Indian Power sector - USAID SARI/Energy Integration...Indian Power Sector 0 4 20000 40000 60000 80000 100000 120000 Coal Gas Diesel Nuclear Hydro Res 112022 18381 1199 4780 38990 24503

Indian Power sector

Dr. Rajiv K Mishra

Executive Director

PTC India Limited

SECTION

1. INDIAN POWER SECTOR – AN OVERVIEW

2. DEVELOPMENT OF INDIAN POWER SECTOR (1947-2012)

3. INDIAN POWER MARKET

4. INVESTMENT POTENTIAL

5. CHALLENGES AND WAY FORWARD

Contents

SECTION

1. INDIAN POWER SECTOR – AN OVERVIEW

Indian Power Sector

4 0

20000

40000

60000

80000

100000

120000

Coal Gas Diesel Nuclear Hydro Res

112022

18381

1199 4780

38990

24503

Installed Capacity (MW) 31.3.2012

Total Installed Capacity ~ 200 GW

56%

9%

1%

2%

20%

12%

Coal Gas Diesel Nuclear Hydro Res Electricity requirement growing at an exponential

rate due to population growth; urbanization and

economic growth ~ 9%

Several policy and regulatory updates have marked

the advent of a more competitive and dynamic

landscape in the power sector

The Indian Power Sector is under progressive

reforms and transition making way for numerous

opportunities as effective investment potentials

India: Electricity Sector

5

Year wise Energy Deficit Key Highlights

5th largest generation capacity (187 GW, 4% of

global power generation); mostly thermal dependent

Growth in demand for power outstripping the

growth in generation and capacity addition

T & D losses at 33 % (among the highest)

Planning to establish an integrated National Power

Grid in the country with about 200,000 MW generation

capacities and 37,700 MW of inter-regional power

transfer capacity (current – 22,400 MW)

With facilitation of inter-regional transmission,

trading activities are set to gain momentum with

subduing location constraints on generation

capacities

Power Supply Position in 2012

Energy Details 2011-12

Peak Requirement 136 GW

Peak Availability 118 GW

Power Deficit 17 GW (12.9%)

6.3

2.74

6.65.32

9.911.1

10.18.5

16.6

11.9 12.7

9.8

0

2

4

6

8

10

12

14

16

18

2007-08 2008-09 2009-10 2010-11

Growth

Energy DeficitPeak Deficit

6

Integrated Energy Policy by Planning Commission, Government of India

GDP growth Versus Electricity growth – Elasticity >1

Electricity has to grow by 10% if economy grows at 9%

Success rate in last 3 plan periods is ~50%

GoI’s capacity for budgetary support limited

Private investment in power sector is serving as an indicator for rapid growth

Sector is vying to be investor-friendly through framing market serving regulatory and policy initiatives, thereby promoting competition across the value chain.

India: Electricity Sector

India - Installed Capacity

153220

306

425

575

778

155233

337

488

685

960

0

200

400

600

800

1000

1200

2006-07 2011-12 2016-17 2021-22 2026-27 2031-32

GW

8% GDP Growth 9% GDP growth

Coal – In Central India ‾ Chhattisgarh : 58000 MW ‾ Orissa : 30000 MW ‾ Jharkhand : 15000 MW ‾ Madhya Pradesh:16000 MW

Hydro – In North Eastern & Northern

Himalayan region Coastal based

‾ Andhra Pradesh: 24000 MW ‾ Tamil Nadu : 10000 MW ‾ Gujarat : 11000 MW

Expected Installed Capacity (2025) : 6,00,000MW

Lara

Expected Generating Stations - 2025

Partabpur

Talcher/Ib Valley

Krishnapatnam

NEPAL

KorbaBhopalIndore

Tadri

Girye

Kaiga

Thiruvananthapuram

Pipavav

Kudankulam

SR

Bangalore

Kayamkulam

WR

Tarapur

Mumbai

Cuddalore

Ennore

Akaltara

Raipur

Hyderabad

RAPP

Gandhinagar

Mudra

Delhi

Ludhiana

NR

Jaipur

Jammu

Sasan

Vindhyachal

Lucknow

Load Centre Based Generation

Ultra-Mega Generation

Hydro Based Generation

Coastal Generation

Coal Based generation

Nuclear generation

BhubaneswarDarlipali

Vizag

Simhadri

LEGEND

Load-Centre

NERGuwahati

Koderma

SIKKIM

Kolkata

ER

PatnaNECK

CHICKEN

BHUTAN

DESHBANGLA

MY

AN

MM

AR

Mangalore

KozhikodeSouth MadrasChennai Energy resources (coal, water etc.)

are unevenly distributed

Energy Resources Map

Power Supply Scenario

100

152

218

437

323

2007 2012 2017 2022 2027

Year

GW

Peak Demand

132220

306

575

425

2007 2012 2017 2022 2027

Year

GW

Installed Capacity Requirement

During

12th plan

During

13th plan During

11th plan

205

Future Power Scenario

36874

26783

15043

28600

14400

57000

0

10000

20000

30000

40000

50000

60000

Central Sector State Sector Private Sector

XI Plan

XII Plan

Central Sector State Sector Private Sector Total

36874 (47%) 26783(34%) 15043(19%) 78700

28600 (28%) 14400(15%) 57000 (57%) 100000

XI

XII

Change in Generation Profile

Prospective investors should obtain and review the offering documents relating to the units or shares of any Fund, including the description of risk

factors/investment considerations contained in the offering documents, prior to making any decision to invest in such units or shares.

Strictly Private & Confidential

765kV/400kV lines: about

1,03,000 ckms

220kV lines: about 132,000

ckms

HVDC Bipole(±500kV): 7,500

ckms – 3 nos.

HVDC Back-to-back: 7 nos.

(3000MW)

FSC – 22 nos.; TCSC – 6 nos.

POWER MAP OF INDIA




Jharkhand –

6500 MW

NER –

5000 MW

Orissa –

23,000 MW

T.N.–10,000 MW

AP–24,000 MW

Chhattisgarh.–

58,000 MW

Proposed 11 nos. High Capacity Transmission Corridors for

IPP Projects

SECTION

2. DEVELOPMENT OF INDIAN POWER SECTOR (1947-2012)

Development of Power Sector - Decade Trend

1947 – 1990 : Command and Control Economy

-Allocation of resources by the Government (budgetary grants)

-Government took active part in setting priorities for the economy

-Formation of State Electricity Boards and Central Electricity Authority

-Limited scope for private participation

1991 – 2000 : Liberalization of Indian Economy

-Increased emphasis on private sector power generation

-Limited extent of FDI participation

-Gradual improvement in the enabling regulatory environment

-Formation of CERC

2001 onwards : Progressive Liberalization & Reforms

-Electricity Act 2003

-National Electricity Policy 2005

-National Tariff Policy 2006

-Restructured Accelerated Power Development & Reforms Program (RAPDRP)

-National Mission for Enhanced Energy Efficiency under National Action Plan

for Climate Change

15

The Electricity Act 2003 created liberal and transparent framework for Power

Development

It facilitated investment by creating competitive environment and reforming

distribution segment of power industry.

Entry Barriers removed/reduced

• De-licensed generation.

• Freedom to captive generation including group captive.

• Recognizing trading as an independent activity.

• Open access in transmission already in place.

Open access to consumers above 1 MW

Multiple licenses in distribution.

Regulatory Commissions- to develop market; to fix tariff.

Various provisions of the Electricity Act 2003 have removed the barriers

to entry of private players in different segments of electricity industry,

including distribution

Development of Power Sector – Electricity Act

Under MOP: NTPC, NHPC, NEEPCO,DVC,BBMB Other Ministries: NLC, NPC Central

State

Joint

Private

SEBs/State Gencos

SJVNL, THDC, NHDC

IPPs, Licensees (CESC, REL, AEC)

Transmission CTU-Power Grid Central

State STUs- SEBs/State TRANSCOs

Transmission

Distribution

Generation

State STUs- SEBs/State Discoms (Major player)

Private Pvt Discoms and Licensees

Distribution

Power Trading: PTC India Financing: PFC, PFS, REC

Private Private - Licensees

Development of Power Sector

Optimal roles played across the Value Chain

NEW Grid

South Grid

South

West

North

East

Northeast

Central Grid

Five Regional Grids

Five Frequencies

October 1991

East and Northeast

synchronized

March 2003 West synchronized

With East & Northeast

August 2006 North synchronized

With Central Grid Five Regional Grids

Two Frequencies

Installed Capacity 200 GW

MERGING OF MARKETS




CERC’s key regulations & Orders

Availability Based Tariff - 2000

Power Trading - 2004

Terms & Conditions of Tariff - 2004

Fixation of Trading Margins - 2006

Power Exchange - 2007

Open Access in inter-state Transmission - 2008

CERC UI charge - 2009

Procedure, Terms & Conditions for grant of Trading license - 2009

Fixation of Trading Margins (repealed) - 2010

Indian Electricity Grid Code - 2010

Terms & Conditions for issuance of REC - 2010

Sharing of inter-state charges & losses - 2010

Terms & Conditions for Tariff determination from RE sources - 2012




Improvement in Regulatory Performance

Rationalization of tariffs and commercial orientations

Improvement of Grid Discipline

Encouraging Private Sector participation and Competition in

Distribution sector

Balance stakeholders’ interest and increase their

participation

Consumer empowerment

Encourage use of DSM devices




Regulatory Issues & Concerns

Irregularity in issuance of Tariff orders annually

Open access in distribution

RPO Obligation

Inadequate private participation

Coordination issues

Inadequate staffing and high attrition

Political interference & slackness of state governments

Consumers awareness is low & consumer grievances

redressal issue

SECTION

3. INDIAN POWER MARKET

22

• PTC India (formed in 1999) as a GoI initiative for development of power market and incentivizing market based investments in power sector

• A vibrant, growing power market – Stable growth and consolidation – Market development/monitoring in the domain of Regulators

• The Power Market is evolving to maximize competition across generation, open to all

market participants and increase competition over price rather than cost.

Key Features: Indian Power Market

22

Long Term Markets (up to 35 years)

Short Term Markets (up to 1 year )

Regulated Assets – Interstate and

as State level

Competitive Bidding – case 1 and case 2

Licensed Traders / Bilateral

Power Exchange

Real time balancing

UI Mechanism

Indian market is here

Evolving Power Industry Structure

24

Impact of Electricity Trading

24

More avenues to sell power.

Increase in PLF and generation efficiencies.

Bottled up capacities of CPPs unlocked.

Better grid discipline as scheduled exchanges increase.

Improved utilization of transmission capacities.

Improved reliability of power.

Improved quality of power.

Avenues for reduction in cost of power through time of day trading.

Overall reduction in cost of power with phasing out of surcharges.

Shortages in deficit locations minimized.

Lower cost of power due to deferment of new investments.

Reduced environmental degradation because of better utilization of existing resources and reduction in new project related activity.

Enhanced energy security.

Generators Transmission Bulk Users Society

25

Total volume traded in short term market in 2010-11 was

81.56 BUs (including UI), an increase of 24 % YOY

Excluding UI, bilateral market (both bilateral traders and

direct between Discoms) constitute 71% of the short-term

market (rest 29% contribution from exchanges)

Weighted average price of electricity on exchanges was

lower than bilateral market which shows that users are

ready to pay premium for delivery certainty

Size of the bilateral traders’ market in monetary terms –

Rs. 13,271 crore

Short-term Market – Bilateral Trade

Total size of Power market: ~Rs. 18,500 Crores

Data for 2010-11

26

First National level PX Indian Energy Exchange (IEX) : promoted by PTC Group, commenced operation in 2008

Another exchange PXIL followed, third exchange is on anvil

IEX: ~ 90 % market share

Growing Portfolio: more than 1000 participants

Trade:

Day Ahead Market (DAM) – 25% of short-term market

Term Ahead Market (TAM) – 4% of short-term market

Size of the power exchange in monetary terms – more than Rs. 5000 Crores

PX begun trade of Renewable Energy Certificates ( RECs)

Power Exchanges

Data for 2010-11

27

REC concept seeks to address the mismatch between availability of RE sources and the requirement of the obligated entities to meet their RPO

Also expected to encourage RE capacity addition in States where there is potential for RE generation

• A total of 1258046 RECs have been issued since inception of REC mechanism, of which 1086924 RECs have been redeemed through Power Exchanges

• The REC Mechanism has created a nation wide market for Renewable Energy generators.

Renewable Energy Certificates (RECs)

* - Till Jan, 2012; Source: climate-connect.co.uk, recregistryindia.in

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12

REC Issued REC Redeemed Closing Balance

RECs

34%

13% 19%

34%

2010-11 81.56 BUs

Bilateral Through Traders Bilateral Between Discoms

Power Exchange Transactions UI Transactions

28

Share of Different Segments

40%

10% 11%

39%

2009-10 65.90 BUs

Source: CERC annual report on short-term market

2009-10 2010-11 Bilateral Through Traders 26.36 27.73 Bilateral Between Exchanges 6.59 10.6 Power Exchange Transactions 7.24 15.5 UI Transactions 25.70 27.73

2210.34 2317.3

2417.51

3020.83

3369.05

2857.57 2771.71

2386.27

2864.03 2870.95 2726.43

3197.11 2696.19

3194.63

3821.52 3932.95 3947.03

3094.23

2457.66 2555.93 2575.76

3182.51 3055.61

3444.64

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

2009-10 2010-11

Bilateral Volume Growth

29 Source: CERC annual report on short-term market

406.07 341.7

529.49 495.16 493.51 527.22

639.02

758.82

640.09

856.06 766.97

632.12

646.7 670.49

1024.11

1478.21

1623.6

1488.53

1318.29

1130.88

1486.8 1519.46 1566.5 1566.83

0

200

400

600

800

1000

1200

1400

1600

1800

2000


2009-10 2010-11

Power Exchange Volume Growth


5.74

6.17

5.59

4.98 4.92 4.73

4 3.91 3.95 4 4.24

4.67

7.59

4.60

3.49 3.30 3.47

2.68 2.87

2.35 2.73

3.55

4.21 4.24

0

1

2

3

4

5

6

7

8


Bilateral Prices (Rs.) Power Exchange Prices (Rs.)

Bilateral Prices Vs. Power Exchange Prices (2010-11)


SECTION

4. INVESTMENT POTENTIAL

Potentially Third Largest Market By 2030

Huge Potential For Improvement

35

Generation Transmission Distribution

Private Sector participation imperative to bridge the significant deficit

Power Sector- Investment Pie

36

US$ 600 bn Total Funding Requirements in Power

40% (US$ 120 bn) Likely Private Sector share in Generation

25% (US$ 25 bn) Likely Private Sector share in Transmission

5% (US$ 10 bn) Likely Private Sector share in Distribution

US$ 155 bn Total Private Sector Investments

~ US$ 40 bn Private Sector Equity Outlay (25% of total investment)

Private Sector Equity Requirements

Compelling opportunity for private equity to lead the initial investments and exit through public markets once assets mature

Equity Requirements- Private Sector

Challenges

Financial health of the State Utilities

High AT&C losses

Inconsistent Tariff Revisions

Social Constraints

Fuel Supply

Increasing dependence on coal

Domestic supply of coal not matching the increasing demand

Escalating prices of imported coal

Land Acquisition and Environmental Clearances

Increasing environment stewardship

37

The Way Forward

Regulatory changes to drive tariff revisions

recent appellate order allow SERCs to increase power

tariffs on an annual basis

The Shunglu committee’s report tries to force cash-

strapped state electricity boards (SEBs) to undertake

reforms and become more accountable

Improving the functioning of regulators: New reforms

are intended to increase transparency in the selection

and functioning of SERCs

Mandatory filing of Annual Revenue Requirements

Tariff hikes to pass on fuel costs are some of the key

measures being proposed.

38

The Way Forward

Future tariff structures to have fuel pass-through

With recent problems in Case 2-based power projects, regulators

are in the process of introducing fuel related escalations as a pass-

through in the tariffs

Bidding would be based on standard heat rate and fixed capacity

charge

Recent initiatives by the Government on Fuel Supply

Coal India to sign FSA’s for power capacities where LOA’s have been

issued

FSA for capacities commissioned by 31 Dec 2011 to be signed by 31

March 2012 (26,411 MW).

FSA for projects under implementation and commissioned by 31

March 2015 to be signed.

FSA to be signed for 20 years and for projects with PPA’s, FSA to

range between 80% - 90% of coal requirement. CIL will be penalized

for coal supplied below 80% and will be incentivized for above 90%.

39

Indian Power sector - USAID SARI/Energy Integration...Indian Power Sector 0 4 20000 40000 60000 80000 100000 120000 Coal Gas Diesel Nuclear Hydro Res 112022 18381 1199 4780 38990 24503

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