Like any emerging country, India too cannot overlook the essential role of the power sector in fuelling its overall development. After a sluggish 2017, the Indian power sector looks forward to potential revival in 2018.
The country’s power sector has been going through a massive transformation. The government has undertaken various programmes such as the Integrated Power Development Scheme and the Deendayal Upadhyaya Gram Jyoti Yojana, and changes are already evident.
India is expected to attract a substantial investment of Rs11,55,652 crore in power generation sector by 2022 in setting up projects across thermal, hydro, nuclear and renewables segment. A total capacity addition of 58,384 MW from conventional sources has been foreseen consisting of 47,855 MW of coal-based power stations, 406 MW of gas-based power stations, 6,823 MW of hydropower stations and 3,300 MW of nuclear stations.
In addition, the government is also targeting ramping up the country’s renewable energy capacity to 1,75,000 MW by 2022. Of this, 1,17,756 MW is expected to be set up during the period through 2022. The National Electricity Plan (NEP) report says that no additional fund will be required for gas-based generation capacity as the construction of these plants has been completed and could not be commissioned so far due to non-availability of domestic gas.
The overall fund requisite includes Rs8,52,804 crore investment in projects likely to be commissioned during this period and Rs3,02,848 crore expenditure needed with respect to advance action for projects likely to be commissioned in the next five year period (2022-27). Of the Rs8,52,804 crore to be spent through 2022, Rs1,42,566 crore would be needed for central sector projects, Rs92,889 crore for state sector projects and Rs 6,17,349 crore for private sector projects. In this assessment, it is assumed that all the renewable projects will be implemented by private developer.
The government also estimates that an investment of around Rs9,56,214 crore will go into setting up the targeted 1,65,220 Mw generation capacity between 2022 and 2027. This consists of 46,420 MW of thermal projects, 12,000 MW of hydro projects, 6,800 MW of nuclear projects and 1,00,000 MW of renewable energy projects. This estimate does not consist of investment related to advance action for projects expected to be commissioned in the next five-year period (2027-32).
The need for a flexible, resilient and intelligent grid is becoming a priority for policymakers. With the future power system being requisite to deal with new challenges such as a greater incursion of renewable energy, growth in electric vehicles (EVs), new forms of generation sources, and a considerable addition of new households to the grid, the government is putting in place solutions and strategies for holistic smart grid development.
Present state of the sector
India’s power system is the third largest power system in the world, and is complex and challenging. There is close to 335 GW of installed capacity and 275 million customers in its network. The per capita consumption compared to world standards is very low at around 1,122 kWh. Consumption patterns are also quite diverse across different categories. In rural areas, consumption is low, while in the irrigation segment, consumption is high. Consumption in the commercial and industrial categories is varied and distributed. There are a million circuit kilometres of grid network and an equal transformation capacity. The network includes grid lines across multiple voltages – 400 kV, 765 kV, high voltage DC lines, and now the industry is working on a 1,200 kV AC line.
Syed Sajjadh Ali, Managing Director – India, Electrical Sector, Eaton says, “In 2017, India produced 1,160 billion units of electricity, which amounted to around 4.7 per cent growth over the previous year. If we consider the historical growth rate of around 7 percent, then 2017 was not such a great year. While 2018 does not appear to be much different but we can expect renewable sources, especially solar, to grow much faster.”
The potential for turnaround in 2018 exists in three areas. First, the finalisation of Power Purchase Agreements (PPA), which will indeed be essential. Today, the biggest stress in the industry is on the low plant load factor, which has put many private sector companies at debt default risk. We expect the supply of coal to be steady in 2018; therefore, if the PPA issue is resolved, we can expect a strong turnaround in the industry, he says.
Secondly, we will have to accelerate solar power generation so as to fulfil our Paris Climate Agreement goal of installing 175 GW of renewable energy capacity by 2022. In 2017, Rs56,700 crores initially allocated for renewable sector was diverted to subsidise GST losses. If the funds earmarked for renewable energy are fully utilised in 2018, we will see a strong development towards our clean energy goals. From a technology viewpoint, we are seeing rapid advancements in battery storage. Affordable battery storage technologies will improve the feasibility of solar power and lead to extensive adoption, he further adds.
Ali comments that, “Finally, government of India’s Saubhagya scheme is likely to add 40 million new consumers. At the same time, industrial growth is also expected to get stronger. If the PPA issue is resolved, we can expect the industry to show a healthy growth in 2018.”
Madan Gopal Gupta, CEO, Essar Power M.P. Ltd says “Insufficient coal supply to thermal power plants is taking a huge toll on electricity generation. According to Coal Ministry data, Of total 495 million tonne (MT), Coal India Ltd (CIL) has supplied 362 MT (accounting for 73 per cent) to public sector thermal power plants from April 2017 to February 2018. On the other hand, private thermal power plants received 133 MT during these ten months, which accounts for 27 per cent of total coal supplied to IPP’s.”
The supply of thermal grade coal (G11 to G12) is likely to remain in the same proportion in coming years. Moreover, the recent coal price hike will translate to 12-15 paisa/kWh and is a major setback to the IPP’s as most of the Case-1 competitive bidding PPAs do not allow pass through of increase in coal price to producers, whereas for public power plants the PPA’s are signed under Section-62 which allows the pass through of increased coal cost.
In the wake of the insufficient coal availability, imported thermal coal remains the only way out to meet the rising fuel demand for power generation. However, the duty structure for thermal coal only adds to increase in imported thermal coal prices. Pre-GST private power producers were paying Rs515/tones on an assessable value of Rs5000/tonne, which includes CVD of 2 per cent of assessable value; a green energy cess of Rs400/tonne, and education cess of 3 per cent on total duty component.
In the case of thermal coal imported from other countries like South Africa, Australia, Columbia, etc. only basic duty has been abolished from 2.5 per cent in pre-GST era, while other components such as CVD, green energy cess and education cess are combined under IGST of 5 per cent of total assessable value. Thus, private power producers have to pay extra Rs131/tones on thermal coal imported from above mentioned countries, which is translated to 9 paisa/kWh.
Tomohiko Okada, Managing Director, Toshiba India Pvt. Ltd says, “Government of India has successfully implemented various initiatives such as adopting advanced technologies for power generation, bulk tendering of power projects to rapidly augment the generation capacity and supporting world renowned power equipment manufacturers to establish their facilities in India.”
Various schemes have been introduced to boost Power generation in India and also create an optimal mix of conventional and renewable energy sources.
Okada comments that, “The revival of power sector especially the power from coal fired power plants supports the ‘Make-in-India’ initiative and several manufacturing units were established in India. India must also focus on revamping and improving the existing power capacity in order to boost their efficiency. Efficiency can be measured at three levels i.e. economic, operational and energy efficiency.”
The efficiency levels can vary based on different types of thermal power plants. Setting up new power plants with supercritical and ultra-supercritical technology, instead of sub-critical technology, can help increase the efficiency of the thermal power plant from the earlier 36 per cent to 42 per cent. These plants should be designed to utilise imported technologies that are domestically manufactured. Secondly, of the total electricity produced by the plant, in many cases, the auxiliary power consumption of the plant is still more than 10 per cent. One of the ways to improve the efficiency of an existing thermal power plant can be by reducing this consumption by installing latest technology and infrastructure. Thirdly, the maintenance time and volume needs to be cut down, he adds.
While planning to set-up a power plant in India and evaluating the necessary technology and equipment suppliers, it is of utmost importance to reach a fine balance between the initial cost and long-term durability of the plant. It has been observed that there are companies which go for lower initial investment to break-even sooner but in the longer run, partnering with a reliable and established power equipment manufacturer can result in initial high investment but it would eventually even out in the longer run due to its durability and stability. India’s energy landscape requires a complete Engineering, Manufacturing, Procurement, Construction and Services (EMPCS) solutions for power plants under one roof. This will not only brings down the turnaround time, but also ensure complete compatibility of all systems operating within a grid, he further adds.
We expect the supply of coal to be steady in 2018; therefore, if the PPA issue is resolved, we can expect a strong turnaround in the industry.
Syed Sajjadh Ali, Managing Director – India, Electrical Sector, Eaton
In the wake of the insufficient coal availability, imported thermal coal remains the only way out to meet the rising fuel demand for power generation.
Madan Gopal Gupta, CEO, Essar Power M.P. Ltd
Setting up new power plants with supercritical and ultra-supercritical technology, instead of sub-critical technology, can help increase the efficiency of the thermal power plant.
Tomohiko Okada, Managing Director, Toshiba India Pvt. Ltd