from micro grid situated in remote locations. •• In FY16–17, the Government allocated INR122 billion toward schemes in the power sector with primary focus on strengthening electrical distribution, smart metering and city-level GIS.11 11 “Transmission lines industry set for high growth”, Electric & Power review, http://www.eprmagazine.com/article.php?ItemId=1526%20&%20 CategoryId=17, accessed 6 September 2016 •• In the FY16–17 budget, an additional depreciation of 20%, in the year of acquisition or commission, is granted to power transmission assets. •• In FY16–17, budgetary allocation to centrally funded power distribution schemes (Deendayal Upadhyaya Gram Jyoti Yojana and Integrated Power Development Scheme) has increased by 85% to INR85 billion compared to last year. •• In FY16–17, a total of INR32.1 billion has been allocated for the development of 100 smart cities. •• In August 2016, the Government launched Transmission App for Real Time Monitoring & Growth (TARANG) Mobile App & Web Portal, “e-Trans” web platform, and Discovery of Efficient Electricity Price (DEEP) e-Bidding portal for increasing transparency in the transmission sector.12 • TARANG: Monitors upcoming projects and progress of inter-region and intra-region transmission system developed through the TBCB route. • e-Trans: A platform for e-bidding and e-reverse auction for TBCB transmission projects to facilitate better price discovery. • DEEP e-Bidding: A portal for medium term (one to five years) purchase of power providing e-bidding and e-reverse auction facility. Trends Impetus on renewable energy Renewable energy is now one of the mainstream generation source for electricity in the country. As on 31 May 2016, domestic renewable energy generation capacity stood at 42.8 GW, and is expected to reach 175 GW by 2022 according to the new target policy. As environment regulations gets stricter, coal-based plants are under pressure, and focus is shifting toward making new investments into the solar, wind, and hydro projects. This is triggering a new wave of infrastructure investments dedicated to evacuate the clean energy generation, as most cost-effective renewable energy resources maybe located far from the existing transmission networks and consumption centers. According to NITI Aayog estimates, the cost for updating inter-region and intra-region transmission lines to integration of renewables will be INR1,200 billion. Furthermore, the Government has also announced planned public investments of more than INR380 billion for transmission in the green 12 Press Information Bureau, GoI | India power transmission industry14
  14. 14. energy corridor initiative that focuses on transmission of energy from renewable-rich areas to the grids.13 There is also a growing need to strengthen transmission corridors with coordinated transmission planning. Use of power electronic devices such as SVCs, STATCOMs etc., for reactive power control also needs a thrust. Technical Standards for RE generation incorporating features such as Low Voltage Ride Through (LVRT), High Voltage Ride Through (HVRT), frequency thresholds for disconnection from the grid, active and reactive power regulation by RE generators also become important and needs to be notified at the earliest. Eight states (Tamil Nadu, Rajasthan, Gujrat, Andhra Pradesh, Madhya Pradesh, Maharashtra, Himachal Pradesh and Karnataka) have offered green grid projects worth INR50 billion in July 2016. Of these, six states (excluding Madhya Pradesh and Maharashtra) have already issued notices for tenders. Tamil Nadu, Andhra Pradesh and Rajasthan have awarded contracts at INR15.9 billion, INR5.3 billion and INR3.8 billion, respectively. Power transmission sector sees growing interest from investors Riding on reforms, and significant investments planned by the Government, private players are increasingly eyeing the transmission segment as a potential steady income generating business. There is a strong sentiment among the investor community that India’s transmission sector has key fundamentals such as strong regulatory push, expanded market base with push for renewable sector, and attractive risk return profiles. Furthermore in the last two years, the Government has taken several measures to resolve current bottlenecks and enable players to make investments in creating new T&D platforms resulting in viable opportunities for capital deployment. In April 2016, a transmission plan was established to connect 33 solar power parks (199 GW) across 21 states and these are likely to be awarded through tariff-based competitive bidding. Out of 33 solar parks, PGCIL will build transmission for only 6 parks and rest will be tendered. The cost of connecting 27 solar parks is roughly INR550 billion. In addition, in FY16, eight lines worth INR200 billion were awarded to private companies through tariff-based competitive bidding (TBCB) route. A detailed list of major projects undertaken by the private sector companies in the transmission sector during FY16 is discussed in the table below.14 13 “Realising India’s Renewable-ambition “, Economic Times, http:// economictimes.indiatimes.com/industry/energy/power/realising-indias- renewable-ambition/articleshow/53016854.cms, accessed 6 September 2016 14 “Power transmission fails to attract investment”, Business Standard, http:// www.business-standard.com/article/economy-policy/power-transmission-fails- to-attract-investment-116042100375_1.html, accessed 5 September 2016 Exhibit 11: List of projects undertaken by private sector companies Project Date of award Estimated cost (INR billion) Developer Warangal February 2016 30.0 Essel Chhatisgarh B July 2015 15.0 Adani HEPs Bhutan November 2015 12.0 Essel Chhatisgarh A July 2015 11.0 Adani OPGC December 2015 10.0 Sterlite Grid Gurgaon March 2016 10.0 Sterlite Grid Sipat July 2015 7.5 Adani NRSS 36 March 2016 5.0 Essel Maheshwaram July 2015 4.0 Sterlite Grid ATS Tanda October 2015 3.5 KPTL Source: REC and PFC Growth of smart grids and smart cities The power transmission sector is gradually moving toward smart technology. Smart technologies have the potential to create increased efficiency within the grid and help in grid balancing by providing data about usage patterns. The Government plans to establish 100 smart cities and 500 smart towns in the next 5 to 10 years with total investments rising to INR500 billion in 4 to 5 years. National smart grid mission (NSGM) has an outlay of INR9.8 billion for Twelfth FYP along with budgetary support of INR3.4 billion. 10 smart grid pilot projects are currently being implemented by state-owned distribution utilities. These projects will primarily focus on reduction of AT&C losses, peak load management, and integration of renewable. The Indian smart grid market including Advanced Metering Infrastructure (AMI), Distribution Automation (DA) and Wide-area Monitoring (WAM) is anticipated to increase from US$1.2 billion in 2015 to US$22.8 billion by 2025 growing at a CAGR of 33%. India power transmission industry | 15
  15. 15. Exhibit 12: Key updates on 10 smart grid pilot projects Project name Approved cost (INR million) Government support (INR million) Current status Assam Power Distribution Company Ltd. (APDCL), Assam 299.4 149.7 RF survey completed; Consumer survey under progress Uttar Haryana Bijli Vitran Nigam (UHBVN), Haryana 200.7 103.5 Likely completion by March 2017 Himachal Pradesh State Electricity Board Limited (HPSEB), Himachal Pradesh 194.5 97.3 Likely completion by October 2016 Chamundeshwari Electricity Supply Corporation (CESC), Mysore 325.9 163 All regulation drafted and filed; approvals from KERC awaited Punjab State Power Corporation Limited (PSPCL), Punjab 101.1 50.6 Likely completion by December 2016 Telangana Southern Power Distribution Company Limited (TSSPDCL), Telangana 418.2 209.1 Likely completion by September 2017 Tripura State Electricity Corporation Limited (TSECL), Tripura 634.3 317.2 Likely completion by March 2017 West Bengal State Electricity Distribution Company Limited (WBSEDCL), West Bengal 70.3 35.2 Likely completion by March 2017 Puducherry Electricity Department (PED), Puducherry 461.1 230.6 Likely completion by November 2017 Source: India Smart Grid Knowledge Portal The smart meter installed base in India could rise significantly with the Government mandating all meters within monthly consumption range of 200–500 units will be converted into smart meters by 2019 and all meters with monthly consumption above 500 units will be converted into smart meters by 2017 end. Smart meters can reduce AT&D losses and improper billing. Introduction of high capacity transmission corridors India is expected to witness significant power transportation over long distances in approximately next three years due to setting-up of large trunk transmission lines. Hence, there are plans to manufacture eight new large power transmission lines to transport 34,000 MW over long distances (primarily to northern and southern regions). •• The power transmission from eastern and western grids to southern grid is expected to grow from 5,900 MW to 17,000 MW by 2019–20. The 188.1% increase is attributable to forthcoming five new transmission lines worth INR4,295 billion. •• Similarly, the power transmission from the western region to the northern region is expected to increase by 111.1% by 2019–20 to 17,000 MW from the current value of 8,050 MW driven by addition of three new transmission lines.15 States in India are now looking to replace costly power with cheap power available from other region, since they are able to save INR1 to INR2 per unit of power generation by just paying additional INR0.25 to INR0.30 in transmission. •• 11 high capacity power transmission corridors (HCPTC) have been planned at an estimated cost of INR750 billion, of which PGCIL is mandated to implement the work costing INR660 billion.16 •• These projects will target bulk power evacuation requirement of Independent Power Producers (IPP) and implementation of projects will be in a phased manner, in tandem with power generation projects. 15 India to ramp up infrastructure for long distance transmission”, Economic Times,http://www.business-standard.com/article/economy-policy/india-to- ramp-up-infrastructure-for-long-distance-transmission-116011200118_1. html, accessed 8 September 2016 16 Power Ministry | India power transmission industry16
  16. 16. Exhibit 13: State-wise HCPTC presence Corridor State HCPTC – 1 Orissa HCPTC – 2 Jharkhand, West Bengal HCPTC – 3 Sikkim HCPTC – 4 Chhattisgarh, Madhya Pradesh HCPTC – 5 Chhattisgarh HCPTC – 6 Krishnapatnam, Andhra Pradesh HCPTC – 7 Tuticorin, Tamil Nadu HCPTC – 8 Srikakulam, Andhra Pradesh HCPTC – 9 Common Corridor for transfer of power SR IPPs to WR/NR HCPTC – 10 Vemagiri, Andhra Pradesh HCPTC – 11 Nagapattinam, Tamil Nadu Growing interest for institutional and private investors leading to M&A Although the industry is primarily dominated by PGCIL, the penetration of private players is observed due to government initiatives, and several companies are concentrating on establishing their foothold in the Indian transmission sector through M&A. Buyers are showing interest in power transmission companies with assets that are up and running, since they expect gains from the Government’s attempts to plug power leakage and attract investments. •• Maru Transmission Service Co. Ltd. Sold its 74% stake and Aravali Transmission Service Co. Ltd. Sold its 49% stake to a private transmission company in July 2016. Both the companies are subsidiaries of GMR infrastructure.17 •• In September 2016, Tata Power and ICICI venture announced a joint investment platform with Canadian pension fund along with sovereign wealth funds State General Reserve Fund of Oman (SGRF) as well as Kuwait Investment Authority to invest in power assets in the country.18 17 “Power transmission sector sees growing interest from investors,” LiveMint, http://www.livemint.com/Industry/KJcUp4y0ioKWxdTNDrAT9L/Power- transmission-sector-sees-growing-interest-from-investo.html, accessed 12 September 2016. 18 “Tata Power, ICICI Venture announce joint investment platform, Economic Times, http://economictimes.indiatimes.com/industry/energy/ power/tata-power-icici-venture-announce-joint-investment-platform/ articleshow/54256082.cms, accessed 12 September 2016 •• The platform targets acquisition of controlling stakes in power generating companies, both conventional thermal, hydroelectric and transmission assets in India. Several other private players will be looking at acquiring these assets. Operating assets are more lucrative because the construction risks are removed. Long-term investors such as pension funds prefer these kinds of annuity assets. We expect more such deals as companies seek to utilize the growth potential in the power transmission industry. Technological advancements to shape the evolution of transmission infrastructure The Indian power transmission industry has consistent focus on technological advancements such as High Voltage Direct Current (HDVC), better load forecast and General Network Access (GNA). Such technologies help in addressing congestion issues in the power transmission sector, since they can evacuate electricity and supply to power deficient regions. There is also a growing focus on new ways of enterprise asset management. Condition-based asset monitoring is one area of particular focus today that can be worth millions of dollars in annual savings. IT solutions that harness consumer and grid data can help utilities reduce non-technical losses, avoid truck rolls, and make their staff more efficient — all of which translate into bottom-line gains. Some of the leading private players are looking at strategic alliances to improve efficiencies. •• The US-based Sharper Shape and Sterlite Power announced a strategic partnership in August 2016 to offer drone-based inspection services in the country to support effective asset management (increasing the uptime of the grid, avoiding blackouts, and reducing transmission tariffs). High capacity transmission corridors comprising 765 kV AC and ±800 kV 6000 MW HVDC system along with 400 kV AC and ±500 kV/600 kV 2500 MW/6000 MW have been planned to facilitate transfer of power from remotely located generation complexes to bulk load centers thereby, strengthening the national grid. During the Twelfth FYP period, it is estimated that a total of around 13,000 MW of HVDC systems will be required for grid expansion and this is projected to reach15,000 MW during the Thirteenth FYP.19 19 “India’s first HVDC power transmission line to be operational on Aug 31”, Financial Express, http://www.financialexpress.com/economy/indias-first-hvdc- power-transmission-line-to-be-operational-on-aug-31/122405/, accessed 10 September 2016 “High-tech system for power transmission soon”, Business Standard, http:// www.business-standard.com/article/economy-policy/india-to-ramp-up- infrastructure-for-long-distance-transmission-116011200118_1.html, accessed 10 September 2016 India power transmission industry | 17
  17. 17. GNA is a common mesh of transmission network, which can supply power from a given point of connection to any inter- state transmission system (ISTS). CTU will access this power through systematic system studies. GNA implementation will help in driving investments. The Government is supporting GNA through the following initiatives:20 •• Planning of new transmission corridor based on GNA requirement •• Power generators not liable to pay notional point of drawl charges •• Power generators not to have to declare target beneficiaries •• Drawing utilities to have access to ISTS to the extent of their GNA; get the system created for power transfer over ISTS from anywhere in the grid Challenges Besides insufficient capacity, the lack of sophistication in India’s T&D network contributed to grid failures in the past. These are: •• The absence of an efficient grid storage system and the growing use of intermittent sources (renewables) for electricity generation meant that supply within India was not flexible enough to meet the increase in electricity demand. •• The lack of a smart grid system to monitor the entire network (inter- and intra- state) allowed state utilities to exceed their power quotas (known as “overdrawing”) from the national grid with minimal repercussions. Delay in project execution The time taken from conceptualizing to commissioning, which is currently five to six years, is much longer than global standards. Lack of incentives for early commissioning discourages rapid project execution. Currently, even if a developer is able to commission lines before the contractual commercial operation date (COD), revenues are realized from the contractual COD only. Regulatory hurdles and Right of Way Inordinate amount of time taken in seeking clearances and ROW has been another challenge faced by developers in this sector. On an average 36 months are required for executive of a transmission project, of which 24 months are consumed in receiving clearances from concerned authorities.21 20 “Govt to build general network access for hassle-free power”, Business Standard, http://www.business-standard.com/article/economy-policy/govt-to- build-general-network-access-for-hassle-free-power-115081700034_1.html, accessed 10 September 2016 21 “Five power transmission projects worth Rs 7,000 crore facing delays “ Economic Times, http://articles.economictimes.indiatimes.com/2015-01-07/ As many as 120 transmission projects have faced delays because of the developer’s inability to acquire land and get timely clearances from all stakeholders. There have also been instances of transmission lines being forced to take a different route altogether causing the entire project plan to go astray. Eight major transmission lines awarded to private players have been delayed due to regulatory hurdles.22 Furthermore, as of January 2015, transmission projects worth INR70 billion reported delays due issues with wild life clearances. High T&D losses T&D losses in India at 22% are among the highest in the world and much higher than the world average of 9.8%. These can be attributed mostly to operational inefficiencies. Improvements can be achieved through reliability based on-line condition monitoring, repair and maintenance in advance — thereby, reducing the number of forced outages. Need for a resilient grid Failure of the transmission grid, which took place in 2012, implies the need to strengthen the transmission infrastructure. Rural electrification also requires expansion of transmission facilities. Transmission towers of 765kV and 400kV collapsed due to pre-monsoon winds during the first quarter of FY15 thereby, representing the delicacy of the transmission infrastructure in India.23 Therefore, a thorough investigation and immediate remedial measures should be undertaken to address grid or tower failures because the operation of the industry is hindered, since considerable time is required (days or months depending upon breakdown) to repair such failures. news/57791540_1_power-transmission-transmission-line-clearance, accessed 10 September 2016 22 “Firms gear up for bigger role in transmission”, Business Standard, http://www. business-standard.com/article/companies/firms-gear-up-for-bigger-role-in- transmission-115063001243_1.html, accessed 12 September 2016 23 “Power transmission: A towering problem”, Indian Express, http:// indianexpress.com/article/india/india-others/power-transmission-a-towering- problem/, accessed 12 September 2016 | India power transmission industry18
  18. 18. India power transmission industry | 19
  19. 19. | India power transmission industry20
  20. 20. Growth prospects for the transmission segment are driven by increased emphasis on grid reliability, decentralization of generation due to growing share of renewable energy, and spread of new urban and rural load centers arising from urbanization and rural electrification. Despite a decoupling of global electricity demand with the GDP growth (due to energy efficiency), India will continue to see a significant rise in generation capacity, thus driving transmission investments. •• Capital expenditure of INR2.6 trillion (INR1.0 trillion in substation and INR1.6 trillion in transmission lines) is envisaged in transmission and distribution sector during the Thirteenth FYP. In terms of volume, 62,800 ckm of transmission lines and 128,000 MVA of transformation capacity will be needed as part of Thirteenth FYP. •• The estimated private sector investments in T&D will reach INR3 trillion by 2019 including government support of INR1 trillion through Deen Dayal Upadhyay Gram Jyoti Yojana and the Integrated Power Development Scheme. Opportunities will continue to grow for private players in the Indian transmission industry, since there are growing incidences of electricity shortage due to inabilities to evacuate excess power from resource-rich regions. •• For instance, in Chhattisgarh (generation capacity is more than 30,000 MW and peak demand is 3,300 MW while just 7,000 MW transmission capacity for power evacuation). •• The transmission sector in many states is likely to undergo significant technological enhancements. These advancements will primarily be noted in smart grid, drone infrastructure, GNA, and high capacity transmission corridors driven by aging infrastructure, capacity addition, potential M&A and growing focus on renewable (government support on green corridor) and private sector participation. There is likely to be a growing focus on Indian transmission assets by global investors, since GoI is planning to offer equity to international pension funds aiming at INR100 billion to INR120 billion investments thereby, monetizing transmission assets. •• In tandem with this, PGCIL is developing a business model to offload certain transmission lines to these foreign investors. •• The organization also plans to enter and achieve intra- region projects worth INR150 billion to INR200 billion through joint ventures or consultation services or complete ownership in the next two to three years. Outlook4 India power transmission industry | 21
  21. 21. | India power transmission industry22
  22. 22. India power transmission industry | 23 Planned/Announced transmission projects A detailed of on-going transmission project undertaken by PGCIL are described in the table below. Exhibit 14: List of announced projects Announced Project Name Size Government Involved Attariya (Nepal) - Uttarakhand (India) Transmission Line 400 kv Government of India Government of Nepal Butwal (Nepal) - Gorakhpur (India) Transmission Line 400 kv Government of India Government of Nepal Muzaffarpur (India) -Dhalkebar (Nepal) Transmission Line 400 kv Government of India Government of Nepal Inaruwa (Nepal) – Bihar (India) Transmission Line 400 kv Government of India Government of Nepal Source: BMI Exhibit 15: List of contract awarded projects Project Name Value(US$ million) Size Sponsor Vemagiri II Power Transmission Line, Andhra Pradesh - Karnataka 1080 - PGCIL Chhattisgarh (B) Power Transmission Project, Chhattisgarh 312 - Rural Electrification Corporation (REC) Power Finance Corporation Alipurduar Power Transmission Project, Bihar - West Bengal 277 400 kv Ministry of Power - India Sipat Power Transmission Project, Bilaspur, Chhattisgarh 136 - Rural Electrification Corporation (REC) Power Finance Corporation Chhattisgarh (A) Power Transmission Project, Chhattisgarh 130 - Rural Electrification Corporation (REC) Power Finance Corporation Chharodi Substation, Sanand, Gujarat 30 400 kv Gujarat Energy Transmission Corporation Ltd Rajasthan Atomic Power Project Unit VII & VIII Transmission project - 400 kv Power Finance Corporation Punjab - Kashmir Valley (Jammu and Kashmir) Ultra-Mega Transmission Project - 400 kv Ministry of Power Srinagar - Kashipur Electrical Transmission Line, Uttarakhand - 400 kv - Raipur (Chhattisgarh) - Wardha (Maharashtra) Double Circuit Transmission Line Project - 765 kv Ministry of Power Supaul Substations, Bihar - - - Tuticorin - Salem Pooling Station Double Circuit Transmission Line, Tamil Nadu - 765 kv - Source: BMI Appendix
  23. 23. Exhibit 16: List of projects at planning stage Project Name Value (US$ million) Size Sponsor North East - Agra (Uttar Pradesh) HVDC Transmission Link 1,800 800 kv Government of India Uttar Pradesh Transmission Line Project 1,178 1,60 kv Uttar Pradesh Power Corporation (UPPCL) Leh-Kargil-Srinagar Transmission System, Jammu & Kashmir 272 220 kv Government of India Vemagiri(Andhra Pradesh) - Hyderabad(Telangana) Transmission Line Project 213 765 kv - Baliguma Power Grid Substation, Jamshedpur, Jharkhand 6.6 100 MW Jharkhand State Electricity Board Vemagiri Sub-Station Bay Extension, Andhra Pradesh 31 400 kv PGCIL Raigarh Pooling Stations Project, Chhattisgarh - 765 kv - Baharampur (West Bengal, India) - Bheramara (Khulna, Bangladesh) Cross-Border Power Transmission Expansion Project - - Government of India Government of Bangladesh North East - Agra(Uttar Pradesh) HVDC Transmission Link Stage II - 80 kv Government of India Nepal-India Electricity Transmission and Trade Project - 400 kv PGCIL SJVN Infrastructure Leasing & Financial Services Limited (IL&FS) India - Sri Lanka Grid Interconnection Project, Sethusamudram Canal - 400 kv Government of India Government of Sri Lanka Champa Pooling Stations Project, Chhattisgarh - 765 kv - Champa (Chhattisgarh) - Kurukshetra (Hary- ana) HVDC transmission line - 800 kv - Source: BMI | India power transmission industry24
  24. 24. Exhibit 17: List of projects whose tenders are launched In Tender/Tender Launched Project Name Value (US$ million) Size Sponsor Common Transmission System (II), Odisha 394 - Power Finance Corporation Maheshwaram Power Transmission Project, Telangana - 400KV - Bhuj Pool - Banaskanta line, Gujarat - 765KV - Vindhyachal (Uttar Pradesh) - Jabalpur (Madhya Pradesh) D/C Line - 765KV - Source: BMI Exhibit 18: List of projects under construction Project Name Value Size Sponsor North East - Agra(Uttar Pradesh) HVDC Transmission Link Stage I 900 800 kv Government of India Rajarhat (West Bengal) - Purnia (Bihar) Transmission Line Project 122 450 MW - Ajmer (New) - Ajmer (RVPN) (Quad) Transmission Line, Rajasthan - 400 kv - Allahabad - Kanpur Transmission line, Uttar Pradesh - 400 kv - Angul-Jharsuguda Transmission Line, Odisha - 765 kv - Betul - Khandwa (Quad) line, Madhya Pradesh - 400 kv - Banaskantha (Gujarat) - Chittorgarh (Rajasthan) D/C Line - 765 kv - Angul Pooling Station - Jharsuguda Pooling Station Line II, Odisha - 765 kv - Chittorgarh - Ajmer line, Rajasthan - 765 kv - Dehradun (Uttarakhand) - Abdullapur (Uttar Pradesh) D/C Line - 400 kv - Dulhasti - Kishenpur D/C Line, Jammu & Kashmir - 400 kv - Jabalpur PS (Madhya Pradesh) - Orai (Uttar Pradesh) D/C Line - 765 kv - Khandwa - Indore D/C line, Madhya Pradesh - 400 kv - Source: BMI India power transmission industry | 25
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  26. 26. About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in. Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016 © 2016 Ernst & Young LLP. Published in India. All Rights Reserved. EYIN1610-097 ED None This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. AGK About CII The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes. CII is a non-government, not-for-profit, industry-led and industry- managed organization, playing a proactive role in India’s development process. Founded in 1895, India’s premier business association has over 8000 members, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 200,000 enterprises from around 240 national and regional sectoral industry bodies. CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic global linkages. It also provides a platform for consensus-building and networking on key issues. Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few. The CII theme for 2016-17, Building National Competitiveness, emphasizes Industry’s role in partnering Government to accelerate competitiveness across sectors, with sustained global competitiveness as the goal. The focus is on six key enablers: Human Development; Corporate Integrity and Good Citizenship; Ease of Doing Business; Innovation and Technical Capability; Sustainability; and Integration with the World. With 66 offices, including 9 Centres of Excellence, in India, and 9 overseas offices in Australia, Bahrain, China, Egypt, France, Germany, Singapore, UK, and USA, as well as institutional partnerships with 320 counterpart organizations in 106 countries, CII serves as a reference point for Indian industry and the international business community. Confederation of Indian Industry The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi – 110 003 (India) T: 91 11 45771000 / 24629994-7 • F: 91 11 24626149 E: info@cii.in • W: www.cii.in Reach us via our Membership Helpline: 00-91-124-4592966 / 00-91-99104 46244 CII Helpline Toll free No: 1800-103-1244 Ernst & Young LLP EY | Assurance | Tax | Transactions | Advisory

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