This document discusses fuel supply issues and risk mitigation measures for India's power sector. It notes India's growing energy demand driven by economic growth. Key fuel supply issues include stagnating domestic coal production, reliance on coal imports, declining domestic gas and oil production, and infrastructure challenges. Suggested risk mitigation measures involve incentivizing higher plant efficiencies, procuring coal from overseas mines, discoms taking responsibility for fuel procurement, supporting renewable energy through policies like RPOs and storage investments, and demand-side measures like energy efficiency programs and tariff rationalization. The document advocates for reforms to address India's fuel supply challenges and ensure reliable power for its growing economy.

1. Fuel Supply Issues: Risks &
Mitigation Measures
The 14th Regulators & Policymakers Retreat
Goa, India
August 1-4, 2013
Sunil Wadhwa
CEO, IL&FS Energy Development Company Limited

2. Contents
Background1
Fuel supply Issues/ Risks2
2
Risk mitigation measures – for discussion3
2
Summary4

3. Overview of the Indian Economy
• India’s economy grew at an average of 7.4% per year for the 5
years to end 2011
– IMF estimates growth rate will remain above 6% per year for the
5 years to end 2016
• India’s fast growing economy driving increasing demand for
power
– 4th largest energy consumer in the world
– To meet this demand, India’s annual electricity generation grew
by over 70% in 2002 -12
• A fragile rupee is likely to contribute to the rising import bill of
the country thereby resulting in increase in the Current
Account Deficit. India recorded a CAD of 18.10 USD Billion in the
first quarter of 2013.
3
3

4. India Energy Mix
• India’s primary energy
consumption increased 2.5 times
global average in the last decade
[India CAGR: 5.9%, global CAGR:
2.5%]
• During same period, India
transitioned from being world’s 7th
largest primary energy consumer to
4th largest
• While oil is the world’s largest primary
energy source, coal is the dominant
source of energy in India.
• The share of natural gas is
significantly lower than the global
average, primarily due to supply side
constraints.
4
4
Coal, 53%
Hydroelectricity, 5%
Natural gas, 10%
Nuclear energy, 1%
Oil, 29%
Renewables, 2%
Coal, 30%
Hydroelectricity, 6%
Natural gas, 24%
Nuclear energy, 5%
Oil, 34%
Renewables, 1%
INDIAWORLD
Rising Primary Energy Consumption (% y-o-y growth)
Primary Energy Mix – World and India, 2010
Source: BP Statistical Review, 2011
Source: BP Statistical Review, 2011
-4%
-2%
0%
2%
4%
6%
8%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
World India Linear (India)

5. India Energy Scenario – Demand
5
5
Trends in Consumption of Conventional Sources of Energy in India
Source: Ministry of Statistics, GoI, 2013
Year Coal Lignite Crude Oil** Natural Gas*** Electricity*
Million Tonnes
Billion Cubic
Metres GWh
2005-06 407.04 30.34 130.11 31.03 411,887
2006-07 430.83 30.80 146.55 30.79 455,748
2007-08 457.08 34.66 156.10 31.48 510,889
2008-09 492.76 31.79 160.77 31.75 562,888
2009-10 532.04 34.43 192.77 46.51 620,251
2010-11 532.69 37.69 206.15 51.25 684,324
2011-12 535.88 41.88 211.42 46.48 755,847
CAGR of
consumpti
on from
2005-06 to
2011-12
4.10% 4.71% 7.18% 5.94% 9.06%
Source: Ministry of Statistics, GoI, 2013
Note: * Includes thermal, hydro & nuclear electricity from utilities.
** Crude oil in terms of refinery crude throughput.
*** off take
Use of
conventional
sources of
energy for
electricity
increasing
compared to
other uses

6. Snapshot of India’s Power Sector
38%
20%
8%
29%
6%
Share of power sector in Total Primary Energy Demand (%), 2011
Power Industry Transport Building Others
779
2648 2730
8012
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
India China World OECD
Per capita electricity consumption (kWh/capita), 2011
6
Source: IEA 2011
6
Power
sector (38%)
highest
consumer of
primary
energy in the
country.
India’s per capita electricity
consumption one-third of the world
average.
Source: IEA 2011
India’s power demand to double in 10 years
Source: CEA

7. Fuel Related Issues – Coal
Domestic Coal
• Stagnating domestic production
• Production from current domestic coal reserves
barely sufficient to meet requirement of existing
FSAs
• Regulations not conducive for private investment
in mining
• Infrastructure adds further stress on development
– railroads, washeries, domestic manufacturing
capacity of mining equipment & machinery
Imported Coal
• Coal imports grew 5 times from 20MTs to 101MTs
in the last decade
• Almost entire 12th Plan thermal capacity will have
to depend upon imported coal
• Import dependence [seem imperative] – further
surge in fuel imports is likely to strain public and
private finances and foreign exchange reserves
and widen fiscal and trade deficits
• Capacity of importing ports
53%
5%
10%
1%
29%
2%
COAL
7
7
0
20
40
60
80
100
120
2000-01 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
MillionTonnes
Trends in Net Coal Imports in India from 2000-01 to 2011-12
Source: Ministry of Statistics, GoI, 2013

8. Fuel Related Issues – Gas
• Declining domestic production. May
boost with new pricing formula.
• Infrastructure – lack of integrated
national gas grid; southern and
eastern parts of the country suffer from
lack of connectivity
• Affordability will be an issue – power
consumer is highly price-sensitive .
• City Gas Distribution – lack of
adequate gas pipeline infrastructure
for bringing gas to city households
53%
5%
10%
1%
29%
2%
GAS
8
8

9. Fuel Related Issues – Oil
• Import dependence – crude oil
imports account for 73% of our
total oil consumption in 2011-12
• Net imports of crude oil more than
doubled from 74MTs to 172MTs in
the last decade
• Pricing – current subsidized
pricing structure does not
incentivize consumers for prudent
use of fuels, nor does it incentivize
the producer
9
9
0
20
40
60
80
100
120
140
160
180
200
2000-01 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
MillionTonnes
Trends in Net Crude Oil Imports in India from 2000-01 to
2011-12
Source: Ministry of Statistics, GoI, 2013
53%
5%
10%
1%
29%
2%
OIL

10. Fuel Related Issues – Hydro
• Long processing time for obtaining
statutory environment and forest
clearances
• Civil society and stakeholder
concerns and grievances
• Geological surprises
• Lack of access infrastructure
10
10
53%
5%
10%
1%
29%
2% HYDRO

11. Fuel Related Issues – Renewable Energy
• Transmission & evacuation
infrastructure – both expansion
and integration issues
• Variable and infirm nature of
power – requirement of ancillary
services like spinning
reserves, storage solutions, etc
• Inadequate legal backing for
RPO/REC mechanisms
• Issues with regard to physical fuel
in case of biomass and waste
53%
5%
10%
1%
29%
2% RENEWABLE
ENERGY
11
11

12. Fuel Related Issues - Nuclear
• Technological challenges
• Anti-nuclear public sentiment
• Long processing time for obtaining
clearances
• Safety & security – disaster
management readiness
• Disposal of toxic waste
53%
5%
10%
1%
29%
2%
NUCLEAR
12
12

13. Suggested Supply Side Risk Mitigation Measures –Thermal
I. Incentivize higher fuel efficiency/PLFs
• Current PPAs do not sufficiently incentivize:
– Investments in bringing higher fuel efficiencies
– Improved PLFs
• Need to incentivize more fuel efficient plants and higher PLFs:
– Grants from NCEF/VGF mechanism for enabling investments or through
market based mechanisms like PAT or White Certificates.
– Incentives to generators through better PPA terms
– Passing incentive to CIL for exceeding FSA supply obligation
– Role of CERC/ SERCs is key here
• Penalize low fuel efficiency
– Obligate purchase of energy certificates
– Cancel fuel linkage below certain SHR, decommission such plants
13
13

14. Suggested Supply Side Risk Mitigation Measures –Thermal
II. Encourage acquisition of captive coal mines abroad
• Production from current domestic coal reserves barely sufficient to meet
requirement of existing FSAs
• Almost entire 12th Plan thermal capacity will have to depend upon imported
coal. In the coming years, fuel imports are bound to go up
• Coal price volatility a big risk
14
14

15. Suggested Supply Side Risk Mitigation Measures –Thermal
III. Discoms to take over fuel procurement
• Consider domestic coal linkage/ allocations directly to Discom as end retail
prices fully regulated
• Will also avoid allegations of misuse of mines by private allotees
• This would create steady market for large MDOs
• Price advantage in collective bargaining by Discoms through an
aggregator for coal imports
• This will completely resolve the issue of risk allocation of fuel between
Generators, Procurers/ Discoms
15
15

16. Suggested Supply Side Risk Mitigation Measures –
Renewable Energy
I. Make RE projects bankable to help solve thermal fuel supply
issues
• Enforce RPOs
• Use NCE funds to support REC market by purchasing unsold RECs/ trade
in RECs support
• Increase coal cess if required
II. Storage batteries [to convert RE to base-load/peak power] vs.
green corridor investments [only solving evacuation problem]
16
16

17. Suggested Supply Side Risk Mitigation Measures –
Renewable Energy
III. AD to be converted to generation based tax breaks
(upfront, but reversible if generation lower than GBI norm –
level play with IPP)
IV. Hybrid electric vehicles
• To absorb infirm RE power during off peak periods
• In a way, a substitute for storage systems
17

18. Suggested Supply Side Risk Mitigation Measures –
Renewable Energy
V. Faster implementation of enabling Open Access Regulations
– mitigate counterparty risk for new capacities (given the
credit rating of Discoms)
VI. Off grid generation Cum Distribution Franchisee framework
• Currently off-grid generation sold to consumers at the renewable energy
power cost
• Subsequent entry of Discoms in such areas will make renewable energy
assets stranded
• Remote area consumers paying capacity low
• Solution lies in treating off-grid generation as Discoms purchase and off-
grid distribution as Discom distribution
• Consumers to pay state regulated tariff
• Difference to be settled between Discom and Distribution Franchisee
18
18

19. Suggested Demand Side Risk Mitigation Measures
I. Energy efficiency and demand side management
• Super Energy Efficient Program
• Smart Grid
• PAT
• Standards & labels
• Energy conservation building codes
II. Tariff Rationalization
• Tariffs, not cost reflective
• Electricity perceived as a social commodity
• Majority of electricity demand is price elastic
• Cost reflective tariffs will reduce irrational consumption, so will AT&C loss reduction
do
III. Reduction in AT&C losses will lead to prudence in consumption.
• 15% reduction in AT&C losses can wipe out all the deficits
19
19

20. In Summary…
I. Supply Side Risk Mitigation Measures
• Incentivize higher fuel efficiencies and improvement in PLFs
• Producers to share PLF incentives with CIL
• Discoms to take responsibility of fuel procurement
• Use NCEF to support REC market
• Evaluate storage independently & vis-à-vis green corridor investment
• Upfront AD benefit to be made subject to generation on prorate basis, reversible if
generation lower than GBI norm of 13 Mn. Units
• Hybrid electric vehicles
• Accelerate Open Access/ Create financially healthy demand for future capacities
• Offgrid generation and Distribution Franchisee framework
II. Demand Side Risk Mitigation Measures
• Energy Efficiency
• Demand Side Management
• Tariff Rationalization
• Effective enforcement against theft leading to prudence in consumption
20 20

21. Thank You
21
21