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  1. 1. ET Total number of pages 56 Volume 1 | Issue 2 | March 2013 | `50 Electricals Today More power to the industry focus Is it time for a rethink on PPA conditions? powerless DESPITE THE HYPE, P CHIDAMBARAM’S budget FAILED TO OFFER THE SECTOR ANY LIGHT AT THE END OF THE LONG, dark TUNNEL An ITP Publishing India Publication01_ET_Mar13_CoverFinal.indd 1 06-03-2013 17:39:47
  2. 2. Contents People 12 12 Cover Story Despite the hype, Chidambaram’s budget has little to offer the power sector. Is there any hope at all at the end of the long, dark tunnel? 25 Column Sanjeev Aggarwal, MD of Amplus Infrastructure, talks about green corridors to get rid of the power woes 30 Straight Talk CCI MD and CEO Maadhav Digraskar wants the government to give the power sector special status 18 38 REPORTS 18 Distribution The countrys peak demand-supply gap is ever widening. Are we looking at a likely catastrophe? 26 Finance The power sector behemoth, Tata Power, reported a disappointing quarter with losses amounting to Rs329 crore Maadhav Digraskar 38 Generation Fuel is on fire as additional capacity is getting stranded due to lack of coal supply “In today’s 30 fiercely competitive REGULARS environment it is challenging 06 News, people & events to retain our Industry round up, including new events and latest leadership developments in the extra high voltage 50 Market data segment." A look at the key industry trends and statistics. And an analysis of what the numbers mean 54 Ten things about Grid stored energy can be used to address peak power needs march 2013 | Electricals Today 303_ET_Mar13_Contents.indd 3 06-03-2013 12:20:40
  3. 3. Comment ET Power struggle One look at P Chidambaram’s budget, and one can easily tell that the finance minister – and the powers that be – are powerless to offset the dismal state of the sector. Electricals Today And you don’t have to be a power pundit to make out where the More power to the industry problems lie. Just check the stats: the number of rural households with Volume 1 | Issue 2 | March 2013 no access to electricity in 2001 was 7.5 crore; in 2011, it increased to 7.8 crore. Similarly, in 2001, the number of urban households with no access ITP Publishing India Pvt Ltd to electricity was 0.6 crore; in 2011, it increased to 0.7 crore! Notan Plaza, 3rd floor, 898, Turner Road Given these depressing figures, is there a solution in sight? The first Bandra (West), Mumbai - 400050 thing that probably comes to mind is adding new generation projects, T +91 22 6154 6000 right? Well, think again. According to one study, electricity development Deputy managing director S Saikumar should not be synonymous with setting up new projects. Publishing director Bibhor Srivastava The argument is straightforward. The end product of electricity is Group editor Shafquat Ali different in different sectors. It is luminosity in lighting, lifting water in Editorial Team irrigation, turning the wheel in industry and so on and so forth. Niranjan Mudholkar, Imran Mirza, Nirmal Menon The energy required can come not just from a new generation project Shiv Joshi & Syed Ameen Kader alone. It is one of the many options and, not necessarily, the most optimal from the point of view of cost and long-term sustainability. Advertising Business head Hafeez Shaikh It can come from a new MW based on renewable or non-renewable T +91 98331 03611 resource or, for that matter, from a saved MW through efficiency improvement. And this, to me, poses the biggest challenge for the power Studio industry: choosing the right power source, one that is both sustainable Head of design Milind Patil Designer Reshma Jhunjhunwala and affordable. It is here that we are faced with the larger problem. How does the fresh Production capacity of power reach the intended user? And therein lies the biggest Deputy production manager Ramesh Kumar failing for the sector: inefficiencies in transmission and distribution of power. On an average, more than one third of the generated electricity Circulation is lost in T&D. To make matters worse, the investment in T&D has failed to Distribution manager James D’Souza keep pace with the massive investment in generation. T +91 22 6154 6032 Enough said. You probably get the drift. But it is ironical that the government chooses to ignore the writing on the wall. Why else would Disclaimer The publishers regret that they cannot accept liability the FM present such a lacklustre budget again – a budget that offers the for error or omissions contained in this publication, how- sector no light at the end of the long, dark tunnel? ever caused. The opinions and views contained in this publication are not necessarily those of the publishers. Readers are advised to seek specialist advice before act- ing on information contained in this publication, which is provided for general use and may not be appropriate for the readers’ particular circumstances. The owner- Shafquat Ali, ship of trademarks is acknowledged. No part of this Group editor, ITP Publishing publication or any part of the contents thereof may be reproduced, stored in a retrieval system or transmitted in any form without the permission of the publishers FORM IV in writing. An exemption is hereby granted for extracts (Statement about ownership and other particulars Address: Notan Plaza, 3rd Floor, 898, Turner Road, Bandra (w), used for the purpose of fair review. about the newspaper/magazine Electricals Today to Mumbai- 400 050, Maharashtra. be published in the first issue every year after the last Editor’s Name: Shafquat Ali Printed and Published by Sai Kumar Shanmugam, Flat day of February) Nationality: Indian no 903, Building 47, NRI Colony, Phase – 2, Part -1, Sector Name of the Publication: Electricals Today (i) Whether Citizen of India: Yes 54, 56, 58, Nerul, Navi Mumbai 400706, on behalf of Periodicity of the publication/ Language: Monthly/English (ii) If a foreigner, country of origin: Not applicable ITP Publishing India Private Limited, printed at Indigo Printer’s Name: Saikumar Shanmugam Address : Notan Plaza, 3rd Floor, 898, Turner Road, Bandra (W), Press (India) Private Limited, Plot No.1C/716, Off Dadoji Nationality: Indian Mumbai- 400 050, Maharashtra. Konddeo Cross Road, Between Sussex And Retiwala Ind. (i) Whether Citizen of India: Yes Name and address of the individuals who own the Estate, Byculla (E) Mumbai- 400 027, India and published (ii) If a foreigner, country of origin Not applicable newspaper/magazine and partners or shareholders at Notan Plaza, 3rd floor, 898, Turner Road, Bandra Address: Notan Plaza, 3rd Floor, 898, Turner Road, Bandra (w), holding more than one percent of the total capital. (West), Mumbai - 400050 Mumbai- 400 050, Maharashtra ITP Publishing India Pvt.Ltd. ITP Holdings Inc, Publisher’s Name: Saikumar Shanmugam PO Box 500024, Dubai, U.A.E. Editor Shafquat Ali Nationality: Indian (i) Whether Citizen of India: Yes I, Saikumar Shanmugam, hereby declare that the particulars given above (ii) If a foreigner, country of origin: Not applicable are true to the best of my knowledge and belief. Date: February 28, 2013 Saikumar Shanmugam Signature of the publisher Published by and © 2013 ITP Publishing India Pvt Ltd 4 Electricals Today | MARCH 201304_ET_Mar13_Ed Letter.indd 4 06-03-2013 16:27:33
  5. 5. NEWS Shortcircuited: SEBs are increasingly 9 News & P NTPC-CIL DEADLOCK TO END SOON resorting to power cuts to get over the power shortage It looks like the face-off between NTPC and Coal India Limited (CIL) on the fuel sup- ply agreement (FSA) issue is nearing closure. Accord- ing to NTPC officials, most major issues with CIL have been resolved. The NTPC officials have informed the same to the CEA chairperson in a meeting held recently. A meeting to iron out the remaining differences was held between NTPC and CIL officials at CIL headquarters in Kolkata, towards the end of last month. Lanco, R-Power cut off Mine developer supply to UPPCL for FECPL Power generating companies Reliance Power (R-Power) and Lanco Infrat- Fatehpur East Coal Private Limited ech have cut off supplies to Uttar Pradesh Power Corporation (UPPCL) for (FECPL) is planning to appoint a mine non-clearance of its dues. Reliance Power’s Rosa thermal power station developer cum operator (MDO) to and Lanco Infratech’s Anpara C thermal power station have stopped sup- develop the Fatehpur East coal block, plying power to UPPCL. "Both companies have shut down generation as in the Mand Raigarh coalfield of we have not been able to make timely payments. While dues to Reliance Chhattisgarh. FECPL, a joint venture amount to approximately Rs900 crore, Lanco’s dues are to the tune of (JVC) of five independent power approximately Rs400 crore,” an UPPCL official said. producers, has issued a request for Rosa TPS in Shahjahanpur district has shut down one unit of 300 proposal (RfP) that will include three MW while Lanco Infratech’s Anpara C project in Sonebhadra different activities, development, oper- district has shut down one unit of 600 MW. Rosa and ational and mine closure, to be carried Lanco have a total installed capacity of 1,200 MW out by the chosen MDO. The develop- Rs1 ,500cr each. While the former has four units, each ment activities primarily involve con- Approximate dues of 300 MW, Lanco has two coal-fired units struction and maintenance of mining each of 600 MW. Reliance Power had got into infrastructure as well as arrangement of UPPCL a commercial dispute with the UPPCL last year of manpower and water supply for the after which it manually shut two of its four units. project. Bids are expected to be sub- The power corporation expects the situation to improve mitted by March 18, 2013, following once the Centre’s bailout package in the form of a financial which the proposals for qualification restructuring package, comes through. will be opened. 6 Electricals Today | March 201306-11__ET_Mar13_News.indd 6 06-03-2013 12:22:04
  6. 6. NEWS& People >>> FSAs still 11 Major challenge is securing fuel hanging fire supplies. Though India has the There is still a long way to go for CIL and its subsidiaries to sign all the worlds fourth largest reserves requisite Fuel Supply Agreements of coal and has recently made (FSAs). In a meeting held recently convened by AS Bakshi, chairman, CEA, gas discoveries that are notable the power utilities raised concerns regarding certain issues with Coal by global standards, inadequate India Ltd (CIL) subsidiaries. Subsidiar- fuel supplies are constraining the ies of CIL namely SECL and MCL in particular, have refused to consider growth of power sector.” medium term power purchase agree- Jyotiraditya Scindia, Union power minister ments (PPAs) necessary for the signing of FSAs. The companies have termed long term PPAs as a pre-requisite to ink the pact. The coal companies have also demanded written confirmation regarding supply of 5 per cent power Distribution companies cannot to host states on variable charges. continuously go on making losses. State governments have no choice but to MoP seeks Rs1,500 increase tariffs to make them viable.” NK Jain, vice-chairman, JSW Energy cr for discoms Determined to ensure its ambi- tious turnaround plan for ailing Reintroduction of Generation distribution companies, the power ministry had sought a Rs1,500- Based Incentive is a timely crore budgetary support for intervention for the wind industry, funding the Transitional Finance Mechanism (TFM) under the which was suffering for over scheme in 2013-14. It also wanted Rs4,500 crore for its rural electrifi- than a year. It will rejuvenate the cation programme, the Rajiv Gan- sector with more investments. dhi Grameen Vidyutikaran Yojana (RGGVY), an 80 per cent jump over This assumes greater significance the revised estimate of Rs2,492 crore for this financial year. The as the industry has an ambitious Rs1,500-crore central allocation is plan of capacity addition in to be available for states showing an accelerated reduction in com- the current plan period.” mercial and line losses. Ramesh Kymal, managing director, Gamesa India March 2013 | Electricals Today 7 06-11__ET_Mar13_News.indd 7 06-03-2013 12:22:06
  7. 7. NEWS > > at a glance > AP GENCO TO COMMENCE WORK The Andhra Pradesh Chief Minister N Kiran Kumar Reddy TPC to invest Rs500 cr in Jharkhand approved the setting up of three new thermal stations TATA Power Co Ltd (TPC), which recently signed a power distribution franchise agreement in the state. AP Genco is expected to commence work on with the Jharkhand State Electricity Board (JSEB), will invest Rs500 crore in the Jamshedpur three projects with total installed capacity of 2,400 MW. circle of the state. TPC will upgrade existing infrastructure and distribution network there These projects will be based on supercritical technology and hopes to reduce aggregate technical and commercial (ATC) losses to 13 per cent from and have capacity of 800 MW each. Reddy has directed AP the current 33 per cent in the new circle. This is TPC’s first power distribution franchise, Genco to complete these thermal power stations in the although it has distribution operations in Mumbai and Delhi with its own licence. “We state within three years. The total cost is expected to be will be investing Rs500 crore in improving the distribution network,” said Tata Power’s about Rs13,200 crore. These power plants will be setup executive director and chief financial officer S Ramakrishnan. Of this, Rs400 crore will be at Krishnapatnam in Nellore district, a green field plant raised through loans under the Restructured Accelerated Power Development and Reform and expansion at existing power plants at Vijayawada and Programme (R-APDRP) and Rs100 crore from internal resources, he said. The company aims Kothagudem Thermal Stations. to reduce ATC losses to 13 per cent over the next five years. New national power grid to start operations by Jan 2014 While integrating the southern grid with the already formed New Grid is underway, the Planning Commission has made some important recommendations and said that systems should be loaded gradually as experience is gained. This national power grid is expected to be operational by January 2014. The commission has said that for an initial period of six TPC RfP for Delhi power procurement months to one year, AC ties must be primarily used to build reliability. It has also contended To avoid the inconvenience of power cuts during the summers, that a right operating philosophy like frequency band tightening and tight control on Tata Power Delhi Distribution Limited (TPDDL) is planning to make drawals must be put in place for the synchronization to be a success. Experience of Turkey short term power purchase agreements for the period from May 16 can be utilised in this regard, the commission noted. Turkey was synchronously connected to September 15, 2013. Although Tata Power has not put a cap on to Continental Europe in September 2010. However, three phases of trial operation and the quantum of power to be supplied by the successful bidder, the stabilisation were conducted for almost two years till late 2012. distribution company (discom) has insisted on a minimum 25 MW for the entire period. In the request for proposal (RfP) document, it has WPI for power up in Jan’13 been specified that the power requirement for the 15-day period in The wholesale price index (WPI) for “Fuel and Power” for the month of January, 2013 rose May will be 50 MW. This will further escalate to 200 MW and 300 MW by 0.3 per cent to 189.5 (Provisional) from 188.9 (Provisional) for the previous month due in the months of June and July, respectively, and then drop to 150 to higher price of bitumen (6 per cent), light diesel oil and furnace oil (1 per cent each). MW during September 2013. Whatever amount the successful bidder However, the price of aviation turbine fuel (1 per cent) declined. The annual rate of inflation, agrees to supply, it has to ensure that the actual scheduling does not based on monthly WPI, stood at 6.62 per cent (Provisional) for the month of January, 2013 deviate by more than 15 per cent of the contracted power as per the (over January, 2012) as compared to 7.18 per cent (Provisional) for the previous month approved open access on monthly basis. In case such a situation and 7.23 per cent during the corresponding month of the previous year. Build up inflation arises, the seller has to pay compensation to TPDDL at 20 per cent in the financial year so far was 5.09 per cent compared to a build-up of 6.15 per cent in the of contracted tariff per KWh for the shortfall in excess of permitted corresponding period of the previous year. deviation of 15 per cent. Bidders were asked to submit their bids and supporting documents latest by February 27, 2013. TD Power Systems wins contracts worth Rs234 crore TD Power Systems Limited, a manufacturer of AC generators and solutions provider for TN invites bids for imported coal captive and independent power projects, announced that its wholly-owned subsidiary DF Tamil Nadu PSU TANGEDCO has invited bids for procurement of 4.2 Power Systems Private Limited (DFPS) has been awarded two separate contracts worth million tonnes (MT) of imported steam coal for its 1,200 MW North Rs234 crore. DFPS won a Rs225 crore order from an industrial conglomerate for setting up Chennai Thermal Power Project (Stage II) (NCTPP), which will com- of a 45 MW captive power plant in the northeast. Additionally, it also won an order from a mence operation after May 2013, and for its other thermal stations private sector steel giant for waste gas fired package boilers valued at about Rs9 crore. located in Ennore, Mettur and Tuticorin regions of Tamil Nadu. The selected bidder will have to supply coal for a six month period from Best Stall award for ABB at ELASIA June 2013 to November 2013. In case of any delay in commission- ABB participated in the 5th ELASIA 2013 at Bangalore International Exhibition Center (BIEC) ing of the NCTPP power plant, TANGEDCO has said that the time as platinum sponsors where it displayed its low voltage switchgear portfolio through a live period will be extended upto a maximum of three months, beyond exhibiting stand of 90 square metrs. The stand consisted of segment-wise exhibit panels, November 2013. As per the coal specifications mentioned by the live product demos, KNX living room automation with live demo automation and technical utility, the successful bidder will be liable to supply imported coal with paper presentations on ‘Innovative and reliable systems in Low Voltage (LV) Networks.. Gross calorific value (GCV) of 5400-6300 kcal/kg and the size of the It was an ideal platform, where major players from electrical industries like switchgear, coal should range between 0 to 50 mm. All bids need to be submitted lighting, cables and solutions for renewable energy displayed their products and solutions. latest by March 12, 2013. 8 Electricals Today | March 201306-11__ET_Mar13_News.indd 8 06-03-2013 12:22:07
  8. 8. NEWS POSCO may become a CPSU EAC defers forest Odisha criticised for The power ministry is actively con- sidering the Planning Commissions clearances diverting forest land proposal to categorise Power System Operation Corporation (POSOCO) as a An estimated Rs22,000 crore invest- for power stations Group-A central public sector under- ment continues to be at stake as the taking (CPSU). Being categorised as a Expert Appraisal Committee (EAC) The EAC has raised a red flag over Odisha Group-A CPSU will lend an indepen- has deferred its decision on clear- Thermal Power Corporation Limiteds dent stature to POSOCO, established ance-related issues for 4,100 MW of (OTPCL) proposal to divert 1,969.78 hactre as a 100 per cent subsidiary of Power- thermal and captive power plants. of land for the upcoming 3x800 MW grid in 2009. In the recently convened meeting of supercritical coal based TPP despite five The Planning Commission has the re-constituted EAC on environ- reserve forests within a 10 km range of contended that this step is necessary mental impact assessment (EIA), the project site. The committee expressed as POSOCO performs statutory func- the committee was taken aback by concern that the land for project and ash tions of national importance through the developers inability to bridge pond is too large for just one project and RLDCs/NLDC. Central Electricity the missing gaps in project-specific needs to be scaled down to the maximum Regulatory Commission (CERC) has documents despite being pulled extent possible. Moreover, OTPCL must already conferred financial indepen- up earlier for this very reason. If the make efforts to avoid using the 83.91 acres dence to POSCO. Classifying POSOCO developers fail to follow clear direc- of forest land altogether. During the EAC as a Group-A CPSU will not entail tions and furnish same old informa- meeting, the committee further directed any financial implication as a revenue tion for resolution of matters, there OTPCL to strictly adhere to Central Electric- stream is already provided for by CERC is nothing that the EAC can do ity Authority (CEA) norms and accordingly in accordance with the provisions of except push its final decisions to the present the revised layout along with the the Electricity Act, 2003. next meeting. EIA Report. Tata Power registers 50.4 MW wind project Carbon-friendly: Tata Powers Samana plant in Gujarat will reduce carbon footprints by 96,821 tonnes of CO2 Tata Power has successfully registered its 50.4 MW Wind power project at Samana, Gujarat under Clean Develop- ment Mechanism (CDM) programme by United Nations Framework Conven- tion on Climate Change (UNFCCC). The 50.4 MW wind plant was commis- sioned in May 2009 and uses 63 wind turbine generators of 800 KW capacity each to harness wind energy for power generation. Speaking on the occasion, Anil Sardana, MD, Tata Power, said, “We have always established that clean and renewable energy is the need of the hour and Tata Power will continue its efforts towards this.” The Samana plant helps in reducing an annual average of 96,821 tons of Carbon Dioxide equiva- lent, by producing 104,970 MWh per year (average) equivalent amount of clean energy. March 2013 | Electricals Today 906-11__ET_Mar13_News.indd 9 06-03-2013 12:22:09
  9. 9. DIARY Events Save Power Show Venue: Le Meridien, Cochin Date: March 2-4 The show is an excellent networking and knowledge-sharing platform for the stakeholders in the renewable energy sector. Save Power Show will showcase renewable energy and energy- efficient products and solutions under one roof, enabling visitors to acquire knowledge and information about the latest technol- ogy and the best solutions for their energy requirement. 12th Coaltrans India Venue: Grand Hyatt, Goa Date: March 12-13 The past 12 months have seen dramatic developments in the dynamics shaping Indias coal sector. Yet amidst such difficulties, the power and steel demand remains strong and Indias coal defi- cit continues to hold within it substantial exciting opportunities for growth and innovation. At this annual networking event, you can explore the new frontiers of Indias rapidly expanding coal industry. A must-attend event for coal sellers, buyers and traders. Indian Solar Summit 2013 Venue: Mahatma Mandir Convention Centre, Gandhinagar, Gujarat Date: April 18-19 With the aim to accelerate the number of solar installations in the country to reach a target capacity of 20 GW by 2022, India has established itself as one of the most attractive renewable invest- ment markets in the world. In order to make this target a reality, India’s premier solar show – The Indian Solar Summit and Exhibi- tion – is back this year. Learn about the latest technologies and development opportunities which are shaping the Indian solar market. Renewable Energy World India 2013 Venue: Bombay Exhibition Centre, Goregaon, Mumbai Date: May 6-8 Renewable Energy World India 2013 shifts from New Delhi to India’s financial hub, Mumbai, where the event was last held in 2010. With this move, the high-level conference and exhibition aims to expand its coverage from the northern part of India, which has been its main focus, to include the west and south. Under the theme, Indian Power – Time to Deliver, the event brings together decision-makers and professionals from leading companies involved in renewable energy generation, transmission and distri- bution within India and around the world. Power-Gen India & Central Asia 2013 Venue: Pragati Maidan, New Delhi Clearly, oblivious to the 25,000 volts line in Date: May 9-11 Power-Gen India & Central Asia 2013 aims to showcase the latest the backdrop, a recluse prefers a quick nap technologies and solutions in the power and energy sector as well as gather industry leaders and professionals together on a single under the sun to the vagaries of the Indian platform. The show will provide immense opportunities for com- panies and industry experts to network, develop business rela- power sector. And why not? The government’s tions and establish future business prospects. Keep up-to-date with the latest developments in the industry. promises for the man on the street remain no more than a pipe dream. 10 Electricals Today | March 201306-11__ET_Mar13_News.indd 10 06-03-2013 12:22:11
  10. 10. DIARY the big picture POWER NAP March 2013 | Electricals Today 1106-11__ET_Mar13_News.indd 11 06-03-2013 12:23:48
  11. 11. cover story E nergy demand in India is growing at a fast pace. Both domestic consumption and industrial con- sumption were at the upper curve of the growth trajectory in the 11th Plan period. This trend is expected to continue in the 12th Plan period as well. The average per capita electricity consumption in the country is pegged at 876 kwh, as opposed to that in China, which is close to 3000 kwh. According to the World Bank data, the consump- tion in India was 556 in 2008, 590 in 2009 and 616 in 2010 and climbing close to 800 kwh in 2012. It is imperative that the government takes the right steps to bridge the demand – supply gap, which is hovering at above 10 per cent. The power generators in the country, who are facing a number of issues, expected a budget that will go at least part of the way towards making the power sector financially viable. But Finance Minister P Chidambaram’s Budget 2013-2014 gave little cheer to the beleaguered sector. One market analyst put it succinctly. “The budget was neither populist nor reformist. It was actually feminist,” he said, reflect- ing the industry’s response to the budget. In contradiction to the expectation as the country heads into an election year, the budget was subtle with more concentration on women and children. BUDGET HIGHLIGHTS  Policy on blending the prices of domestic and imported coal to be introduced.  Proposal to executive coal mining projects in the Public Private Partnership (PPP) model through Coal India Limited to be floated.  5 LNG terminals at Dabhol plant to be cleared.  Shale gas exploration to be encouraged in the next fiscal.  Generation-based incentives to wind energy projects reintro- duced; Rs800 crore provided for the purpose to Ministry of New & Renewable Energy.  The tax holidays enjoyed under Section 80-IA extended for another year (till March 31, 2014).  State governments urged to participate in the scheme announced earlier for financial restructuring of discoms.  Power transmission system from Srinagar to Leh to be constructed at a cost of Rs1,840 crore (Rs226 crore will be disbursed in next fiscal).  Zero customs duty levied for electrical plants and machinery. MEDIUM-TERM SOLUTIONS The backbone of the economic 876 kwh infrastructure and energy sector, however, got a larger men- tion. The FM started with one of the major problems average per capita electricity consumption faced by the thermal power producers in the country: fuel supply constraint. “Coal imports, which crossed 100 million tonnes during April-Dec 12 Electricals Today | march 201312_16_ET_Feb13_Cover story_Budget.indd 12 06-03-2013 12:25:11
  12. 12. budget powerless Despite the hype, Finance Minister P Chidambaram’s budget has little to offer the power sector. Is there any hope at all at the end of the long, dark tunnel? By LIZA V march 2013 | Electricals Today 1312_16_ET_Feb13_Cover story_Budget.indd 13 06-03-2013 12:25:12
  13. 13. cover story ‘Corrective measures not taken’ JG Kulkarni, president, IEEMA, says the budget does little for the key electrical equipments industry We were hoping for some corrective measures to revive the downturn in the domestic electrical equipment industry, which is reeling under the twin onslaught of the slowdown in the country’s power sector that has depressed domestic demand, and the rapidly escalating imports of electrical equipment. This has resulted into under-utilisation of the manufacturing capacity for electrical equipment. Given the need to accelerate the Rural Electrification Programme, the fall in Central Plan allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) from Rs4,900 crore to Rs4,500 crore is a matter of concern. Further, the revised estimate of Rs2,492 crore against the budget estimate for 2012-13 shows that funds provided were not fully utilised. The Restructured Accelerated Power Development and Reforms Programme (RAPDRP), which is primarily focussed on reduction of AT&C losses, has also seen a sharp decline in Central Plan allocation from Rs3,114 crore (BE 2012-13) to Rs575 crore given the gross under-utilisation of funds allocated last year. Only Rs1,500 crore were utilised out of the total allocation of Rs3,114 crore. The financial health of the discoms is a critical success factor for the viability of the electrical manufacturing sector. Although a sum of Rs1,500 crore has been allocated for debt-restructuring of discoms, till date, only a handful of states have evinced interest in the debt-restructuring plan the central government announced some months ago. However, the budget did include some measures that would certainly provide relief to this sector. These include: • Extension of the sunset date by one more year for the power sector for claiming 100 per cent deduction of profits under section 80 IA. • Generation-based incentives for wind energy. • Rs50,000 crore provision for tax free infrastructure bonds. • For the growth of Micro, Small and Medium Enterprises (MSMEs), the continuation of the benefits for three more years, despite their growing out of their respective category. • Impetus to investment in plant and machinery above Rs100 crore through investment allowance of 15 per cent to manufacturing companies. • Funding and other incentives for the ambitious target of skilling 50 million people in the 12th Plan. This will enhance availability of skilled labour and talent. While the intent of the budget is to accelerate the GDP growth in the 12th Plan, it will be constrained by an absence of matching impetus to the electrical equipment manufacturing sector in particular and in the value chain of power covering generation, transmission and distribution, on the whole. 14 Electricals Today | march 201312_16_ET_Feb13_Cover story_Budget.indd 14 06-03-2013 12:25:15
  14. 14. budget 2012, are expected to go up to 185 million tonnes in 2016-17,” Chidambaram said. For relief in the medium term, he announced the introduction of a policy on blending imported coal and domestic coal. He said that the government was working out a public private part- nership (PPP) model for coal mining. Commercial coal mining is being considered as a possible solution to increase the output to meet the growing demand for coal from power producers. Another issue related to coal Coal is linkage, which may get sorted out, thanks to the railway budget, which earmarks Rs100 crore for coal linkage facility. Gautam Adani, chairman, Adani Group, pointed out, “The upward revision of import duty, from 1 per cent to over 4 per cent on steam coal imports will adversely impact the industry as it will lead to increase in the cost of power generation. This is The announcement to equalise a little amusing as the country has a huge deficit in coal and the government is trying to minimise cost by augmenting coal sup- custom and CVD for steam and ply through various initiatives for domestic production as well bituminous coal used in thermal as opting for price pooling of domestic and imported coal.” India Ratings, in its reaction on the budget announcement, power generation at 2 per cent each provides said, “While it may be a little premature to form a definitive assessment, the governments plans to encourage public - pri- clarity to claims that are raised otherwise by vate partnership projects along with the state-owned Coal India the customs department” should, prima-facie, be deemed positive if it helps accelerate and supplement domestic coal production, particularly to meet Anil Sardana, managing director, Tata Power the acute fuel scarcity facing power projects.” Anil Sardana, managing director, Tata Power, one of the country’s largest power producers, said, “We are thankful for the ministers announcement to equalise custom and CVD for steam LENDING TO THE SECTOR and bituminous coal used in thermal power generation at 2 per Cheaper loans and making lending to power projects priority cent each as this provides clarity to claims raised otherwise by have been long-pending demands of the countrys power gen- the customs department.” erators. This time, the finance minister has relented. Says Sabyasachi Majumdar, senior vice-president, corporate sector ratings, ICRA Ltd, “The government has proposed a num- ber of measures for augmenting the availability of long-term funds at competitive rates. These include encouragement for creation of infrastructure debt funds (IDFs), fixation of limit for fund raising through tax-free bonds at Rs550 billion and credit enhancement mechanism through IIFCL.” The major cheer, however, was reserved for the wind sector with the re-introduction of Generation Based Incentive (GBI). Also, the tax holiday for wind projects under 80 IA has been extended for another year. In addition, the finance minister has announced an allocation of fund from the National Clean Energy Fund (NCEF) through IREDA with a life span of five years to make the renewable energy lending cheaper. Ramesh Kymal, chairman, Indian Wind Turbine Manufactur- The upward revision of import duty, from ers’ Association (IWTMA) and managing director, Gamesa India, 1% to over 4 % on steam coal imports said, “The re-introduction of GBI is a timely intervention for the wind industry, which was suffering for more than a year. This will adversely impact the industry as it would certainly rejuvenate and boost the sector with more investments. Reintroduction of GBI assumes greater significance will lead to increase in the cost of power.” as the industry has an ambitious plan of capacity addition in the current plan period. I am confident that the industry would Gautam Adani, chairman, Adani Group bounce back by 2014-15 and may be able to cross the set target of 5,000 MW capacity every year.” march 2013 | Electricals Today 1512_16_ET_Feb13_Cover story_Budget.indd 15 06-03-2013 12:25:15
  15. 15. COVER STORY cover story RUNNING FOR COVER? The power generators in the country, who are facing a number of issues, expected a budget that will go at least part of the way towards making power sector financially viable. But Chidambaram’s budget gave little cheer to the beleaguered sector. TOO LITTLE, TOO LATE The most vital segment of the power sector – the electrical industry – is unhappy with the budget. JG Kulkarni, president, Indian Electrical and Electronics Manufacturing Association (IEEMA), said, “We were hoping for some corrective measures to revive the downturn in the domestic electrical equipment indus- try which is reeling under the twin onslaught of the slowdown in the country’s power sector, which has depressed domestic demand, and the rapidly escalating imports of electrical equip- ment. This has resulted in under utilisation of the manufacturing capacity for electrical equipment.” Looking at the mammoth problems faced by the sector and recalling the near-total blackouts last year, experts says these measures seem like small drops in the ocean. There should be a way to end the policy paralysis in the power sector with an investor-friendly policy environment. But that may have to await the next government as UPA gears up for elections in 2014. The question for the power sector is: will it be too late by then? 16 Electricals Today | march 201312_16_ET_Feb13_Cover story_Budget.indd 16 06-03-2013 12:25:16
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  17. 17. Special report 18 Electricals Today | march 201318_24_ET_Mar13_Special Report_Competative Bidding.indd 18 06-03-2013 12:26:59
  18. 18. distribution lights out! India’s peak hour demand-supply gap to widen to 22%. is there a way out? BY Liza V T he power situation is fast progressing from a ‘warning’ to a crisis situation. While ‘Power for all’ is still a distant dream, the situation is fast becoming critical! Last year, during the summers, northern parts of the country faced a complete black out for 48 hours. The reason: Over-drawing by some utilities to meet demand owing to fuel supply issues. But the question that is staring us point blank right now is whether we are heading towards another crisis bigger with fast dwindling fuel supply. The ambitious plan of adding 75,000 MW to the grid in the 12th five year plan will remain a mirage, point out industry experts. For a country which added between 50,000- 60,000 MW in the 11th Plan period (2007-2012), 75,000 MW should be an easily attainable target. But that does not seem to be the case. Total installed capacity in the country stood at 2,11,766 MW with less than 1,000 MW addition from the December 2012 levels. Out of this, the contribution from the thermal sector is 738 MW. This too was achieved mainly because of the commis- sioning of one unit of 660 MW of the Mundra UMPP in January. During the 12th Plan period, according to the plan CEA document, the government plans to add a capacity of 72,330 MW from thermal power projects. But the plan is likely to hit a road-block with the fast changing fuel supply scenario, both domestic and internation. The Problem The investment in the power sector by private players is expected to reach over 50 per cent by 2017. In 2011, during the last phase of the 11th Plan period this was below 30 per cent. march 2013 | Electricals Today 1918_24_ET_Mar13_Special Report_Competative Bidding.indd 19 06-03-2013 12:28:23
  19. 19. Special report Total installed capacity as on 31-12-2012 The private sector came into the picture when they proved that they have the ability to complete projects in an efficiently and timely Fuel MW % manner. It was a smooth run both for the companies and the govern- Total Thermal 140976.18 66.82 ment till recently when the competitive bidding process started and Coal 120,873.38 57.29 projects were awarded. The scene took a U-turn when the fuel supply Gas 18,903.05 8.96 issue came to the fore with the rising prices of coal. Oil 1,199.75 0.56 Hydro (Renewable) 39,339.40 18.64 The beginning Nuclear 4,780.00 2.26 Under the competitive bidding Case I, the bids were awarded in two RES** (MNRE) 25,856.14 12.25 categories Total 2,10,951.72 100.00 i) Projects awarded with domestic coal supply guarantee by Coal Source: CEA India Limited (CIL) ii) On 100 per cent imported coal. Details of Captive Coal Block Allocation to Power Sector Under both categories large power projects were envisaged Utility Coal Blocks Geological and awarded. Reserves (MT) As a result of the changed coal price scenario, power generators CPSU 13 6893 bidding for projects which were awarded in the second category State Utilities 39 12717 (with 100 per cent imported coal), have appealed to the authorities UMPPs 7 2607 to revisit the inked PPAs. These companies, while bidding for the Private 32 6076 projects, assumed that the coal prices will remain at the lower price Total 91 28294 bracket in the long term. However, the situation changed dramati- Source: CEA cally with coal prices going up globally and the Indonesian govern- ment, followed by the other major coal exporting countries, announc- 20 Electricals Today | march 201318_24_ET_Mar13_Special Report_Competative Bidding.indd 20 06-03-2013 12:28:28
  20. 20. distribution Higher fuel cost will transpire into decreased returns from power projects. This will result in generators defaulting in loan payments to lenders and the spiraling effect would result non-performing assets for the banks. Globalcoal New Castle index, the New Castle Export index and the Platts-1 index. This pushed up the coal price higher than what was indicated in the purchase contract. Some of the available calculation shows that in money terms, the effect of this will be an increase equivalent to 0.70 paise per unit of electricity generated using imported coal. Indonesia is not alone, Australia has imposed a pollution tax. The projects which were contracted under the competi- tive bidding process with 85 per cent domestic coal supply guarantee from the CIL and 15 per cent imported coal, are facing the real challenge because of the short fall in ing that the export prices will have to follow either an index or supply. Owing to different issues including the envi- a floor based on an index. Investors who assumed coal price at ronmental clearance and forest land, CIL is not $40-45 per tonne while bidding for power supply are now wit- able to meet demand. There is a marginal nessing the price shooting up to $100 a tonne. Those who have increase in CIL’s coal production, but contracted projects by acquiring mines abroad under captive the demand is much higher. consumption are also facing challenges with the international There are coal blocks 2,11,766 MW price. Many of the generators have bought coal mines either in awarded domesti- Australia, Indonesia and South Africa. Considering the proximity cally under the to the Indian coastline, majority of the companies went into captive use contracts with Indonesia for captive mining. The lower price in category. Total installed capacity in Indonesia was attractive for the domestic companies. The problems of green the country Companies like JSW Energy, Reliance ADAG, Adani Group, area/forest/ area markings Tata Group, Lanco have over the years acquired mines in has delayed mining by the private Indonesia. Over 50 per cent of the coal imports for the companies. In some cases the coal domestic power companies are from Indonesia. Indonesian blocks have been taken back because of companies have entered into agreement with the Indian the delay in mining. In short, projects which are companies to sell coal according to a price agreed between contracted either with domestic coal and international the two parties. This price was much lower than the coal coal are put into a situation where the signed PPAs are fall- indices which was being adopted by many countries for price ing flat. bench marking. Realising the loss of revenue, the Indonesian A higher fuel cost will transpire into decreased returns government has imposed a royalty on coal exports. For the from the projects. This may result in the generators delaying/ price calculation they have taken the average of four coal defaulting in loan payments. The spiraling effect would be indices, which include the Indonesian coal price index, the the non-performing-assets for the banks. march 2013 | Electricals Today 2118_24_ET_Mar13_Special Report_Competative Bidding.indd 21 06-03-2013 12:28:32
  21. 21. Special report PROJECTS AWARDED THROUGH TARIFF BASED COMPETITIVE BIDDING ROUTE What the industry wants ULTRA MEGA POWER PROJECTS(UMPPs) ( as on 1st July,2012) “In the current scenario, all PPAs will fall flat,” pointed out Ashok Name of the Project Name of the Date of LoI Levelised Khurana, Director General, Association of Power Producers. "The and capacity as per LoI Successful Bidder Tariff (Rs/KWH) earlier PPAs had a commitment of 85 per cent supply from CIL which came down to 70 per cent in the previous year and now MUNDRA (5x800 MW) M/s Tata Power Ltd 28.12.2006 2.264 (Gujarat) it is 60 per cent,” he points out. Bringing down the percentage SASAN (6x660 MW) (Gujarat) M/s Reliance Power Ltd 01.08.2007 1.196 of guaranteed coal by another 25 per cent is surely going to hit KRISHNAPATNAM(6x660 MW) M/s Reliance Power Ltd 30.11.2007 2.333 the profitability of the project. The government has to look at (Andhra Pradesh) the ground reality and find out a solution to resolve the prob- TILAIYA(6x660 MW) M/s Reliance Power Ltd 12.02.2009 1.770 lem at the earliest, Khurana said. (Jharkhand) Other industry experts are of the opinion that this is purely Source: CEA a contractual issue. However, the fear of not being able to pay back the loan is a harsh reality both for the generation utilities and the banks. A senior member of a state regulatory commis- can ramp up production tremendously,” pointed out Kamesh- sion, on condition of anonymity commented that “Change war Rao . There is no doubt that the companies are getting is possible if all the parties agree to it. Reopening PPAs is a affected. Third quarter results of Tata Power is a mirror to the possibility in long term contracts after 10 to 12 years, taking existing situation, he added. into consideration all the changed scenarios. However, in a According to Rao, the solution is not as easy. However, clarity competitive bidding scenario, the PPAs need to be verified.” The in coal pool pricing can address the issue to a large extent in the contracts which have been signed with fixed cost components short term. are the ones which are taking the most hit. “On the face of it, fuel appears the major villain here. The risk component in the Bailout PPAs may differ from case to case. So before jumping to conclu- The problems of fuel supply and utilities not being able to sion, the technical, commercial and legal aspects also required recover money is snowballing with each passing day. Some fear to be carefully examined,” he added. that this can grow to where the discoms financial conditions “The problems faced by the utilities are not unique. Globally are now. “Everyone fears the current situation,” says Rao. A pass- unanticipated developments have triggered similar situations through according to CERC guidelines which is viable with the for utilities. While, fuel is one issue, in Europe it was the change tariff mechanism could be a possible answer. in subsidies, while in other case it was a newer technology “Bailing out the generation utilities at this point is unfair. The which created issues,” said, Kameshwar Rao, executive direc- post-bid change may indicate that the companies which lost tor, PricewaterhouseCooper, a consultancy firm. “This is not a the bid may have been more competitive. The companies have dispute but a circumstance driven issue to look at a long term consciously decided to absorb the risk by bidding in this man- contract. Here the problem is big as fuel shortage or price ner. Firms which won the bid should have had back to back coal hike was not envisaged in the contract,” he added. supply agreement in place,” argued Shantanu Dixit of Prayas Energy Group, a Pune-based energy sector think tank. Fuel Supply The country has a peak demand deficit of over 9 per cent. The When the power producers slipped stake holders are trying to bring down the T& D losses to the 15 60% to acute fuel shortage last per cent levels. With many of the projects on hold, the question year, the Prime Minister’s which worries many is what will happen to the capacity addi- Office intervened tion plans? A power analyst from a leading financial lender is with the formula of quick to say that, “the second half of the current plan period will CILs coal supply commitement Fuel Supply Agreement see a huge slip in capacity addition. The first half will add the or FSAs. On the face of it, the slippage from the last plan period, so it will be stable.” formula, appeared to be a surety Kameshwar Rao quantifies it when he says “There will be an card for fuel supply. The generation utili- off the cliff slip which will be between 7-8 per cent. The demand ties are of the opinion that the FSA hasn’t made supply gap will increase to 20-22 per cent by 2017 (end of the any change to the problems of fuel supply yet. current plan period). This will result in even cities ending up Now, the government has suggested coal pooling prices with 4-5 hours of power cuts a day.” to address the issue immediately. Experts believe that one should look at Case 2 bidding as “The fuel price pass through shouldn’t be seen as a profit fuel supply is the sole responsibility of the government and as making formula. It should be reviewed from case to case. The a generator, the role of the utility will be limited. In that case suggestion is to constitute an independent committee to look the price of power will be stable. In the short term, government into the problem,” said Khurana. should clarify how it is going to incorporate the price pooling “Further improvement in fuel (coal) supply can be possible. formula at the PPA level. Until and unless there is transparency Government may look at more investment in coal sector which in this, the solution will be as much an eye wash as the FSAs. 22 Electricals Today | march 201318_24_ET_Mar13_Special Report_Competative Bidding.indd 22 06-03-2013 12:28:32
  22. 22. distribution The basic problem facing the sector today is fuel cost Hemant Joshi, CFO, CLP India, on the urgency to resolve PPA related issues Interviewed by Liza V Could you please explain the problems faced by thermal In the recent past many private power generators projects currently? who have signed PPAs have approached different Fuel shortages, both coal and gas shortage is the major agencies highlighting the projects become unviable problem facing thermal projects now. The shortfall in supply in the changed scenario. Your comment of domestic coal and a large increase in price of imported Many of PPAs signed earlier either were relying on has resulted in such a scenario. Projects which were planned with procuring 100 per cent domestic coal or cheap international coal. 100 per cent domestic coal are facing the problem because Coal Since then domestic coal availability has decreased and interna- India Limited (CIL), the sole supplier of coal in India is unable to tionally, coal prices have increased. Further PPAs were signed in meet all the demand. Internationally, because of change in laws in two broad categories first, on fixed tariff basis where the fuel risk countries like Indonesia and also because of the demand supply in borne by the electricity producer and secondly with the fuel situation, coal prices have increased. The sudden changes in the price changes as a 100 per cent pass through. The ones which are prices are hitting the planned projects in a major way. signed with fixed tariff are facing a major problem as their cost of march 2013 | Electricals Today 2318_24_ET_Mar13_Special Report_Competative Bidding.indd 23 06-03-2013 12:28:32
  23. 23. Special report For many fixed tariff PPAs, this is an issue that needs to be addressed urgently as cash flow from such projects can no longer support debt payments. Many of these projects have been financed by public sector banks. Thus, a power sector problem has the potential of becoming a much larger financial sector problem." production is now sometimes higher than the quoted PPA tariff. sector problem will be quickly converted in to a banking sector For many fixed tariff PPAs, the issue needs to be addressed as problem. the cash flow from many such projects can no longer support the Given all this background, some sort of concessions can be debt payments. Many of these projects have been financed by considered. I think that the sector has learned some lessons and public sector banks. In such a scenario, a power sector problem we might not see that type of aggressive bidding done earlier. I has the potential of being converted in to a much larger financial also think that banks will be more cautious and only good proj- sector problem. Something similar can also happen with the ects will be able to raise money. large amount of public debts that are supporting the discom losses. Overall, lending to power sector projects will be extremely What is the kind of dip we anticipate in capacity addi- difficult for the banks tion in the current Five Year Plan considering we are in the first year of the Plan Period battling a huge crisis? Last year after the PMO intervention we saw FSAs Could you quantify the effect? being signed between the power producers and CIL. In The effect of the current problems will be felt in the second the current scenario, it is coal pooling which is being half of the Twelfth Plan Period. The projects which were started talked about. How effective will that be? at the end of the last Five year Plan will be the ones which will be The basic problem facing the sector today is fuel costs. coming on-stream in the near future. However, very few new coal Due to shortage in domestic coal and increase in price of inter- based projects are being taken up. The story is even worse for national coal, the cost of fuel has increased. These costs have to new gas projects as the availability of gas has dipped to alarming be allocated across the system which consists of IPP’s, state and levels. Hydro continues to be plagued by tremendous delays central generators, coal India and the discoms. Who will absorb whereas even wind additions have slowed down recently due this price gap is the question which needs to be addressed? Coal to regulatory uncertainty. Overall, I think that meeting Twelfth pooling is one solution in which the cost increase is uniformly Plan targets will be challenging unless the fuel issues are urgently spread across the system. But this is zero sum game in the sense resolved. that if cost for one particular set of people goes down, then someone else in the system is faced with the higher cost. The By the end of 12th Five Year Plan it was envisaged that question about who shares the cost in what proportion is very electricity will be in an affordable bracket with all the difficult and something the government needs to decide quickly capacity addition plans coming on stream. Do you and move forward. Given the nature of the problem, it is going to think cheaper electricity will be a reality? be very difficult to please everyone with any single solution. I think cheaper and affordable are two different things. On one hand, both coal and gas costs are going up. Depreciation If these PPAs are reopened and given a revision in in the value of rupee means that cost of imported fuel has also tariff, don’t you think it will be completely against the increased. Overall, we should consider cost of producing power to structure of competitive bidding? go up. On the other hand, the national income is also increasing What you are saying is essentially correct but a pragmatic and India’s middle class and the commercial and industrial users and timely solution needs to be found. Thousands of mega- can absorb the higher costs if they are assured of a reliable source watts of capacity are currently stranded as it is not viable under of electricity. This issue gets caught up in politics where the differ- the existing PPA’s. New capacity additions have slowed down ence between costs and affordability is often lost. As they say in and demand continues to grow. Further, if these problems are basic economics, if you don’t pay a fair price for a commodity, it will not corrected now, payment defaults can happen and a power be in short supply which in this case means blackouts. 24 Electricals Today | march 201318_24_ET_Mar13_Special Report_Competative Bidding.indd 24 06-03-2013 12:28:33