THE GENERATION GAP

Is India on track to increasing capacity in the power sector? – Subhajit Roy, Group Editor

Power is one of the most critical factors for the economic growth and welfare of a country. The sector has a pivotal stake in India, which is world’s fastest growing economy. The demand for electricity in the country has increased rapidly over the last few years and is expected to only rise further in the years to come, as a result of growing industrialisation and urbanisation. In order to meet the burgeoning demand, massive addition to the installed generating capacity is required, leveraging both conventional and viable non-conventional sources of power generation, said Anil Kadam, Business Development, Solution Architect- Smart Grid/Smart Cities, Schneider Electric India.

The Government of India has identified the power sector as a key area of focus to promote sustained industrial growth with a vision to achieve 175 GW capacity in renewable energy by 2022. That said, the renewable energy sector in India had a sobering year in 2018 with launch of new projects slowing down a bit. According to a Mercom India Research report, the safeguard duty and issues related to land, transmission and GST took a toll on large-scale installations in 2018.

Demand-Supply Status

Capacity additions in the power sector are dependent on the consumer demand of electricity, the main drivers of electricity consumption are rate of growth of economy i.e. GDP, energy demand has a positive correlation with the GDP. In India, electricity demand is primarily being driven by:

  • Rural electrification – expected increase in consumer base by 33 per cent.
  • Increased per capita consumption – currently at 1,200 kWh is bound to increase due to lifestyle changes, revival of economic growth etc.
  • Make in India program which is expected to drive the manufacturing component of GDP from 16 per cent to 25 per cent which is expected to drive the electricity demand.
  • Adaption of e-Mobility – The Electrical Vehicle sales is bound to pick up on the environmental concerns of the conventional vehicles and drive electricity demand.

The extent of increase in electricity demand to the growth in GDP depends on electricity intensity. The measure of the energy required to fuel each unit of GDP decreases over time, due to the improved efficiency of appliances, machinery etc. According to Sanjeev Seth, CEO, India Power Corporation Ltd, “Energy intensity would decline due to improvement in consumption efficiency, government initiatives on T&D loss reduction and schemes such as Perform, Achieve, Trade (PAT) and Unnati Jyoti by Affordable LEDs for All (UJALA). Electricity demand in the country is expected to grow to 1,627 BUs at a growth rate of 6.3 per cent by 2025.”

On the supply side, Seth mentioned, the renewables are expected to dominate the capacity expansion due to the government promotion and thus it would form a large of the supply source wise, the supply would increase from current 350 GW to 586 GW in 2025. However renewable would have effect on grid balancing but with advancement in technology it should be resolved.

“The oversupply position is expected to remain in the near term. supply sources would be selectively dispatched to meet the demand based on several considerations – cost of supply and grid support being the most critical. There is an increased focus on optimising procurement cost by DISCOMs, to minimise the cost of power for consumers,” Seth said.

Demand in India which will be around 144 GW in FY19 and with an expected generation of 142 GW (from 350 GW of installed capacity) in same period contributed mostly by thermal power by up to 85 per cent, and renewable energy up to 9 per cent in the mix, informed Sambitosh Mohapatra, Partner (Power) at PwC India. He adds, “Most of the willing households have been electrified under the $ 2.3 billion ‘Saubhaya scheme’ and with around 21.5 hours of average supply. For 24 hours supply and with no financial constraints, India needs additional supply of around 11 GW.” According to the 19th Electric Power Survey, demand is expected to touch 183 GW by 2021-22, 228 GW by 2026-27 and 342 GW by 2036-37.

However, despite having an ambitious target, the new capacity addition in the thermal power sector has seen remarkable fall during the past one year. Only 44 per cent of the targeted 4,850 MW capacity addition is achieved during the fiscal year 2018-19. Most importantly, no capacity was added by Centre-owned utilities during the year 2018-19. On top of that, NTPC’s 705 MW Badarpur is among the major plants shut down this fiscal.

Though renewable is being considered as the ‘sunshine’ sector, it is also witnessing a slowdown in terms of capacity growth. Only 6,500 MW of solar capacity has been added in the financial year 2018-19, as against a target of 10,000 MW for the year. Therefore, a massive growth of 25 per cent CAGR during FY17-22 is required to attain the target of having 175 GW of installed renewable power capacity by FY22.

Outstanding payments – A threat for gencos

Delay in payment is posing severe working capital issues at the private power plants. According to data available on the PRAAPTI portal of the Ministry of Power, 12 power generating companies have about Rs 40,846 crore outstanding from state distribution companies (DISCOMs) as of December 2018 whereas the overdue amount remained Rs 25,665 crore (Table 2). PRAAPTI stands for ‘Payment ratification and analysis in power procurement for bringing transparency in involving of generators’.

Uttar Pradesh has the most outstanding dues of Rs 6,497 crore, followed by Maharashtra at Rs 6,179 crore and Tamil Nadu at Rs 4,107 crore. Other states not paying power generating companies on time include Karnataka (Rs 3,799 crore), Telangana (Rs 3,467 crore), Jammu and Kashmir (Rs 3,029 crore), Madhya Pradesh (Rs 1,984 crore), Rajasthan (Rs 1,972 crore) and Punjab (Rs 986 crore). In most of the cases, the payments are due for over 540 days.

Out of the Rs 25,665 crore overdue amount as on December 2018, Adani Group has to receive Rs 5,783.43 crore, GMR to get Rs 1,600.84 crore whereas Sembcorp to receive Rs 1,063.16 crore.

Experts observe that such delay in payments will risk projects being termed non-performing assets (NPAs) under the Reserve Bank of India’s (RBI) new classification rules. Thus, uncertainty looms large over the power generating companies.

Steps to be taken

According to Sambitosh Mohapatra of PwC India, with improving lifestyle of households, focus on promoting manufacturing industries, creation of new cities and targeted economic growth, India well poised to meet this challenge. He suggests the following measures to be taken by the year 2036-37:

  • Enhance renewable generation to meet 90 GW of demand.
  • Central and state sector PSUs have planned or under-construction capacities of around 40 GW.
  • Revival of distressed coal and gas based thermal assets have the potential to add 41 GW and 11 GW respectively.
  • Improvement of average plant load factors, which stands at 60.5 per cent for thermal power plants by 10 per cent can meet additional around 20 GW.

At present, 6.7 GW of nuclear capacities are under construction, and 8.4 GW additional capacities have been accorded financial and administrative approvals. India has further tied up with France, Russia and the US for nuclear plants, and a cumulative 29 GW have been accorded in principle approval.

“Energy conservation efficiency measures, adopted in large scale in the country, will also help in smoothening our demand curve up to 30 GW,” Mohapatra adds.

Business opportunities

Even as India is working towards adding more capacity to meet future demand, a pressing challenge lies in addressing the AT&C losses and poor power quality which continues to be an impediment in the smooth functioning of the power transmission and distribution. Schneider Electric, the diversified energy management and automation major, believes, leveraging digital advancements in the power segment is an ideal way to control the prevailing issues to a large extent. Schneider Electric’s EcoStruxure architecture is an open and interoperable system architecture for building, grid, industry, and data center customers. “Our gamut of connected products and solutions within the EcoStruxure Grid and Power architecture, strengthens power management capabilities and improves operational efficiency and reliability with state-of-the-art Power Monitoring and Control Software,” said Anil Kadam.

Sanjeev Seth of India Power Corporation believes that the coming decade would be a VUCA (volatility, uncertainty, complexity, and ambiguity) decade – there will be challenges which need to be overcome by tactical decisions on a day-to-day basis therefore there would need to be short-term goals along with vision statements.

He said, “There may be a need to change the short-term goals based on the disruptions being caused by disruptive innovations to capture markets. Power would be no different, with renewable being the major contribution of disruption especially due to the grid balancing challenges and storage solutions innovations in progress.”

Many of the storage solutions may become economically viable if environmental effects are considered therefore the effect of such solutions on the general business needs to be foreseen to overcome such challenges.

Moreover, the separation of carriage and content, smart metering penetration would result in grid to consumer automation wherein consumer will adjust his demand based on the rates, time availability etc. Growth of electrical vehicles would also add to the dynamics of the business and need to be resolved effectively.

Thus, in Seth’s opinion, an opportunity exists in the renewables, storage solutions and electrical vehicles which needs to be tapped effectively for growth in the next decade, all in all it promises to be an exciting decade.

Conclusion

Though power demand is expected to escalate to a CAGR of 6.5-6.8 per cent between 2019 and 2023, the capacity additions to halve over this period on truant PPAs, erratic coal supplies, and rise in renewables. A report by ratings firm CRISIL predicts, thermal power capacity addition to diminish to 35 GW between FY19 and FY23, compared with 88 GW added in the previous five years.

The report adds: “A large number of projects that are at a nascent stage are likely to get postponed until the demand situation improves significantly. Moreover, fresh project announcements are limited as players are opting for the inorganic route for expansion, as a number of assets are available at reasonable valuations.”

However, Mohapatra from PwC concludes by saying: “We should be able to meet the energy requirements, based on ability to sustain the additions of renewable to the system from both resource (funding, land, labour) perspective and ability of our grid to absorb the scale of renewables put online. We should also be able to create policies and reform upstream sectors to provide adequate fuel (coal and gas) at the reasonable prices, and wholesale and retail market reforms.”


By Subhajit Roy, Group Editor