energising india 2009
DESCRIPTION
An annual magazine on the energy scenario of IndiaTRANSCRIPT
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1 January - 2009
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January - 2009 2
When Thomas Alva Edison origi
nated the concept and imple
mentation of electric-power
generation and distribution to homes, busi-
nesses, and factories; he would never have
imagined the widespread implications his
discovery would have on a country as mam-
moth in diversity as India.
Today, it is a unanimously derived factual
conclusion that the Indian Power sector is
in shambles. Plagued by the insincerities
and limitations that can be, the Indian
power sector had been dreaming of a sil-
ver lining, quite often.
But now, India is looking at a silver lining.
With the Power for All 2012 agenda on pri-
ority, hope has sprouted. It is rekindled
everyday, either through political rhetoric
or a billion dollar private investment plan.
The hope seems healthy if one does not look
back on the Indian power sectors history.
But time changes everything and the hope
is surviving on this fact.
As we hope that the Power for All 2012
agenda lives up to be a reality, the Indian
Express Group thought of analyzing the sec-
tor in its present form and its future shape
through this edition of Energising India. In
its second year, this edition has a futuristic
touch to it, primarily because of the theme
Power for All 2012.
While we have taken the KPMG report, a
terse planning commission report, the XIth
Five Year plans agenda for Power, and the
Central Electricity Authoritys December
report on installed power generation capac-
ity, we have ensured that the hope contin-
ues to be alive.
The edition is an optimistic approach to the
future of the power sector in the country
and we hope that this approach, inspite of
all its uncertainty, will come true as sched-
uled.
And for that hope, its now that India needs
to rise, its now that India needs to live up,
its now that India really needs to Power
up.
Foreword
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3 January - 2009
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January - 2009 4
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5 January - 2009
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January - 2009 6
He means what he says andhe says what he means.Though the election feverhaunts every ministry,Sushil Kumar Shinde,Minister for Power, is aman who never getsdisturbed on getting electedor not. Having seen theessence of power during histwo decades of power indifferent sectors and atdifferent levels, he isdedicating himself to make adifference in the powersector. No gimmicks, nomagics, but a reality thatpresents a scintillatingpicture on power sector.After he took over the reinsof administration, Shindebrought new agendas tomake a visible land markthat covers all mega powerprojects, converting powergenerating organisationsinto manufacturingcompanies, introducingpower reforms on par withWestern countries andfinally power for all.Converting a myth into arefreshing reality withoutcompromising on thecommon minimum programof the UPA Government. Theexcerpts speak in volumeshow Shinde is redrawing theagenda of the power sectorto benefit not only the poorbut also industries.By P R Subas Chandran.
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7 January - 2009
conditioners has been launched. The Bachat
Lamp Yojana envisages promotion of CFLs.
Under the scheme high quality CFLs will be
provided to domestic consumers at a rate
comparable to that of an incandescent bulb.
The difference is to be made up by earning
Certified Emission Reduction (CERs) under
the Clean Development Mechanism (CDM)
which would lead to a potential reduction
of about 4000 MW of electricity. BEE is pro-
moting energy efficiency measures through
the performance contracting route and has
empanelled 37 Energy Services Companies
(ESCO) to facilitate implementation of en-
ergy efficiency projects. These ESCOS have
been accredited by independent third party
agencies like CRISIL and ICRI.
Under the Standards and Labelling Scheme
notification of mandatory labelling for four
equipments / appliances is at an advanced
stage and the scheme has been introduced
on a voluntary basis for six other equip-
ments / appliances.
During the last three years the total avoided
capacity addition achieved by various
schemes of energy efficiency and conser-
vation is around 1200 MV.
Power Projects in Private
Sector
Three Ultra Mega Power Projects with an
aggregate capacity of 12000 MW have been
awarded to the private sector. This will in-
volve an investment of another Rs. 48,000
Crores over and above the investments in
the private sector mentioned above. Fur-
ther, bidding process in respect of Tilaiya
is currently on.
Total Generation
The total generation in the country during
2006-2007 was 662.5 Billion Units (BU) as
compared to 617.5 BU during 2005-2006,
showing a growth of 7.3% as compared to
a 5.1% growth in 2005-2006 over the pre-
vious year. The total generation during
2008-2009 (upto November, 2008) was
479.774 BU as compared to 466.699 BU
during the same period of last year with a
growth of about 2.80%. Excluding neuclar
power total generation during the same
periods was 469.517 BU against 455.202
BU with a growth of 3.14%.
Installed Capacity
The Installed generation capacity in India
has been increased from 1,23,901 MW as
on 31.1.2006 to about 1,47,000 MW as on
30.11.2008 which means a capacity en-
hancement of about 23099 MW or a growth
of 18.64%.
New Power Projects
Thirty three power projects in the private
sector have been initiated, out of which 9
are Hydel and 24 Thermal totaling a capac-
ity of additional 27766 MW. For likely ben-
efits during the 11th Plan. Further 41
projects (13 Hydel and 28 Thermal) total-
ing a capacity of 37908 MW are presently
under various stages of development for
likely benefits during the 12th Plan.
Statutory changes
By amendments to the Electricity Act of
2003 the Central Government was made
responsible for rural electrification and a
move for inclusion of provisions to check
electricity theft was passed in Parliament.
Rural Electrification
Under the Rajiv Gandhi Grameen
Vidyuitikaran Yojana, 53,048 unelectrified
villages were electrified and 66,808 villages
were intensively electrified. Free electric-
ity connections have been provided to 40.75
Lakhs BPL households. 94,770 villages were
covered under Franchisee Development in
14 States. 558 projects with an estimated
outlay of Rs. 25679.64 Crores have been
sanctioned. A total Capital Subsidy of Rs.
10079.87 Crores has been released by the
Government.
Energy Saving
Energy labelling scheme for fluorscent tube
lights and frost free refrigerators and air
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January - 2009 8
Overall Plant Load Factor
The overall Plant Load Factor of thermal
power stations in the country improved sig-
nificantly from 73.6% during 2005-2006 to
76.4% during 2007-08.
Further improvement in PLF would have
been possible during 2008-09 but for short-
age of coal, delay in synchronisation and
commercial operation of units due to lack
of completion of balance of plant works by
contractors.
The Energy Conservation
Building Code: (ECBC)
This has been launced for five climatic zones
(hot and dry, warm and humid, composite,
temperate, and cold).
Energy conservation measures have been
initiated in 300 Government buildings in
which investment grade energy audit is
being undertaken.
For the new commercial buildings having a
connected load of more than 500 MW or a
contract demand of 600 KVA, the ECBC has
been developed. The targeted avoided ca-
pacity under the scheme is expected to be
around 500 MW.
Rural Electrification Policy
Rural Electrification Policy under Section 4
and 5 of the Electricity Act, 2003 was noti-
fied.
Foreign Players
Twenty one agreements have been signed
with external funding agencies viz., World
Bank, Asian Development Bank, JBIC and
Germany bringing in approximately US 4.5
Million Dollars for the Indian Power Sec-
tor.
Power Exchange Capacity
Inter Regional Power Exchange Capacity
was a enhanced to 17000 MW from 9500
MW.
New Transmission Projects
Six New Transmission Projects with a total
estimated cost of Rs. 7293 Crores were
approved by the Union Cabinet. In addition,
35 transmission projects at a total esti-
mated cost of Rs. 27518.46 Crores have
been approved by the board of the PGCIL
during this period.
5668 MW was added in the Hydro Sector
by the commissioning of 17 Hydro Electric
Projects in Central / State / Private Sector
including difficult areas.
Hydro Electric Policy
The Union Cabinet has approved the New
Hydro Electric Policy in February, 2008. In
this new policy, private entrepreneurs can
take up projects on the basis of MoUs till
January, 2011 and they will be allowed
merchant sale of upto 40% of the saleable
power.
The policy also envisages exemption from
tariff based bidding till January 2011, mer-
chant sale of 40% of saleable power al-
lowed, 1% free power above the 12% ear-
marked for local area development.
The New Hydro Power Policy, 2008 goes
one step ahead of the National Rehabilita-
tion and Resettlement Policy (NRRP), 2007
so far as R & R provisions for Hydro Power
projects are concerned.
These provisions shall be applicable even
is one family is affected by the development
of a Hydro Power project.
Setting up of ITIs
Setting up of Industrial Training Institutes
to train locals for employment in the
projects an International Conclave was
organised by the Central Electricity Author-
ity and Ministry of Power on the 4th and
5th July, 2007 on Key Inputs for Acceler-
ated Development of Indian Power Sector
for 11th Plan and Beyond.
Participants included State Governments,
Ministry of Labour & Employment, Power
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9 January - 2009
Utilities from Central, State and Private
Sectors besides Research institutions.
It was noted at the Conclave that the large
capacity addition planned in the generation,
transmission and distribution sectors offers
a great opportunity for employment genera-
tion and building up of a large skilled man
power base.
Shortage of skilled man power was flagged
as an issue of concern, more so in the con-
text of competing requirements on account
of the infrastructure development boom in
the country.
It was agreed that one of the steps required
to be taken urgently is to train the required
additional man power from the existing ITIs
to suit the requirements of the power sec-
tor. There was a consensus in the Conclave
that the project developers should contrib-
ute to building up of a trained manpower
base which could be utilized by them and
their contractors/sub contractors.
One of the recommendations of the Con-
clave was adoption of ITIs located close to
the project site by the project developers
and major EPC contractors who would con-
tribute by means of providing necessary in-
frastructure at the ITIs and also assist in
organizing practical training programmes at
the project sites under the technical ap-
prenticeship programme.
The issue of ITI adoption came up for dis-
cussion during the 18th Bimonthly Coordi-
nation meeting held by Secretary (Power)
on 18th July,2007 wherein, it was agreed
that the CPSUs would adopt one or more
ITIs at their places of choice near to the
project sites to build up the required trained
manpower.
During the Seminar on Requirement and
Availability of Highly Skilled Manpower for
the Power Sector organised by the Minis-
try of Power on 3rd October 2007, in which
representatives of Central Electricity Au-
thority, CPSUs/Autonomous Bodies/Statu-
tory bodies under the administrative con-
trol of Ministry of Power, AICTE, Director
General (Employment & Training), Ministry
of Labour, Power Secretaries & Secretar-
ies (Technical Education) from the States,
representatives of ASSOCHAM, FICCI, CII,
IPPs etc. participated, the power develop-
ers were impressed upon to adopt ITIs near
their project sites to develop the base of
skilled manpower for the power sector.
So far 14 ITIs have been adopted by vari-
ous CPSUs under Ministry of Power and 26
ITIs are under process to be adopted.
Damodar Valley Corporation
DVC signed an agreement with DTL to
power the October, 2010 Common Wealth
Games in Delhi. 2500 MW from 3 New
Projects viz. Mejia TPS Phase II, Durgapur
Steel TPS and Koderma TPS Stage 1 will
go to Delhi.
Capacity Addition
DVC has placed orders / LoA for capacity
addition of 6250 MW including 500 MW tar-
geted for December, 2008 against an in-
stalled capacity of 2710 MW.
The overall Plant LoadFactor of thermal powerstations in the countryimproved significantly
from 73.6% during2005-2006 to 76.4%
during 2007-08. Furtherimprovement in PLF
would have beenpossible during 2008-09but for shortage of coal,delay in synchronisation
and commercialoperation of units due to
lack of completion ofbalance of plant works
by contractors.
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January - 2009 10
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11 January - 2009
So far, 53,000 villages have been elec
trified and by 2012 everyone will get
electricity, said Power Minister
Sushilkumar Shinde. 1,20,000 villages are
being targeted. But having previously been
criticised for hyping up miniscule achieve-
ments, this ambitious announcement must
have been made with calculated refine-
ment.
RGGVY was launched in 2005 with the ob-
jective to electrify all villages in the coun-
try where there is no power. Under the
scheme, Government provides 90 per cent
The Government of Indiarecently announced that53,000 villages in thecountry have been electrifiedand promised electricity forall by the year 2012. TheMinistry of Power has set atarget to electrify 1,20,000villages in the current FiveYear Plan (2007-12) underthe Rajiv Gandhi GrameenVidyutikaran Yojana(RGGVY). The Indiangovernment, in the EleventhFive-Year Plan (2007-12),has increased its target ofcapacity addition to 90, 000MW from the initial 78,530-MW to meet the countrysrising energy demands,taking the total generationinstalled capacity from1,46,902 MW as onNovember 2008 to 2,38,902MW by 2012. It is a big taskindeed and even if Indiadoes not touch the target, itwould have still reached afairly substantial capacity.
subsidy for electricity distribution infra-
structure and 100 per cent subsidy for pro-
viding power connections to the rural
household. Government has already pro-
vided electricity connections to 18-lakh Be-
low Poverty Line (BPL) households out of
the targeted 50 lakh such families this fis-
cal.
It has earmarked a total capital subsidy of
Rs 33,000 crore for providing electricity
connections and for the distribution infra-
structure to the rural household.
A subsidy of Rs 28,000 crore has been pro-
vided for the XIth plan period for rural elec-
trification. During the previous five year
plan period, we got a subsidy of Rs 5,000
crore, said Chairman and Managing Direc-
tor REC, P Uma Shankar. We have made
arrangements for electrifying 1,20,000 vil-
lage during XIth plan period, she added.
But to achieve the target Mission of Power
for All by 2012 would mean achieving the
target of 1000 KwHr (Units) of per capita
consumption of electricity by this period.
Achieving this would mean that there is an
immediate need to attract US $ 250 Billion
Investment into the sector. (FDI & Domes-
tic Investment Combined); adequate capac-
ity growth to Sustain GDP Growth at 8%plus; reliable & quality power On 24 x 7
basis, at least in Urban & Industrialized
areas; 100% Rural Electrification with ad-equate & qualitative power for irrigation
purpose; increasing the role of Hydel &
Renewable Energy in the energy mix; ur-
gent need to develop the alternatives, both
in the Fuel & Technology terms, and focus
on implementation.
MoPs Blueprint
The Ministry of Power has prepared a com-
prehensive Blueprint for Power Sector de-
velopment encompassing an integrated
strategy for the sector development with
following objectives:-
Sufficient power to achieve GDP growth
rate of 8% Reliability of power
Quality power
Optimum power cost
Commercial viability of power industry
Power for all
Strategies to achieve the objectives:
Power Generation Strategy with focus on
low cost generation, optimization of capac-
ity utilization, controlling the input cost,
optimisation of fuel mix, Technology
upgradation and utilization of Non Conven-
tional energy sources
Transmission Strategy with focus on devel-
opment of National Grid including Interstate
connections, Technology upgradation &
optimization of transmission cost.
Distribution strategy to achieve Distribution
Reforms with focus on System upgradation,
loss reduction, theft control, consumer ser-
vice orientation, quality power supply com-
mercialization, Decentralized distributed
generation and supply for rural areas.
Regulation Strategy aimed at protecting
Consumer interests and making the sector
commercially viable.
Financing Strategy to generate resources
for required growth of the power sector.
Conservation Strategy to optimise the uti-
lization of electricity with focus on Demand
Side management, Load management and
Technology upgradation to provide energy
efficient equipment / gadgets.
Communication Strategy for political con-
sensus with media support to enhance the
genera; public awareness.
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January - 2009 12
APDRP
The government has proposed to introduce
a restructured Accelerated Power Develop-
ment and Reforms Programme (APDRP) in
the 11th Five Year Plan to cut transmission
and distribution losses, early 2008.
The APDRP was launched in 2002-03 with
the objective of encouraging reforms, re-
ducing aggregate technical and commercial
loss and improving quality of supply of
power.
The Distribution Reform was identified as
the key area to bring about the efficiency
and improve financial health of the power
sector. Ministry of Power took various ini-
tiatives in the recent past for bringing im-
provement in the distribution sector. 29
states have signed the Memorandum of
Understandings with the Ministry to take
various steps to undertake distribution re-
forms in a time bound manner.
BMI Report
According to India Power Report from Busi-
ness Monitor International (BMI), which
publishes specialist business information
on global emerging markets for senior ex-
ecutives in more than 125 countries, the
forecast is that the country will account for
12.12% of Asia Pacific regional power gen-eration by 2012, with a growing generation
shortfall that requires rising imports. BMIs
Asia Pacific power generation assumption
for 2007 is 6,865 terawatt hours (TWh),
representing an increase of 9.6% over theprevious year. It is forecasting an increase
in regional generation to 9,435TWh by 2012,
representing a rise of 37.4%.
Asia Pacific power generation in 2007 was
5,407TWh, accounting for 78.8% of the to-tal electricity supplied in the region. BMIs
forecast for 2012 is 7,155TWh, implying
32.3% growth that reduces the marketshare of thermal generation to 75.8% -thanks partly to environmental concerns
that should be promoting renewables, hy-
dro-electricity and nuclear generation.
Indias thermal generation in 2007 was
622TWh, or 11.50% of the regional total.By 2012, the country is expected to account
for 12.49% of regional thermal generation,says the BMI report.
The report further states that, For India,
coal is the dominant fuel, accounting for
51.4% of 2007 primary energy demand
(PED),followed by oil at 31.8%, gas at 8.9%and hydro-power with a 6.8% share of PED.Regional energy demand is forecast to
reach 4,915mn tonnes of oil equivalent (toe)
by 2012, representing 32.9% growth overthe period. Indias 2007 market share of
10.94% is set to rise to 11.49% by 2012.The countrys17.8TWh of nuclear demand
in 2007 is forecast to reach 30TWh by 2012,
with its share of the Asia Pacific nuclear
market rising from 3.27% to 4.65% overthe period.
India is still ranked second, behind China
in BMIs updated Power Business Environ-
ment rating, thanks to its vast market size
and excellent growth prospects. Certain
country risk factors offset some of the in-
dustry strength, but the country seems des-
tined to vie with China at the head of the
table for the foreseeable future.
BMI is now forecasting Indian real GDP
growth averaging 8.25% per annum be-tween 2007 and 2012, with the 2008 fore-
cast being 9.00%. Population is expectedto expand from 1.16bn to 1.24bn over the
period, with GDP per capita and electricity
consumption per capita both forecast to
increase significantly. The countrys power
consumption is expected to increase from
890TWh in 2007 to 1,471TWh by the end of
the forecast period, leaving a theoretical
shortfall in generation rising from 115TWh
in 2007 to328TWh in 2012, assuming 7.8%annual growth in generating capacity.
Between 2007 and 2018, BMI forecasts an
increase in Indian electricity generation of
115.4%, which is among the highest for theAsia Pacific region. This equates to 37.7%in the 2013-2018 period, down from 47.6%in 2007-12. PED growth is set to fall from
39.6% in 2007-12 to 32.6%, representing94.3%for the entire forecast period. An in-crease of 88.5% in hydro-power use dur-
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13 January - 2009
ing 2007-18 is a key element of generation
growth. Thermal power generation is fore-
cast to rise by 113.4% between 2007 and2018, with nuclear consumption up by
197.2%.
The Target
The Indian government, in the Eleventh
Five-Year Plan (2007-12), had initially rec-
ommended a capacity addition of 78,530-
MW to meet the countrys rising energy
demands, which was later revised to
78,577-MW. The proposed capacity addition
has again been revised to 92,000-MW. The
earlier estimate of 78,577-MW consisted of
16,553-MW of hydropower, 58,644-MW of
thermal power and 3,380-MW of nuclear
power.
According to the Central Electricity Author-
ity (New Delhi), the Indian governments
statutory organization for regulating the
power sector, projects with a total capac-
ity of 11,404-MW have been commissioned
through August 2009 for the Eleventh Five-
Year Plan. The energy mix includes 8,472-
MW from thermal power, 2,712-MW of hy-
dropower and 220-MW of nuclear power.
The total installed power generation capac-
ity of the country currently stands at
146,902.81 MW, consisting of 92,892.64
MW of thermal power, 36,647.76 MW of
hydro power, 4,120-MW of nuclear power
and 13,242.41 MW from renewable
sources. In the earlier target of 78,577-MW,
the contribution of the private sector was
10,760-MW, compared with 27,952-MW by
state and 39,865 from the CEA.
An estimated 7,530-MW of additional ca-
pacity was planned for the fiscal year 2008-
09. Of this, 2,141-MW has already been
commissioned. The remaining 5,389-MW is
targeted to be operational before March
2009. Some of the projects under construc-
tion that will be commissioned by the end
of this fiscal year include:
NTPC Limiteds (New Delhi) 500-MW
thermal power plant in Kahalgaon
Torrent Power Limiteds (Ahmedabad,
Gujarat) 752-MW thermal power plant
at Sugen in Gujarat
Oakwell Power Limiteds (Hyderabad,
Andhra Pradesh) 445-MW thermal
power plant at Konaseema, Andhra
Pradesh
Gautami Power Private Limiteds
(Secunderabad, Andhra Pradesh) 464-
MW thermal plant in Andhra Pradesh
Nuclear Power Corporation of India
Limiteds (Mumbai) RAPP units 5 and 6
in Rajasthan and Kaiga Unit 4 in
Karnataka.
While the ongoing prevalent global liquid-
ity crunch is likely to affect proposed
projects that are yet to obtain financial clo-
sure, the government has stepped in to pro-
vide credit for those projects which have
obtained financial closure. All the projects
listed above are currently on schedule. The
Standing Linkage Committee of the Indian
government recently approved coal link-
ages to power projects with an aggregate
capacity of 35,000-MW that are scheduled
to be commissioned and start production
by the end of the 2012. If all projects under
the plan are commissioned under the plan,
the countrys total generation capacity
would be 237,554-MW in 2012.
The proposed 92,000-MW capacity addition
is a very ambitious initiative, representing
more than four times the additional capac-
ity achieved in the Tenth Five-Year Plan
(2002-07), from which project slippage was
inherited by the Eleventh Five-Year Plan.
The governments vision of meeting the
soaring energy requirements of the coun-
try domestically will serve as a catalyst for
growth.
Coal Needs
According to the working group of the Plan-
ning Commission, India will have to import
100 million tons of coal during the Eleventh
Five-Year Plan (2007-12) to fulfill increas-
ing domestic demand, which is projected to
730 million tons by 2012.
The group also indicated that the countrys
production capacity by 2012 will be around
680 million tons per year, said the Indus-
trial Info Resources, a marketing informa-
tion service specializing in industrial pro-
cess, energy and financial related markets.
Indias largest coal producer, Coal India
Limited (Kolkata, West Bengal), has agreed
to increase production from 520 million tons
per year to 600 million tons per year by
2012. In an effort to bridge the supply-de-
mand gap, for the first time, CIL will import
4 million tons per year this fiscal year.
Compared with the previous five-year plan,
the company has reported an 8 percent in-
crease in coal production in the current
period, but the increasing demand is prov-
ing this growth to be inadequate. NTPC Lim-
ited (New Delhi), Indias largest power pro-
ducer, is also importing 8.2 million tons per
year of coal during the 2008-09 fiscal year,
The Indiangovernment, in the
11th Five-Year Plan ,had initially
recommended acapacity addition of78,530-MW. The
capacity addition hasagain been revised to
92,000-MW.
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January - 2009 14
and reports indicate that the imports are
likely to rise.
Indias power sector is facing acute coal
shortages and power companies have been
asked to immediately increase imports.
Thermal power plants have coal stocks of
4.9 million tons, although the requirement
is 22 million tons. Out of the 77 thermal
power plants monitored, 55 have less than
a weeks supply of coal. India has 256 bil-
lion tons of coal reserves, but only 455 mil-
lion tons are mined every year. Indias cur-
rent imports stand at 40 million tons and is
expected to touch 50 million tons by the end
of this fiscal year. Domestic demand is ex-
pected to rise to 2 billion tons per year by
2016-17.
It has become inevitable for Indias Minis-
try of Coal to earmark expansion plans to
reduce the supply deficit. There have been
187 captive coal blocks allocated for min-
ing to private players with reserves of 41
billion tons. Only 20 blocks are now opera-
tional, producing about 30 million tons per
year of coal.
The rest have either been allocated recently
or are awaiting environmental and proce-
dural clearances. Steps are now being
taken to expedite the clearance procedures
and make these blocks operational. CIL and
public sector companies, such as the Steel
Authority of India (New Delhi), NTPC and
National Mineral Development Corporation
have set up a special-purpose vehicle, In-
ternational Coal Ventures, to explore min-
ing opportunities overseas. International
Coal Ventures plans to raise $1 billion to
develop coal mines with potential of 10 mil-
lion tons per year in Mozambique.
There are also plans to acquire assets in
Canada, Indonesia, Mozambique, South Af-
rica and Australia. The current economic
crisis in the United States has gained Indias
attention. CIL is in talks with U.S. mining
companies to acquire assets. CIL also plans
to revive 18 abandoned mines belonging to
its subsidiaries Eastern Coal Fields, Bharat
Coking Coal and Central Coal Fields. The
50:50 partnership with global companies
will develop six mines belonging to Eastern
Coal Fields, eight from Bharat Coking Coal
and four from Central Coal Fields. The com-
bined potential of these 18 sites is expected
to be about 1.6 billion tons per year.
ArcelorMittal (Luxembourg) and Ispat In-
dustries Limited (Kolkata, West Bengal)
have expressed interest in this project. CIL
has also received bids from international
players like Walter Mining Company
(Brisbane, Australia), Anglo American Plc
(London) and Rio Tinto Plc (London).
Recently, an agreement was reached be-
tween officials of the ministries of coal and
power, and representatives from CIL, NTPC
and the Central Electricity Authority that 10
to 15 percent of coal required for new
power projects in India will be imported. It
has also been indicated that the cost of
power from imported coal will be higher
than power produced from domestic coal.
But coal waste will be low since the quality
of imported coal is higher than domestic
coal. The Ministry of Power will facilitate
the fuel-supply agreement between power
utilities and CIL. It was also announced that
the imported coal may be used in existing
power plants. Coal India plans to increase
its production target from 380 million tons
per year to 405 million tons per year by
2009-10. Experts indicate that at the rate
at which Indias coal demand is rising, the
country will lose 60 billion-70 billion tons of
its coal reserves by 2040-41. It has become
imperative for the Ministry of Coal and CIL
to explore new mining avenues both inter-
nationally and in the domestic front to sus-
tain demand.
Renewable Energy
The Indian government has set a target of
generating 14,000 MW additional power
through renewable resources in the 11th
Five-Year Plan (2007-2012), taking the to-
tal generation to more than 26,000 MW,
according to Minister for New and Renew-
able Energy, Vilas Muttemwar.
We are doing remarkably well in generat-
ing power from renewable resources, as we
are at the fourth spot after Germany, Spain
and the US in harnessing the wind energy.
But still there is much more potential that
goes unused, Muttemwar said. According
to the Minister, India has the potential of
generating 70,000 MW of power from wind.
We are one of the luckiest countries,
where we have plenty of sunshine through-
out the year. With this solar energy, we can
fulfill the energy needs of the whole world
if we harness it in proper channel,
Muttemwar said. India is in a process to
establish a solar thermal energy project at
Nagpur in Maharashtra which will be Asias
biggest solar power generation project, ac-
cording to Minister Muttemwar.
We will also establish many special eco-
nomic zones (SEZs) exclusively for renew-
able projects at various locations of the
country, he said.
References:
Ministry of Power www.powermin.nic.in
http://en.sxcoal.com
Industrial Info Resources: A marketing
information service specializing in industrial
process, energy and financial related mar-
kets .
India PR Wire
PTI
-
15 January - 2009
The Ministryof Power has set atarget to electrify 1,20,000villages in the current Five YearPlan (2007-12) under the RajivGandhi Grameen VidyutikaranYojana (RGGVY).
Power for All by2012 mission achievementwould mean achieving the target of1000 KwHr (Units) of per capitaconsumption of electricity by thisperiod. Achieving this would meanthat there is an immediate need toattract US $ 250 Billion Investmentinto the sector.
BMI forecast is that thecountry will account for 12.12%of Asia Pacific regional powergeneration by 2012, with agrowing generation shortfall thatrequires rising imports.
146,902.81 MWis the total installed powergeneration capacity of the countrycurrently, consisting of 92,892.64MW of thermal power, 36,647.76MW of hydro power, 4,120-MW ofnuclear power and 13,242.41 MWfrom renewable sources.
-
January - 2009 16
-
17 January - 2009
The 11th Plan aims at putting the
economy on a sustainable growth
trajectory with a growth rate of ap-
proximately 10 per cent by the end of the
Plan period. It will create productive em-
ployment at a faster pace than before, and
target robust agriculture growth at 4% peryear. It seeks to reduce disparities across
regions and communities by ensuring ac-
cess to basic physical infrastructure as well
as health and education services to all. It
recognises gender as a cross-cutting theme
across all sectors and commit to respect
and promote the rights of the common per-
son. Among other sectors in focus by the
planning commission towards the 11th plan,
Energy finds an important place. Its signifi-
cance is immense and it surely stands as a
sector which will govern most of our lives
in the near future.
Energy
GDP growth of 9% is not possible withouta commensurate increase in supply of en-
ergy, electricity, coal, oil and gas and other
fuels. Further, with nearly half the countrys
population without electricity and without
a consistent supply of any other form of
commercial energy either, distribution of
energy is as crucial to bridging the divide
between the haves and the have-nots. En-
suring lifeline supply of commercial energy
to all is essential for empowering individu-
als, especially women and girls, who have
the back-breaking, time consuming and
unhealthy task of collecting and using non-
commercial fuels that remain the primary
energy source for cooking in over two thirds
of the households. Provision of clean fuels
or at least wood plantation within one kilo-
meter of habitation and dissemination of
technology for use of clean fuels is vital for
good health.
Electric Power
Rapid growth of the economy will place a
heavy demand on electric power and this is
an area of weakness at present. Reforms
in this sector have been under way for sev-
eral years and they have brought about
several important institutional changes
which were needed to make the power sec-
tor efficient and more competitive: The Elec-
tricity Act 2003 is in place; The National
Electricity and Tariff policies envisaged in
the Act have been notified; Regulators are
in place in the states and have issued a
series of regulatory orders which are be-
ginning to reduce the wide dispersion in
electricity tariffs that have existed tradition-
ally and to contain tariffs charged for in-
dustries; Many states have unbundled their
SEBs into generation, transmission, and
distribution companies for better transpar-
ency and accountability.
The greatest weakness in the power sec-
tor is on the distribution side which is en-
tirely the domain of the states. Aggregate
Technical and Commercial (AT&C) losses of
most State Power Utilities (SPUs) remain
high and have made SPUs financially sick
and unable to invest adequately in gener-
ating capacity. For the same reason they
have also had only limited success in at-
tracting private investors to set up power
plants.
The Accelerated Power Development and
Reform Programme (APDRP) initiated in
2001 was expected to bring down AT&C
losses to 15% by the end of the 10th Plan.In fact, the average for all states is closer
to 40% (including uncollected bills). How-ever, there are encouraging success sto-
ries in loss reduction in a number of cities
and small areas as a result of intensified
management efforts. Some states, for ex-
ample, Tamil Nadu and more recently
Andhra Pradesh, have shown a much bet-
ter performance than the national average.
This gives hope and provides guidance on
how to restructure APDRP, using techno-
logical tools such as smart metering and
GIS mapping for real time, monitoring and
accountability at each distribution trans-
former. State governments should adopt
the goal of bringing down AT&C losses from
the current level of around 40% to at least15% by the end of the 11th Plan. This canbe done if managements of SEBs are
professionalised and given autonomy of
operation without political interference.
The Rajiv Gandhi Grameen Vidyutikaran
Yojana (RGGVY) is a key initiative providing
electricity access to all households and ac-
tually connecting all BPL households. How-
ever, the success of this commendable ef-
fort depends critically upon adequate avail-
ability of electricity and actual electrifica-
tion of all households. Mere access with-
out supply of power will only add to frus-
tration.
The 11th Plan provides anopportunity to restructurepolicies to achieve a newvision based on faster,more broad-based andinclusive growth. It isdesigned to reduce povertyand focus on bridging thevarious divides thatcontinue to fragment oursociety. The energy sectorprominently features in thePlanning commissions11th plan and offers certainstrategic solace to thesector, both in terms of theplan period as well as longterm sustainability.
-
January - 2009 18
Utility-based generation capacity is ex-
pected to rise by less than 30,000 MW in
the 10th Plan but we should plan for an in-
crease by 60,000 MW in the 11th Plan to
move to a comfortable situation consistent
with a growth rate between 8 - 9% per an-num. The 11th Plan must evolve policies that
can ensure completion of on-going projects
quickly and that generation capacity of this
order is created in an efficient, least cost
manner while emphasizing exploitation of
Indias hydro potential and nuclear capa-
bilities especially in the field of fast breeder
reactors. Renewables such as wind power
can play a useful role in the 11th Plan. These
can be set up in a short time and though
they have a low load factor with a good
transmission system, can be balanced by
hydro power and can contribute to meet-
ing peak demands.
Establishment of new generation capacity
and reducing cost of power will require ac-
tion on many fronts:
Availability of fuel such as coal or natural
gas for new power plants must be as-
sured;
A national consensus on royalty rates for
fuels and compensation for host states
also needs to be worked;
Long term finance should be made avail-
able to lower capital charge;
The presently provided guaranteed rate
of post tax returns for CPSUs should be
lowered to reduce cost of power and aug-
ment resources of state power utilities;
An efficient inter-state and intra-state
transmission system of adequate capac-
ity that is capable of transferring power
from one region to another;
An efficient distribution system which
alone can ensure financially viable expan-
sion;
Rehabilitation of thermal stations through
R&M to augment generating capacity and
improve PLF;
Rehabilitation of hydro stations to yield
additional peaking capacity;
Improving supply side and demand side
efficiencies to effectively lower primary
energy demand by 5-7% during the 11thPlan period;
Ensuring use of washed coal for power
generation; and
Harnessing captive capacity to support
the grid.
Coal
Coal will remain the dominant primary
source of commercial energy and total de-
mand for coal is projected to increase from
432 million tonnes in 2005-06 to 670 mil-
lion in 2011-12.
The need for the power sector itself would
increase by 180 million tonne taking the
total to about 500 million tonnes in 2011-
12. Meeting these demands poses a formi-
dable challenge in increasing coal produc-
tion.
Coal India is aiming to increase production
by an unprecedented 60% during the 11thPlan period inclusive of the recently ap-
proved emergency production plan. How-
ever, realistically speaking, this level of in-
crease in output together with the neces-
sary rail infrastructure to move the addi-
tional coal production may be difficult to
achieve by Coal India alone.
Coal production is nationalized at present
and private investment in coal mining is only
allowed for captive mines supplying coal to
designated sectors power, steel, and ce-
ment.
Taking a longer term view of energy pro-
duction there is a strong case for de-na-
tionalizing coal so that private sector invest-
ment can come into this crucial area.
If petroleum, which is much scarcer than
coal, is open to the private sector there is
no reason why coal should not also be
opened up, especially if we take a longer
term view of energy constraints and also
the need to absorb new clean coal technolo-
gies.
Pending a consensus on this issue, every
effort should be made to expand coal pro-
duction through the route of captive mines.
Large coal users, especially in the power
-
19 January - 2009
sector, can be given available proven coal
blocks for developing captive mines.
Preliminary estimates suggest that in ad-
dition to coking coal we may also need to
import 40-50 million tonnes of superior
grade thermal coal by the end of the 11th
Plan. Thermal power stations on the south-
ern and western coasts can be competitive
using imported coal and the countrys elec-
tricity requirement does justify such import.
This would require necessary port handling
capacity and coast based power generation
capacity of around 12000 to 15000 MW to
absorb the imports.
Coal pricing and marketing also needs to
be modernized. The e-auction route which
has been opened recently has worked well,
and has helped to nudge consumers to-
wards more rational coal pricing. This win-
dow can be expanded over the 11th Plan.
The method of pricing coal also needs to
be rationalized by shifting to gross caloric
value instead of useful heat value and by
having more finely graded price bands.
Oil and Gas
India will remain dependent on crude oil im-
ports. Fortunately, the demand for petro-
leum products has grown at only 2.7% perannum in the first 4 years of the 10th Plan.
Consumption of petroleum products is likely
to rise from 112 MT in 2005-06 to about 135
MT by the end of the 11th Plan with net
crude oil imports reaching 110 MT. Gas con-
sumption is forecast to rise to about 55
MTOE with imports reaching 20 MTOE
unless the recent finds announced in the
KG basin actually start flowing in significant
quantities by the terminal year of the 11th
Plan. This assumes that Naphtha based fer-
tilizer production switches completely to
gas by the end of the 11th Plan.
The scope for transnational gas pipelines
needs to be explored from a longer term
perspective, but no pipelines are likely to
become available for this level of gas im-
port during the 11th Plan. Thus LNG imports
would need to rise to four times from the
current level of 5 million tonnes.
The most important policy issue in this sec-
tor relates to pricing petroleum products.
The recent increase in oil prices is now ex-
pected to persist for some years and al-
though prices of some petroleum products
have been raised the increase still leaves a
large uncovered gap. This gap is being
borne partly by the oil companies and partly
by the issue of bonds by the government to
the companies, which is equivalent to a
government subsidy. Other critical issues
facing the oil and gas sector relate to:
pricing of domestically produced natural
gas and its allocation to the power and
fertilizer industry;
strengthening upstream regulation in the
oil and gas sector; and (iii) ensuring com-
petition and open access in the proposed
pipeline transportation and distribution
grid.
In the longer run, the only viable policy to
deal with high international oil prices is to
rationalize the tax burden on oil products
over time, rationalise existing pricing
mechanisms which give the oil companies
an excessive margin, realize efficiency
gains through competition at the refinery
gate and retail prices of petroleum prod-
ucts, and pass on the rest of the interna-
tional oil price increase to consumers, while
compensating targeted groups below the
poverty line as much as possible.
The current method of determining prices
for petroleum products needs reconsidera-
tion. Full price competition at the refinery
gate and the retail level needs to be
adopted. India is deficient in crude oil but
has developed surplus capacity in products.
-
January - 2009 20
Many products are exported in sizable
quantities. Product price entitlement should
therefore be based on trade parity pricing,
which would be much lower than import
parity. The 10% duty on products has beenreduced to 7.5% which is a step in the rightdirection. There is a strong case for further
reducing the duty on products to 5% toequate it with the duty on crude.
Other Energy Initiatives
More broadly, as we move into the 11th
Plan, we need to take an integrated view of
energy policy towards different energy sub-
sectors. While the Central and state sec-
tors will continue to dominate the energy
sector in the 11th Plan, energy policy should
not be determined sector by sector where
the dominant public sector players often
have significant vested interests. We need
to move towards a more transparent policy
framework that treats different sources of
energy in a similar fashion. Such a frame-
work must meet the following objective:
Ensure energy competition in each sub
segment of the energy sector and remove
all entry barriers so as to realize optimal
fuel and technology choices for extrac-
tion, conversion, transportation, and end
use of energy.
Ensure energy pricing that leads to effi-
cient choice of fuel, inter-fuel substitu-
tion, and technology so that resource al-
location takes place based on market
forces operating under a credible regu-
latory regime.
Incentivize rational use of energy across
all sectors including, agriculture, indus-
try, commerce, domestic, personal trans-
port, public transport, and haulage.
Ensure an institutional framework that
provides a level playing field to public sec-
tor and private sector players and pro-
vides comparable incentives to produc-
ers across all energy sectors.
Ensure a consistent tax and regulatory
structure across all energy sub-sectors.
There is no reason why energy resource
should be taxed much more than others
unless there are some externalities in-
volved.
Meet social objectives as far as possible
through direct and tradable entitlements
offered to those in genuine need.
Treat environmental externalities uni-
formly under the polluter pays principle.
Thus renewables should be given appro-
priate incentives.
Promote energy efficiency and energy
conservation.
A consistent policy framework embodying
these principles would minimize distortions
across sectors and maximize efficiency
gains.
Institutions for promoting and forcing the
pace of energy conservation and improve-
ment in energy efficiency also need to be
strengthened. Development and use of re-
newable and nonconventional energy
sources have not progressed to the extent
they could have.
The 11th Plan will restructure incentives
and support from supply driven
programmes to demand driven
programmes and technologies. It will also
link subsidies and support to outcomes in
terms of renewable energy generated,
rather than to capital investments.
Available fossil energy resources must be
optimally exploited using enhanced recov-
ery techniques. Coal bed methane must be
fully exploited and fossil fuel reserves en-
hanced through more intensive exploration.
Renewable energy sources such as wind
energy, bio-mass and bio-fuels account for
a very small percentage of total energy but
they could increase to 2 - 3 percent in the
course of the 11th Plan period.
The 11th Plan must also set up a robust
energy R&D system to develop relevant
technology and energy sources to enhance
energy security and lead to energy indepen-
dence in a cost effective way in the long
run.
Source: www.planningcommission.nic.in
-
21 January - 2009
9 per cent GDP growthis not possible without acommensurate increase in supplyof energy, electricity, coal, oil andgas and other fuels. Further, withnearly half the countrys populationwithout electricity and without aconsistent supply of any otherform of commercial energy either,distribution of energy is as crucialto bridging the divide between thehaves and the have-nots.
The greatestweakness in thepower sector is on the distributionside which is entirely the domainof the states. Aggregate Technicaland Commercial (AT&C) losses ofmost State Power Utilities (SPUs)remain high and have made SPUsfinancially sick and unable toinvest adequately in generatingcapacity.
The 11th Plan mustevolve policies that can ensurecompletion of on-going projectsquickly and that generation capacityof this order is created in anefficient, least cost manner whileemphasizing exploitation of Indiashydro potential and nuclearcapabilities especially in the field offast breeder reactors.
Coal will remain thedominant primary source ofcommercial energy and totaldemand for coal is projected toincrease from 432 million tonnesin 2005-06 to 670 million in2011-12.
-
January - 2009 22
The Electricity Act, 2003 was awatershed regulation in theGovernments attempts towardscreating a conduciveenvironment for development ofthe Indian Power sector. Thiswas further supported by anumber of policies andregulations; however, almost fiveyears down the line the sector isyet to achieve the desiredprogress.The inflection point is stillawaited by many; the pointwhere a consumer can freelychoose his electricity providerand generators have multiplechoices for the sale of the powerthey generate and can managerisks through evolvedcontracting instruments.Recently, Confederation ofIndian Industries (CII) hadorganised a conclave - IndiaEnergy Conclave 2008 whereinKPMG prepared a report whichexamines some of the recentdevelopments that are importantin the move towardsCompetitive Power Markets. Ithas also presented its view onthe expected developments andidentified potential roadblocks.
A KPMG REPORT
-
23 January - 2009
The Demand-Supply Equation
The big question on every project
developers mind today is likely to be When
will the demand and supply curves for
power cross each other?.
While the country is facing a very signifi-
cant power deficit today to the tune of
20,000 MW (18 percent peak deficit), there
are plans for very large supply additions
going forward. Until the Xth Plan (FY 2007),
the 5 year plans were dominated by Gov-
ernment capacity additions and constraints
to capacity additions were mainly due to
Government procurement procedures,
equipment sector constraints and project
implementation delays.
Going forward, the constraints would
largely occur on account of fuel sector is-
sues including allotment and development
of coal mines. While over 81 coal mines
have been allotted, delays are being seen
in mine development on account of reasons
ranging from land acquisition, delays in
obtaining Government clearances, multiple
mine allottees for a given mine with differ-
ing viewpoints on mine development plans,
and even lack of mine development capa-
bilities.
As market forces play out in creation of new
capacities, some of the constraints, particu-
larly relating to project management capa-
bilities, equipment procurement and even
technical capabilities related to mining are
expected to ease out.
We, therefore, expect supply side response
to the current deficit to speed up and catch
up with the demand curve during the XIIth
Plan.
The Government would still have a very im-
portant role to play if this has to be achieved
sooner than later. One, it should evolve a
more efficient and transparent solution to
coal mine allocation and two, the proce-
dures related to Government clearances
should be further streamlined.
The recent turmoil in the financial and com-
modity markets has been a cause for con-
cern and there are apprehensions about the
extent to which this would delay the cross-
over point of demand and supply. Financ-
ing for new projects is a challenge in the
current environment.
However, assuming that the effects of the
current turmoil will last for 12-18 months,
we expect that the overall impact on the
cross-over point would be to a lesser ex-
tent, as supply will eventually catch up and
the demand side impact would also be
present during the current slowdown.
Our estimate is that the cross-over is likely
to happen in the timeframe FY 2015 to FY
2017.
This is based on an assumption of GDP
growth rate of 8 percent till 2017.
The Role of Power Markets
Power markets have an important role to
play in making the country achieve this ca-
pacity requirement.
The phenomenon of aggressive merchant
plant build-up can already be attributed to
short-term price signals in the power mar-
ket today. Short term power prices are at
times as high as INR 8.0/kwh with the av-
erage price for FY 2007-08 being INR 4.50/
kwh.
The existence of a power market has meant
that merchant plants have been able to find
a market for sale of their produce and
thereby it has become easier to justify vi-
ability and achieve financial closure.
In the short run, it has also increased effi-
ciency of utilization of generation assets by
trying to match surpluses with deficits.
The trading market got a further boost in
February 2007, when CERC issued its
Guidelines for grant of permission for set-
ting up and operation of a Power Exchange.
Till date, the central regulator has granted
A KPMG REPORT
Demand
Supply
Supply (Impact of
Financial Market Crisis)
-
January - 2009 24
permission to two applicants; the Multi
Commodity Exchange led India Energy Ex-
change (IEX) and the National Commodity
& Derivatives Exchange led Power Ex-
change of India (PXI).
The IEX started operations in June 2008.
According to the CERCs Market Monitor-
ing Report for the month of August 2008,
~ 5 percent of short-term trading transac-
tions were done through the IEX, ~ 57 per-
cent was traded through bilateral contracts
and ~ 38 percent through the UI route.
Though this represents a small percentage
of the total transactions, the demand for
such a platform can be judged from the
quick ramp-up of volumes traded on these
power exchanges; while the IEX has re-
ceived total purchase bids for more than
2,000 Million Units (MUs) since its incep-
tion on June 27, 2008 the PXI received pur-
chase bids to the tune of 63 MUs on its first
day of operation (October 23, 2008).
The availability of such a platform is likely
to provide a boost for sector development
since it acts as an open and transparent
platform for buyers and sellers and simul-
taneously provides a price signal for upcom-
ing generation plants.
The other benefit of a vibrant trading mar-
ket is that this could lead to the evolution
of contracting strategies of utilities. Cur-
rently, the contracting behavior of utilities
in India involves long-term base load con-
tracting.
As power market liquidity improves, con-
tracting behaviors are likely to change to
reflect different types of contracts for base
load and peak load requirements as well
as for long term, medium term and short
term requirements.
Key Enablers for Deepening
the Power Market
In order for the power markets to deepen,
the country needs rapid addition of new ca-
pacity so that there can be adequate trade-
able stock of power.
Merchant plant developers face certain dif-
ficulties in achieving financial closure.
These include assurance of fuel supply,
comfort of a certain minimum level of power
off-take and comfort that transmission
bottlenecks will not be constraints.
The Government has to facilitate fuel ac-
cess and market opening through distribu-
tion open access. Market forces are then
likely to play out to build capacity.
Some of the key enablers to overcome these
are as follows:
Transparent and speedy process for coal
allocation
The Ministry of Power (MoP) in order to
facilitate capacity addition through MPPs,
has been coordinating with the Ministry of
Coal to identify coal linkages (for 1000 MW
plant) and coal blocks (for 500 - 1000 MW
plant) for allotment to such plants.
However, the framework for such fuel allo-
cation is yet to be notified and this uncer-
tainty is causing delays in plans for new
capacities.
A KPMG REPORT
-
25 January - 2009
Strengthening of the national transmission
grid and efficient transmission access and
pricing Uncertainties in availability of trans-
mission system capacities had been a con-
cern for some of the MPPs who are not sure
of their power off takers.
A large portion of new capacity (approxi-
mately 30 percent) is coming in the coal belt
states while the demand centers are in the
North and West of the country.
According to the CEA Plan, the incremen-
tal inter-regional power transfer capacity
will be 21,000 MW by 2012. Building this
out in a timely manner is critical for the
power market to function effectively.
To augment transmission networks, signifi-
cant investments are required. Unlike
power generation, capacity addition in
power transmission through the competi-
tive bidding route has been slower and till
date only two projects6 have been awarded
to private developers. Considering the ur-
gent need to augment the transmission net-
work in India, the MoP has taken steps to
speed up the bidding process.
The ministry has now issued draft Standard
Bid Documents for selection of Transmis-
sion Service Provider. The MoP has also no-
tified PFC and REC to act as the Bid Pro-
cess Coordinators to undertake the bidding
for a few identified projects.
Retail market opening through distribution
open access
Freedom and ease of getting open access
A KPMG REPORT
down to the retail consumer level is the last
leg in the development of a fully competi-
tive power market and will likely ultimately
lead to depth in the power market.
Today, merchant power developers have to
depend largely on tenders issued by state
utilities through the Case 1 route to tie up
capacities through long-term contracts.
This is essential for them to get the com-
fort of minimum off-take and achieve finan-
cial closure. However, if the retail segment
were to open up, then access to large cus-
tomers would have provided an alternate
option for tie-up on medium to long-term
basis.
Merchant developers could then be proac-
tive in identifying buyers to make their
projects viable rather than wait for tenders
to be floated and procurement processes
to be completed for setting up power
projects. This could speed up capacity ad-
dition. Most of the SERCs had fixed a
timeline of end 2008 for opening up the dis-
tribution open access for consumers with
connected load of less than 1 MW.
-
January - 2009 26
Further, taking cues from the National Tar-
iff Policy, few state regulators have passed
orders for reduction of cross-subsidy sur-
charge in the recent past.
This will likely promote open access as re-
duction in cross-subsidies will likely help
maintain the attractiveness of a cheaper
power source.
Few regulators like the Maharashtra State
Electricity Regulatory Commission have
kept a zero level of cross-subsidy surcharge
so as to promote competition.
While the retail market represents a
miniscule proportion of the power market
currently, this will likely increase going for-
ward. As the demand-supply gap begins to
narrow down, competitive advantage will
likely begin to shift towards access to cus-
tomers. In some states, this is likely to hap-
pen sooner.
State Cross-subsidy Surcharge
Maharashtra INR 0.00/kWh
Delhi * INR 0.00/kWh
Gujarat INR 0.37/kWh
Source: Open-access orders of SERCs
* Only for Domestic category consumers
Generators and power players would do
well to start planning to develop their ca-
pabilities and strengthening their presence
in this area as the retail supply segment
begins to open up.
Once we overcome the supply deficit and
retail compe- tition establishes
freedom of c h o i c e
in its true sense a n d
availability of products and information
symmetry among consumers; we believe
the inflection point can be reached.
A well functioning power market can also
go a long way in helping ensure that the
prolonged history of power deficit in the
country does not repeat itself in future.
A KPMG REPORT
-
27 January - 2009
(18percent peak deficit) is thepower deficit faced by thecountry today.
will bethe
incremental inter-regional powertransfer capacity by 2012,according to the CEA Plan.Building this out in a timelymanner is critical for the powermarket to function effectively.
is thehigh
point for short term prices withthe average price for FY 2007-08being INR 4.50/kwh. So, thephenomenon of aggressivemerchant plant build-up canalready be attributed to short-term price signals in the powermarket today.
ofnew
capacity is needed in order for thepower markets to deepen within thecountry so that there can beadequate trade-able stock of power.
20,000 MWINR 8.0/kwh
Rapid addition21,000 MW
-
January - 2009 28
KPMG recently concluded astudy of the Indian CEO/CXO
covering around 70 suchrespondents aimed at
understanding the position ofIndian business leaders on theissue of climate change. The
study covered a wide range ofindustries with the aim of
understanding their level ofinterest, knowledge and
preparedness on the issue ofclimate change and how itimpacts their businesses.
A KPMG REPORT
-
29 January - 2009
The study revealed a high level of
awareness (83 percent) amongst
Indian businesses on the issue of
climate change. The intent for action on
their part was encouraging, with 48 per-
cent of respondents perceiving climate
change as a crucial issue that should be
near the top of the business agenda.
The industry captains also felt that India
should be leading the way (65 percent) in
action against climate change. However,
the leadership role in bringing about change
in the areas of education, leading by ex-
ample and adoption of technology was
largely left to the Government.
Significantly, businesses are of the opinion
that the Government is currently not doing
enough in these areas. However, the prime
motivation for action by businesses was the
need to comply with expected regulation,
though there were other factors that are
also catalysts for change. The benefit of the
whole community and the desire to align
with a global trend of climate friendly busi-
ness practices emerged as other significant
influences.
Whilst a number of businesses claim to be
aware of the need to reduce their carbon
impact and believe they are taking steps
towards it, only 21 percent of respondents
have taken the crucial first step of measur-
ing their carbon footprint. Further, whilst
94 percent of businesses undertake the sig-
nificant step of using energy efficient ap-
pliances, much fewer businesses are en-
gaged in other primary drivers of emission
reduction.
Key Drivers for Carbon Sen-
sitive Growth in the Indian
Power Sector
The thermal power industry which is the
single largest contributor of the Green-
house Gas (GHG) emissions globally -
started largely as a reluctant player to in-
troduce GHG mitigating measures. How-
ever, today it is considered as a central is-
sue, for these units to baseline their emis-
sion levels and make efforts to reduce them.
The reasons vary from existence of a car-
bon tax or outright non-approval to set up
these units in some of the annex 1 coun-
tries. Even in developing countries like In-
dia it is recognised as a key requirement
which is reflected in the National Action Plan
where GHG emission from thermal power
has been accorded the highest priority.
Multiple Drivers for Change
The need for the power sector in India to
explicitly account for emissions in the gen-
eration of electricity and to actively develop
alternative sources of energy comes from
a combination of the following factors.
Emission-Intensity of Power Generation in
India
The power sector is the largest source of
GHG emissions in India, estimated to con-
tribute approximately 40 percent of total
emissions. This is significantly higher than
the global average contribution of this sec-
tor, which is estimated to be 25 percent.
This can be attributed to a large extent, to
the dominance of fossil fuels in the fuel-mix
of Indian power stations, with coal gener-
ating 72 percent of utility supplied elec-
tricity in the country. Global attention is
likely to shift to India and China post 2012
since their collective cumulative emission
levels by 2030 are likely to be more than
that of the US or EU.
Pursuit of Energy Security and Access to
Energy Resources
Geo-political events of the early 21st cen-
tury, most notably those in Iraq and Rus-
sia, have underlined the importance of en-
ergy security for preserving a countrys
economic growth, sovereignty and stabil-
ity.
Indias current options for base-load power,
namely coal and nuclear, do not provide
complete energy security owing to their
reliance on raw material imports.
In the case of nuclear power, the numer-
ous stumbling blocks overcome in the re-
cently concluded 1-2-3 agreement highlight
the vulnerabilities of complete reliance on
nuclear technology for base-load power.
Issues with the quality and availability of
domestic coal is expected to increase the
demand-supply gap in the future. Thus im-
ported coal is likely to constitute a signifi-
cant portion of coal utilization for power
generation in India.
Renewable energy sources, by their very
nature and design, are far more decentral-
ized and afford the host country with almost
complete autonomy in electricity genera-
tion. A greater uptake of renewable energy
is not only desirable for its environmental
benefits, but can also go a long way in
achieving the countrys stated primary aims
of energy security, economic growth and
poverty alleviation. This would likely vindi-
cate Indias position in international climate
negotiations, which is based on the pursuit
of these very aims, at the expense of ac-
cepting binding emission targets.
Thus, a diversification of the energy source
base through expansion of renewable
sources would be a useful tool for mitigat-
ing potential supply risks and augment
Indias energy security and self-reliance.
The Nature of Electricity as an Intermedi-
ate Good
The nature of electricity as an intermedi-
ate good which is used by industries in the
-
January - 2009 30
A KPMG REPORT
production process implies that the higher
the emission-intensity of the electricity sup-
plied by the grid, the larger is the carbon
footprint of the end product. This is because
electricity consumption is a necessary com-
ponent of the scope of the carbon footprint
of a product.
This becomes particularly important in the
context of proposals by US, UK and Austra-
lia to impose import restrictions on goods
manufactured in countries with less-strin-
gent environmental regulation, such as In-
dia. These measures, designed to prevent
carbon leakage, may take the form of a car-
bon tax or a requirement to purchase emis-
sion permits.
As such, the penalties on goods manufac-
tured in India would be commensurate to
the emission-intensity of the production
process, including electricity, used in their
manufacture.
Thus, it is in the interest of a wide variety
of manufacturing and service sectors of the
economy that the emission-intensity of the
power sector is rationalized as far as pos-
sible.
Benefits of Carbon Sensitive Growth
It is evident that carbon sensitive growth
in power generation is beneficial from the
point of view of mitigating the various risks
outlined above.
Whilst this is a compelling reason for con-
certed, rapid change in itself, the case for
explicit action is strengthened when the
potential benefits afforded by this expan-
sion in the market for green energy are
taken into account.
Employment Generation
It has been established that renewable
energy has the potential to generate con-
siderable number of jobs when compared
with employment opportunities in fossil fu-
els. This is evidenced by international ex-
perience in China, where a large popula-
tion is already employed in solar thermal
making and installing products such as so-
lar water heaters. In Nigeria, a bio fuels
industry based on cassava and sugar cane
crops has generated significant employ-
ment.
Positive Externalities
Investments in renewable energy technolo-
gies, apart from providing the direct ben-
efits outlined above, can spur complimen-
tary growth in other sectors through posi-
tive externalities. The call by India at the
G-8 summit in July for increased global co-
operation in the areas of carbon capture,
development of low cost solar
photovoltaics and energy storage have the
potential to spur an uptake in research and
development and education in a range of
industries and ancillaries related to these
technologies. Further, the countrys pro-
posed joint ventures in bio-energy, includ-
ing biomass and biogas-based power gen-
eration, built-in environment and distributed
generation may also lead to a host of ben-
efits for associated industries. Thus, not
only is carbon sensitive growth in the power
sector prudent from the view of mitigating
potential risks, but the benefits of quick,
concerted action now also have the poten-
tial for significant payoffs across the
economy.
Interventions to effect change
India is expected to become the third larg-
est emitter of GHG after US and China in
the next 10 years. Also, given the fact that
most of our carbon stocks are likely to build
up in the next 25 years, it is important that
we take measures to mitigate emissions.
Thus, moving from the largely accepted
point of departure of Indias need to curb
its emissions (for a multitude of reasons),
interventions in the power sector can be
justified as being both, effective (the power
sector is the largest source of GHG emis-
sions in India) as well as efficient (impact-
ing a large number of upstream and down-
stream economic agents).
With the power sector accounting for ap-
proximately one fourth of total CO2 emis-
sions globally and being one of the foremost
targets of proposed sectoral caps, a con-
certed effort to reduce the Indian power
-
31 January - 2009
sectors emission intensity would be timely
and prudent. The imperatives of change for
the Indian power sector emanate from the
aforementioned sources through a range
of vehicles, which may take one or more of
the following forms:
Carbon Tax
The Energy Coordination Committee has
mulled a proposal to impose a carbon tax
on polluting power stations in the country.
Such a tax is widely prevalent in Europe in-
cluding in the UK. The proposed system is
likely to start by taxing power plants emit-
ting above a certain accepted level (which
still needs to be determined) and allowing
them to pass on this cost to consumers for
a specified period of time (e.g. 5 years).
However, the accepted level of emissions
is likely to decline over time, thereby rais-
ing the bar and forcing plants to achieve
ever-increasing levels of efficiency. After
the expiry of the initial indemnity peiod,
plants emitting more than the dynamically
reducing efficiency level will be taxed and
not be allowed to pass on this additional
cost to the consumer. They will then have
to either shut down (because operations
become unprofitable after the tax), imple-
ment abatement measures to reduce emis-
sions or pay the additional tax / purchase
emission allowances from other more-effi-
cient plants in order to continue operating.
In this manner, power plants have an eco-
nomic incentive to evolve towards cleaner
production methods. Such a system would
fundamentally affect the operation of ev-
ery power station in India and is likely to
have far-reaching effects on industry.
The impact at the level of the overall
economy however, will be determined
largely by the use of the tax revenues thus
collected, and will be discussed at a later
stage.
Stakeholder Pressure
Ever-increasing accuracy in climate theory
and modelling and an accumulation of com-
pelling evidence have brought increasing
public attention to the issue of climate
change and intensified the calls for action.
Whilst public opinion around environmen-
tal issues in India has been relatively weak
in the past, the historical record of populist
pressure vis--vis social and environmen-
tal issues demonstrates that pressure for
change from customers, investors and em-
ployees does not grow at a steady state,
but rather increases exponentially once a
critical mass is achieved. As such, the In-
dian power sector would do well to heed to
the still-nascent calls for action from the
local public domain, given the recent expe-
riences in the same industry in US, a coun-
try which is considered as the leader of the
environmental movements.
A poignant example of this increasing pub-
lic pressure in US is the veto of the expan-
sion of a power plant in Kansas on environ-
mental grounds. The governor of the state
successfully vetoed a bill allowing expan-
sion of the power plant after the project
failed to secure a permit from the State
Department of Health and Environment on
the grounds that it would produce 11 mil-
lion tonnes of CO2 annually. Despite at-
tempts by the legislature to override the
veto, the decision still stands and the
project is not allowed to commence.
Similarly, in an unprecedented move in the
albeit environmentally-conscious state of
California, the city of San Francisco is striv-
ing to oust its existing power utility as its
future supplier on the grounds that it uses
too little renewable energy. This is envi-
sioned to be achieved through tabling
Proposition H, which would require the city
to get 51 percent of electricity from renew-
able sources by 2017, and 75 percent by
2030. The decision to oust the existing util-
ity, PG&E on the stated grounds is even
more significant when considered in the
-
January - 2009 32
light of the fact that 11.4 percent of the
utilitys electricity came from renewable
sources, which is far greater than the na-
tional average.
Finally, the proposal tabled by former Vice
President Al Gore that called for all of USs
energy to be procured from renewable
means in the next ten years has won sup-
port from both presidential candidates.
Whilst it is unclear whether the next Presi-
dency would follow through with this radi-
cal and ambitious proposition, it signals an
important and definite shift in policy direc-
tion in the worlds biggest polluter. Thus,
even though customers and investors in the
Indian power sector are not yet vociferous
in their calls for change, the industry would
be well served to learn from the lessons of
a country such as US, long regarded as en-
vironmentally irresponsible. As such, it is
in their best interests to make greater
strides towards securing a larger propor-
tion of electricity supplies from renewable
sources and reducing emissions from cur-
rent methods.
Emissions Trading Schemes and Interna-
tional Collective Agreements
The recently passed the UK Climate Change
Bill may have an important bearing on all
sectors and industries of the economy not
only in the UK, but potentially in the rest of
the world, including India. Widely regarded
as the worlds first legally binding frame-
work for the transition to a low carbon
economy, the bill commits to reducing the
UKs emissions by 80 percent by 2050 from
a 1990 baseline. Importantly, whilst the ini-
tial draft of the bill did not include emis-
sions from international aviation and ship-
ping, backbench pressure has compelled
the Government to take account of pro-
jected emissions from these industries
when setting the five yearly budgets. How-
ever it will not force the industry to make
particular cuts because as yet there is no
way to measure accurately each countrys
contribution to international transport emis-
sions. Whilst this may temporarily immunise
the aviation and shipping industries, it im-
plies that all other sectors of the economy
in the UK will be faced with more stringent
targets to absorb the additional emissions
included in the purview of the budget. Thus,
the cap-and-trade system that all sectors
of the economy are subject to will likely
become more stringent, requiring deeper
and more frequent cuts. Should such a cap-
and-trade system linked to the European
ETS be extended under a subsequent inter-
national collective agreement which in-
cludes India, the sheer size of the Indian
power sector and its large relative and ab-
solute contribution to emissions would
make it vulnerable to intense pressure for
urgent reform.
How businesses should re-
spond to this
A structured response at individual busi-
ness leaders level would involve the fol-
lowing components:
Measurement of the carbon footprint of
the business
Projecting the likely carbon footprint if
the business continues to grow under the
Business As Usual (BAU) scenario
Analysis of the risk of climate change is-
sues to the sector including upcoming
regulations and the business
Identification of opportunities within the
business, and beyond (CDM projects,
clean technologies, renewable sources,
etc.) to maintain growth, but with a dif-
ferent approach
Preparation of a time bound action plan
for reducing the carbon footprint com-
pared to the projected carbon footprint
Institutionalize the action plan in busi-
ness processes
Institutionalize a measurement and veri-
fication system to monitor progress
against the plan
Periodically report progress to stakehold-
ers.
A KPMG REPORT
-
33 January - 2009
from now,India is
expected to become the thirdlargest emitter of GreenhouseGas (GHG) after US and China.
respondentsof a survey
conducted by KPMG have takenthe crucial first step of measuringtheir carbon footprint. According tothe survey, number of businessesclaim to be aware of the need toreduce their carbon impact andbelieve they are taking stepstowards it.
is when,mostlikely, India and
China, post 2012 , willcollectively have acumulative emission levelmore than that of the US orEU.
10 yearsis thecontribution
of the power sector in India, of thetotal, making the sector the largestsource of GHG emissions. This issignificantly higher than the globalaverage contribution of this sector,which is estimated to be 25percent.
40 percent
Only 21%
2030
-
January - 2009 34
With a PowerSector orderbooking worthRs.41,069 Crore forsupply andinstallation of14,556 MW ofgeneratingequipment as wellas services andsupply of spares,which claimed to bethe highest everorder booked byPower Sector infinancial andphysical terms,Bharat HeavyElectricals Limited(BHEL) is looking ata new era throughup-gradation oftechnology and aforay into newproduct segment &ratings like 660 MWSupercriticalthermal sets,Advance Class 9 FAGT CCPP, newrating of 270 MW,525 MW, 600 MWTurbine Generatorand SecondaryPiping for NuclearSet based on FastBreeder Reactor. KRavi Kumar, CMD,BHEL sheds light.
-
35 January - 2009
BHEL is one among the
Navaratnas of India that has
contributed immensely for the
development of the Indian
Power Sector, Could you please elaborate
on your companys performance in terms
of business in the last financial year and
how has it improved from the previous?
We have reported turnover of Rs. 21,401
Crore in 2007-08, registering a growth of
14% over the previous year, while PAT rose18%, to Rs.2,859 Crore, against Rs 2414Crore in the previous year. Order inflow
during the year FY07-08 was at Rs 50270
Crore. Our outstanding order book in-
creased 55% and stood at Rs 85,200 Crore,the highest ever both in physical and finan-
cial terms. During the year, capital invest-
ment of Rs.726 Crore was made towards
augmentation of manufacturing capacities
and modernization of facilities in manufac-
turing units and at power project sites reg-
istering an increase of 100% comparedwith capital investment of Rs.362 Crore
during FY06-07. BHEL spent Rs.464 Crore
on R&D during FY07-08, which i