Power Sector Overview & Challenges December 2012
Power Sector Overview & Challenges
December 2012
©2012 Deloitte Touche Tohmatsu India Private Limited
Contents
• Overview
• State Finances
• Generation Review
• Fuel Review
• Transmission & Distribution Review
• Development in Renewable Energy and Energy Efficiency
Deloitte 2
Sector Overview
3 Deloitte
©2012 Deloitte Touche Tohmatsu India Private Limited
Deficit situation has improved in FY 2011, partly on account of lower growth in demand
• Peak demand has grown at an average rate of 7.1% in the last five years till FY10. (9% in FY 2010)
• Energy consumption has grown at an average of 6.3% in the last five years till FY10 (10% in FY 2007)
• Installed capacity has grown at an average of 6.9% in last six years.
• Deficit is also on account of underutilization of existing capacity and T&D losses
Deloitte 4
Year Average Demand
Peak demand
Installed capacity
Peak Deficit
2011* 98416 125077 173626 12910
2010 94817 119166 159398 15157
2009 88703 109809 147965 13024
2008 84409 108866 143060 18073
2007 79146 100715 132330 13897
2006 72157 93255 124287 11463
Deficit situation for the last 6 years (in MW)
60%
65%
70%
2006 2007 2008 2009 2010 2011
Peak met to installed capacity for last 6 years
Source: CEA Power Reports
* Provisional
©2012 Deloitte Touche Tohmatsu India Private Limited
40000
50000
60000
70000
80000
90000
100000
110000
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rch
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Avera
ge D
em
an
d i
n M
W
Average Energy Demand Variation & Shortfall
Deloitte 5
Unrestricted demand Restricted demand
Energy Shortage
Energy Shortfall in FY 2009-10 is of 83949 MU (10.1%)
Energy Shortfall in FY 2008-09 is of 86001 MU (11.1%)
Energy Shortfall in FY 2010-11 is of 73112 MU (8.5%)
©2012 Deloitte Touche Tohmatsu India Private Limited
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000A
pril-0
8
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-08
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…
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-10
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Pe
ak
De
ma
nd
in
MW
Peak Demand Variation & Shortfall
Deloitte 6
Unrestricted Peak demand
Peak Supplied (Restricted Peak)
Peak
Shortage
125077 MW
Peak Shortfall FY 09 is 13177 MW ( 12%) Peak Shortfall FY 11 is 12910 MW ( 10.3%)
Peak Shortfall FY 10 is 15157 MW ( 12.7%)
©2012 Deloitte Touche Tohmatsu India Private Limited
4675
7665
7955
11120
15350 10700
6385
3380
3660
0
5
10
15
20
25
30
35
40
45
50
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Un
it A
ge G
rou
p
% of Total Thermal Capacity
Age Analysis – Thermal Power Generation Capacity
7
0-5
6-10
11-15
16-20
21-25
26-30
31-35
36-40
>40 34% of Capacity (24124 MW) are
of Unit Age >25 years
Thermal power plants under state & central sector which amount to 71,000 MW and a capacity of 6030 MW (>40 yrs in FY 14) is to be phased out by FY 14 & cumulative capacity of 8769 MW to be phased out in FY 17
Deloitte
Generation Capacity addition has remained below the targets
8
1,3
00
3,5
00
7,0
40
9,2
64
12,4
99
19,6
66
22,2
45
30,5
38
40,2
45
41,1
10
78,5
00
1,1
00
2,2
50
4,5
20
4,5
79
10,2
02
14,2
26
21,4
01
16,4
23
19,1
19
21,1
80
54,9
64
85%
64% 64%
49%
82%
72%
96%
54% 48%
52%
70%
0%
20%
40%
60%
80%
100%
120%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th
Target (MW) Achievement (MW) Achievement (%) RHS
Inferences
• Despite slippages, capacity addition in the 11th Plan
period @ 54,964 MW is significantly higher than that
added during the previous plan periods.
• Increased share of private sector is amongst the most
positive developments leading to higher capacity
additions. The share of 19% in the 11th Plan vs. the 42%
in actual additions is reflective of the on-time
commissioning of private sector projects
Source 11th
Plan
Target 11th Plan
Actual
12th
Plan
Target
Hydro 15,627 5,544 11,897
Thermal 59,693 48,540 68,690
Nuclear 3,380 880 2,538
Total 78,700 54,964 83,125
47%
28
%
32%
34%
30%
19%
19%
42%
55%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
11thPlan
11thPlan
Actual
12thPlan
Private
State
Central
©2012 Deloitte Touche Tohmatsu India Private Limited
Expected merit order dispatch in FY2017
Deloitte 9
-
50,000
100,000
150,000
200,000
250,000
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
FY 17
Firm Allotment Captive Linkage Imported
Hydro Gas Captive Linkage Merchant
Imported Merchant Hydro Merchant Gas Merchant Demand
State finances
10 Deloitte
©2012 Deloitte Touche Tohmatsu India Private Limited 11
-8,6
72
-13
,83
0
-15
,38
9
-37
,98
6
-44
,46
9
-20
,26
7
-27
,15
3
-31
,91
0
-53
,71
3
-63
,54
8
-70,000
-60,000
-50,000
-40,000
-30,000
-20,000
-10,000
0
FY06 FY07 FY08 FY09 FY10
Financial Losses of Utilities (Rs. Cr.)
Aggregate Loss on subsidy received basis of all utilities
Aggregate Losses without subsidy of all utilities
24
6
23
8
23
9
25
4
25
8
27
6
29
3
34
0
35
4
18
1
19
5
20
3
20
9
22
1
22
7
23
9
26
2
26
8
654336
45
37
4954
7886
0
20
40
60
80
100
0
50
100
150
200
250
300
350
400
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Avg CoS Vs. Avg Realization
Cost of supply (paise/ unit) Realisation (paise/ unit) Gap (p/u)
Inferences
• Sharp increase in the financial losses of the
utilities in the recent years with four states
namely i.e. Tamil Nadu, Rajasthan, MP, Uttar
Pradesh, contributing the maximum.
• Reasons like tariff not reflecting Cost of
Supply and expansion in business (supply &
procurement) resulting in higher financial
losses even at same AT&C % levels are the
prime concerns
• Aggregate losses of Rs.63,548 Cr in FY 2010
has crossed Rs. 1,00,000 Cr in 2010-11
• 16 SERCs have revised tariffs for 2012-13,
which is a positive.
• AT&C losses continue to be a major concern.
Losses in states like Bihar, Jharkhand, MP
are still > 40% while other states like AP,
Delhi, Punjab have reduced losses < 20%
Financial health of power distribution companies is worrisome
©2012 Deloitte Touche Tohmatsu India Private Limited
State Electricity Board successor entities are in bad financial health
Deloitte 12
State 2007 2008 2009 2010
Loss
as % of
sales
Rajasthan 299 2167 6486 10978 102%
TN 901 3108 6640 9792 52%
Bihar 750 662 822 1444 52%
UP 4884 2985 5483 6711 45%
MP 1300 2136 4538 3621 37%
AP (466) (846) 2529 4084 20%
Delhi (556) 671 (890) 1490 13%
Haryana 36 703 1394 1427 12%
Karnataka 171 621 1769 930 7%
Maharashtra 653 949 3460 1097 4%
Chhattisgarh (526) (507) (890) 183 4%
Gujarat (208) 38 (222) -565 -3%
Kerala (1128) (1377) (681) -1148 -18%
All India 12884 15268 32339 44402 21%
• State utility finances are deteriorating. On
subsidy and revenue received basis, all
utilities combined made a loss of about
Rs. 44,402 crore - – now it is expected to
go up to Rs 75,000 Crores in FY12.
• The financials of some key States like
TN, Rajasthan, UP etc. are worrisome.
• Kerala, Chhattisgarh, Delhi, Gujarat are
few of the profit making utilities, with
Gujarat being one of the best performers.
• The tariff hikes proposed are not
consistent with rise in costs of distribution
utilities
Cash losses/(profits) over the years (Rs crores)
The comparison is on revenue and subsidy received basis.
Figures in negative are profits
©2012 Deloitte Touche Tohmatsu India Private Limited
Several states have increased revenues by about 40% in last 3 years
Deloitte 13
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
2013
2012
2011
©2012 Deloitte Touche Tohmatsu India Private Limited
Governments and Regulators have drafted plans to tackle past losses
No State Status
1 Tamil Nadu Still significantly dependent on government subsidy and Revenue assets of
around Rs. 27,000 crores are to be amortized over 5 years commencing FY
2014
2 Rajasthan Significantly dependent on government subsidy. Deficit of about Rs. 4800 crores
in FY 13 carried forward to next year. State government has promised
• Annual cash support of Rs.400 crores would increase at a rate of 5% per
annum from FY 2014 upto FY 2022.
• Subsidy of Rs.120 crores would be increased to Rs.700 crores for FY 2013
and thereafter an increase of 5% per annum upto FY 2022 to meet the past
revenue deficit.
• For FY 2012-13 interest free loan of Rs.450 crores would be allowed which
will be continued with an increase of 5% per annum till FY 2021-22.
• With effect from FY 2012-13, the equity support would be increased from
20% to 30%.
• Interest free loan of Rs.1070 crores given by the State Government in the
past would be converted into equity.
Deloitte 14
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Governments and Regulators have drafted plans to tackle past losses
No State Status
3 Bihar Changed the target consumers for the subsidy (Rs. 1080 crs) from everyone to
just rural and agricultural consumers. In addition, State Government has decided
to compensate in full for the financial losses caused to BSEB on account of
additional power purchase due to difference in the actual T&D loss and the T&D
loss as determined/ approved by the Commission .
4 Uttar Pradesh Utilities had not submitted petition for tariff revision till May 2012. The tariff
determination process is under way currently. The utilities have proposed to
meet the revenue gap without any tariff hike, but have requested additional
8500crores of subsidy support from the Government (along with 4500crores
already payable)
5 Madhya
Pradesh
The Regulator has not allowed formation of any regulatory asset and has
passed on entire tariff hike to consumers.
6 Andhra
Pradesh
The Regulator has hiked the tariff after considering 5350crores subsidy payable
by the Government. Government has communicated its approval for payment of
this subsidy. The Regulator has not considered any amounts related to previous
years while determining the tariff for FY 2013 and has asked utilities to seek
separate tariff increase for revenue gap of earlier years.
Deloitte 15
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The proposed Short term debt restructuring may improve their finances, however onus of tariff hikes is still on Regulators and subsidy payments on state governments
• The Shunglu Committee has recommended restructuring of short term loans for loss making utilities
• As per the restructuring proposal, 50% of SEBs’ outstanding short-term liabilities shall be completely
taken over by the state governments by FY17, and the remaining 50% of short-term loans shall be
restructured by the lenders
• As an incentive, if SEBs and state governments comply with the terms of restructuring and repay the
loans as per the revised timelines, the Central government shall make a one-time payment equivalent
to 25% of restructured loans to the state governments at the end of 15 years
• The table below shows the year wise takeover of 50% of SEBs short term loans by the state Govts:
• The above step regarding the restructuring plan will help turn around the utilities, however this will
depend on the actual take over of loan and the operational performance of the state utilities going
forward
State 50% of STL FY 13 FY 14 FY 15 FY 16 FY 17
Rajasthan 199 26 35 40 45 52
UP 130 19 22 26 29 33
Tamil Nadu 96 9 25 29 33 -
Haryana 70 25 25 20 - -
Punjab 58 9 10 11 13 15
AP 32 22 9 - - -
MP 6 1 5 - - -
16 Deloitte
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Most states will see reduction in power purchase expenses due to Case 1 bids
• Most coal rich states viz Chhattisgarh and Madhya Pradesh have signed MoUs and executed Power purchase agreements with project developers in their states to provide 5% (or 7.5%) power at variable rates and 30% power at CERC determined cost plus tariff
• Earlier Case 1 bids were all based on fixed tariffs and hence, even due to increase in coal prices, utilities will get cheaper power from private plants
• States having allocation from Sasan UMPP will also be benefited
• This power will make the old inefficient state owned plants uneconomical leading to their eventual phase out
Deloitte 17
0
0.5
1
1.5
2
2.5
3
3.5
2013 2014 2015 2016
Ta
riff
in
Rs
/kw
h
Sasan Adani -MH
Adani - Guj1 Adani - Guj2
Essar-Guj Essar-Bihar
©2012 Deloitte Touche Tohmatsu India Private Limited
Open access regulations have enabled developers to supply directly to consumers; but this has an additional cost in terms of Cross Subsidy Surcharge
Open access provision
• Power can be sold directly to consumers (with demand > 1 MW)
• The supply would still utilize the distribution network and therefore wheeling charges are payable
• Cross Subsidy Surcharge (CSS) would be applicable for any consumer moving out of state utility supply
‒ this is to compensate for the cross subsidy element inbuilt in the tariff charged by the utility
• States like Maharashtra, where there is huge deficit, had made the cross subsidy element zero to reduce the system load. However, the state utility has recently approached the regulator to impose CSS to reduce loss of paying industrial consumers
Cross subsidy surcharge
Deloitte 18
State CSS (Rs /kwh)
Maharashtra Zero
Punjab Zero
Gujarat 0.51
Karnataka Zero
Tamil Nadu 1.08
West Bengal 1.69
Haryana Zero
Source:: SERC Orders
Generation
19 Deloitte
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Electricity Act 2003 de-licensed the generation sector
Private Power Policy of 1991
• Under this policy CEA became pivotal with its project appraisal role
• CEA’s function was to evaluate PPA’s entered into by SEB’s, approve tariffs and issue techno economic clearances (TEC)
• CEA approval was a huge bottle neck for most of the projects
Electricity Act 2003
• CEA approval for TEC for generation projects was done away with but for large hydro projects
• Under EA 2003, as per Sec 82, setting up of state regulatory commissions is made mandatory and under Sec 86 (b), Commissions are given authority to regulate power purchases
• Section 63 of EA has revolutionized power purchase procedure and erstwhile MoU route with state utilities is made invalid
Deloitte 20
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Guided by Section 63 of Electricity Act 2003, National Tariff Policy mandates the utilities to procure power through competitive bidding route
Before 06 Jan 2006
• Approval of PPA is governed through individual State Regulatory Acts, which was on a cost plus basis and offered a regulated return of only 14%
• There was lack of clarity on the basis for approval of PPA and the scope for negotiations on almost every cost item resulted in long drawn processes
After 06 Jan 2006
• National Tariff Policy mandates that the power procurement for future requirements should be through a transparent competitive bidding mechanism
• Process to be followed as per the guidelines issued by the Central Government
• Competitive bidding mechanism allows for the bidder to bid on a competitive return basis and the process is transparent and time bound
• From 6th January 2011, all new public sector projects would have to participate in competitive bidding
Deloitte 21
Clause 5.1 of tariff policy “Even for the Public Sector projects, tariff of all new generation and transmission projects should be decided on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition.”
©2012 Deloitte Touche Tohmatsu India Private Limited
Developers now have option to invest in mega power projects, facilitated by Government, through a tariff based competitive bidding process
Power procurement under Case 2
• Central Government/State Government facilitates these projects and the procurers are the state utilities
• location, technology and fuel is specified by the procurer
• tariff (capacity and energy charges) for 25 years to be quoted in the bid
‒ selection is based on lowest levelized tariff
Deloitte 22
Project Fuel Tariff (Rs./kWh)
Winner
Sasan Captive 1.19 Reliance
Tilaiya Captive 1.77 Reliance
Mundra Imported 2.26 Tata
Krishnapatnam Imported 2.33 Reliance
Winning Bids for Ultra Mega Power Projects
Winning Bids for state sponsored Case 2 projects
Project State Tariff (Rs./kWh)
Winner
Jhajjar Haryana 2.996 CLP
Talwandi sabo
Punjab 2.864 Sterlite
Bhaiyathan Chhattisgarh 0.81 (35% merchant)
Indiabulls
Karchana UP 2.97 JaiPrakash
Bara UP 3.02 JaiPrakash
• Bidders have bid higher for levelized fixed cost for linkage projects (state specific risks/ transaction costs being factored into higher FC)
• Reliance, Lanco, Tata Power, Sterlite, CLP etc. have all quoted FC in a narrow range on all other Projects – Key differentiator is Fuel Strategy!!!
©2012 Deloitte Touche Tohmatsu India Private Limited
Sasan to Tilaiya Ultra mega bids
• Tariffs of Tata Power in Sasan & Sterlite more realistic than Lanco’s / Reliance’s, which are with aggressive fuel-side strategies
Deloitte 23
Player Non Esc Capacity
Esc Capacity
Non Esc Energy
Esc Energy Total capacity
Total Energy
Total Tariff
Lanco 0.915 0.001 0.276 0.002 0.916 0.278 1.196
Reliance 0.163 0.093 1.036 0.002 0.256 1.038 1.296
Tata 0.494 0.126 0.545 0.246 0.620 0.791 1.412
Sterlite 0.866 0.278 0.245 0.351 1.144 0.596 1.742
NTPC 1.139 0.261 0.458 0.267 1.400 0.725 2.126
Player Capacity Energy Total
Reliance 0.82 0.95 1.77
NTPC 0.76 1.63 2.39
JSPL 2.03 0.66 2.69
Sterlite 1.04 1.93 2.97
(Rs./kWh)
(Rs./kWh)
©2012 Deloitte Touche Tohmatsu India Private Limited
Mundra Ultra mega bids
• Bid won primarily on superior fuel strategy!
Deloitte 24
Player NECap Es.Cap NEFuel EsFuel NETran Es Trans NEHand EsHand Total
Tata 0.83133 0.05133 0.37252 0.50298 0.14969 0.22671 0.05476 0.09787 2.28718
Adani 1.05673 0.00000 1.15154 0.00000 0.33078 0.00000 0.18444 0.00000 2.72348
Reliance 1.06638 0.00156 0.00000 0.93890 0.21535 0.32654 0.04697 0.08297 2.67867
Player Capacity Coal Coal transportation
Coal Handling Total
Tata 0.88 0.87 0.37 0.15 2.27
39% 38% 16% 7%
Adani 1.05 1.15 0.33 0.18 2.72
39% 42% 12% 7%
Reliance 1.06 0.93 0.55 0.12 2.67
40% 35% 21% 4%
(Rs./kWh)
(Rs./kWh)
©2012 Deloitte Touche Tohmatsu India Private Limited
Independent Power Plants can tie up their capacities under long term PPAs through a transparent tariff based competitive bidding process
Power procurement under Case 1
• State utilities are now mandated to procure power through competitive bidding process
‒ quantum is to be approved by the Commission and bid process must be as per standard guidelines
‒ tariff discovered need not be approved by regulator
• power can be sourced from any developer
‒ location, technology or fuel is specified by the procurer
• IPPs have an option to tie-up only part of their capacity
Deloitte 25
Players participating in Case 1 bids
Developer Capacity bid* Adani Power 8500 CLP 1150 Essar 4050 Indiabulls 1200 JSW Energy 1500 Lanco 1500 PTC + Players 2200 Reliance Power 5400 Tata 800
- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
Gu
jara
t
Mah
ara
shtr
a
Hary
ana
Mah
ara
shtr
a
Bih
ar
Gu
jara
t
Raja
sth
an
Karn
ata
ka
R-infr
a
UP
AP
2007 2008 2008 2009 2010 2010 2010 2010 2011 2011 2011
* Same plant may have been offered in different bids
©2012 Deloitte Touche Tohmatsu India Private Limited
More Peaking Case 1 bids are expected in future
• Traditional Case 1 bids were long term bids for base load for a duration of 25 years
• Gujarat and Haryana have called for fuel based bids or restricting bids on non-escalable basis
• There have been many short term bids and some medium term bids.
• Recently, some utilities have called for peaking medium term bids, but have not got any participation.
• There is a gradual shift to tie up for peaking loads as base loads are expected to be met by UMPP and state and central additions.
State Type Capacity
Maharashtra LT Base 4000
Gujarat LT Base 6000
Haryana LT Base 2000
Bihar LT Base 1500
Rajasthan LT Base 1000
Karnataka LT Base 2000
Torrent Power MT Base 150
R-infra LT Base 1500
R-infra MT Base 450
R-infra MT Peak 450
UP LT Base 5000
AP LT Base 2500
AP MT Base 700
Tata Power MT Base 200
Tata Power MT Peak 150
Deloitte 26
Pricing trends in the ST Power Market
27
Merchant Prices Trend Analysis
• Sharp increase in
merchant volumes coupled
with weaker finances of
distribution utilities –
primary causes of
downward trend in the
short-term power prices.
• Prices in exchanges, which
is largely comprised of the
day-ahead market has
been consistently lower
than the bilateral market.
• Over the years several
SERCs have imposed
ceilings for short-term
power purchase beyond
which utilities are not
allowed to recover from
consumers.
7.2
9
5.3
6
4.7
9
4.1
7
7.4
9
4.9
6
3.4
7
3.5
7
7.3
1
5.2
8
4.3
2
3.9
9
24.69
33.91
43.22
51.38
10
15
20
25
30
35
40
45
50
55
0
1
2
3
4
5
6
7
8
2008-09 2009-10 2010-11 2011-12
Traders Avg.Price (Rs./Unit)
ExchangesAvg. Price(Rs./Unit)
Wt. AveragePrice (Rs./Unit)
Volume (MUs)RHS
Pricing trends in the ST Power Market, Continued…..
28
Merchant Prices Trend Analysis
• The RTC as well as Peak, Off-
peak tariffs are higher in the non-
monsoon months.
• The peaking tariff was
comparatively higher during winter
months while the RTC was
comparatively higher during the
summer months which also
happen to be the peak deficit
season.
• All ST power tariff declines during
monsoon season due to reduced
demand and increased availability
of hydro power.
• The prices for supply under peak
hours consistently remains higher
than RTC Tariff by 60% (Nov, 11).
• The prices for power sold under
specific slots both peak and off-
peak are higher than RTC tariffs
almost throughout the year,
except monsoon months (May,
June, July, August).
1.39 1.34
1.31
1.07 1.11
1.30
1.01
1.22
1.58
1.23
1.60
1.47
1.17
1.07 1.11
0.99 0.93
1.00 0.95 0.93
1.17 1.20
1.12 1.08
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
Peak
Off-Peak
RTC
Peak and Off-Peak Tariff SCALED w.r.t. RTC Tariff
6.1 5.93
5.74
5.07 5.02 4.94
3.95
4.73
6.26
5.16
6.8
6.05
5.12
4.7 4.86
4.72
4.22
3.81 3.7 3.61
4.63
5.02 4.75
4.46
4.38 4.41 4.37
4.76 4.52
3.81 3.9 3.88 3.95 4.19 4.25 4.12
3
3.5
4
4.5
5
5.5
6
6.5
7
Peak
Off-Peak
RTC
RTC, Peak and Off-Peak Tariff Trend (Rs./ kWh)
Pricing trends in the ST Power Market, Continued…..
29
Merchant Prices Trend Analysis
• Bulk of the transactions
are RTC is nature: peak
and off-peak taken
together are only 6% of
the total RTC power
during FY12.
• Weighted average tariffs
are thus driven by the
RTC contracts.
• In-terms of the Market
Clearing Tariffs for the
IEX, the tariff during the
evening peak hours (8 to
12 O’clock) is seen to
substantially higher than
the price during other
time slots.
2385
2510
2496
2472
2519
2611
2499
2447
2443
2426
2549
2562
2484
2588
2554
2532
2484
2443
2497
2205
2228
2337
2396
2394
3.9 3.7
3.5 3.6 3.5 3.6
3.3 3.3 3.4
3.7
4.0
4.4 4.3 4.3
4.1 4.0
3.9 3.8
4.8
5.6 5.6 5.6 5.6
5.3
3.0
3.5
4.0
4.5
5.0
5.5
6.0
1
501
1001
1501
2001
2501
3001
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
MC Volume (MW) LHS MC Price (Rs./kWh) RHS
Hourly Volume & U/C Pricing for IEX (25/07/2012 to 24/08/2012)
22157.38
171.12 1084.48
4.14
5.39
4.45
0
1
2
3
4
5
6
3
5003
10003
15003
20003
25003
RTC Peak Off-Peak
Volume (MUs) LHS Price (Rs./ kWh) RHS
RTC, Peak and Off-Peak Tariff Trend (Rs./ kWh), excluding banking
©2012 Deloitte Touche Tohmatsu India Private Limited
Availability of Finance from Indian FIs not a concern for Power
• Credit growth in the Indian banking sector
at 16.3 % in 2011-12, was lower than the
22.6 % recorded in 2010-11.
‒ Growth of credit to Power Sector
decelerated dramatically to 9% for 2011-
12 compared with an average of 50% p.a.
over the last 5 years.
‒ Power accounted for only 8.34% of total
advances of SCBs, indicating adequate
combined head-room for the sector.
‒ Concerns of a few PSBs having reached
their exposure limits for power sector in
2010-11 have eased over 2011-12.
‒ PSBs are crucial to infrastructure
financing in the country, as they account
for 85% of the combined exposure of
SCBs to the sector.
Annual Growth Rate of Bank Credit to Power Sector
0%
10%
20%
30%
40%
50%
60%
70%
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
Source: RBI’s Financial Stability Report – June 2011 &
June 2012
• Sector specific concerns have slowed down power sector financing in 2011-12 but most
FIs / Arrangers consulted in the study expected reversal in tide over 2012-13.
• Common well-known concerns about SCBs financing long-term projects (ALM concerns)
& lack of depth in re-financing market were voiced – applies to infra financing in general.
©2012 Deloitte Touche Tohmatsu India Private Limited
Commercial Banks have led financing for the Private Sector Total Loans of Indian Financial Institutions outstanding to Power Sector (Rs. ‘000 Crores, October, 2011)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
State Centre Private
180
40
80
60
30
160
10
50
20
10
10
300 550 650 610 0
300 550 650 610 0
Scheduled Commercial Banks Infrastructure Finance Companies Govt. Other FIs
Total loans outstanding for power sector estimated to be ~Rs. 650,000 Cr. Banks account ~46.1% IFC
~38.5%, Govt lending through grants & other FIs such as LIC & EPFO account for remaining 15.4%
Of this Rs. 650,000 Crores outstanding, SEBs account for 46.1% of the loan outstanding followed by
private sector IPPs at ~40% and projects under Centre at 13.9%
SC Banks’ exposure to power sector has grown in the past few years and within power sector, private
IPPs account for 60% of this exposure, indicating banks’ inclination towards lending to private sector
For IFCs such as PFC and REC, the exposure to SEBs and private IPPs is ~ 64% and ~24% respectively,
demonstrating their track record of supporting state utilities over the past 2 decades
Source: Deloitte Industry Analysis, RBI Reports and PFC
Fuel
32 Deloitte
©2012 Deloitte Touche Tohmatsu India Private Limited
Coal accounts for more than half of India’s current installed capacity and will remain to be the major fuel source for the next 10 years
• Coal accounts for more than 50% of installed capacity
• Even though Hydro contributes around 22%, of installed capacity, in terms of availability its share is only 14%
• There has been huge thrust on renewable energy with Government providing incentives like RPO, advance depreciation, subsidy, REC, concessional benefits etc
• Nuclear capacity addition is also expected to pick up in the next 8-10 yrs
• Majority of private sector generation capacity is based on renewables (15446 MW); Hydro is 1425 MW
Deloitte 33
Source: CEA Power Reports
Generation Mix as on Feb 2011
Utility share* as on Feb 2011
Fuel Capacity in MW %
Coal 92418 54
Hydro 37367 22
Gas 17706 10
Renewable 18455 11
Nuclear 4780 3
Diesel 1200 1
Captive 19509
Sector Capacity in MW %
State 82453 48
Central 52713 31
Private 36761 21
* other than captive
©2012 Deloitte Touche Tohmatsu India Private Limited
Coal Deficit is a major concern for the sector
• For FY13, of thermal coal requirement of 650 MT for FY13, total domestic supply is likely
to be 530 MT (CIL
‒ will lead to about 85 MT of imports for FY13
‒ loss of some generation for available plants in the power sector
• CIL supply for power sector estimated to rise from 325 MT in FT12 to 477 MT in FY17
‒ Will limit capacity addition over FY12-17 to about ~30 GW on domestic coal.
‒ Prevailing confusion around captive blocks will impact ~10 GW of capacity addition
‒ Mechanisms to sort out stations based on imported coal is critical for Southern Region –
uncertainty will impact a further ~8 GW of capacity
‒ About 20 GW of planned capacity addition in 12th Five Year Plan is in danger
unless CIL production capacity increases!!
Deloitte 34
©2012 Deloitte Touche Tohmatsu India Private Limited
Captive coal blocks with estimated capacity of 28000 MT have been allocated so far. This could ideally support an addition of 1,80,000 MW
Deloitte 35
> 3 Yrs 1-3 Yrs 0-1 yr Total
Number 38 64 3 105
MT 10518 16430 1182 28130
• Ministry of Coal has awarded around 105 blocks
with a cumulative capacity of around 28000 MT
• More than 80% of the captive block have been
allotted only in the last 5 years
Timeline of allocation of captive coal mines
Issues faced by mine developers
• Land acquisition – social issues pertaining to land acquisition, rehabilitation and resettlement have delayed several
projects including those of the large central public sector undertaking
• Environmental and forest clearances – with the implementation of go-no go classifications, coal mining projects
have run into further delays
• Implementing projects – many mining projects have faced inordinate delays lack of experience and expertise in coal
mining. Many captive coal block owners have preferred to appoint mine developers and operators on turn-key basis
• Financing – the world has changed since the financial downturn and the miners have to face cautious financiers
even when they have cash surpluses to pick the equity components
• Infrastructure development – miners are faced with projects with no infrastructure backbone to support
productions and dispatches and the missing link between the coal and their power plants
©2012 Deloitte Touche Tohmatsu India Private Limited
Indonesia has emerged as largest exporter of thermal coal to the world
• The rise in global thermal coal trades are not as much
as the expected demand for the commodity in the
Indian market.
• Indonesia has emerged as the largest exporter of
thermal coal.
• The demand for imports has led to pricing spikes and
large volatilities.
36
Source: IEA,EIA,UN, country statistical agencies
0
100
200
300
400
500
600
700
800
2002 2003 2004 2005 2006 2007 2008 2009 2010
Mn
T
Thermal Coal Imports (MT)
America Europe CIS,Middle East & Africa India China Rest of Asia
0
50
100
150
200
250
Coal exports in MT
Indonesia Australia South Africa
020406080
100120140160180200
Price in USD/tonne
Richard Bay Newcastle
©2012 Deloitte Touche Tohmatsu India Private Limited
Competition for coal assets is heating up acquisition prices
• Increasingly, the quality of assets available in the market is downgrading, low hanging fruits are taken.
• Asset prices have moved up from the early 2009 lows.
• Several mining companies with cash surplus have been in the market, unable to deploy resources through acquisitions – scarcity of good assets, valuations and geo-politics of mining.
• Competition for coal assets is heating up with the Chinese aggression on the play.
37
Major deals in the recent times:
• Adani Enterprises bought Linc Energy's Queensland
coal tenements in a deal worth up to $3 billion. The
tenement has a resource base of 7.8 billion tonnes
of coal. Annual capacity will be up to 60 million
tonnes.
• Lanco Infratech bought Griffin Coal for AUD 730
million. Western Australia-based Griffin Coal’s
assets include thermal coal mines with a
production capacity of about 5 million tonnes at
present. Lanco Infra plans to increase it to about 18
MT by 2015.
• JSW Energy bought Botswana assets of CIC valuing
it at USD 414.5 million. CIC has 2.6 billion tonnes of
measured resources (NI 43-101 compliant) with an
average gross calorific value of 6000 kCal/kg.
Source: Deloitte China and Merger market Survey
4%
69%
11%
12%
4%
Chinese M&A Outlook for the next 12 months
Increase greatly IncreaseRemain the same Decrease
Transmission and distribution
38 Deloitte
©2012 Deloitte Touche Tohmatsu India Private Limited
Transmission capacity would not be huge hurdle as long as the planned region of sale is taken into account by PGCIL
• Application to be submitted to PGCIL or state utilities for grant of long term or short term open access
– governed by open access regulations
• Injection points to be identified for evacuation
– Distance to nearest PGCIL substation is critical
• For long term open access, identification of beneficiaries is necessary to plan capacity addition and load flow studies
• Transmission charges are determined by Regulatory Commissions as Rs/MW/Day
• Besides, transmission charges, developer will also incur approved transmission losses
Deloitte 39
W
2100
/760
0
3600
/360
0
S
N
E
NE
1700/2700
5000/8500
0/4000
12
50
/
22
50
2800/8500
Proposed Transmission Capacity
*X plan / XI plan
*
©2012 Deloitte Touche Tohmatsu India Private Limited
IPTC bids won so far
Deloitte 40
Bongaigaon
Siliguri
Purnea
Biharsharif
Bina
Jabalpur
Dhramjaygarh
Talcher
Rourkela
Behrampur
Gazuwaka
Solapur
Raichur
Sipat Seoni
Lucknow
Bareilly
Meerut
Agra
Gurgaon
Project: East North East Interconnection Winner: Sterlite Technologies Limited
Project: North karanpura Winner: Reliance Power Transmission Limited
Project: Talcher
Winner: Reliance Power Transmission Limited
Rajasthan: Bids conducted for
1. 400 kV Bikaner-Deedwana-Ajmer Line; 400/220 kV GSS at
Deedwana – won by GMR 2. 400 kV Hindaun-Alwar with 400
kV GSS at Alwar won by GMR 3. 220 kV Sikar-Nawalgarh-Jhunjunu
won by EMCO Ltd
Project: System Strengthnening Common for WR & NR Winner: Sterlite Transmission Project Private Limited
Project: Raichur Solapur 765 kV Winner: Patel Engineering+Simplex
Infrastructure+BS Transcomm
Aurangabad Dhule
Vadodara Bhopal
Project: System Strengthnening Common for WR Winner: Sterlite Transmission Project Private Limited
©2012 Deloitte Touche Tohmatsu India Private Limited
Private investments in transmission sector are increasing
• Projects envisaged to attract private sector investment in transmission
• Decision on Projects to be awarded through IPTC route decided by Empowered Committee
• Formation of SPV, route survey and bid process management conducted by Bid Process Coordinators (BPC – currently PFC and REC)
• Transfer of SPV to winning bidder on BOOM (Build, Own, Operate & Maintain) basis
• Upcoming opportunities
‒ Rajasthan: (1) 400 kV D/C Babai (Jhunjunu) – Jaipur(North) with sub-station at Jaipur (2) PPP 5: 400 kV D/C Jodhpur – Udaipur with sub-station at Udaipur
‒ Transmission System associated with IPPs of Vemagiri Area (REC Transmission Projects)
Deloitte 41
357 222
93
297
1995
1421 1440
1188
2580
0
500
1000
1500
2000
2500
3000
INR
Mil
lio
n
Levelized Transmission Tariff
©2012 Deloitte Touche Tohmatsu India Private Limited
Experience of Bhiwandi has encouraged other states to try out distribution franchisee
• Bhiwandi was awarded by MSEDCL to Torrent Power in 2007 for distribution franchisee for 10 years.
• Torrent has achieved following
‒ Improved losses from 31% to less than 19%
‒ Improved collection efficiency from 67% to above 99%
‒ Invested in improving distribution infrastructure and reduced technical losses
• UP had tried out franchisee for 9 circles and Bihar had tried it for 3 circles
• Franchising may help utilities improve revenue collection along with quality of supply
Deloitte 42
State Area Winner
Maharashtra Bhiwandi Torrent Power
Maharashtra Nagpur Spanco
Maharashtra Aurangabad GTL Infra
Maharashtra Jalgaon Crompton Greaves
Uttar Pradesh Agra Torrent Power
Uttar Pradesh Kanpur Torrent Power
©2012 Deloitte Touche Tohmatsu India Private Limited
Performance of Torrent in Bhiwandi
Deloitte 43
0%
5%
10%
15%
20%
25%
30%
35%
40%
Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun May Apr
Losses
2,009 2,008
50%
60%
70%
80%
90%
100%
-
10
20
30
40
50
60
70
Co
llect
ion
Eff
icie
ncy
Mo
nth
ly D
em
and
Rs
Cro
res
Collection of Bills
Demand (Rs Crs) Collection Efficiency
0
10
20
30
40
50
60
70
80
0
5000
10000
15000
20000
25000
30000
Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun May Apr
Nu
mb
er
KV
A
Transformer failure analysis
2009 KVA 2008 KVA2009 No. 2008 No.
-
100
200
300
400
500
600
-
10
20
30
40
50
60
70
80
90
Au
g-0
7
Sep
-07
Oct
-07
No
v-0
7
Dec
-07
Jan
-08
Feb
-08
Mar
-08
Ap
r-0
8
May
-08
Jun
-08
Jul-
08
Au
g-0
8
Sep
-08
Oct
-08
No
v-0
8
Dec
-08
Jan
-09
Cu
mu
lati
ve k
m
km
Line addition
Line addition Cumulative
Renewable Energy and Energy efficiency initiatives
44 Deloitte
©2012 Deloitte Touche Tohmatsu India Private Limited
Renewable energy is expected to be 74000 MW by 2022
• Renewable power is expected to contribute significantly part of India’s incremental capacity addition, and a robust regulatory framework has been put in place to realize India’s wind, hydel, solar and biomass potential
• Total grid installed renewable capacity in India is around 18,655 MW (as on 31.12.2010).
• Cumulative renewable energy targets by year 2022 :
‒ 54,000 MW (Wind, SHP and Biomass)
‒ 20,000 MW from Solar energy
• Amongst all RE technologies which are explored, India has huge potential for wind and solar energy. Out of the total wind potential of 50,000 MW around 26% of it is been exploited
• Tamil Nadu has the maximum wind power installed capacity in the country contributing to around 40% of India’s total wind capacity. Karnataka and Maharashtra together has around 12,500 MW of untapped wind potential
Deloitte 45
Source: MNRE (31.12.2010)
50000
15000 16000
5000 7000
50000
13066
2939 997 1562 72 18 0
10000
20000
30000
40000
50000
60000
Wind Small hydro Biomass Cogeneration Waste of energy SolarPotential Installed capacity
©2012 Deloitte Touche Tohmatsu India Private Limited
RPO obligations is one of the key driver for growth of renewable energy
• National Action Plan on Climate Change (NAPCC) a major step to mitigate climate change issues and encourage generation from RE sources
‒ Dynamic minimum Renewable Purchase target: 5% of the total grid purchase in 2009 -10 and to increase by 1% each year for 10 years
Deloitte 46
• .
• Feed-in tariff
• Fiscal incentive ( Accelerated Depreciation, tax incentive)
• Production subsidies/GBI
• Soft loans
Supply Side drivers
• Renewable Purchase Obligation
• RECs
• Net metering
• Carbon, NOx, SOx trading
Demand Side drivers
* Estimation based on 17th EPS, 98259 MU will require installed capacity of 55000 MW @ 20% CUF
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
National RPO target
(NAPCC) 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%
Total Energy
consumption (MU) * 684328 755843 831424 907006 982587
RE target (As per
NAPCC target) (MU) 41060 52909 66514 81631 98259
©2012 Deloitte Touche Tohmatsu India Private Limited
RPO obligations imposed in major states
States Obligated entities RPO Obligation
Licensee Captive Open Access 2009-10 2010-11 2011-12
Tamil Nadu 13% 14% -
Karnataka BESCOM, MESCOM, CESC – 10%
GESCOM, HESCOM – 7%
Maharashtra 6% Solar – 0.25%, Others
– 5.75% Solar – 0.25%, Others
– 6.75%
AP 5% 5% 5%
Rajasthan * Wind – 6%
Biomass - 1.45% Wind – 6.75% Total - 1.75%
Wind – 7.5% Total - 2%
Gujarat 2%
Wind – 4.5% Solar – 0.25%
Biomass – 0.25% Total – 5%
Wind – 5% Solar – 0.5%
Others – 0.5% Total – 6%
Delhi 1% 1% 1%
Haryana 1.5% 1.5% 1.5%
UP Non Solar – 3.75%
Solar – 0.25% Non Solar – 4.5%
Solar – 0.5%
Deloitte 47
*In addition to the above, distribution licensees have to meet solar obligation of upto 100 MW through PPA, excluding capacity under
GBI/incentive scheme of GoI. RPO for CPP/OA consumers are independent of the RE technology and have to meet the total RPO of 8.5%
and 9% in FY 11 and FY 12 respectively
©2012 Deloitte Touche Tohmatsu India Private Limited
Profile of developers is changing from fiscal beneficiaries to serious wind developers • Wind accounts for around 70% of the total
installed renewable capacity.
• The sector has attracted several companies dedicated towards wind capacity addition.
• In addition to the above there are several large power companies and local renewable IPP’s operating in respective states.
• Companies adopt different strategy for capacity addition:
‒ Green field capacity addition by placing turnkey contracts to wind turbine manufacturers
‒ Green field capacity addition by acquiring wind potential sites on their own and then procuring wind turbines by placing bulk contracts
‒ Acquisition of existing wind assets
Deloitte 48
Players PE funding
Operating wind
capacity (MW)
Under development
/ planned (MW)
Orient Green Power Company Limited
Olympus Capital,
Bessemer Ventrure,
Sriram EPC
153 622
Green Infra Limited
IDFC PE Fund II and Fund III
124 165
Greenko Group Global
Environment fund
- 200
Auro Mira Energy Company Private Limited
Baring PE - 500
Indowind Energy Limited
68 100
©2012 Deloitte Touche Tohmatsu India Private Limited
Policy initiatives to promote solar energy
• The objective of the Jawaharlal Nehru National Solar Mission (JNNSM) has set a target of 20,000MW
• In order to prevent bunching of large capacities and the difficulty that may arise in achieving financial closure, it is proposed that selection of PV projects be done in a phased manner.
• JNNSM proposes to add 200 MW capacity in first phase for off grid applications like solar lighting, rural power supply, telecom towers etc
‒ Solar plants commissioned in the next three years enjoy zero transmission charges and losses for entire life of the project. This has enabled solar plants to supply power anywhere in India without incurring transmission charges and losses
Deloitte 49
Application Segment
Target for Phase 1
(2010-13)
Target for Phase 2
(2013-17)
Target for Phase 3
(2017-22)
Solar Collectors
7 Million Sq meters
8 Million Sq meters
5 Million Sq meters
Off Grid Solar applications
200 MW 800 MW 1000 MW
Utility grid power, inc roof top
1000 MW 4000 MW 16000 MW
©2012 Deloitte Touche Tohmatsu India Private Limited
Energy efficiency initiatives are expected to be around Rs. 74,000 crore by 2014-15 • Market-based approach to unlock energy
efficiency opportunities, estimated to be about Rs. 74,000 crore by 2014-15 with 19,000 MW avoided capacity addition
• PAT scheme covers 563 designated consumers (DCs) in 8 key sectors identified in First Cycle of PAT project ( April 2011 – March 2014)
‒ All DCs consume about 231 mtoe energy i.e. about 60% of total energy consumption of the country
• Targets of avg. 4.32 % energy savings given to DCs to be achieved within three years
‒ Achievement > Target : E-Scerts
‒ Achievement < Target: Purchase E-Scerts/Penalty
• E-Scerts are tradable only after March 2014
• National Target = 10 mtoe at the end of 1st PAT cycle given to DCs to implement EE projects & reduce Specific Energy Consumption as per the targets
Deloitte 50
Sector Energy Consumption
(MTOE) No. of
identified DCs
Power (Thermal) 160.30 146
Iron & Steel 36.08 101
Cement 14.47 83
Fertilizers 11.95 23
Textile 4.50 128
Aluminium 2.42 11
Paper & pulp 1.38 51
Chlor-Alkali 0.43 20
Total 231.53 563
©2012 Deloitte Touche Tohmatsu India Private Limited
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms This material and the information contained herein prepared by Deloitte Touche Tohmatsu India Private Limited (DTTIPL) is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of DTTIPL, Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this material. ©2012 Deloitte Touche Tohmatsu India Private Limited