Indian Power Sector ReformsHits and Misses in last two decades

Dr. Rajib K MishraExecutive Director

PTC India Limited

SECTION

1. INDIAN POWER SECTOR – AN OVERVIEW

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

3. INDIAN POWER MARKET

4. INVESTMENT POTENTIAL – IN INDIA

5. CHALLENGES AND WAY FORWARD – INDIAN POWER SECTOR

6. TAKEAWAYS FOR AFRICAN COUNTRIES

Contents

SECTION

1. INDIAN POWER SECTOR – AN OVERVIEW

Indian Power Sector

4

Total Installed Capacity ~ 200 GW

India: Electricity Sector

5

Year wise Energy Deficit Key Highlights

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

global power generation); mostly thermal dependent

� Growth in demand for power outstripping the

growth in generation and capacity addition

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

�Planning to establish an integrated National Power

Grid in the country with about 200,000 MW generation

capacities and 37,700 MW of inter-regional power

transfer capacity (current – 22,400 MW)

� With facilitation of inter-regional transmission,

trading activities are set to gain momentum with

subduing location constraints on generation

capacities

Power Supply Position in 2012

Energy Details 2011-12

Peak Requirement 136 GW

Peak Availability 118 GW

Power Deficit 17 GW (12.9%)

6.3

2.74

6.65.32

9.911.1

10.18.5

16.6

11.912.7

9.8

0

2

4

6

8

10

12

14

16

18

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

Growth

Energy

DeficitPeak

Deficit

6

� Integrated Energy Policy by Planning Commission, Government of India

� GDP growth Versus Electricity growth – Elasticity >1

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

� Success rate in last 3 plan periods is ~50%

� GoI’s capacity for budgetary support limited

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

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

India: Electricity Sector

153220

306

425

575

778

155233

337

488

685

960

0

200

400

600

800

1000

1200

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

GW

8% GDP Growth 9% GDP growth

� Coal – In Central India

Chhattisgarh : 58000 MW

Orissa : 30000 MW

Jharkhand : 15000 MW

Madhya Pradesh:16000 MW

� Hydro – In North Eastern & Northern

Himalayan region

� Coastal based

Andhra Pradesh: 24000 MW

Tamil Nadu : 10000 MW

Gujarat : 11000 MW

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

Lara

Partabpur

Talcher/Ib Valley

Krishnapatnam

NEPAL

KorbaBhopalIndore

Tadri

Girye

Kaiga

Thiruvananthapuram

Pipavav

Kudankulam

SR

Bangalore

Kayamkulam

WR

Tarapur

Mumbai

Cuddalore

Ennore

Akaltara

Raipur

Hyderabad

RAPP

Gandhinagar

Mudra

Delhi

Ludhiana

NR

Jaipur

Jammu

SasanVindhyachal

Lucknow

Load Centre Based GenerationUltra-Mega Generation

Hydro Based GenerationCoastal Generation

Coal Based generation

Nuclear generation

BhubaneswarDarlipali

VizagSimhadri

LEGEND

Load-Centre

NERGuwahati

Koderma

SIKKIM

Kolkata

ERPatna

NECKCHICKEN

BHUTAN

DESHBANGLA

MY

AN

MM

AR

Mangalore

KozhikodeSouth MadrasChennai Energy resources (coal, water etc.)

are unevenly distributed

Energy Resources Map

Power Supply Scenario

100152

218

437

323

2007 2012 2017 2022 2027Year

GW

Peak Demand

132220

306

575

425

2007 2012 2017 2022 2027Year

GW

73 GW

101 GW119 GW

150 GWInstalled Capacity Requirement

During 12th plan

During 13th plan

During 11th plan

205

Future Power Scenario

36874

26783

15043

28600

14400

57000

0

10000

20000

30000

40000

50000

60000

Central Sector State Sector Private Sector

XI Plan

XII Plan

Central Sector State Sector Private Sector Total

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

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

XI

XII

Change in Generation Profile

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

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

Strictly Private & Confidential

� 765kV/400kV lines: about 1,03,000 ckms

� 220kV lines: about 132,000 ckms

� HVDC Bipole(±500kV): 7,500 ckms – 3 nos.

� HVDC Back-to-back: 7 nos. (3000MW)

� FSC – 22 nos.; TCSC – 6 nos.

POWER MAP OF INDIA

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

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

Strictly Private & Confidential

Jharkhand –6500 MW

NER –5000 MW

Orissa –23,000 MW

T.N.–10,000 MW

AP–24,000 MW

Chhattisgarh.–58,000 MW

Proposed 11 nos. High Capacity Transmission Corrido rs for IPP Projects

SECTION

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

Development of Power Sector - Decade Trend

1947 – 1990 : Command and Control Economy-Allocation of resources by the Government (budgetary grants)

-Government took active part in setting priorities for the economy

-Formation of State Electricity Boards and Central Electricity Authority

-Limited scope for private participation

1991 – 2000 : Liberalization of Indian Economy-Increased emphasis on private sector power generation

-Limited extent of FDI participation

-Gradual improvement in the enabling regulatory environment

-Formation of CERC

2001 onwards : Progressive Liberalization & Refo rms-Electricity Act 2003

-National Electricity Policy 2005

-National Tariff Policy 2006

-Restructured Accelerated Power Development & Reforms Program (RAPDRP)

-National Mission for Enhanced Energy Efficiency under National Action Plan

for Climate Change

15

� The Electricity Act 2003 created liberal and transparent framework for Power Development

� It facilitated investment by creating competitive environment and reforming distribution segment of power industry.

� Entry Barriers removed/reduced

• De-licensed generation.

• Freedom to captive generation including group captive.

• Recognizing trading as an independent activity.

• Open access in transmission already in place.

� Open access to consumers above 1 MW

� Multiple licenses in distribution.

� Regulatory Commissions- to develop market; to fix tariff.

Various provisions of the Electricity Act 2003 have removed the barriers

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

including distribution

Development of Power Sector – Electricity Act

TransmissionTransmission

Distribution

Generation

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

Private Private - Licensees

Development of Power SectorOptimal roles played across the Value Chain

NEW Grid

SouthGrid

South

West

North

East

Northeast

Central Grid

Five Regional Grids

Five Frequencies

October 1991

East and Northeast

synchronized

March 2003West synchronized With East & Northeast

August 2006North synchronized With Central Grid

Five Regional GridsTwo Frequencies

Installed Capacity 200 GW

MERGING OF MARKETS

SECTION

3. Development of Indian Power Market

19

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

• A vibrant, growing power market

– Stable growth and consolidation

– Market development/monitoring in the domain of Regulators

• The Power Market is evolving to maximize competition across generation, open to all market participants and increase competition over price rather than cost.

Key Features: Indian Power Market

19

G

T

D/R

Consumers

G

T / SB T / SB

D/R

Consumers

G G G G G G G EG G G G G EG

T / MO T / MO

D/RD/R

Consumers

D

R R R R

No Competition• No choice• Government makes

decision

Generation Competition• Single buyer has choice

Wholesale Competition• Distribution/retail

companies have choice

Retail Competition• Consumers have choice

ConsumersConsumers

= Who has choice

MO = Market OperatorEG = Embedded Generator

G

T

D/R

Consumers

G

T / SB T / SB

D/R

Consumers

G G G G G G G EG G G G G EG

T / MO T / MO

D/RD/R

Consumers

D

R R R R

No Competition• No choice• Government makes

decision

Generation Competition• Single buyer has choice

Wholesale Competition• Distribution/retail

companies have choice

Retail Competition• Consumers have choice

ConsumersConsumers

= Who has choice

MO = Market OperatorEG = Embedded Generator Indian market is here

Evolving Power Industry Structure

21

Impact of Electricity Trading

21

Generators Transmission Bulk Users Society

22

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

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

� Excluding UI, bilateral market (both bilateral traders and

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

market (rest 29% contribution from exchanges)

� Weighted average price of electricity on exchanges was

lower than bilateral market which shows that users are

ready to pay premium for delivery certainty

� Size of the bilateral traders’ market in monetary terms –

Rs. 13,271 crore

Short-term Market – Bilateral Trade

Total size of Power market:

~Rs. 18,500 Crores

Data for 2010-11

23

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

operation in 2008

� Another exchange PXIL followed, third exchange is on anvil

� IEX: ~ 90 % market share

� Growing Portfolio: more than 1000 participants

� Trade:

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

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

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

� PX begun trade of Renewable Energy Certificates ( RECs)

Power Exchanges

Data for 2010-11

24

� REC concept seeks to address the mismatch between availability of RE sources and the

requirement of the obligated entities to meet their RPO

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

generation

• A total of 1258046 RECs have been issued since inception of REC mechanism, of which

1086924 RECs have been redeemed through Power Exchanges

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

Renewable Energy Certificates (RECs)

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

RECs

25

Share of Different Segments

Source: CERC annual report on short-term market

2009-10 2010-11

Bilateral Through Traders 26.36 27.73

Bilateral Between Exchanges 6.59 10.6

Power Exchange Transactions 7.24 15.5

UI Transactions 25.70 27.73

Bilateral Volume Growth

26Source: CERC annual report on short-term market

Power Exchange Volume Growth

27Source: CERC annual report on short-term market

Bilateral Prices Vs. Power Exchange Prices (2010-

11)

28Source: CERC annual report on short-term market

SECTION

4. INVESTMENT POTENTIAL

Potentially Third Largest Market By 2030

Huge Potential For Improvement

32

Private Sector participation imperative to bridge the significant deficit

Power Sector- Investment Pie

33

US$ 600 bnTotal Funding Requirements in Power

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

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

Transmission

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

Distribution

US$ 155 bnTotal Private Sector Investments

~ US$ 40 bnPrivate Sector Equity Outlay (25% of

total investment)

Private Sector Equity Requirements

Compelling opportunity for private equity to lead the initial investments

and exit through public markets once assets mature

Equity Requirements- Private Sector

SECTION

5. Challenges and Way Forward for India

6. Takeaways for African Countries

Challenges – Indian reforms faced

� Financial health of the State Utilities

� High AT&C losses

� Inconsistent Tariff Revisions

� Social Constraints

� Fuel Supply

� Increasing dependence on coal

� Domestic supply of coal not matching the increasing demand

� Escalating prices of imported coal

� Land Acquisition and Environmental Clearances

� Increasing environment stewardship

35

The Way Forward – Indian Power Sector

� Regulatory changes to drive tariff revisions

� Recent appellate order allow SERCs to increase power tariffs on an annual

basis

� The Shunglu committee’s report tries to force cash-strapped state electricity

boards (SEBs) to undertake reforms and become more accountable

� Improving the functioning of regulators: New reforms are intended to increase

transparency in the selection and functioning of SERCs

� Mandatory filing of Annual Revenue Requirements

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

proposed.

36

The Way Forward – Indian Power Sector

� Future tariff structures to have fuel pass-through

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

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

tariffs

� Bidding would be based on standard heat rate and fixed capacity charge

� Recent initiatives by the Government on Fuel Supply

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

issued

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

estimate 25000 MW thermal capacities.

� FSA for projects under implementation and commissioned by 31 March

2015 to be signed .

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

between 80% - 90% of coal requirement. 37

Key Takeaways from Indian Experience for Africa

• Reforms from Bottom of the Pyramid – Distribution first, most difficult

• Realistic and pragmatic tariff fixation - Global energy Benchmark

• Development of Power Market – a feel of true demand and supply and boosts confidence of Investors

• The concept of PTC, in the Indian Power sector was basically to provide a payment security mechanism to the IPPs

• Targeted PPP interventions – participation of private sector is the key to encouraging investments

• Ensure Return on investment– Effective Payment Security from the government owned utilities

– Cost reflective or market determined tariffs

• Reducing inefficiencies in infrastructure operations for making more resources available for infrastructure in the region.

• Reduce dependence on subsidies – power should be treated as a Resource

• Faster and smooth implementation and faster clearance

• Effective regulatory and policy interventions – a must for reforms 38

Thank You

39