Comparitive analysis of different tariff policies ntpc

Chronicle Order of the Project Report

Summer Training Project ReportON

Title Of the Project

Submitted in Partial fulfillment of requirement of award of MBA degree of

NTPC LTD. 1

1 Front Page

2 Certificate

3 Acknowledgement

4 Index- Page Numbering is essential

5 Objectives of the study

6 Introduction to the company/ topic

7 Hypothesis, if any

7 Literature Review

8 Research Methodology

9 Data Analysis

10 Findings & Conclusion

11 Recommendations

12 References/ Bibliography

13 Annexure- to include questionnaire if

any

GGSIPU, New Delhi

Submitted By Name Enrolment No Semester/Batch

Northern India Engineering College(Affiliated to GGSIPU)

FC-26, Shastri Park, Delhi-110053

NTPC LTD. 2

TABLE OF CONTENTS

1.1 EXECUTIVE SUMMARY

1.2 GENERAL INTRODUCTION

1.3 INDUSTRY PROFILE

1.4 GENESIS

CHAPTER 2:RESEARCH METHODOLOGY

2.1 OBJECTIVES

2.2 RESEARCH DESIGN

2.3 SOURCES OF DATA COLLECTION

2.4 PRIMARY & SECONDARY SOURCE

2.5 LIMITATIONS

CHAPTER 3: BUINESS PORTFOLIO

CHAPTER 4:DATA ANALYSIS AND INTERPRETATION

CHAPTER 5: FINDINGS & RECOMMENDATIONS

4.1MAJOR FINDINGS

4.2RECOMMENDATIONS

4.3CONCLUSION

BIBLIOGRAPHY

NTPC LTD. 3

EXECUTIVE SUMMARY

Power is a concurrent subject under the Constitution. Due to paucity of resources with

the Central/State PSUs and SEBs and in order to bridge the gap between demand and

availability of power, a policy to encourage private sector participation was initiated in

1991. The study was to make for the trends in tariff structure in power sector and to have

a detailed look on the reforms in and restructuring of the power sector in last decade. A

special focus has been given to the Availability Based Tariff regime and its impact on

NTPC. A comparative analysis between the previous tariff structure and the existing

tariff structure is attempted in this study.

NTPC LTD. 4

INTRODUCTION

In this chapter the purpose of the study has been elaborated in the background demand

factor of electricity with special focuses on recent power sector reforms. Need of Tariff

policies initialed by the government and the impact on the development of power sector

has been discussed.

Overview of Indian Power Sector

In general, the history of development Indian power sector has been discussed. This

chapter has given focus on the structure, key players and growth of them in the vicinity of

different policies adopted.

Tariff Structure Policy And Norms

Deals with the evolution of tariff policy and discusses the basic concepts of tariff. It also

explains the need for establishing a comprehensive tariff policy in power sector. Various

important provisions, which govern the tariff determination, are discussed under this part.

Tariff structure is based on the cost plus method of pricing. The methodology of tariff

structure is explained in detail. At the end of the chapter the features of a good tariff are

explained.

Trends In Tariff Structure

Refers to the historical methods of tariff structure. This chapter explains that initially

tariffs were structured on single part, and then a committee was constituted to make the

tariff in Two-parts, which consists of fixed charges And Variable charges. K. P. Rao

committee constituted the Two-part tariff. It was evolved to formulate principles for

generation tariff. After going through the historical methods of tariff structure we discuss

the current tariff structure.

Availability Based Tariff Structure

Deals with the current tariff structure, which is based on CERC notification. This is the

electricity tariff based on the plant availability and frequency. Therefore it is called

NTPC LTD. 5

Availability Based Tariff. The components of Availability Based Tariff are explained in

detail; it is three-part tariffs, which consists of capacity charges, energy charges and

unscheduled interchange charges. After discussing the current tariff structure comparative

analysis of different methods of tariff structure has been attempted in the next chapter.

Than this report covers definition of tariff.Tariff is the price charged for the sale of

electricity from the state electricity boards by Central public centre units engaged in

power generation.There are two types of tariffs cost plus and market determined. In India

Electricity sector is operating in Cost Plus Regulated Tariff regime.Than three kinds of

tariff structure are covered which are- Single-part-tariff,Two-part-tariff and Availability

Based Tariff(ABT). ABT is currently used by NTPC for tariff Determination.In ABT

system if the average availability actually achieved over the year is higher than the

specified norm for plant availability, the generating company gets a higher payment. In

case the average availability achieved is lower payment is also lower. Hence it is called

availability-based tariff.Than its various components are discussed in detail.

After that various reforms occurred in power sector are discussed and certain

recommendations for improvement of Tariff structure are suggested.

NTPC LTD. 6

National Thermal Power Corporation

COMPANY PROFILE

Our Vision

"A world class integrated power major, powering India’s growth,

with increasing global presence

Our Mission

"Develop and provide reliable power, related products and

services at competitive prices, integrating multiple energy

sources with innovative and eco – friendly technologies and

contribute to society"

Our Core Values (BCOMIT)

Business Ethics

Customer Focus

Organizational & professional Pride

Mutual Respect and Trust

Innovation and Speed

Total Quality for Excellence

NTPC LTD. 7

OBJECTIVE.

To realise the vision and mission, eight key corporate objectives have been identified.

These objectives would provide the link between the defined mission and the functional

strategies.

Business portfolio growth

o To further consolidate NTPC’s position as the leading thermal power generation

company in India and establish a presence in hydro power segment

o To broad base the generation mix by evaluating conventional and non-

conventional sources of energy to ensure long run competitiveness and mitigate

fuel risks

o To diversify across the power value chain in India by considering backward and

forward integration into areas such as power trading, transmission, distribution,

coal mining, coal beneficiation, etc

o To develop a portfolio of generation assets in international markets

o To establish a strong services brand in the domestic and international markets

Customer Focus

o To foster a collaborative style of working with customers, growing to be a

preferred brand for supply of quality power

NTPC LTD. 8

o To expand the relationship with existing customers by offering a bouquet of

services in addition to supply of power – e.g. trading, energy consulting,

distribution consulting, management practices

o To expand the future customer portfolio through profitable diversification into

downstream businesses, inter alia retail distribution and direct supply

o To ensure rapid commercial decision making, using customer specific

information, with adequate concern for the interests of the customer

Agile corporation

o To ensure effectiveness in business decisions and responsiveness to changes

in the business environment by

Adopting a portfolio approach to new business development

Continuous and co-coordinated assessment of the business environment to

identify and respond to opportunities and threats

o To develop a learning organization having knowledge-based competitive edge

in current and future businesses

o To effectively leverage Information Technology to ensure speedy decision

making across the organization

Performance Leadership

o To continuously improve on project execution time and cost in order to sustain

long run competitiveness in generation

o To operate & maintain NTPC stations at par with the best-run utilities in the

world with respect to availability, reliability, efficiency, productivity and costs

o To effectively leverage Information Technology to drive process efficiencies

o To aim for performance excellence in the diversification businesses

o To embed quality in all systems and processes.

NTPC LTD. 9

Human Resource Development

o To enhance organizational performance by institutionalising an objective and

open performance management system

o To align individual and organizational needs and develop business leaders by

implementing a career development system

o To enhance commitment of employees by recognizing and rewarding high

performance

o To build and sustain a learning organization of competent world-class

professionals

o To institutionalize core values and create a culture of team-building,

empowerment, equity, innovation and openness which would motivate employees

and enable achievement of strategic objectives.

Financial Soundness

o To maintain and improve the financial soundness of NTPC by prudent

management of the financial resources

o To continuously strive to reduce the cost of capital through prudent management

of deployed funds, leveraging opportunities in domestic and international

financial markets

o To develop appropriate commercial policies and processes which would ensure

remunerative tariffs and minimize receivables

o To continuously strive for reduction in cost of power generation by improving

operating practices

NTPC LTD. 10

Sustainable Power Development

o To contribute to sustainable power development by discharging corporate social

responsibilities

o To lead the sector in the areas of resettlement and rehabilitation and environment

protection including effective ash-utilization, peripheral development and energy

conservation practices

o To lead developmental efforts in the Indian power sector through efforts at policy

advocacy, assisting customers in reform, disseminating best practices in the

operations and management of power plants etc

Research and Development

o To pioneer the adoption of reliable, efficient and cost-effective technologies by

carrying out fundamental and applied research in alternate fuels and technologies

o To carry out research and development of breakthrough techniques in power plant

construction and operation that can lead to more efficient, reliable and

environment friendly operation of power plants in the country

NTPC LTD. 11

1. GENESIS

Till early Seventies, the power generation capacity addition, in India, was mainly

done by State Electricity Boards. The gap between the demand and supply of power

had been on increase and the same was affecting the economic growth of the

country. With a view to supplement the efforts of SEBs in the matter of integrated

development of power; it was decided to set-up generating companies in Central

Sector also. To pursue this objective,

After incorporation in November 1975, NTPC has grown to become not only the largest

utility National Thermal Power Corporation Limited was formed in November 1975 as a

generating company in the Central Sector. National Thermal Power Corporation is the

largest power generation company in India. The Forbes Global 2000 ranking for 2005

ranks it as the 5th leading company in India and the 486th leading company in the world. It

is a public listed (Bombay Stock Exchange) Indian public sector company, with majority

shares owned by the Government of India. At present, Government of India holds 89.5%

of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic

Banks, Public and others. NTPC ranks amongst the top five companies, in terms of

market capitalisation.

NTPC’s core business is engineering, construction and operation of power generating

plants and also providing consultancy to power utilities in India and abroad. As on date

the installed capacity of NTPC is 26, 404 MW through its 14 coal based (21,395 MW), 7

gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW).

NTPC LTD. 12

NTPC’s share on 31 Mar 2006 in the total installed capacity of the country was 19.51%

and it contributed 27.68% of the total power generation of the country during 2005-06.

Thus, every fourth home in India is enlightened by NTPC. A total of 170.88 Bus of

electricity was produced across all the stations of the company in the financial year 2005-

2006. The Net Profit after Tax on March 31, 2006 was INR 58, 202 million. Net Profit

after Tax for the quarter ended June 30, 2006 was INR 2004-2005) where the profit was

INR 13087 million.

Pursuant to special resolution passed by the Shareholders at the Company’s Annual

General Meeting held on September 23, 2005 and the approval of the Central

Government under section 21 of the Companies Act, 1956, the name of the Company

“National Thermal Power Corporation Limited” has been changed to “NTPC Limited”

with effect from October 28, 2005.

The company, which has completed its thirty years of existence on November 7,

2005, has made its foray into hydro-power and is planning to go into nuclear too).

2. GROWTH of the country but also a leading power utility of international acclaim.

The installed capacity of NTPC as on March 31, 2004 is 21749 MW through its 13 coal

based (17480 MW), 7 gas/liquid fuel based (3955 MW) and 3 Joint Venture (coal based)

Projects (314 MW). NTPC has generated 151357 million units (MUs)

of electricity in 2003-04 including 2187 million units generated by JV Companies.

NTPC LTD. 13

From the above graph it’s been clear that NTPC is creating that leading benchmark in all

over the country, like above graph is dictating that the intensive and remarkable growth

covered by NTPC was started in year 1986-87 from 3000MW with 20000BU and goes to

inconsistent growth in year 2006-07 by 30000MW with 200000BU. This shows the

effective installed capacity is leading a terrific generation of power.NTPC’s core business

is engineering,

construction and

operation of power

generating plants. It also

provides consultancy in

the area of power plant

constructions and power

generation to companies

in India and abroad. As

on date the installed

capacity of NTPC is

27,904 MW through its 15 coal based (22,895 MW), 7 gas based (3,955 MW) and 4 Joint

Venture Projects (1,054 MW). NTPC acquired 50% equity of the SAIL Power Supply

Corporation Ltd. (SPSCL). This JV company operates the captive power plants of

NTPC LTD. 14

Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33%

stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company

between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co.

Ltd. The present capacity of RGPPL is 740 MW.

NTPC’s share on 31 Mar 2007 in the total installed capacity of the country was 20.18%

and it contributed 28.50% of the total power generation of the country during 2006-07.

NTPC has set new benchmarks for the power industry both in the area of power plant

construction and operations. It is providing power at the cheapest average tariff in the

country. With its experience and expertise in the power sector, NTPC is extending

consultancy services to various organizations in the power business.

NTPC is committed to the environment, generating power at minimal environmental cost

and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive a

forestation in the vicinity of its plants. Plantations have increased forest area and reduced

barren land. The massive a forestation by NTPC in and around its Ramagundam Power

station (2600 MW) have contributed reducing the temperature in the areas by about 3°c.

NTPC has also taken proactive steps for ash utilizations. In 1991, it set up Ash Utilisation

Division to manage efficient use of the ash produced at its coal stations. This quality of

ash produced is ideal for use in cement, concrete, cellular concrete, building material.

A "Center for Power Efficiency and Environment Protection (CENPEEP)" has been

established in NTPC with the assistance of United States Agency for International

Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and eco-nurturing

initiative - a symbol of NTPC's concern towards environmental protection and continued

commitment to sustainable power development in India.

As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-

economic status of the people affected by the projects. Through its Rehabilitation and

Resettlement programmes, the company endeavors to improve the overall socio-

economic status of Project Affected Persons.

NTPC LTD. 15

NTPC was among the first Public Sector Enterprises to enter into a Memorandum of

Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under

the 'Excellent category' (the best category) every year since the MOU system became

operative.

Recognising its excellent performance and vast potential, Government of the India has

identified NTPC as one of the jewels of Public Sector ‘Navratnas’- a potential global

giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realise

its vision of being “A world class integrated power major, powering India’s growth, with

increasing global presence”.

SPREAD ACROSS THE COUNTRY

NTPC projects/power stations are spread all over the country. The location map of

NTPC approved projects as shown below exhibits the wide presence of NTPC throughout

the length and breadth of the country.

The map below shows the locations of our existing power stations, as well as those

currently under construction, together with their respective capacities.

NTPC LTD. 16

NTPC has mostly built Regional power stations supplying power to the various

states in the Region as per power allocation formula approved by Govt. of India.

The list of completed projects, projects under construction and projects managed by

NTPC is given below:

COMPLETED PROJECTSS.No Name of the Project Capacity

(MW)Location(State)

PrimaryFuel

Cost(Rs. Million)

1. Korba 2100 Chhattisgarh Coal 16252.502. Ramagundam 2100 Andhra

PradeshCoal 20592.20

NTPC LTD. 17

FARAKKA (1600 MW)

UNCHAHAR(840 MW + 210 MW)

SINGRAULI(2000 MW)

RIHAND(1000 MW + 1000 MW)

KAYAMKULAM(350 MW)

KAHALGAON(840 MW+ 1500 MW))

TALCHER(2500 MW + 500MW)

TALCHER TPS(460 MW))

COAL POWER STATION

GAS POWER STATIONS

RAMAGUNDAM(2100 MW + 500 MW)

KORBA(2100 MW)

VINDHYACHAL(2260 MW + 1000 MW)

ANTA(413 MW)

AURAIYA(652 MW)

BADARPUR (705 MW) (705 MW) **FARIDABAD

(430 MW)

SIMHADRI(1000 MW)

TANDA (440 MW)

HYDRO PROJECT

KOLDAM (800 MW)

TAPOVAN VISHNUGADH (520 MW)

LATA-TAPOVAN (108 MW)

LOHARINAG-PALA (600 MW)

SIPAT (2980 MW)

HYDRO PROJECT

(in italics) : Projects in progress

** : Plants managed and operated by NTPC

NCPP (840 MW)

DADRI (817 MW)

JHANOR-GANDHAR(648 MW)

KAWAS(645 MW)

COMPLETED PROJECTS

S.No Name of the Project Capacity (MW)

Location(State)

PrimaryFuel

Cost(Rs. Million)

3. Singrauli 2000 Uttar Pradesh Coal 11906.904. Farakka 1600 West Bengal Coal 31842.205. Vindhyachal 1260 M.P Coal 14603.706. Rihand 1000 Uttar Pradesh Coal 23874.007. Talcher -I 1000 Orissa Coal 25921.808. Kahalgaon 840 Bihar Coal 17158.909. NCTPP, Dadri 840 Uttar Pradesh Coal 16692.1010. Talcher (taken Over) 460 Orissa Coal 3560.0011. Unchahar–I (Taken Over 420 Uttar Pradesh Coal 9250.0012. Dadri Gas 817 Uttar Pradesh Gas 9603.5013. Auraiya 652 Uttar Pradesh Gas 6787.7014. Jhanor-Gandhar 648 Gujarat Gas 25000.0015. Kawas 645 Gujarat Gas 15995.7016. Anta 413 Rajasthan Gas 4189.7017. Kayamkulam 350 Kerala Naphth

a13105.80

18. Tanda (taken over) 440 Uttar Pradesh Coal 10000.0019. Vindhyachal- II 1000 Madhya Pradesh Coal 27533.8020. Unchahar – II 420 Uttar Pradesh Coal 14120.9021. Faridabad 430 Haryana Gas 11636.00

TOTAL 19435 329627.40

APPROVED / ON-GOING PROJECTSS.No. Project

Capacity (MW)

Location(State)

PrimaryFuel

Estimated Cost(Rs. Million)

CompletionSchedule

22. Simhadri 1000 A.P. Coal 38834.50 Dec 200223. Talcher –II 2000 Orissa Coal 66488.30 Feb.200624. Rihand-II 1000 U.P. Coal 42162.40 May 200625. Ramagundam-III 500 A.P. Coal 22130.30 Aug.2005

TOTAL 4500 169615.50

4 NTPC’S SHARE IN INDIAN POWER SECTOR

As at the end of March 2006 NTPC’s installed capacity is about 19.1% of the total installed capacity of the country and it has contributed about 26.7% of the total power generation of the country during 2003-07

NTPC LTD. 18

NTPC IN INDIAN POWER SECTOR AS ON 31-03-2011

ALL INDIA: 112058 MW ALL INDIA: 558 BUs

5.FUNDING PATTERN OF NTPC:-

NTPC is a Government of India Company. 89.50% of its equity is held by the

Government of India and the balance 10.5% is held by FIIs, Domestic Banks, Public and

others. The company was formed with an authorized capital of Rs. 1250 million which as

on 31st March, 2005 stands at Rs. 100000 million. The paid equity capital as on

31.03.2005 was Rs 82455 million which includes 73796.3 million contributed by

Government of India and Rs 8658.4 million held by public, employees and Qualified

Institutional Buyers (QIB). The growth of share capital, reserve and surplus is given

below:

NTPC LTD. 19

NTPC 21438 MW

19.1%NTPC 149.2 BUs

26.7%

“India’s growth, with increasing global presence”.

6.FINANCIALS:-

TURNOVER AND PROFIT

NTPC recorded a turnover of Rs.255,460.00 million during 2004-05 as against Rs.

259,642.00 million during 2003-04. Net profit after tax is Rs.58,070.00 million as

compared to Rs. 52,608.00 million during the previous year.

CAPITAL STRUCTURE

As on 31st March, 05 the authorized share capital of NTPC is Rs.100,000 million and the

paid up share capital Rs. 82,455 million.

SELECTED FINANCIAL INFORMATION(Rs. in Million)

NTPC LTD. 20

2005-06 2004-05 2003-04 2002-03 2001-02A) Operating IncomeEarned fromSale of Energy 260701 225069 188178 190019 177697Consultancy & Other Income 26806 24110 61816 4492 7076Total 287507 249179 249994 194511 184773Paid & Provided forFuel 163947 137235 122150 110312 103991Employees Remuneration & Benefits 9684 8823 8835 8268 8036Generation, Administration & other expenses 12721 12062 9813 10814 11531Provision (Net) 334 (6160) (3813) 1567 1730Prior Period/Extra Ordinary Items 2488 (102) 183 803 (500)Profit before depreciation, Interest & Finance Charges and Tax 98333 97321 112826 62747 59985Depreciation 20477 19584 20232 15291 13784Profit before Interest & Finance Charges and Tax 77856 77737 92594 47456 46201Interest & Finance Co 17632 16955 33697 9916 8680Profit before tax 60224 60782 58897 37540 37521Tax (Net) 2022 2712 6289 1465 2125Profit after tax 58202 58070 52608 36075 35396Dividend 23087 19790 10823 7080 7079Dividend tax 3238 2680 1387 395 -Retained Profit 31877 35600 40398 28600 28317B) What is OwnedGross Fixed Assets 460396 431062 400281 366106 328912Less : Depreciation 229501 207914 187736 167456 152131Net block 230895 223148 212545 198650 176781Capital Work-in-progress, Construction Stores & Advances 136340 99285 74953 63863 65550Investments 192891 207977 173380 36674 40281Current Assets, Loans & Advances 157245 129073 135468 194132 167799Total Net Assets 717371 659483 596346 493319 450411C) What is OwedLong Term Loans 201195 166719 149415 127090 113161Working Capital Loans 778 4159 5113 5067 2651Current Liabilities & Provisions 61402 67467 80941 45850 48146Total Liabilities 263375 238345 235469 178007 163958D) OthersDeferred Revenue - Advance against deprectiaion 4408 3374 1591 271 -Development surcharge fund - - 3784 - -Total 4408 3374 5375 271 -E) Net WorthShare Capital 82455 82455 78125 78125 78125Reserves & Surplus 367132 335308 277376 237002 208400Miscellaneous Expenditure (To the extent not written off or adjusd) - - - (87) (72)Net Worth 449587 417763 355501 315040 286453F) Capital Employed 523572 500540 458267 386343 356526

NTPC LTD. 21

G) Value Added 97482 88415 66749 88084 80889

H) No. of Shares 8245464400 8245464400 7812549400 7812549400 78125494I) No. of Employees* 21870 21420 20971 21408 21383J) RatiosReturn on Capital Employed (%) 12.46 12.77 12.93 10.88 11.93Return on Net Worth (%) 14.16 14.33 14.94 12.13 12.98Book Value per Share (Rs.) 54.53 50.67 45.50 40.32 3666.58Current Ratio 2.56 1.91 1.67 4.23 3.49Debt to Equity 0.45 0.41 0.43 0.42 0.40Value Added/Employee (Rs. Million) 4.46 4.13 3.18 4.11 3.78* Excluding JVs, Subsidiaries, BTPS (owned by NTPC w.e.f. 1st June, 2006) & BALCO

STATION-WISE GENERATION 2005-06

STATIONS Capacity(MW) Gen. (MU)Gross

Northern Region 5280 36465

SingrauliRihandUnchaharTanda

20002000840440

155031059170413330

National Capital Region 3152 22206

Dadri ( Coal )Anta ( Gas )Auraiya ( Gas )Dadri ( Gas )Faridabad ( Gas )

840413652817430

6768280942825394

2953

Western Region 5653 41668

KorbaVindhyachalKawas ( Gas )Jhanor Gandhar ( Gas )

21002260645648

160011830528844478

Eastern Region 5900 42751

FarakkaKahalgaonTalcher - KanihaTalcher -Thermal

16008403000460

114646572211853530

Southern Region 3950 27791

NTPC LTD. 22

RamagundamSimhadriRajiv Gandhi CCP ( Liquid Fuel )

26001000350

196917742

358

Total 23935 170880Badarpur (Owned by NTPC w.e.f. 1st June, 2006) 705 5380

Performance highlights

2006 2005

Commercial Generation Million Units 169789 158271Sale of Energy Rs Million 260701 225069Profit before tax “ 60224 60782Profit after tax “ 58202 58070Dividend “ 23087* 19790Dividend tax “ 3238 2680Retained Earnings “ 31877 35600Net Fixed Assets “ 230895 223148Net Worth “ 449587 417763Loan Funds “ 201973 170878Capital Employed “ 523572 500540Net Cash From Operations “ 62064 50998Value Added “ 97482 88415No. of Employees # “ 21870 21420Value added per employee Rs Million 4.46 4.13Debt to Equity Ratio 0.45 0.41Return on Capital Employed % 12.46 12.77Face Value per share Rs. 10.00 10.00Dividend Per share “ 2.80* 2.40Book Value per Share “ 54.53 50.67

# excluding JVs, Subsidiaries and BTPS (owned by NTPC w.e.f. 1st June, 2006)* including final dividend recommended by the Board

NTPC LTD. 23

7. TURNAROUND CAPABILITY

NTPC has also demonstrated its ability in turning around sub-optimally performing

stations. The phenomenal improvement in the performance of Badarpur, Unchahar and

Talcher by NTPC stand testimony to this.

Badarpur (705 MW)

The expertise in R&M and performance

turnaround was developed and built up by

NTPC with the operational turnaround of

Badarpur TPS through scientifically

engineered R&M initiatives. .

Unchahar (420 MW)

The Feroze Gandhi Unchahar Power Station

was taken over by NTPC as part of a win-win

deal with the Uttar Pradesh Government

whereby the dues of UPSEB were adjusted

was used to and the expertise of NTPC

turnaround the languishing station.

The remarkable speed and the extent of the

turnaround achieved can be seen in the Table.

NTPC LTD. 24

Talcher (460 MW)

An even more challenging turnaround story

was being scripted at the OSEB's old power

plant at Talcher, taken over in June 1995. The

table indicates the dramatic gains in the

performance of the power plant after take

over.

While NTPC bettered the PPA commitments,

from the viewpoint of capital requirements, turning around such old units is a low cost,

high and quick return option. These successes helped NTPC, the concerned SEBs and the

entire nation in terms of economy and power availability.

Tanda

Tanda Thermal Power station was taken over by

NTPC on the 15 Jan 2000.The PLF of the power

station improved from 14.9% at the time of the

takeover to 91.14% for the year 2006-07

8. OPERATIONAL PERFORMANCE

Since its inception NTPC has a record of

sustained high level of performance of all its

plants, which have facilitated All India PLF (Thermal) to rise from 55.3% in 1991-92 to

84.4% in 2003-04. NTPC plants achieved a PLF of 70.59% in 1991-92, which has

increased to 84.4% in 2003-04.

NTPC LTD. 25

The following table presents the average PLF of our coal-fired plants compared to the

average PLF for all coal-fired plants in India (including our plants) for the periods

indicated:

The operating performance of NTPC has been

considerably above the national average. The

availability factor for coal stations has increased

from 85.03 % in 1997-98 to 90.09 % in 2006-07,

which compares favourably with international

standards. The PLF has increased from 75.2% in

1997-98 to 89.4% during the year 2006-07 which is

the highest since the inception of NTPC.

It may be seen from the table below that while the installed capacity has

increased by 56.40% in the last nine years, the employee strength went up

NTPC LTD. 26

by only 3.34%

Description Unit 1997-98 2006-07 % of increase

Installed Capacity MW 16,847 26,350

Generation MUs 97,609 1,88,674

No. of employees No. 23,585 24,375

Generation/employee MUs 4.14 7.74

The table below shows the detailed operational performance of coal based stations over the

years.

OPERATIONAL PERFORMANCE OF COAL BASED NTPC STATIONS

  Unit 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06

Generation BU 106.2 109.5 118.7 130.1 133.2 140.86 149.16 159.11 170.88

PLF % 75.20 76.60 80.39 81.8 81.1 83.6 84.4 87.51 87.54

Availability

Factor% 85.03 89.36 90.06 88.54 81.8 88.7 88.8 91.20 89.91

The energy conservation parameters like specific oil consumption and auxiliary power

consumption have also shown considerable improvement over the years.

NTPC LTD. 27

Regulatory and Policy Environment

One key element of the regulatory reforms in the power sector is the establishment of a

transparent and fair pricing mechanism for power with a thrust on efficiency in

operations. A central regulator has been constituted that governs the pricing of bulk

power sold by central generators to state utilities. In addition, state regulatory agencies

have also been formed/notified that are responsible for regulating operations of state

utilities including rationalization in tariffs for different categories of consumers. Central

power utilities need to adapt to the twin challenge of working with multiple regulatory

agencies and a tariff regime with downward pressure on bulk supply tariffs.

Further, regulatory reforms might pave the way for significant changes in the Indian

Power sector, including trading of electricity, direct supply to HT customers, creation of

power exchanges and “open access” to transmission infrastructure. As a leading player in

the power sector, NTPC would need to track these changes and also proactively assist the

regulators in framing policies that enable development of the sector

BUSINESS PORTFOLIO

IntroductionOver the last two decades, NTPC has spearheaded the development of thermal generation

capacity in the Indian power sector. In this process, it has built a strong portfolio of coal

and gas/liquid fuel based generation capacities. Recently, the company has also made

initial forays in the area of hydropower. NTPC is also offering technical services through

its Consultancy Wing and has entered into joint ventures for offering some of the

services. However, till date thermal generation has been the single largest revenue

generator for NTPC.

NTPC LTD. 28

The Indian power sector has witnessed and can anticipate several changes in the business

and regulatory environment as outlined in the previous chapter of this plan. Players such

as NTPC face significant uncertainties in the availability and economic viability of

thermal fuels. The challenged health of state utilities presents a threat to the cash flow of

generators. However, ongoing changes in the customer environment also provide

opportunities for improving the customer mix. The policy framework has changed

substantially with the recent clearance of the Electricity Bill by both houses of

parliament. The Indian power sector is on the road to becoming a viable investment

destination with the recent thrust of the participants on speedy reform. This has also

increased the threat of competition. Thus the power sector offers a mixed bag of

opportunities and threats to players and NTPC needs to review its business strategy and

portfolio in light of these changes.

NTPC with its history of excellence in all aspects of its business is uniquely positioned

for growth. Continued growth in generation is relatively easy on account of NTPC’s

significant learning curve benefits. However to capitalise on the changing face of the

power sector NTPC needs to consider a bolder target of becoming India’s leading

integrated power utility. In addition, NTPC needs to target being the brand ambassador

for the Indian power sector in overseas markets. This would call for controlled, urgent

and successful entry into other businesses in the power value chain and targeting markets

outside India. Therefore, NTPC’s business portfolio strategy would target three key

dimensions:

o Capacity addition program (including changes in fuel mix, technology, etc)

o Diversification along the power value chain

o Dominance in the services business in the domestic and international markets

Growth of the Generation Business

Developing and operating world-class power stations is NTPC’s distinctive competence.

Its scale, financial strength and significant learning curve benefits would also serve to

provide an advantage over competitors. Hence sustaining leadership in generation is

critical to the target of being the largest integrated power utility. Thus NTPC would

NTPC LTD. 29

continue to focus on making available reliable and quality power at competitive prices.

To meet this objective, NTPC would continue to speedily implement projects and

introduce state-of-art technologies.

Projected portfolio in 2017

Total capacity portfolio

India’s generation capacity can be expected to grow from the current levels of about 104

GW to about 225-250 GW by 2017. NTPC currently accounts for about 19% of the

current installed capacity. Going forward, in its target to remain the largest generating

utility of India, NTPC would endeavour to maintain or improve its share of India’s

generating capacity. Towards this end, NTPC would target to build an overall capacity

portfolio of over 56,000 MW by the end of the 12th plan period. Of this, NTPC would

target commissioning 9,370 MW in the 10th plan, 11,210 MW in the 11th plan period and

15,540 MW in the 12th plan period. While NTPC is fully equipped to provide the

requisite managerial resources such as engineering capability, ability to manage multiple

projects, etc the ability to arrange sufficient and timely funds would govern success in

achieving the targets.

Energy mix for capacity addition

Currently, coal has a dominant share in the generation capacities in India and this is also

reflected in the high share of coal-based capacities in NTPC’s current portfolio. However,

going forward, NTPC would have to review the share of coal-based projects on account

of potential demand supply gap for domestic coal and the likely availability and

competitiveness of alternate fuels such as gas. Efforts to reduce the variable cost of

power would be critical to ensure dispatch of power plants under a merit order system.

NTPC can also avail of opportunities to add hydropower to its portfolio subject to

competitive tariffs and minimal R&R issues. A first step in this direction has already

NTPC LTD. 30

been taken with the investment in Koldam. As a leader in power generation, NTPC could

also consider other energy sources such as biomass, cogeneration, nuclear power, fuel

cells, etc for future development thereby reducing the dependence on thermal fuels.

While a decision on the fuel/energy mix for NTPC in the future would be largely

governed by their relative tariff-competitiveness, by 2017 the mix would be significantly

different from the existing portfolio.

Thermal Power

To revise NTPC’s thermal fuel strategy a study of the expected trends in availability and

prices of domestic coal, imported coal and natural gas was carried out. The study also

compared the long run competitiveness of landed power using these alternatives in each

of the three plan periods. This has helped in developing the long-term strategy for

thermal fuels as detailed in this section.

Goal

To own/manage/control a portfolio of about 42,000 MW of thermal power by 2017,

retaining its position as India’s largest thermal power utility

To minimise the landed cost of power from new plants by selecting appropriate fuels

to retain its long-run competitiveness in power generation, while keeping in mind

technical constraints such as evacuation of power, load balancing and other system

constraints

Strategies

Domestic coal based projects: NTPC would continue its strategy of major portion of

capacity addition through pithead based coal plants during the 10th and 11th plan periods.

However, going forward, NTPC would consider alternate fuel options to domestic coal

(including regassified LNG and imported coal) with a view to broadbase its fuel portfolio

and minimise its cost of power generation.

NTPC LTD. 31

Gas based projects: NTPC would seek to develop gas-based combined cycle power

projects subject to the assured availability of gas at a competitive price. Analysis

indicates that gas could potentially be competitive to domestic coal in some parts of the

country especially in states near to the coast. NTPC is already exploring various sources

including regassified liquefied natural gas and is evaluating their competitiveness prior to

making a decision in this regard.

Imported coal based projects : During the 10th plan period, most of NTPC’s

proposed plants are expected to be more competitive than projects based on imported

coal. However, going forward, imported coal based projects might be a more competitive

option to domestic coal based projects at some coastal locations. In view of this, NTPC

would evaluate imported coal based projects (at the port) in the Southern/Western Region

for the 11th and 12th plan periods.

Other fuel options: The option of developing lignite-based capacities was also

evaluated and compared with domestic coal based plants. The analysis revealed that in

the present scenario, domestic coal based capacities are more suitable for NTPC. Going

forward, NTPC would continue to evaluate lignite as a fuel and would consider setting up

lignite based capacities, if found competitive. In addition, NTPC would track

developments in alternate fuel options such as Orimulsion, Di-Methyl Ether (DME), Coal

Bed Methane (CBM) and heavy refinery residues. Capacities based on these fuels would

be developed in the event they are competitive with other fuel options. In addition,

considering the potential for development of cogeneration plants in India, NTPC would

explore opportunities for the same.

Maintaining a comprehensive database for review of mix: The thermal fuel

options detailed above would need to be constantly evaluated and further fine-tuned in

line with the emergent fuel prices and availabilities and other system constraints. In

addition, decisions on plant and fuel selection would need to be considered on a case-to-

case basis. To facilitate this, a comprehensive database of fuels, their availabilities,

NTPC LTD. 32

pricing trends and impacting forces would need to be maintained. The responsibility for

designing and maintaining the database and deriving implications for NTPC, would

reside with the Fuel Management Group.

Co-ordination with NTPC’s overall business plan: The information from the

database on fuel availability and price forecasts would also be a critical input in

developing the overall business plans for NTPC. To facilitate review and fine-tuning of

the capacity addition program based on fuel scenarios, the Fuel Management Group

would work closely with the Corporate Planning group in the business plan revision

exercise.

MULTI-PRONGED GROWTH APPROACH:

Over the last three decades, NTPC has spearheaded

development of thermal power generation in the Indian

power sector. In this process, it has built a strong portfolio of

coal and gas/liquid fuel based generation capacities. The

company has made initial forays in the area of hydropower

development and plans to have a significant share of hydropower in its future generation

portfolio. Although NTPC is also offering technical services, both in domestic and

international markets, through its Consultancy Wing, the generation business would

continue to be the single largest revenue generator for NTPC.

The Indian power sector is witnessing several changes in the business and regulatory

environment. The legal and policy framework has changed substantially with the

enactment of the Electricity Act 2003. In the foreseeable future, India faces formidable

challenges in meeting its energy needs. Recently, a draft integrated energy policy has

been issued, which addresses all aspects including energy security, access, availability,

affordability, pricing, efficiency and environment. To meet the twin objectives of

ensuring availability of electricity to consumers at competitive rates, as well as attract

large private investments in the sector, a new Tariff policy has also been issued. The

NTPC LTD. 33

power sector thus offers a mixed bag of challenges and opportunities to players and

NTPC would continue to review its business strategy and portfolio in light of these

changes. 

NTPC is adopting a Multi-pronged growth strategy for capacity addition through

Greenfield Projects, Expansion of existing stations, Acquisitio ns and takeovers and joint

ventures / subsidiaries, to accomplish its growth plans.

JOINT VENTURE PARTNERS

NTPC LTD. 34

The following joint venture companies have been formed so far:

NTPC -ALSTOM POWER SERVICES PVT. LTD. (NASL)(Incorporated in 1999 and formerly known as NTPC-ABB ALSTOM POWER SERVICES PVT. LTD)

OBJECTIVE: Undrtake Renovation & Modernisation of power stations in India and other SAARC countries

PROMOTERS' EQUITY:

NTPC: 50% ALSTOM Power Generation AG : 50%

UTILITY POWER TECH LTD(Incorporated in 1996)This JV has been promoted with Reliance Energy Limited (formerly BSES Limited) a private sector Indian power company.

OBJECTIVE: To undertake project construction, erection and supervision in power sector and other sectors in India and abroad

PROMOTERS' EQUITY:

NTPC: 50%REL: 50%

PTC(India) Ltd (Incorporated in 1998)This JV has been promoted with Power Grid Corporation of India Ltd (PGCIL), a Government owned transmission major in India. Power Finance Corporation (PFC), a power sector finance company owned by the Government of India and National Hydro Electric Power Corporation Ltd. (NHPC), a Government owned hydro power utility.

OBJECTIVE: To trade, import, export and purchase power from identified power projects and sell it to identified SEBs/others

PROMOTERS' EQUITY:

NTPC: 8%   Tata Power: 10%PGCIL: 8%   DV: 10%PFC: 8%   FII: 18.5%NHPC: 8%

NTPC-SAIL POWER COMPANY (PVT) LTD (NSPCL)

NSPCL, the Joint Venture Company of NTPC and SAILwith 50:50 equity participation,stood merged with BESCL(Bhilai Electric Supply Co. Pvt Ltd, another JV Co. of NTPC and SAIL with 50:50 equity participation.) w.e.f 2nd August 2006,as per the scheme of Amalgamation approved by High Court of Delhi. As a result of aforesaid merger of BESCL in NSPCL, all properties, licenses,

NTPC LTD. 35

permissions, debt, liabilities etc. with respect to BESCL now stand vested in NSPCL.

OBJECTIVE: To supply power to the Bhilai, Durgapur and Rourkela Steel Plant of Steel Authority of India Limited (SAIL) from its Coal based power stations at Bhilai (Chhattisgarh), 2x30MW+1X14MW, Durgapur (West Bengal) 2x60MW and Rourkela (Orissa) 2x60 MW.

For the purpose of its business development, NSPCL is carrying out the  expansion of its installed capacity at Bhilai, by implementation of 500MW (2x250MW) power plant.

PROMOTERS' EQUITY:

NTPC: 50% SAIL : 50%

NTPC TAMIL NADU ENERGY COMPANY LIMITEDThis JV was incorporated on 23rd May, 2003 with Tamil Nadu Electricity Board, a State run Electricity Board in the State of Tamil Nadu engaged in generation, transmission and distribution of electricity.

OBJECTIVE: To set up a 1000 MW coal based power station at Ennore in Tamil Nadu utilising the existing infrastructure facility at Ennore and supply power mainly to Tamil Nadu and the states of Kerala, Karnataka and Pondicherry.

PROMOTERS' EQUITY:

NTPC: 50% TNEB : 50%

Vaishali Power Generating Company LimitedThis JV was incorporated on with Bihar State Electricity Board, a State run Electricity Board in the State of Bihar, engaged in generation, transmission and distribution of electricity.

OBJECTIVE: To take over Muzaffarpur Thermal Power Station (2x110MW), a coal based power station at Kanti, for carrying out restoration, R&M  and supplying power mainly to the state of Bihar.

PROMOTERS' EQUITY:

NTPC: 51-74% BSEB : 26-49%

ARAVALI POWER COMPANY PRIVATE LTD(Joint Venture Agreement was signed on 14.12.2006 among NTPC Ltd,Indrapastha Power Generatuion Company Ltd.(IPGCL) and Haryana Power Generation Company Ltd.(HPGCL).The Company was Incorporated on 21.12.2006.

NTPC LTD. 36

OBJECTIVE: To set up a coal-based power station of 1500MW capacity in Distt. Jhajjar, Haryana, in joint venture with IPGCL and HPGCL.

PROMOTERS' EQUITY:

NTPC-50%, IPGCL-25%, HPGCL-25%

PROPOSED JOINT VENTURES

1.0 INDIAN RAILWAYS MOU signed on 18th February 2002. Indian Railways are the largest rail network in Asia and the world's second largest under one management.

OBJECTIVE: To set up power stations to meet traction and non-traction power requirement of Indian Railways.

LIKELY EQUITY CONTRIBUTION FROM PROMOTERS

Yet to be finalised

2.0 SINGARENI COLLIERIES COMPANY LTD(SCCL) MOU was signed between NTPC and SCCL on 23.08.2006

OBJECTIVE: To promote one or more Joint Venture Companies for undertaking acquisition of coal/lignite mine blocks including exploration, development, mining, beneficiation, processing, operation & maintenance, development, operation & maintenance and selling electricity generation thereof, besides providing consultancy services.

LIKELY EQUITY CONTRIBUTION FROM PROMOTERS

50% by each Company in the individual Joint Venture Company

NTPC LTD. 37

RESEARCH METHODOLOGY

RESEARCH OBJECTIVE

To study the reforms that are brought in by CERC with special reference to the comparison of traditional and modern tariff policies..

RESEACH DESIGN

The study undertaken is exploratory, descriptive and analytical. The report also includes numerical, statiscal data and it is qualitative and quantitative in nature.

RESEARCH METHODOLOGY

To meet the above-mentioned objective, personal interviews were held with the Senior Executives & an extensive research study was carried out in NCR (HQ), Noida.

Information has been collected from various sources that have been detailed in the bibliography.

DATA COLLECTION TECHNIQUES

Information for the study has been collected from different Primary & Secondary sources.

PRIMARY DATA

Primary Data is collected from the survey & for this survey Direct Personal Interviews were organized with the Senior Executives of NTPC. While interacting the following questions were posed to the interviewees either implicitly or explicitely.

What is the significance of Power sector in any Economy?

How is the Power Sector been evolving for the last few years?

NTPC LTD. 38

What has been the role of NTPC in Power Sector?

What have been the most important changes in the Power Sector in recent years?

What are the features of new Tariff Structure & how are these different from the existing Tariff Structure? What are its advantages

What are the most significant impacts of the power sector reforms on the industry as a whole

Are reforms giving the right impact as they are indented to give?

Which level of the power industry do you think needs more reform initiative?

How the New Tariff Structure would affect the Power Sector of your company?

Have any action plans been made to recover the old dues from SEBs?

Any comments & suggestions?

SECONDARY DATA

Secondary Data has been collected from the following sources: -

CERC Notifications

Expert’s Reports

Report of M.S.Ahluwalia Committee

Annual Accounts

NTPC magazines like Damini & Horizons

Misc. Journals, newspaper, leaflets

Sources of data are given in the bibliography and the end of the project report

NTPC LTD. 39

LIMITATIONS

No study is free from limitations, which are caused by constraints of time, money, knowledge base and similar factors. An attempt was made to broad base the study as far as possible, however it is but naturals that this study also suffers from some limitations which are broadly mentioned below:

The regions are far away, thus the study has been confined to National Capital Region. Due to cost constraint visiting other regions, projects, SEBs etc. was not possible as it would involve huge expenditure.

It was practically impossible to cover all the regions, projects, SEBs in a short span of two months. Hence time constraint was one of the limitations.

Knowledge gained pertains to NTPC. Non availability of knowledge of working of SEBs, other regions also acted as a constraint.

The availability of data was limited to National Capital Region. Moreover we had no access to confidential files etc.

The conservative attitude of some of the employees was a limiting factor in gaining information.

NTPC LTD. 40

BUSINESS PORTFOLIO

IntroductionOver the last two decades, NTPC has spearheaded the development of thermal generation

capacity in the Indian power sector. In this process, it has built a strong portfolio of coal

and gas/liquid fuel based generation capacities. Recently, the company has also made

initial forays in the area of hydropower. NTPC is also offering technical services through

its Consultancy Wing and has entered into joint ventures for offering some of the

services. However, till date thermal generation has been thesingle largest revenue

generator for NTPC.

The Indian power sector has witnessed and can anticipate several changes in the business

and regulatory environment as outlined in the previous chapter of this plan. Players such

as NTPC face significant uncertainties in the availability and economic viability of

thermal fuels. The challenged health of state utilities presents a threat to the cash flow of

generators. However, ongoing changes in the customer environment also provide

opportunities for improving the customer mix. The policy framework has changed

substantially with the recent clearance of the Electricity Bill by both houses of

parliament. The Indian power sector is on the road to becoming a viable investment

destination with the recent thrust of the participants on speedy reform. This has also

increased the threat of competition. Thus the power sector offers a mixed bag of

opportunities and threats to players and NTPC needs to review its business strategy and

portfolio in light of these changes.

NTPC with its history of excellence in all aspects of its business is uniquely positioned

for growth. Continued growth in generation is relatively easy on account of NTPC’s

significant learning curve benefits. However to capitalise on the changing face of the

power sector NTPC needs to consider a bolder target of becoming India’s leading

integrated power utility. In addition, NTPC needs to target being the brand ambassador

for the Indian power sector in overseas markets. This would call for controlled, urgent

and successful entry into other businesses in the power value chain and targeting markets

NTPC LTD. 41

outside India. Therefore, NTPC’s business portfolio strategy would target three key

dimensions:

o Capacity addition program (including changes in fuel mix, technology, etc)

o Diversification along the power value chain

o Dominance in the services business in the domestic and international markets

Growth of the Generation Business

Developing and operating world-class power stations is NTPC’s distinctive competence.

Its scale, financial strength and significant learning curve benefits would also serve to

provide an advantage over competitors. Hence sustaining leadership in generation is

critical to the target of being the largest integrated power utility. Thus NTPC would

continue to focus on making available reliable and quality power at competitive prices.

To meet this objective, NTPC would continue to speedily implement projects and

introduce state-of-art technologies.

Projected portfolio in 2017

Total capacity portfolio

India’s generation capacity can be expected to grow from the current levels of about 104

GW to about 225-250 GW by 2017. NTPC currently accounts for about 19% of the

current installed capacity. Going forward, in its target to remain the largest generating

utility of India, NTPC would endeavour to maintain or improve its share of India’s

generating capacity. Towards this end, NTPC would target to build an overall capacity

portfolio of over 56,000 MW by the end of the 12th plan period. Of this, NTPC would

target commissioning 9,370 MW in the 10th plan, 11,210 MW in the 11th plan period and

15,540 MW in the 12th plan period. While NTPC is fully equipped to provide the

requisite managerial resources such as engineering capability, ability to manage multiple

projects, etc the ability to arrange sufficient and timely funds would govern success in

achieving the targets.

NTPC LTD. 42

Energy mix for capacity addition

Currently, coal has a dominant share in the generation capacities in India and this is also

reflected in the high share of coal-based capacities in NTPC’s current portfolio. However,

going forward, NTPC would have to review the share of coal-based projects on account

of potential demand supply gap for domestic coal and the likely availability and

competitiveness of alternate fuels such as gas. Efforts to reduce the variable cost of

power would be critical to ensure dispatch of power plants under a merit order system.

NTPC can also avail of opportunities to add hydropower to its portfolio subject to

competitive tariffs and minimal R&R issues. A first step in this direction has already

been taken with the investment in Koldam. As a leader in power generation, NTPC could

also consider other energy sources such as biomass, cogeneration, nuclear power, fuel

cells, etc for future development thereby reducing the dependence on thermal fuels.

While a decision on the fuel/energy mix for NTPC in the future would be largely

governed by their relative tariff-competitiveness, by 2017 the mix would be significantly

different from the existing portfolio.

Thermal Power

To revise NTPC’s thermal fuel strategy a study of the expected trends in availability and

prices of domestic coal, imported coal and natural gas was carried out. The study also

compared the long run competitiveness of landed power using these alternatives in each

of the three plan periods. This has helped in developing the long-term strategy for

thermal fuels as detailed in this section.

Goal

To own/manage/control a portfolio of about 42,000 MW of thermal power by

2017, retaining its position as India’s largest thermal power utility

To minimise the landed cost of power from new plants by selecting appropriate fuels

to retain its long-run competitiveness in power generation, while keeping in mind

technical constraints such as evacuation of power, load balancing and other system

constraints

NTPC LTD. 43

Strategies

Domestic coal based projects: NTPC would continue its strategy of major portion of

capacity addition through pithead based coal plants during the 10th and 11th plan periods.

However, going forward, NTPC would consider alternate fuel options to domestic coal

(including regassified LNG and imported coal) with a view to broadbase its fuel portfolio

and minimise its cost of power generation.

Gas based projects: NTPC would seek to develop gas-based combined cycle power

projects subject to the assured availability of gas at a competitive price. Analysis

indicates that gas could potentially be competitive to domestic coal in some parts of the

country especially in states near to the coast. NTPC is already exploring various sources

including regassified liquefied natural gas and is evaluating their competitiveness prior to

making a decision in this regard.

Imported coal based projects : During the 10th plan period, most of NTPC’s

proposed plants are expected to be more competitive than projects based on imported

coal. However, going forward, imported coal based projects might be a more competitive

option to domestic coal based projects at some coastal locations. In view of this, NTPC

would evaluate imported coal based projects (at the port) in the Southern/Western Region

for the 11th and 12th plan periods.

Other fuel options: The option of developing lignite-based capacities was also

evaluated and compared with domestic coal based plants. The analysis revealed that in

the present scenario, domestic coal based capacities are more suitable for NTPC. Going

forward, NTPC would continue to evaluate lignite as a fuel and would consider setting up

lignite based capacities, if found competitive. In addition, NTPC would track

developments in alternate fuel options such as Orimulsion, Di-Methyl Ether (DME), Coal

Bed Methane (CBM) and heavy refinery residues. Capacities based on these fuels would

be developed in the event they are competitive with other fuel options. In addition,

NTPC LTD. 44

considering the potential for development of cogeneration plants in India, NTPC would

explore opportunities for the same.

Maintaining a comprehensive database for review of mix: The thermal fuel

options detailed above would need to be constantly evaluated and further fine-tuned in

line with the emergent fuel prices and availabilities and other system constraints. In

addition, decisions on plant and fuel selection would need to be considered on a case-to-

case basis. To facilitate this, a comprehensive database of fuels, their availabilities,

pricing trends and impacting forces would need to be maintained. The responsibility for

designing and maintaining the database and deriving implications for NTPC, would

reside with the Fuel Management Group.

Co-ordination with NTPC’s overall business plan: The information from the

database on fuel availability and price forecasts would also be a critical input in

developing the overall business plans for NTPC. To facilitate review and fine-tuning of

the capacity addition program based on fuel scenarios, the Fuel Management Group

would work closely with the Corporate Planning group in the business plan revision

exercise.

Hydel Power

India has a vast, untapped potential for hydropower development. Apart from being an

environmentally clean source of power, hydropower would also provide a peaking power

option for the country. While in the current scenario NTPC has plant specific pricing and

power purchase agreements, in the future, portfolio presence of hydropower could help

NTPC in bundled pricing and peak demand management. Executing hydro projects

would have the added benefit of price stability in the long term on account of the low

share of variable costs in the tariff. Global utilities have recognised the advantages of

hydropower in the generating portfolio and many of the top utilities own and operate

significant hydropower capacities. Amongst the top ten global thermal generating

NTPC LTD. 45

companies, NTPC is the only one without any hydro capacities in its portfolio. However,

NTPC has already initiated action and is already building capabilities in hydropower by

executing an 800 MW hydroelectric station at Koldam. Going forward, NTPC would

seek to expand the share of hydropower in its generating portfolio. Towards this end

NTPC may also consider replacing any proposed coal based capacity addition with

hydropower capacity subject to tariff-competitiveness and minimal Resettlement and

Rehabilitation issues.

Goals

To build a hydropower portfolio comprising 20% of the overall generation portfolio

by 2017, adding about 11,000 MW during the 10th, 11th and 12th plan periods. Out

of this, NTPC would target adding about 4,500 MW by the end of the 11th plan

period

To reduce the dependence on thermal fuels, and build peaking power capacities,

thereby generating competitive advantage for the future

To develop and leverage organizational capabilities in the area of erecting,

commissioning and operating hydropower plants

Strategies

Gradual build-up of a large hydro portfolio: NTPC would seek to gradually increase its

hydro capacity portfolio. It has already commenced work on the Koldam project. In the

immediate term, projects would be added gradually in order to leverage experience

gained and to mitigate risks in hydropower development. After developing required skills

in the initial years, the pace of hydropower addition would be ramped up, if necessary

replacing proposed thermal capacity additions (subject to being competitive). In all,

NTPC would target building a portfolio of 4,500 MW of hydropower by the end of the

11th plan. During the 12th plan period, hydropower additions would comprise close to

NTPC LTD. 46

40% of the planned capacity addition. Thus by 2017 NTPC would target about 11,000

MW of hydropower, comprising close to 20% of the projected generation portfolio.

Type of plants: To begin with, NTPC would focus on ‘run of the river’ hydel projects.

Pumped storage plants have been evaluated and have not been found to be commercially

viable in the current scenario. Policy measures such as differential pricing for peaking

power would be critical pre-requisites for NTPC to undertake PSPs. Thus, NTPC would

consider pumped storage plants during the 11th and 12th plan periods and pursue them

only subject to commercial and technical viability.

Small hydropower plants would also be considered and a wholly owned subsidiary

named “NTPC Hydro Limited” has already been formed to facilitate focus. As part of the

11,000 MW goal for hydropower development, NTPC would target adding about 1,000

MW through the small hydro subsidiary by the end of the 12th plan period.

Large reservoir-type hydropower plants typically face issues related to impact on

irrigation, environmental damage and resettlement and rehabilitation. As such, the initial

focus would exclude reservoir projects till such time NTPC has sufficient experience in

hydropower development and operation.

Organisational preparedness: NTPC would take various initiatives to prepare

itself for the increased thrust on hydropower. NTPC would work closely with the

regulator(s)/Ministry of Power to ensure an appropriate and remunerative tariff regime

for hydropower, encompassing issues such as differential tariff for peaking power. In

order to provide internal focus on hydro capacity development a separate hydropower

group headed by an Executive Director has already been formed. This group would

function similar to the regional set-up and would have the responsibility for development,

execution and operation of hydropower projects. A separate group in the Engineering

Division has been formed that would concentrate on developing skills in engineering of

hydropower plants.

NTPC LTD. 47

Nuclear Power

Nuclear power is expected to enjoy a growing share of the developing world’s electricity

generation during the next two decades. The overall cost of nuclear power is seen to be

favourable as compared to thermal fuels in countries that do not have access to cheap

sources of coal or gas. However, nuclear power offers other advantages including higher

environmental cleanliness, lower exposure to fuel price risk and longer plant life. In

India, as on March 31, 2002, Nuclear Power Corporation of India (NPCIL) had fourteen

reactors in operation with a combined capacity of 2,720 MW. Developmental efforts of

NPCIL have led to substantial indigenisation and presence of competent domestic

vendors of nuclear plant equipment. India is also endowed with sufficient reserves of

thorium. On account of these advantages, nuclear power has the potential to contribute

meaningfully to the future base load capacity in India.

However, the development of nuclear projects in India has been constrained by several

factors. These include high gestation periods for project execution and difficulty in

obtaining adequate funds. NTPC’s strong project management skills and balance sheet

strength could help in offsetting these roadblocks and thereby prove to be a source of

competitive advantage in establishing nuclear power generation capacities.

During the 12th plan period, NTPC would consider the option of adding about 2,000 MW

of nuclear capacities in joint venture with Nuclear Power Corporation of India. Towards

this end, NTPC would also continuously evaluate the policy environment covering the

nuclear capacity addition programme and the relative competitiveness of nuclear power.

Future Generating Options

Apart from thermal, hydro and nuclear power, NTPC would also keep track of

developments in alternate energy sources such as Wind, Fuel Cells, cogeneration, etc.

Especially with the advent of distributed generation, these technologies that offer smaller

NTPC LTD. 48

capacity installations could become lucrative. Towards this end NTPC would target

adding about 1000 MW by 2017 through a mix of these energy sources based on their

commercial viability, competitiveness, technology availability. The NTPC R&D division

would also be responsible for both fundamental and applied research in these areas.

Wind Energy: India is the fifth largest wind power-producing nation in the world

(after Germany, USA, Spain and Denmark) with an aggregate commercial capacity of

1444 MW. The presence of significant incentives for setting up wind power projects like

the central incentives of tax holiday, 100% accelerated depreciation, concessional custom

duty, etc. make it an attractive proposition for consideration by NTPC. However, the

entry into wind power would be contingent on addressing some critical issues such as the

need for significant investments and the need for cost effective ways to tackle variable

and unpredictable nature of wind power in order to make the venture commercially viable

Fuel Cells: Fuel cells could provide an attractive option for NTPC to consider in the

future, especially if the business environment renders distributed generation as a viable

business model. There are several types of fuel cells under development currently, in

different stages of commercial availability for e.g. Phosphoric Acid Fuel Cells (PAFC)

that are commercially available and can be used to power small buildings such as office

buildings, hospitals etc and Direct Methanol Fuel Cells (DMCF) that are still in the pre-

prototype stage. NTPC would continuously track developments in distributed generation

and fuel cell technology for adoption at a later date, when viable. NTPC’s R&D division

would track technological developments, conduct fundamental and applied research and

evaluate viability of fuel cells and distributed generation for the future.

CERC ORDER (CENTRAL ELECTRICITY REGULATORY

COUNCIL)

OPEN ACCESS REGULATIONS REVISED

NTPC LTD. 49

In February, the Central Electricity Regulatory Commission (CERC) has announced

streamlining of the norms for seeking open access in inter-State transmission. This is

based on the operational feedback received from stakeholders. The existing regulations

were introduced in February 1, 2004, in pursuance of the Electricity Act, 2003.

CERC has introduced a monthly timetable for advance reservation of transmission

capacity. In its amendments to the open access regime, which is applicable from April 1

2005, the regulator has also proposed part-day transmission charges to reduce the cost of

wheeling peaking power. Under the part-day charges introduced by CERC, the

transmission cost for short-terms customers is only a fourth of the daily charges, if they

use the transmission lines for six hours or less in a day. Similarly, for usage of up to 12

hours a day, only half of the per-day charges shall be applied. Under the monthly

timetable that has been introduced for the grant of transmission access to short-term

customers, there will be a provision for advance reservation of lines for three months.

Applications must be submitted by the 19th day of the month. They will be processed

together and access shall be granted by the 26th. For advance reservations for short-term

customers, congestion management will be done through electronic bidding. The CERC

has also announced an exit option to short-term customers, whereby a customer can

surrender the reserved transmission capacity by paying a minimum of seven-day charge

or the charge for the balance period of reservation, whichever is shorter. CERC has not

changed the pricing scheme for intra-regional transmission access.

In line with the original open access norms applicable from February 2004, transmission

customers have been divided into two categories — long-term and short-term. A long-

term customer will be allowed access based on the transmission planning criteria

stipulated in the Indian Electricity Grid Code. Allotment priority of long-term customers

will be higher than that of short-term customers. Short-term customers will be the first

ones to be curtailed in the event of transmission constraint, according to the norms. To

avoid pan caking, the Commission has decided that for short-term intra-regional

transactions, the short-term customer shall be charged at the rate of 25 per cent of the last

NTPC LTD. 50

year's effective rate for long-term customers, and average transmission losses shall be

applied.

COMPETITIVE BIDDING FOR POWER PURCHASE BY DISCOMS

In January, the government notified guidelines for tariff determination via competitive

bidding, for procurement of power by distribution licensees. As per the guidelines, a

distribution company can call for bids for supply of power through a competitive process

and identify a supplier. The regulator will not scrutinize tariff determined via this

process. The tariff structure in the notification mentions a formula for energy charges,

which will depend on the price of fuel and scheduled generation, among other things as

well as capacity charges.

APPLICATIONS FOR TRANSMISSION LICENSE

In December, Reliance Energy Ltd (REL) has applied to the CERC seeking license for

transmission of power in western India for 20 lines and 13 sub-stations in western India.

It is also reported that a Malaysian company in joint venture with an Ahmedabad-based

company has also approached the CERC seeking a similar license in Bina-Nagda sector.

CERC has said that it would consult all the parties, including Power Grid Corporation

Ltd and consumers (in this case State Governments) and after that an advertisement

would be made in newspapers. It has been reported earlier that POWERGRID, the state

owned transmission utility has approached the MoP seeking authority to decide entry of

private players into transmission.

FIXING OF TRADING MARGINS

The CERC has taken steps to regulate trading margins The trading margins has been

fixed at Re 0.04 per unit for electricity traders exclusive of transmission charges,

unscheduled charges, application fees and transmission losses.

NTPC LTD. 51

The commission had, for the past few months, been keeping close tabs on the trading

business. The high amount of trading margins that some companies had been making

necessitated greater scrutiny.

The CERC noted that nearly 90% of trading during 2004-05 was done at a margin of Re

0.05 per unit or less, but in the first half of 2005-06,it increased to a weighted average of

Re. 0.10 per unit. About 68 per cent of the volume traded during the period carried a

margin of Re 0.06 per unit. Significantly, the highest trading margin in a single

transaction in 2004-05 was Re 0.04 per unit, he earns revenue of Rs. 12 million.

The regulator feels that traders have taken advantage of deficit situation prevailing in

most parts of country. Therefore fixing the trading margin is necessary to avoid arbitrary

fixing of profit margins and thus leaving consumers to their whims and vagaries. The

commission states that the trading margin should not be fixed keeping in mind the

requirement of traders alone. It has to be fair to consumers as well, particularly when a

trader buys power for resale, without making any value addition.

As expected, electricity traders are not pleased with the regulation. Their view was that

fixing margins would stifle trading activity and push them out of the business. It would

also prove detrimental to the electricity sector as a whole.

It is ironical at a time when the power ministry has strongly recommended 100 percent

FDI in trading of electricity through the automatic approval rate, trading margins have

been capped. This will hinder investments as well as stifle competition in the sector.

Power trading is still at a nascent stage and there is a long way to go. As of now power

trading amounts to just 2.5% of country’s existing power consumption.

NTPC LTD. 52

Average Frequency UI Rate (Paise per kWh)

of time block

50. 5 Hz and above 0. 0

Below 50.5 Hz and up to 50.48 Hz 8.0

Below 49.04 Hz and up to 49.02 Hz 592.0

Below 49.02 Hz 600.0

Between 50.5 Hz and 49.02 Hz linear in 0.02 Hz step

(Each 0. 02 Hz step is equivalent to 8. 0 paise /kWh within the above range)

The following rates shall apply with effect from 1.10.2004 :

Average frequency of the UI Rate

time block(Hz)

Below Not Below (Paise per kWh)

------ 50.50 0.0

50.50 50.48 6.0

50.48 50.46 12.0

------ ------ -----

------ ------ -----

49.84 49.82 204.0

49.82 49.80 210.0

49.80 49.78 219.0

49.78 49.76 228.0

------ ------ -----

------ ------ -----

49.04 49.02 561.0

49.02 ------ 570.0

NTPC LTD. 53

(Each 0. 02 Hz step is equivalent to 6.0 paise /kWh in the 50.5-49.8 Hz frequency

range,and to 9.0paise/kwh in the 49.8-49.0 Hz frequency range.)

Note :-

The above average frequency range and UI rates are subject to change through a separate

notification by the Commission.

(i) Any generation up to 105% of the declared capacity in any time block of 15 minutes

and averaging up to 101% of the average declared capacity over a day shall not be

construed as gaming, and the generator shall be entitled to UI charges for such excess

generation above the scheduled generation (SG).

(ii) For any generation beyond the prescribed limits, the Regional Load Despatch Centre

shall investigate so as to ensure that there is no gaming, and if gaming is found by the

Regional

NTPC LTD. 54

Load Despatch Centre, the corresponding UI charges due to the generating station on

account of such extra generation shall be reduced to zero and the amount shall be

adjusted in UI account of beneficiaries in the ratio of their capacity share in the

generating station.

NTPC LTD. 55

DATA ANALYSIS AND INTERPRETRATION

COMPARATIVE ANALYSIS OF TARIFF

A comparative chart of availability based tariff used in NCR since

1-12-2002 and two-part tariff has been presented as below:

Description Two-part tariff

(GOI notified tariff)

AvailabilityBased Tariff

(CERC orders of Dec, 2000)

1.Components of tariff

Two parts – namely Fixed Charges and Variable charges.

Three parts – namely Fixed charges, variable charges and UI charges.

2.Components of fixed charges

ROE, Depreciation, Interest on loans, O&M exp, Interest on working capital.

Same as in the case of two-part tariff.

3.Fixed charges allocation to SEBS

In proportion to the drawls. In proportion to the capacity allocations.

4.Recovery of Fixed charges

62. 78 % PLF (including deemed generation).

80 % Availability.

5.Buffer (dead – band) zone between incentive and disincentive

62. 78 % to 68. 49 % PLF. No buffer.

6.Disincentives For PLF below 62. 78 % in a graded manner. At 0 % PLF, 50 % of charges are payable.

For availability below 80%, pro-rata reduction in fixed charges.

7.Incentives 1ps for every 1 % increase in PLF and applied on incremental units over 68. 49 % PLF.

For PLF above 77 % (calculated from schedule) incentive @ 50 % fixed charges / kwh (subject to maximum of 21. 5 Ps. kwh) is applied to incremental units generated over 77 % PLF.

For PLF beyond 90 %, incentive is reduced by 50 % of above.

8.Variable charges recovery

Based on normative operation norms and applicable to

Based on same normative operation norms and applicable

NTPC LTD. 56

Description Two-part tariff

(GOI notified tariff)

AvailabilityBased Tariff

(CERC orders of Dec, 2000)

Energy Sent Out. to Scheduled Energy only.

9.UI charges Not provided Variations in actual ESO and scheduled ESO are to be accounted at Frequency linked UI rates. UI charges are inversely related to frequency.

10.FPA formula to neutralize fuel price fluctuations

Provided Provided as in two – part tariff

11. O&M escalation

10 % per annum 6 % per annum

12.Depreciation 7. 84 % for thermal

8. 24 % for Gas.

Depreciation was not linked to useful life of the assets

3. 60 % for thermal

6. 00 % for Gas

Depreciation is linked to useful life of the assets

13. Advance Against Depreciation

Not provided Provided to bridge the gap between depreciation and loan repayments in a year.

Amount of depreciation plus advance against depreciation shall not exceed 1/12 of the loan amount.

Once loans are repaid, balance depreciation is to be spread on the balance life of the assets

14. Income Tax Pass through at actual Pass through at actual

15. Income –tax allocation to the stations

Based on operating capacity at the beginning of the year

Based on the estimated pre-tax profit of the stations

16. Development surcharge

Not provided 5 % of fixed charges for NTPC.

Not applicable for single-state stations and shall be used to the extent of 1/3 rd of equity requirement of new stations.

To be utilized on regional basis only and no ROE on surcharge

NTPC LTD. 57

Description Two-part tariff

(GOI notified tariff)

AvailabilityBased Tariff

(CERC orders of Dec, 2000)

funds utilized for capacity additions

17.

Internal resource generation from 2001 – 2012

Rs 35170 Cr Rs 12507 Cr.

NTPC LTD. 58

FINDINGS

Indian power sector reforms have reached a stage from where further progress appears

bleak due to the following major problems:

1. The slow rate of addition to power generating capacity;

2. The inability to find a solution to the problem of subsidized supply of power to

agriculturists;

3. The large size of DISCOMS.

4. The chaotic condition of governance of LT distribution with, inter alia, the level

of T&D losses remaining undetermined and the annual loss reduction in the

system being very slow;

5. The rationalization or rebalancing of tariffs becoming a losing game because the

average cost of supply increases faster than the possible rates of increase of

tariffs;

6. The deficits accumulated over the years imposing an unbearable interest burden

limiting the capacity to raise funds in the commercial market.

7. The failure of efforts to induct the private sector into distribution;

NTPC LTD. 59

RECOMMENDATIONS

1. The low rate of power generation should be checked to meet the ever

rising demands.

2. The inability to find the solution to the problem of subsidized supply of

power to agriculturists should be checked.

3. Transparencies reduced at many level so this again needs to be checked.

NTPC LTD. 60

CONCLUSION

1. The previous comparison between the two tariff structure shows that ABT is

much advanced and efficient approach towards collection of revenue.

2. In ABT approach, wastage of power is reduced at the same time, the return on per

unit power sold is increased.

3. Although there remain some drawbacks in the modern approach too.

BIBLIOGRAPHY

Tariff Notifications issued by government of India

Orders issued by Central Electricity Regulatory Commission (CERC)

ABT Invoice

Annual Reports of NTPC

NTPC LTD. 61

http://191.254.191.171/intranet/hr/policy_manual/Corporate-statement/pdf/OUR

%20MISSION.pdf

In house Magazines of NTPCWEBSITE:

1. www. ntpc.co.in

2. www.powermin.nic.in

3. www.google.co.in

4. www.indiainfo.com

APPENDIXAPPENDIX

ABBREVATIONS USED IN THE REPORT ABBREVATIONS USED IN THE REPORT

CAGRCAGR Compound Annual Growth RateCompound Annual Growth RateCEA CEA Central Electricity AuthorityCentral Electricity AuthorityCERCCERC Central Electricity Regulatory CommissionCentral Electricity Regulatory CommissionED ED Executive DirectorExecutive DirectorGencoGenco Generating CompanyGenerating CompanyGOIGOI Government of IndiaGovernment of IndiaIPPsIPPs Independent Power Producers (In Power Sector) Independent Power Producers (In Power Sector) JVJV Joint VentureJoint VentureMOUMOU Memorandum of UnderstandingMemorandum of UnderstandingNTPCNTPC National Thermal Power StationNational Thermal Power StationO&MO&M Operation and MaintenanceOperation and MaintenancePLFPLF Plant Load FactorPlant Load Factor

NTPC LTD. 62

SEBsSEBs State Electricity BoardsState Electricity BoardsSERCSERC State Electricity Regulatory CommissionState Electricity Regulatory CommissionLC LC Letter Of CreditLetter Of CreditFDIFDI Foreign Direct InvestmentForeign Direct InvestmentMWMW Mega WattMega Watt

MVA: Mega Volt Ampere MU: Million Unit

NTPC LTD. 63