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19 Sep 2008 | 00:00 |
Industry Power
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Current Status: The Indian power sector has grown manifold in size and capacity since independence. Power generation has increased from 1,362 MW in 1947 to 1,01,660 MW as on March 31, 2008. Meanwhile, the per capita power consumption has increased to approximately 612 kWh (as per Key world energy statistics 2007) vs 1,802 kWh in China, 2,980 kWh in Middle East countries and 8,365 kWh in OECD countries.
The access to electricity has improved tremendously with electrification of almost 87% villages and energisation of 65% pump sets. The capacity of transmission and distribution lines has also increased. The development of national grid is under progress with three regional grids already being integrated. The growth in generation capacity has been witnessed across the regions and has been made possible by tapping into several energy sources.
While India has made substantial progress in the power sector since independence, the progress has not matched the rapidly growing demand for reliable and cost-effective supply. In terms of generation, while new capacity has been added, demand has far outstripped the supply leading to a widening gap.
India suffers from huge power deficit on account of rising demand and slower than required growth in power generation. The country witnessed an 8.7% power-supply deficit, as demand was 62,590 MW and supply of only 57,122 MW, resulting in a deficit of 5,468 MW in May 2008. The deficit was the highest at 14.2% in the western region, followed by the north- eastern region (13.5%), northern region (8.1%), eastern region (6.0%), and the southern region (3.1%) in May 2008. The all-India demand for power was up 2.2% in May 2008 over May 2007. All India supply of power climbed 1.5% in April-May 2008 over April-May 2007. Peak demand was 1,05,049 MW and supply was 91,481 MW in May 2008, which resulted in a 12.9% deficit.
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The Vision: In this context, the Ministry of Power has set a vision of “providing reliable, affordable and quality power for all by 2012”. From the facts above, it is clear that a huge generation capacity demand needs to be fulfilled. This provides a tremendous investment opportunity in the Indian power generation market for both the public sector and the private sector. The opportunity is attractive as the government assures the returns for the potential investors, even more so in the present low-interest regime and the limited growth opportunities in the global energy market. The Government has also liberalised the licensing to make it more attractive and easy for investors in the generation sector.
However, this opportunity remains unrealised. The primary reason lies in the distribution link in the value chain. The generation companies have not found it easy to recover their dues from their biggest buyers, namely the State Electricity Boards (SEBs). SEBs are under huge losses to the tune of Rs. 26,000 crore per year primarily due to power theft and inefficient billing and collection. Losses due to power theft alone are approximately Rs. 20,000 crore per annum. At the national level, only 55% (Rs. 62,000 crore) of the total energy generated is billed out and only 41% (Rs. 46,000 crore) is realised. This has adversely affected the confidence of the private investors and the existing generation companies have their funds tied up in huge outstanding payments from the SEBs.
It is clear that the biggest fundamental issue hampering the viability of the Indian Power Sector is the sheer volume or level of Transmission and Distribution (T&D) losses that amount to 25%, a very high level by any standard. To make the matters worse, indirect calculations show T&D losses to be much higher in the range of 40-50%. In addition, the distribution system in India is often characterised by inefficiency, low productivity, frequent interruption in supply and poor voltage.
Evidently, some fundamental changes are imperative in the working of the power sector entities to realise the vision of “reliable, affordable and quality power for all by 2012”. The reform process is in progress in several states under the overall guidance of Ministry of Power. It is aimed at bringing about sustainable improvements in the operations of the utilities and making them viable businesses. The reforms have brought about various improvements in operational structure, commercial orientation, transparency in operation and overall customer orientation in several states.
Power demand is known to motor along at the rate of economic growth. GDP growth and growth in power use share a synergistic relationship: GDP growth increases the demand for power and the increased use of power facilitates GDP surges. If the required increase in power supply is not forthcoming over a long time, all efforts at increasing efficiency of power use would have exhausted themselves, and GDP growth itself would be threatened.
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Structure of Power Sector The power sector can be broadly classified into three main categories:
| Generation |
| Transmission |
| Distribution | In December 1950 about 63% of the installed capacity in the utilities was in the private sector and about 37% was in the state sector.
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The Regulation: The Industrial Policy Resolution of 1956 envisaged the generation, transmission and distribution of power almost exclusively in the public sector. As a result of this Resolution and facilitated by the Electricity (Supply) Act, 1948, the electricity industry developed rapidly in the State Sector.
In the Constitution of India "Electricity" is a subject that falls within the concurrent jurisdiction of the Centre and the States. The Electricity (Supply) Act, 1948, provides an elaborate institutional framework and financing norms of the performance of the electricity industry in the country. The Act envisaged creation of State Electricity Boards (SEBs) for planning and implementing the power development programmes in their respective States. The Central Electricity Authority constituted under the Act is responsible for power planning at the national level. In addition the Electricity (Supply) Act also allowed from the beginning the private licensees to distribute and/or generate electricity in the specified areas designated by the concerned State Government/SEB.
Financial Environment for private sector units modified to allow liberal capital structuring and an attractive return on investment. Upto hundred percent (100%) foreign equity participation can be permitted for projects set up by foreign private investors in the Indian Electricity Sector.
In 1995, the policy for Mega power projects of capacity 1,000 MW or more and supplying power to more than one state introduced. The Mega projects to be set up in the regions having coal and hydel potential or in the coastal regions based on imported fuel. The Mega policy has since been refined and Power Trading Corporation (PTC) incorporated recently to promote and monitor the Mega Power Projects. PTC would purchase power from the Mega Private Projects and sell it to the identified SEBs.
The Government of India promulgated Electricity Regulatory Commission Act, 1998 for setting up of Independent Regulatory bodies both at the Central level and at the State level viz. The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commission (SERCs) at the Central and the State levels respectively. The main function of the CERC are to regulate the tariff of generating companies owned or controlled by the Central Government, to regulate the tariff of generating companies, other than those owned or controlled by the Central Government, if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State, to regulate the inter-state transmission of energy including tariff of the transmission utilities, to regulate inter-state bulk sale of power and to aid & advise the Central Government in formulation of tariff policy. The CERC has been constituted on 24.7.1998. SERC i.e. State Electricity Regulation Corporation carry out similar functions at the state level.
The Electricity Laws (Amendment) Act, 1998 provides for creation of Central and State Transmission utilities. The function of the Central Transmission Utility shall be to undertake transmission of energy through inter-state transmission system and discharge all functions of planning and coordination relating to inter-state transmission system with State Transmission Utilities, Central Government, State Governments, generating companies etc. Power Grid Corporation of India Limited will be Central Transmission Utility.
The function of the State Transmission Utility shall be to undertake transmission of energy through intra-state transmission system and discharge all functions of planning and coordination relating to intra-state transmission system with Central Transmission Utility, State Governments, generating companies etc.
As per the Electricity Act, 2003 and Regulations issued thereunder by CERC, an assured post tax Return on Equity of 14% shall be allowed to all power generation companies and the normative Debt: Equity ratio shall be 70:30.
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Capacity Mix: Currently India has a capacity of 1,45,584 MW of electricity (vs 1,32,329 MW in FY07) of which Central contribution is 33%, private sector is 15% and States have maximum contribution of 52 %
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Mode wise break up of Total Capacity 
Note: RES: Renewable Energy Systems
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Installed capacity split as on Mar 2008:
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Thermal |
Nuclear |
Hydro |
RES |
Total |
| Central Sector |
Coal |
Gas |
Diesel |
Total |
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29,120 |
6,638 |
0 |
35,758 |
4,120 |
8,592 |
0 |
48,470 |
| Private Sector |
5,241 |
4,183 |
597 |
10,021 |
0 |
1,230 |
9,994 |
21,245 |
| States |
42,837 |
3,894 |
602 |
47,333 |
0 |
26,336 |
2,200 |
75,869 |
| Total |
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93,112 |
4,120 |
36,158 |
12,194 |
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Total |
145,584 | The Indo-US Nuclear Treaty approved by the US Senate and Indian Government envisages a nuclear power plant capacity of 40,000 MW for India by 2020. This involves a net addition of about 36,000 MW by 2020.
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Power Generation capacity added in various plans:
| Five-Year Plans |
Target |
Achievement |
Percentage |
| (Mw) |
(Mw) |
Achievement |
| 8th Plan |
30,538 |
16,423 |
53.8 |
| 9th Plan |
40,245 |
19,119 |
47.5 |
| 10th Plan |
41,110 |
21,180 |
51.5 |
| 11th plan |
78,700 |
10,832* |
13.76* | * as of Mar 2008
Out of 11th plan target, 58,644 MW was in Thermal projects, while 16,553 MW was in Hydro projects and 3,380 MW was in Nuclear projects..
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Indicative Capex required for establishing power plant. All figures are for 1 MW Capacity
| Coal |
4.5 cr. |
| Nuclear |
7.5 – 8.5 cr. |
| Hydro |
6-7 cr. |
| Solar |
16-20 cr. |
| Wind |
5-6 cr. |
Current Plant load Factor (Plant load factor means the ratio, in a given time interval, of the energy actually supplied by a plant to the product of the maximum power and the time interval)
| Undertaking |
PLF FY07 (per cent) |
PLF FY06 (per cent) |
| Target |
Achievement |
Target |
Achievement |
| Central Gov. |
87.78 |
90.61 |
82.74 |
86.74 |
| State Gov. |
76.19 |
76.85 |
72.51 |
71.89 |
| Private Sector |
87.07 |
95.30 |
86.77 |
90.79 |
| Total |
81.12 |
83.13 |
77.14 |
78.61 | PLF has increased over the past five years y-o-y.
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Major players in power sector:
| Company Name |
Equity |
Sales |
Net Profit |
Installed capacity |
| NTPC |
8,245.5 |
37,091.0 |
7,423.0 |
25,912 |
| Reliance Infrast |
236.5 |
6,364.2 |
1,084.6 |
893 |
| Tata Power Co. |
221.4 |
5,937.2 |
571.1 |
2,277 |
| Torrent Power |
472.5 |
3,628.7 |
217.1 |
500 |
| Nuclear Power Co |
10,145.3 |
3,333.8 |
1,078.5 |
4,120 |
| Neyveli Lignite |
1,677.7 |
2,986.8 |
1,146.0 |
2,490 |
| CESC |
124.9 |
2,828.9 |
344.2 |
975 |
| NHPC Ltd |
11,198.2 |
2,553.7 |
1,083.2 |
5,175 |
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Financial ratios of Power companies:
| As on 11/09/2008 |
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| Year |
2008 |
2007 |
2006 |
2005 |
2004 |
2003 |
2002 |
2001 |
2000 |
| Operating Profit Margin(%) |
41.01 |
42.68 |
40.43 |
40.55 |
49.16 |
38.68 |
40.51 |
41.30 |
44.33 |
| Return on assets(%) |
5.50 |
4.96 |
4.66 |
4.42 |
5.91 |
5.41 |
6.53 |
6.31 |
5.86 |
| Total Outstanding Liabilities to Total Networth |
0.85 |
1.01 |
0.95 |
0.91 |
1.03 |
0.87 |
0.88 |
0.93 |
1.01 |
| Current ratio |
1.39 |
1.27 |
1.27 |
1.85 |
0.81 |
1.21 |
1.15 |
1.20 |
1.13 |
| Interest Coverage Ratios |
4.06 |
3.37 |
2.97 |
2.89 |
2.51 |
2.98 |
3.22 |
3.06 |
3.03 |
| Debt Service Coverage ratio |
0.71 |
0.56 |
0.81 |
0.61 |
0.92 |
0.80 |
0.73 |
0.47 |
0.37 |
| Operating Cashflow to Long-term debt |
0.30 |
0.29 |
0.28 |
0.26 |
0.40 |
0.29 |
0.32 |
0.37 |
0.43 |
| Contingent liabilities to Total outstanding liabilities |
0.26 |
0.15 |
0.15 |
0.11 |
0.10 |
0.09 |
0.10 |
0.14 |
0.14 |
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Key concerns: Coal Shortage in India:
Shortage of coal has delayed new power plants that would add more than 60,000 megawatts to generating capacity in India, where inadequate supply has slowed economic growth.
The fuel scarcity has already hit existing thermal power stations, cut India's electricity supply by 2 percent and forced firms like Tata Power, Reliance Energy and National Aluminium Co to scout for mines abroad.
Power generation in India rose by only 2.3 percent in April-June, the first quarter of fiscal 2008/09, against plans to lift it by more than 12 percent
The shortage of electricity is also forcing companies and households to use diesel-fired generators.
State-run Coal India Ltd, the country's biggest coal producer, will debut as a coal importer this fiscal year with plans to buy 4 million tonnes to fuel small units and power producers facing shortages.
Coal-fired plants account for 65 percent of India's power generation capacity of 145.6 gigawatts, which lagged demand in Asia's third-largest economy by nearly 16 percent in July.
India's coal demand is expected to rise to 731 million tonnes by March 2012, while domestic production will meet only 680 million tonnes of that figure, according to government estimates. Even as countrywide demand for electricity rises with the temperature, generation units across the country are finding it tough to cope with the situation owing to shortage of coal as state-owned monopoly Coal India Ltd has lowered its supply projection from 305 million tonnes to 292.15 million tonnes for 2008-09. This means utilities will be running short of a total of 86.15 million tonnes of black diamond as they had projected a requirement of 378 million tonnes for the fiscal.
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Sources: mospi.nic.in, planningcommission.nic.in, powermin.nic.in, business-standard.com, npcil.nic.in, thehindubusinessline.com, ntpc.com, Capitaline corporate database
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