OPERATIONS STRATEGY FOR TATA POWER Gaurang Gupta(email@example.com) Jaikishan Gianani (firstname.lastname@example.org) Abhaya Mishra(email@example.com) Muthu Kumar(firstname.lastname@example.org) Sumanth S V (email@example.com)
Agenda 1. Indian Power sector – An overview 2. Introduction to TATA Power 3. Problem Definition 4. Alternatives 5. Opportunity evaluation 6. Detailed analysis of the chosen option 7. Manpower Estimates 8. Overall financials
Power Sector in India: Drivers and Roadblocks Drivers Rapid economic growth has created a need for dependable and reliable supply of electricity Electricity Act 2003 has opened up the power business in India leading to huge competition Private sector is set to be the Major source of growth over the next decade Advent of advance technology has led to the requirement of skillful manpower New business model with cost reduction and risk mitigation are the key focus of the sector Roadblocks Implementation of the power sector reforms extremely slow Limited supply of raw material is leading government regulations and raw material cost Majority of current capability are public held and most of the operations are done in-house
Indian Power Sector - Snapshot •India’s total installed capacity, as on 30 November.2011*, has been estimated at 185496MW (captive capacity of 19509MW) •The state contributes 83605 MW, central 57072 MW and Private sector 44818 MW as of 30 November 2011. • Installed Power Capacity in India (MW) • Installed Capacity by Sector Private Sector, a Total 185496 small part Thermal 121805 of the pie Hydro 38748 Captive 19509 Rest 20162 Nuclear 478o
Indian Power Sector - Snapshot •Thermal Power accounts for about 64% of power produced in India, followed by hydro electric power at 23%. •Of the thermal power mix still India is dependent heavily on the coal reserves contributing about 84% of the total thermal generation followed by Gas at about 15% • Generation Mix • Thermal Power Mix Coal Gas Oil 1% Coal Based Thermal– Main 15% source of energy 84%
Industry Highlights-Indian Power Generation in 2011 •The annual growth during in the energy generation during the year has been 5.55% compared to CAGR of 5.17% during the period 2001-02 to 2010-11 •Thermal power generation achieved a growth rate of 3.81% while hydro 10.01% due to revival of good monsoon. •Nuclear generation achieved a remarkable growth rate of 41.04% due to improved availability of power.
Introduction to TATA Power Power Business Generation Transmission Distribution Trading Fuel & Logistics 3000 MW installed Mumbai & Mumbai, NDPL – 30% equity stake with capacity Powerlinks AT&C losses Trading Unit Indonesian Coal Mines – reduced from 50% 10 million tonnes of coal pa 2500 Mw in JV with PowerGrid for to less than 18% assured commission 1200 Km lines Power Generation Installed Capacity ~ 3000 MW JVs for Fuel Assurance, Subsidiaries for Gen & Dist Thermal – Trombay(MH) 1580 MW Coal, Gas, Oil Jojobera(JH) 428MW Belgaum(KN) 81MW Thermal – Waste Haldia(WB) 120 MW Heat Recovery Hydro Bhira, Bhivpuri 447MW (MH) Renewables Wind farms 228 MW Solar 3 MW TATA Power is a major private sector power company of the country.
Problem Definition Revenues Net Profit ??? 10,000.00 1000 ??? Rs. (in Crores) Rs. (in Crores) 8,000.00 800 6,000.00 600 4,000.00 400 2,000.00 200 0.00 0 Year Year 30% 25% 25% 23% 20% 20% 20% 18% 17% 16% 13% 14% 13% 15% 10% 10% 8% 6% 5% 0% -5% 2003 2004 -1% -2% 2005 2006 2007 2008 2009 -2% 2010 2011 -3% -10% -7% NTPC TATA Power TATA Power’s revenues have fallen YoY while NTPC has grown in the same period.
Alternatives New Growth by entering new business Growth by Innovation. Enter power services business. Use of alternate fuels and technologies. Business Growth by scale Growth by Replication Improve operations (better Acquire new similar power companies and collections, running of plants at full set up similar power plants in other Same load, lower AT&T losses). geographies. Same Location New The four options have to be evaluated on the following parameters: 1. Feasibility- Can we do the business in India in the given context? 2. Investment- Is the business asset heavy or asset light? 3. Future cash flows- How fast will the cash start to flow in?
New power plants: Opportunities Power sector has targeted per capita consumption of 1000 KWh by the end of 11th 5 year plan (2007-2012) compared to levels of 734 KWh in 2008-09. Eleventh five year plan period sets up an ambitious capacity addition targets to the tune of 62 GW. Majority capacity addition will be seen in thermal sector which will account to 81.45% of total capacity addition by 2012. The captive power generation units represents 10% of total installed capacity. It has increased at a CAGR of 7% since 2005-06. This growing trend is set to continue. Power generation grew at a rate of 6.6 per cent in 2009–2010, as compared with 2.7 per cent in 2008–09.
New power plants- challenges Aligning new vendors and making new purchase contracts for coal and gas for thermal power stations Inventory management: The inventory of coal has to be critically managed. The demand varies with seasons and across day Delay of projects due to shortage of equipments which are to be provided by BHEL Capital Investment: Very high capital investment need for new power plants with very high Land acquisition: Delays in new land acquisition policies lead to increase in the number of unfinished projects. There is a significant mismatch of expectations of the Project Affected persons (EAP) Source: KPMG Report
Renewable Energy- Opportunity Capacity addition of 30,000 MW is envisaged during 12th plan for renewable, raising the total capacity to 54,000 MW by 2022. This will have 40000 MW of wind power alone Potential from renewable energy sources is estimated to be approximately 85,000 MW. Total potential for wind power in India is estimated at 48.5 GW The government has announced a generation based incentive of ` 0.50 per unit of electricity from wind power projects. This is done to increase investments in wind projects Research analyst firm, GBI Research predicts that the global carbon trading market will experience a dramatic growth after 2012 and reach USD 1.2 trillion by 2020. Low import duty for several raw materials and components, capital subsidy and provision of accelerated depreciation for solar projects. 100% EOU is permissible for solar products
Renewable Energy- Challenges High capital costs: Solar power plants= 17 crore per MW and operational cost 13.45-18.44 per KW. Wind Power Plant=5.5-6 crore per MW Cost of technology development and production need to be reduced significantly from current levels Quality and consistency issues of renewable power arising from the intermittent nature of electricity from wind and solar sources Creditworthiness of counter parties has posed challenges The demand for carbon allowances fell sharply in late 2008 and early 2009 as the recession reduced economic output, resulting in much lower emissions than had been expected.
Power services business-Opportunities The amendment in the Indian Electricity Act has paved the way to private players to foray into the O&M services in India. Renovation, modernization, up-rating and life extension of old thermal and hydro power plants is also likely to contribute to the quick turnaround of generation capacity expansion. National Training Policy for the power sector mandate: A minimum of 1.5% of the salary budget of the organization may be allocated for training to begin with this should gradually be increased to 5% of the salary budget 100 per cent FDI is allowed in the Indian power sector The Government of India (GoI) is planning nine ultra mega projects of 4 GW each with an estimated individual investment of US$ 4 billion (INR 192 billion).
Power services- Challenges • Competition • HVL Lab • Attracting the • Setting up a TestingO&M Consulting Training from OEM needed skilled talent new training manufacturers centre • Equipment • Development • Acquiring and of in house • Getting experienced infrastructure expertise trained manpower faculty • Effective • Salary • Cost of procurement escalation • Training & employees system to Development ensure • Training of infrastructure • Equipment availability of the manpower and spares technology
Transcending the Stereotype bewilderment Operational Decisions & Capability Strategic Decisions Operational Challenges & Capability Solution lies in transcending the obvious Identify or create Seize the unobvious Develop or acquire new market / opportunity Capability opportunity
Power Services- Market Identification Power Power Generation consumption Large / Utility Power Captive Merchant Medium plants Power plants power plants Scale Industries• Their business is to • Company owned power plants • These plants manufacture • Consumers of power. They do produce and sell power to that produce high quality and sell power in the open not own CPPs but have power retail consumers power for self consumption market agreements with state• Power sector majors like • These are gaining importance • The power is traded at companies NTPC, NHPC fall in this because of their ability to market price, risk • The number of electrical category. provide high quality and completely born by the equipment owned and operated• Core competence – uninterrupted power supply developer in these companies is operations and • Core competence is not power • Diesel and Gas are the substantial maintenance of power generation primary sources because of • This sector is the cash cow utilities • Electricity Act 2003, have lower installation cost and which has not been tapped• They are listed companies allowed the these power un- availability of coal • This sector has a substantial and have a substantial stations to supply the surplus • Core competence is trading spend on O&M and the number public holding to the grid and estimation of players are many
Operations and Maintenance Boiler Generator Transformer Load Motor Switch Gear
Operations & Maintenance To ensure continuous supply of power with the aim of having zero outages, reliable quality and optimum utilization of established facilities for serving the client Prospective Clients ► Complete onsite staff to handle daily O&M functions Oil Power Cement Metals ► Preventive maintenance and periodic repair to ensure that the plant remains in peak condition Services Offered ► Performance improvements through innovation & cross learning ► Risk management and Quality assurance ► Lead, train and manage the staff to establish a culture of technical competence, individual responsibility and teamwork ► Provide training and indoctrination to the permanent plant manager on the policies, procedures and philosophy of management Competitors
Testing and Commissioning High Extra Voltage High Insulation Testing Voltage TestingEquipment Testing Switch Relay Gear Testing Testing
Testing & Commissioning Providing advanced testing services (especially extra high voltage testing) as a complete solution from testing to installation to trial runs. Prospective Clients ► Supply, installation, testing & Oil Power Electrical Cement Metals commissioning of Electrical System of Equipment Industrial/Captive Power Plants ► Vibration Analysis and Dynamic Services Offered Balancing ► Development of turbo generator spares by reverse engineering ► Relay testing ► Commissioning (ETC) of power transformers & ETC EHV switchyards ► Turbine Re-blading and Slow Speed Balancing at site ► Annual testing contracts for process industries Competitors
Training Services Enhancing human and organizations excellence in domains of power and energy by blending frontier technologies with management to facilitate HRD interventions that are instrumental in providing reliable economic and clean power Prospective Clients Mandatory induction level training for transmission & distribution (T&D) Oil Power Electrical Cement Steel personnel similar to the generation personnel Equipment Enhance human and organizations excellence by blending frontier technologies with management leading to reliable, economic and clean power Customer satisfaction through reduction in the cost of delivered power and supply of reliable and quality power at adequate and improving levels of efficiency and accountability Establish, maintain and manage laboratories, workshops, experimental transmission lines, sub-stations and other facilities required in the pursuance of its objectives Competitors
Consulting Services Addressing customer issues for power and energy domains by providing cutting edge solutions for feasibility study of new power plants: cost reduction, benchmarking and energy conservation projects for established plants Prospective Clients • Combine strategic, financial/economic and technical Oil Power Electrical Cement Steel advice as an integrated consultancy service to public Equipment and private sector clients • Thorough Investigation in case of failures • Feasibility study, Strategic planning and economic analysis • Manage complex regulatory challenges encountered during development of generation facilities • Identify potential risks to project success, and develop operational solutions aimed at maximizing site profitability • Identify new and better ways to produce energy- related products • Analysis and development of sustainable energy systems and advice on Clean Development Mechanism, carbon footprint etc. Competitors
Manpower Estimates Testing Consulting No of Managers 4 Total Manpower 8 Annual Salary 10,00,000 No testing engineers 16 Annual Salary 15,00,000 Annual Salary 6,00,000 Wage Bill 1,20,00,000 Wage Bill 1,36,00,000 Training O&M Total Manpower 4 Power Plant Served 2 Annual salary 10,00,000 No of shifts 2 Admin 2 Industry Plants served 50 No of Shifts 1 Annual Salary 3,00,000 Manpower to run 1 shift 4 Wage Bill 46,00,000 Total Manpower 216 Salary 40,000 The figures are indicative and they will change Annual Salary 4,80,000 with the growth of TATA power’s business. Wage Bill 10,36,80,000
Overall Financials Overall Financials (` crores) 1800 236 250 1,573 1600 1400 200 1200 1,098 144 142 150 1000 800 694 92 84 100 600 401 53 400 45 50 29 200 16 151 10 0 0 2012 2013 2014 2015 2016 Total Revenue EBIT Net Profit Even with a pessimistic approach, TATA Power will get to `1500 crores revenues in the next 5 years. The net profit will be in the tune of `142 crores. And all this will happen without any significant addition of assets (capital investment).