Description
A Study of Indian Thermal Power Sector with refernce to ADani and Torrent Power. Also covers the issues faced by Indian Power Country
Chapter – 1 Introduction to Industry: INDIAN POWER SECTOR
There was a significant slowdown in the growth rate in fiscal 2009 with GDP growth at 6.7% due to global financial crisis. There was apprehension that this trend would persist for some time, however, Indian economy has shown resilience and grew by 7.4% in fiscal 2010. The momentum was particularly pronounced in Q4 of 2009-10 with growth at 8.6%. RBI has estimated the GDP growth for fiscal 2011 will be at 8.5%. Though Indian economy has regained its growth momentum after global crisis, the real question is whether it will be able to achieve higher sustainable growth for a longer term. The major area of concern while India looks at sustainable higher economic growth is lack of adequate physical infrastructure, which is adding to production costs, denting productivity of capital and eroding competitiveness of productive sectors. As per a recent RBI report on infrastructure financing, the phenomenal transformation of some of the South-East Asian nations was preceded by quantum investments in infrastructure. The emerging economies particularly need huge infrastructure investment, for instance China invests about 20% of GDP in infrastructure as against 6% of GDP by India. As per Planning Commission’s MidTerm Appraisal of the 11th Plan, investment in infrastructure required during the 12th plan (2012-17) is about 41 Lakh Crores (constituting 9.95% of GDP) to sustain 9% GDP growth. It is therefore imperative that infrastructure investment in India has to gain momentum going forward for higher and sustainable economic growth. Power sector being the key infrastructure area it will be at the centre stage driving India on higher economic growth path. The current all India installed power generation capacity as on November, 2010 is 1,67,077.36 MW and the 11th plan targeted capacity addition is 78,700 MW and 12th plan aims at adding 1,00,000 MW. However, the energy shortage and peak shortage still continues to be 10.1% and 13.3% given that demand continues to outstrip supply. The power sector in India is mainly controlled by the Government of India’s Public Sector Undertakings (PSUs), have about 51867.63MW i.e 31.0% of total installed capacity of 167278.36MW(as on 31/10/2010) in India is being produced by them. Major PSUs involved in the generation of electricity include National Hydroelectric
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Power Corporation (NHPC) National Thermal Power Corporation (NTPC), and Nuclear Power Corporation of India (NPCIL). Besides PSUs, several state-level corporations are there which accounts for about 82227.05MW i.e 49.15% of overall generation , such as Jharkhand State Electricity Board (JSEB), Maharashtra State Electricity Board (MSEB), Kerala State Electricity Board (KSEB), in Gujarat (MGVCL, PGVCL, DGVCL, UGVCL four distribution Companies and one controlling body GUVNL, and one generation company GSEC), are also involved in the generation and intra-state distribution of electricity. Other than PSUs and state level corporations, private sector enterprises also play a major role in generation, transmission and distribution, about 33183.68 MW i.e 19.85% of total installed capacity(as on 31/10/2010) is generated by private sector. The PowerGrid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid. India is world’s 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India’s economic rise, the demand for energy has grown at an average of 3.6% per annum over the past 30 years. The total demand for electricity in India is expected to cross 950,000 MW by 2030. India is the sixth largest in terms of power generation. About 65% of the electricity consumed in India is generated by thermal power plants, 22% by hydroelectric power plants, 3% by nuclear power plants and rest by 10% from other alternate sources like solar, wind, biomass etc. 53.7% of India’s commercial energy demand is met through the country’s vast coal reserves. The country has also invested heavily in recent years on renewable sources of energy such as wind energy. As of Oct 2010, India’s installed wind power generation capacity stood at 11632.44 MW. Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW. The per capita power consumption in India is 733.54KWh/yr, which is very minimal as compared to global average of 2340KWh/yr.
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Energy Transmission Transmission of electricity is defined as bulk transfer of power over a long distance at high voltage, generally of 132kV and above. In India bulk transmission has increased from 3,708 ckm in 1950 to more than 166000ckm, out of which 75556ckm is transmitted by Power Grid Corporation of India ltd (as on 30 Sep. 2010 ). The entire country has been divided into five regions for transmission systems, namely, Northern Region, North Eastern Region, Eastern Region, Southern Region and Western Region. The Interconnected transmission system within each region is also called the regional grid. Creation of high capacity “Transmission Highways” is being planned to address the existing constraints. Power Grid Corporation of India ltd. (PGCIL) notes that these plants need to be progressively commissioned from 2011, at a total estimated cost of Rs. 58,000 Crores. As per Power Finance Corporation (PFC) an investment of about Rs. 1,40,000 Crores has been estimated in the transmission sector for the 11th plan. Energy Distribution India has a Transmission & Distribution (T&D) network of 6.6 million circuit km the third largest in the world. Distribution is the key segment of the electricity supply chain. Distribution segment is characterized by wide dispersal of network over large areas with long lines, high consumer density, high cost of supply, unmetered flat rate supply to farmers, non-metering (due to high cost and practical difficulties), higher rate of growth of load, cross-subsidies, large number of unauthorized connections and power theft. The biggest challenge of the power sector is the high T&D losses. With increased private sector participation, consumer awareness, improved demand side management and prevention of theft there can be marked decrease in the losses. With R-APDRP a large number of initiatives have been introduced with the objective of reducing the AT&C losses to below 15% by FY12, compared to a national average of about 32% at present. As per Power Finance Corporation (PFC) an investment of
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about Rs. 2,87,000 Crores has been estimated in the distribution sector for the 11th Plan. SOURCES OF ELECTRICITY GENERATION Thermal Power Thermal power plants are one of the main sources of electricity in both industrialized and developing countries. The variation in the thermal power stations is due to the different fuel sources (coal, natural gas, naptha, etc). In a thermal power plant, one of coal, oil or natural gas is used to heat the boiler to convert the water into steam. In fact, more than half of the electricity generated in the world is by using coal as the primary fuel. The function of the coal fired thermal power plant is to convert the energy available in the coal to electricity. Coal power plants work by using several steps to convert stored energy in coal to usable electricity that we find in our home that powers our lights, computers, and sometimes, back into heat for our homes. The working of a coal power plant is explained in brief: Firstly, water is taken into the boiler from a water source. The boiler is heated with the help of coal. The increase in temperature helps in the transformation of water into steam. The steam generated in the boiler is sent through a steam turbine. The turbine has blades that rotate when high velocity steam flows across them. This rotation of turbine blades is used to generate electricity. A generator is connected to the steam turbine. When the turbine turns, electricity is generated and given as output by the generator, which is then supplied to the consumers through high-voltage power lines. Apart from thermal power plants, there are other types of energy resources being used to generate electricity. The various types of energy sources include hydro electricity, solar power, wind power, nuclear power, etc. Hydro Power Hydroelectric power or hydroelectricity is electrical power which is generated through the energy of falling water. A hydroelectric power plant uses the force of the water to
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push a turbine which in turn powers a generator, creating electricity which can be used on-site or transported to other regions. This method of energy generation is viewed as very environmentally friendly by many people, since no waste occurs during energy generation. It is the most widely used form of renewable energy. Solar Power Solar power is energy that is derived from the sun and converted into heat or electricity. It is a versatile source of renewable energy that can be used in an amazing number of applications. Energy from the sun can be converted into solar power in two ways. The first way of obtaining solar power involves the use of photoelectric applications. Photoelectric applications use photovoltaic cells in converting energy from the sun into electricity. The second way involves the use of solar thermal applications wherein heating a transfer fluid is done to produce steam to run a generator. Wind Energy Wind power is power which is derived from wind. There are a number of ways to collect and use wind power, and wind power is among the most ancient forms of energy used by human. Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity. Nuclear Power Nuclear energy is produced in two different ways. In one method, large nuclei are split to release energy. Here, nuclear energy originates from the splitting of uranium atoms in a process called fission. At the power plant, the fission process is used to generate heat for producing steam, which is used by a turbine to generate electricity. In the other method, small nuclei are combined to release energy.
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FISCA L YEAR 2005 2006 2007 2008 2009 2010
Source: Ministry of Power
CAPACITY (MW) THERMAL HYDRO NUCLEAR RENEWABLE TOTAL
80,902 82,411 86,015 91,907 93,998 102,454
30,942 32,326 34,654 35,909 36,878 36,863
2,770 3,360 3,900 4,120 4,120 4,560
3,811 6,191 7,761 11,125 13,243 15,521
118,426 124,287 132,329 143,061 148,238 159,398
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LITERATURE REVIEW
Schwartz (2008), Studies the business of NAILD distributor through this article. The NAILD is an organisation supporting lighting distributors in the US with publications, training, and conferences. According to him, recent changes and trends in the lighting market provide new opportunities. The keys to taking advantage of the opportunities is to understand the market, know where to get more information, provide updates to your customers, and turn information into active marketing and promotional efforts. The Energy Independence and Security Act of 2007 add to the programs and efforts introduced in EPACT 2005. A key component of the ENERGY STAR qualified light fixtures program is the Advanced Lighting Package (ALP). As market trends and legislation move purchasers away from inefficient technologies and towards energyefficient products, NAILD distributors that become ENERGY STAR Partners have an opportunity to increase sales and profits.
Sreekumar (2008) reviews the market-oriented power sector reforms initiated in India in the early 1990s. It brings out a public interest oriented critique of the three phases of the reforms—firstly, privatization of generation, secondly, state sector restructuring and finally, the ongoing reforms since the passage of the Electricity Act 2003. Reforms were taken up as a response to the crisis in the sector. The article questions the success of the process in solving the crisis. While acknowledging positive elements like increase in transparency and participation, it criticizes the process for neglect of development issues like rural electrification and energy efficiency. The article concludes with some thoughts on developing an alternate reform approach.
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Augustine (2007), tries to put forth a model pertaining to transportation because India is facing a huge increase in power consumption. The model is done with an aid of GAMS (General Algebraic Modelling System). The power sector is represented in the model by production capacities, cost of production and transmission, demand for power and the distances between power plants and consumption centres. The author has considered major power generating areas of the country like Ranchi, Bhopal, bhubwaneshwar, dhanbad, Vishakhapatnam etc. The model described is very realistic, scalable and easy to implement, but has only considered coal, hydroelectric and natural gas technologies. It can be expanded to include other technologies and also can be made dynamic to provide solutions for different time periods representing the maturing of the power generation plants during the duration of the model.
Remes (2007) talks about Russia fourth largest user of electricity in the world, he talks about RAO UES which controls all the transmission, distribution and supply of electricity, it controls everything except nuclear power. Anatoly Chubais, The very core of the reform has been to separate competitive businesses from natural monopolies, both legally, functionally and regulatory. Consequently, competitive parts – generation companies, supply/sales companies and service companies – have been separated into legally different companies from natural monopolies – from Transmission Company, distribution companies and system Operator Company. It is of utmost importance for the future, to prevent the creation of any monopoly structures on the markets. UES is suggesting a change in the law allowing the Antimonopoly Agency to interfere immediately when the share of any company in any regional free-flow markets. Finally, concluding it can be said that Russia is ahead of the EU in the reform of the power sector and power sector monopolies. Russia has been able to create very sophisticated markets, with new elements, and with rational elements to the regulations.
Yemula, Medhekar, Maheshwari, Khaparde, Joshi(2007) have put their opinion about Interoperability in the power sector. According to Wikipedia, Interoperability is a property referring to the ability of diverse systems and
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organizations to work together (inter-operate). The term is often used in a technical systems engineering sense, or alternatively in a broad sense, taking into account social, political, and organizational factors that impact system to system performance. Basically they have considered organizational, application, information and technical level interoperability. They believe that organization interoperability is ensured by standard inter-organization protocol, which expresses the way in which organization share data. Application Interoperability is achieved by enforcement of interapplication protocol. Information interoperability is ensured at lower level by the compliance of standard information model. Technical Interoperability is the result of application of standard device level protocols.
Singh (2006) address the Power sector reforms in India. Reforms were initiated at a juncture when the sector was plagued with commercial losses and burgeoning subsidy burden. Investment in the sector was not able to keep pace with growing demand for electricity. This paper takes stock of pre-reform situation in Indian power sector and identifies key concerns that led to initiation of the process of reform. The paper discusses major policy and regulatory changes undertaken since the early 1990s. The paper also illustrates changes in the market structure as we move along the reform process. It also discuss some of the major provisions of the recently enacted Electricity Act 2003 that aims to replace the prevailing acts which govern the functioning of the power sector in the country. In this context, it discuss two issues arising out of it, namely open access and multi-year tariff that we think would have a significant bearing on the performance of the sector in the near future. The paper also evaluates the reform process in the light of some of the regulatory changes undertaken. Finally, the paper briefly discusses the issues involved in introduction of competition in the power sector primarily through development of a market for bulk power.
Kumar, Khetan & Thapa (2005) highlights that India has set itself an ambitious target of more than doubling per-capita electricity consumption by 2011. Indian power sector, with current electricity shortages of over 11% of peak and 7% of
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energy, will be one of the key determinants to future growth. The Indian government has worked steadily to liberalise the sector and initiated reforms that culminated in the Electricity Act 2003. The Act brought together structural and regulatory reforms designed to foster competitive markets, encourage private participation and transform the state’s role from service provider to regulator. The Act afforded consumers the ability to directly source their electricity from suppliers using existing networks and recognised trading as a separate line of business. Despite the potential offered by the India’s power sector, investors have long been weary of the sector’s bureaucracy and regulatory complexity. With a critical mass of progress in regulatory reforms and soaring economic growth, the Indian power sector is now primed for take off. How India deals with the remaining challenges of the restructuring process and emerging fuel shortages will dictate what happens in the years to come.
Newbery (2005) says that Modern infrastructure, particularly electricity, telecom and roads, is critical to economic development. Electricity provides light, the ability to use modern equipment, computers and access to ICT. Telecom facilitate information exchange and access to the rest of the world, while transport infrastructure is critical for trade, and by lowering transport costs extends the market and increases competition. If there is a surplus of infrastructure, more investment adds little to total output, but if there is a deficit, then shortages constrain total output, magnifying the impact, so that the return to reducing that deficit can be very high indeed.
Banerjee (2004) says that the earliest electric power systems were distributed generation (DG) systems intended to cater to the requirements of local areas. Subsequent technology developments driven by economies of scale resulted in the development of large centralized grids connecting up entire regions and countries. The design and operating philosophies of power systems have emerged with a focus on centralized generation. During the last decade, there has been renewed interest in DG. This paper reviews the different technological options available for DG, their current status and evaluates them based on the cost of generation and future potential.
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The relevance of these options for a developing country context is examined using data for India.
Different definitions of DG have been proposed. Some have linked this to the size of the plant, suggesting that DG should be from a few kW to sizes less than 10 or 50MW. This provides a review of alternative definitions of DG and suggests that DG be defined as the installation and operation of electric power generation units connected directly to the distribution network or connected to the network on the customer site of the meter. DG is also referred to as dispersed generation or embedded generation. DG options can be classified based on the prime movers used—engines, turbines, fuel cells or based on the fuel source as renewable or non-renewable. There are a large number of possible system configurations.
Swain, Singh and Kumar (2004) ,describes there were many inhibitors to growth in power sector but the main problem in the growth was Government Policy, which made it difficult for a private player to enter. This further created the problem that Indian entrepreneurs didn’t have enough knowledge and experience in developing power projects. A whole new system was evolved where private players were invited to be an active participant. The system demanded financial, political and other major requirement in roads and communication. Some of the bold steps taken in the Act were moving generation and distribution out of ‘License Raj’, opening access to national grid and demolishing the ‘Single Buyer’ model. The failure of the large structure and the changing global scenario has forced Government to think of ways to revive this fundamental infrastructure sector. Two ways that government can count on for future growth of this sector are “Small Power Plants” and “Clean Development Mechanism”.
Soronow, Pierce & Wang(2003), introduces FEA's Power Sector Model as the next step in derivatives pricing. Here the authors identified weather and marginal fuel
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prices as independent variables driving load levels and power prices. This is grounded in the understanding that, to a large extent, weather dictates load conditions, which, together with the marginal fuel price, determines the power price. The second step is to conduct a detailed empirical study of the nature and relationships among the various components under analysis. The goal of the study is twofold: to understand the relationship between the variables, as well as to determine the seasonal aspects inherent in each component. The approach is capable of capturing the essential power price characteristics such as seasonality in price and volatility, mean-reversion, price spikes, volatility clustering, and regional correlations. The model is self-contained, and when fully calibrated, Monte Carlo simulation provides the basis for valuing power contracts and generation assets directly.
Tongia (2003), describes that India’s power sector is undergoing significant reforms, beginning in 1991, which are changing and diminishing the role of the government, which functioned earlier as the near monopoly integrated utility. Because of significant financial difficulties faced by the SEBs 1991 saw the enactment of legislation, the 1991 Electricity (Supply) Act, which opened up the sector to private participation, primarily in generation. The current thrust of reforms is on the distribution sector, reducing losses and increasing efficiency. This might just be a precursor to privatization, but there is a goal to full electrification by 2012. In the last few years, the T&D losses have stabilized somewhat, but there is only limited interest of private players into the sector, especially new players. Those who state that overall financial losses have increased after the reforms do not factor in the increase in costs due to generator price increases regardless of reforms, even from government generators and PSUs. Electricity Bill 2001 opens up the sector to private participation with limited approval obligations. This sector is vital to India’s growth and development. At the same time they have not sufficiently addressed structural changes for grid operation and discipline (dispatch), such as based on load duration curves, or access and penetration for the poor (especially how that affects financial performance). They are a step in the right direction, ending years of Government control and mindset.
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Ch-2 INTRODUCTION TO PROJECT
Objectives of Study:
• • • • • •
To understand the power sector in India. To understand which power fuel is widely used in power generation. To know the states, regions which have abundant resource for thermal power. To understand the ultra mega power plants, which are being developed by private sector. To understand annual coal production and consumption of coal by power industry. To know the power deficit in our country, and how much capacity addition is needed in power sector. To understand the risks and concerns in thermal power generation. To understand demand and supply outlook of power generation. To understand the position of various power companies.
•
•
•
Scope of Study The researcher has made this project to understand thermal power generation need of nation. The scope is limited to trend in thermal power generation, the capacity addition in thermal power in recent period. It also shows some analysis of the companies, which are present in thermal power generation. The report shows the coal resources in the country, the trend in coal production, the consumption of coal as a raw-material by thermal power plants. The report shows the key concerns, issues which affect the coal production, coal supply to power plants. It shows the long term demand and supply of coal in nation, which can affect thermal power plants. It shows the features of ultra mega power plants. The report does not give detail on other sources of electricity. The researcher is not doing the financial viability of thermal power projects and its comparison with other types of power plants
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Research Methodology: The research is basically a descriptive research. Secondary data is collected from the articles in newspapers. The researcher has used the database of power ministry, central electricity authority. Also reports of financial institutions, annual reports of companies in power generation business are read and considered for getting proper and reliable information
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THERMAL ENERGY
The total power generation in the country during FY10 was 771.5 Billion Units (BUs) as compared to 723.794 billion units during last year. The annual growth in the energy generation during the year has been 6.6% against the CAGR of 5.2% during the period 2001-02 to 2009-10.The total thermal capacity, including gas stations and diesel generation accounts for about 64.27% of installed capacity of the country followed by hydro capacity at 23.13%. Nuclear stations account for 2.86% and the balance 9.74% is contributed by Renewable Energy Sources. With 84,198.38 MW of the installed capacity contributed by coal based stations which is 52.82% of nation’s capacity, coal remains key fuel for power generation. Fuel wise breakup of generation for the year 2009-10 Total Generation Thermal Hydro Nuclear Others Total Billion Units 640.876 106.68 18.636 5.359 771.551
Source: Ministry of Power
( IN MW) SR.NO. 1 2 3 4 5 6 7
Source: Ministry of Power
Region Northern Western Southern Eastern N. Eastern Islands All India
THERMAL COAL GAS DIESEL TOTAL 23620.00 3813.26 12.99 27446.25 29290.50 7903.81 17.48 37211.79 19172.50 4690.78 939.32 24802.60 17635.38 190.00 17.20 17842.58 60 787.00 142.74 989.74 0 0 70.02 70.02 89778.38 17384.85 1199.75 108362.98
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A thermal power plant is generally a steam driven power plant. The force that spins the turbines in the plant is steam that is either used to drive an electric generator or any other work that requires power. However there are variations in the functioning of different types of thermal power plants which mostly depends of the kind of fuel used. The most frequently used fuel for thermal power plants in India is coal. More than 70% of the electricity consumed in India is generated through thermal power plants. India is home to numerous thermal power plants which are renowned all over the world. Domestic coal based power plants, are economical source of power. Compared to other primary energy sources like nuclear, gas as well as renewable, domestic coalbased power plants are the most cost economic options at the current energy price levels. Coal-based power work as base load stations providing grid stability unlike renewable and hydro based stations. For a growing economy, given the current resource situation and geo-political linkages, coal-based stations are the best response to the country’s needs.
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SOME OF THE MAJOR THERMAL POWER PLANTS IN INDIA
Anpara Thermal Power Station- Uttar Pradesh Located on the banks of rihand reservoir in the district of sonebhadra in Uttar Pradesh the Anpara thermal power station is a coal fired thermal power plant. Situated at a distance of 200 km from Varanasi on pipri-singrauli road this power station is well connected by air/rail and road route from other major cities. This thermal power plant has 5 operational units with a total installed capacity of 500 MW. Bakreswar Thermal Power Project - West Bengal The Bakreswar Thermal Power Project is one of the most prominent thermal power projects in India. It is situated at a distance of just 260 Km away from Kolkata. The project has clear rail track access via Chinpai on the Andal-Sinthia Line of Eastern Railways. The Bakreswar Thermal Power Project is running with five operational units having total installed capacity of 1050 MW. Expansion of another 600 MW unit (sixth unit) has been envisaged for implementation during the Eleventh-Five-year Plan period. Panipat Thermal Power Station Ii A coal based Thermal Power Plants in India the Panipat Thermal Power Station II is located in Panipat in Haryana. Developed under four stages this thermal power plant has 8 units in total with an installed capacity of 250 MW. Deenbandhu Chhotu Ram Thermal Power Station A coal based power plant of HPGCL the Deenbandhu Chhotu Ram Thermal Power Plant is located at Yamunagar in Haryana. Commissioned in April 2008 with its first unit today this power plant has two units with a total installed capacity of 600 MW.
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Rajiv Gandhi Thermal Power Station The Rajiv Gandhi Thermal Power Station is situated in Kedar in the Hisar district of Haryana. One of the lowest costing power projects in India so far this power plant is a coal based power plants of HPGCL. This thermal power plant has 2 units with a total installed capacity of 600 MW. Kota Super Thermal Power Plant Situated on the bank of River Chambal near Kota in Rajasthan this thermal power station is the state's first major coal fired power plant. Known as one of the most efficient and prestigious thermal power plants in India the Kota Super Thermal Power Plant has received many awards for productivity during 1984,1987, 1989, 1981 and every year since 1992 onwards. This thermal power plant has 28 units with an installed capacity of 1240 MW.
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FUEL AVAILABILITY FOR POWER GENERATION
With about 84,198 MW, i.e. 52.82% of the installed capacity, contributed by coal based power plants; coal remains a key fuel for power generation. As per the MidTerm Appraisal of the Eleventh Plan, it is estimated that the coal demand for FY12 would be about 713 Million Tonnes (MT), out of which 520 MT would be required for the Power sector. Against this, as per the Annual Report of Ministry of Coal for FY10, the indigenous availability is estimated to be about 630 MT, out of which 486 MT is to be supplied from Coal India Limited (CIL). A likely gap of 83 MT would be met through imports, of which about 60 MT would be required for the Power sector. INDIA COAL PRODUCTION (In Million tonnes) AND GROWTH
All India Coal Consumption By Power Generation By far Power is the biggest segment and accounted for 71% of India’s coal demand, including both thermal utilities and captive power plants. This segment is likely to see strong growth over next few years given the large capacity build out expected in the power segment. India’s cost of production is on the lower end, driven by lower stripping ratios, dominance of open cast mining. YEAR mn.tonnes 2004-05 2005-06 2006-07 2007-08 2008-09 278 280 302 330 355
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Reserves and Location India’s total coal reserves as of Apr-10 stood at 276.8bn tonnes (source Ministry of Coal). However most of the reserves are of thermal coal (87%) and prime coking coal reserves are 5%. Indian coal reserves are mostly in the eastern and central parts of the country. The states of Orissa, Jharkhand, West Bengal and Chattisgarh accounted for 79% of Indian coal reserves. In terms of proved coal reserves, India’s coal reserves stood at ~110bn tonnes, of which thermal coal accounted for 83% and the above 4 states accounted for 78%. Indian thermal coal is predominantly of high ash content. Indian coal also has relatively lower calorific value and this is one of the key reasons why port based users in India prefer imported coal which has lower ash and higher calorific value. In India, coal is classified in grades (which are based on useful heat value) and pricing is set based on the grade of coal. Most of India’s mines are open-cast mines(one of the key reasons for their lower cost)
Key Sources of Coal Supply In India. Coal India: CIL’s production increased at a CAGR of 5% between FY02-07, but over FY08-10 period production picked up pace at a CAGR of 6.6%. Given CIL’s dominant status in India's coal industry, any shortfall in CIL's production growth would likely push up imports, while an increase should result in lower imports.
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SCCL: Singareni Collieries Co (SCCL) is an undertaking of the Andhra Pradesh State Government and the Central Government. SCCL coal production has increased by a CAGR of 5.8% over FY01-10 period. Captive coal blocks This has been among the bigger disappointments in terms of coal supply. Currently accounting for 6% of India’s coal demand, it has sharply lagged targets. This has mainly been on account of the various delays associated with captive coal blocks being allocated over the last few years. As of now 215 number of coal blocks has been allocated for captive mining, of which only 26 blocks are currently producing total coal. Coal production from block allocations meant for captive coal consumption has been below targets and estimates as the captive coal blocks have not able to get the necessary approvals in time and there have delays going into years. The average time taken so far for the blocks under production has been ~6.5 years, with many blocks taking more than 8 years to get the required proposals. The key problems which have impacted captive coal block allottees are land acquisition, relief and rehabilitation issues, forest clearances, environment clearances. Imports India total coal imports (thermal + coking coal) have increased by a CAGR of 16% over FY05-10. The key countries from where India imports coal are - Australia, South Africa, and Indonesia. Australia is a source mainly for coking coal, while Indonesia is the source of thermal coal. Indonesian thermal coal has relatively the lowest calorific value among the 3 countries, and also relatively high moisture content (which increases the actual cost of coal).
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ULTRA MEGA POWER PLANTS (UMPP)
For meeting the growing needs of the economy, generation capacity is to double itself in every ten years in next three decades at least. As such there is need to develop large capacity projects at the national level to meet the requirement of different States. Development of Ultra Mega Power Projects (UMPPs) is one step in that direction. These are very large sized projects, approximately 4000 MW each involving an estimated investment of about Rs.17 – 18’000 crore. The projects will substantially reduce power shortages in the country. The Central Government has accordingly taken the initiative for facilitating the development of a few ultra mega power projects of about 4,000 MW capacity each under tariff based competitive bidding route using super critical technology on build, own and operate basis. These projects will meet the power needs of a number of States/ distribution companies located in these States, and are being developed on a Build, Own, and Operate (BOO) basis. In view of the fact that promotion of competition is one of the key objectives of the Electricity Act, 2003, and of the legal provisions regarding procurement of electricity by distribution companies, identification of the project developer for these projects is being done on the basis of tariff based competitive bidding. Salient Features of the Plant and Choice of Technology • The Ultra Mega Power Projects would use Super Critical Technology with a view to achieve higher levels of fuel efficiency, which results in fuel saving and lower green-house gas emissions. • • • Flexibility in unit size subject to adoption of specified minimum Supercritical parameters. Integrated power project with dedicated captive coal blocks for pithead projects. Coastal projects to use imported coal.
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The Bidding Process For these projects, as per the provisions of the competitive bidding guidelines, a two stage selection process has been adopted. The first stage of bidding involves Request for Qualification (RfQ) containing qualifying criteria for selection of bidders. The RfQ documents submitted by the bidders are evaluated to identify those bidders who will be eligible to participate in the second stage of the process. The second stage of the bidding process invites Request for Proposals (RfP) from the bidders so qualified. After evaluation of the RfP documents, the successful bidder is identified on the basis of the lowest levellised tariff. Selection of Sites for Setting up of UMPPS Nine such projects had been identified to be taken up, 4 at pithead and 5 at coastal locations. The nine sites for the UMPPs identified by the Central Electricity Authority (CEA) in consultation with the States are as follows:• • Five coastal sites at:- Mundra in Gujarat, Krishnapatnam in Andhra Pradesh, Tadri in Karnataka, Girye in Maharashtra, and Cheyyur in Tamil Nadu. Four pithead sites at :- Sasan in Madhya Pradesh, Tilaiya in Jharkhand, Sundergarh District in Orissa and Akaltara in Chhattisgarh. Role of the Ministry Of Power The Ministry of Power is playing a crucial role for the development of the UMPPs by coordinating between various concerned Ministries/Agencies of the Central Government, and with various State Governments/Agencies. Some of the key areas requiring the Ministry of Power’s intervention include – • Coordination with Central Ministries/Agencies for ensuring: o Coal block allotment/coal linkage o Environment/forest clearances o Water linkage
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• • • •
Required support from State Governments and their agencies. Working out allocation of power to different States from UMPPs in consultation with the States. Facilitating PPA and proper payment security mechanism with State Governments/State Utilities. Monitoring the progress of Shell companies with respect to predetermined timelines.
Concept of Special Purpose Vehicles As mentioned above, competitive bidding guidelines have been issued under the Electricity Act for procurement of power by distribution licencees. These guidelines permit the procurement of electricity by more than one distribution licencee (also known as a procurer) through a combined bid process, and in such a case the procurers shall have the option to conduct the bid process through an authorised representative. The concept of “Authorised Representative” forms part of the standard bidding documents (issued under the competitive bidding guidelines) and the authorised representative is defined as the corporate body authorised by the procurers to carry out the bid process for the selection of the successful bidder on their behalf. Accordingly, PFC – the nodal agency for the development of these projects –sets up separate Special Purpose Vehicles (SPVs) for each UMPPs to act as authorized representatives of the procurers (distribution companies of the power procuring States). These SPVs are 100% owned subsidiaries of the PFC. The Boards of the SPVs are chaired by a Director of the PFC; their other members are officials of the PFC, and representatives of the distribution companies of the major power procuring States who are inducted on the Boards at the appropriate stage. On completion of the entire process for selection of the project developer, the SPVs are to be transferred to the selected bidders i.e. to the selected project developers. Role of SPVS The SPVs are responsible for carrying out various activities on behalf of the procurers. Completion of these activities prior to award of the project is considered
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necessary to enhance the investor’s confidence, reduce risk perception and get a good response to the competitive bidding process. Some of the main activities undertaken by the SPVs are:• • • • • • • • Appointment of Consultants to undertake preparation of Project Report, preparation of Rapid Environment Impact Assessment Report etc. Appointment of Consultants for International Competitive Bidding (ICB), document preparation & evaluation To carry out bidding process and award of project Initiation of land acquisition process for the project Allocation of Coal blocks for pit-head projects Getting clearance regarding allocation of water by the State Govt. for pithead locations Approval for use of sea water from Maritime Board/ other Govt. Agencies for coastal locations Obtain clearance from the State Pollution Control Board, initiate forest clearance etc. as are required for the project and for the coal mines, followed by environment and forest clearances from the Central Government. • • Obtaining geological reports/ other related data from CMPDI for the coal blocks. Tie up the off-take/ sale of power
Role of States States hosting the UMPPs and the other power procuring States are playing a proactive role. In particular, some of the activities in which the concerned States play a decisive role include implementation of the Rehabilitation & Resettlement Plan, provide authorization to the PFC/SPV to carry out the bidding process on behalf of the distribution utilities, participate through its representatives in various committees set up for undertaking the competitive bidding process, facilitate signing of the Power Purchase Agreement, ensure proper payment security mechanism with the distribution utilities etc.
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Awarded UMPP Projects Four UMPPs namely Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand have already been awarded to the successful bidders and are at different state of development. A brief details of these projects are as below: SR. NO.
1 2 3 4 Mundra, Gujarat Sasan, Madhya Pradesh Krishnapatnam, Andhra Pradesh Tilaiya, Jharkhand COASTAL PITHEAD COASTAL PITHEAD
NAME OF UMPP
TYPE
DATE OF TRANSFE R
23.04.2007 07.08.2007 29.01.2008 07.08.2009
LEVELISED TARIFF (In Rs.Per kWh)
2.264 1.196 2.333 1.77
SUCCESSFUL DEVELOPER
TATA POWER LTD. RELIANCE POWER LTD. RELIANCE POWER LTD. RELIANCE POWER LTD.
Projects in Pipeline • Two more coastal UMPPs are planned in Andhra Pradesh. The site for the first UMPP is in Prakasham district and site finalization for the other UMPP is being done by CEA and PFC.
• Two more UMPPs in Orissa at pithead are also planned. The captive coal
blocks for one UMPP have been allocated by Ministry of Coal. Site finalization for these UMPPs is in progress. • One more additional UMPP each in the States of Gujarat, Tamilnadu and Jharkhand are envisaged.
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UMPP TYPE AND BENEFICIARY STATES.
SR.NO. 1
UMPP (EACH OF 4000 MW) MUNDRA, GUJARAT BY TATA POWER LTD.
TYPE COASTAL
BENEFICIARY STATES GUJARAT MAHARASHTRA PUNJAB RAJASTHAN HARYANA
(MW) 1900 800 500 400 400
2
SASAN, MADHYA PRADESH BY RELIANCE POWER LTD.
PITHEAD
MADHYA PRADESH RAJASTHAN UTTAR PRADESH DELHI HARYANA UTTARAKHAND PUNJAB
1500 400 500 450 450 100 600
3
KRISHNAPATNAM, ANDHRA PRADESH BY RELIANCE POWER LTD.
COASTAL
ANDHRA PRADESH MAHARASHTRA TAMIL NADU KARNATAKA
1600 800 800 800
4
TILAIYA, JHARKHAND BY RELIANCE POWER LTD.
PITHEAD
JHARKHAND UTTAR PRADESH BIHAR PUNJAB GUJARAT MAHARASHTRA RAJASTHAN MADHYA PRADESH HARYANA DELHI
1000 650 500 450 300 300 250 200 200 150
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KEY CONCERNS
Power sector is a highly capital intensive business with long gestation periods before commencement of revenue streams (construction periods of 4-5 years) and an even longer operating period (over 25 years). Since most of the projects have such a long time frame, there are some inherent risks in both the internal and external environment. Some of the key concerns being faced by the sector currently are: 1. Coal Supply Position More than 50 per cent of India’s generation capacity is coal based. According to the Integrated Energy Policy, by FY31-32, India requires 2,040 million tonnes of coal for power generation, more than 5 times its current consumption levels. The shortage of coal is so acute that most of the power generation companies are looking at imported coal as a viable alternative to domestic coal. Coal requirement of power sector (in million tonnes per annum)
Coal-Imports
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The Key Risks to India’s Coal Production Outlook essentially come From 3 Directions: Continued long delays in getting required approvals: Captive coal block allocations have not been successful given the long time required for getting the required approvals. The current GO/NO GO area classification could also create further issues. As of now the Ministry of Coal and the MoEF are currently working to resolve this issue. Deteriorating law and order situation in key coal mining regions: ~90% of India’s coal reserves are found in Eastern and Central India. Some parts of these states currently are facing law and order issues related to Naxalite activities. As Coal India’s prospectus highlights that the company has faced interruptions to its operations because of such attacks. Additionally it also creates transportation issues. ‘In addition, as a result of these disruptions, state-owned railway lines in these areas have been restricted from time to time in the past due to security concerns from possible terrorist activities of Naxalite rebels. Such disruptions have in the past and may affect in the future the availability of adequate transportation capacities for the offtake of our coal, resulting in increased inventory, increased operating costs resulting from inability to complete night-loading schedules due to suspension of night trains or other transportation means at night, as well as increased costs for provision of adequate security personnel in affected areas. Increasing logistics issues: Railway infrastructure needs to keep pace with increasing coal production. ‘Sales volumes have in the past been constrained by inadequate transportation infrastructure’. capacities, including non-availability of adequate railway
2. High AT&C (Aggregate Technical And Commercial) Losses
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India has historically witnessed very high transmission, distribution and commercial losses of power. Despite the government’s continuous efforts to improve the situation, out of every 100 units of power generated, only 70 are available to the paying customer. This puts a significant burden on the customer who has to pay for the losses incurred in the transmission and distribution (T&D) network. A comparison of distribution losses with other developing countries shows that we have a long way to go before we reach global standards or even the standards in emerging market economies. Distribution losses in developing countries in 2008 – a comparison
The high losses result in increasing annual losses of State Electricity Boards (SEB). The losses are mainly due to the high level of subsidies, power theft and inadequate metering. This also results in cross subsidization of tariffs to make the SEBs financially viable. Rising power tariffs will result in higher losses for SEBs which is a major cause for concern in the sector. 3. Execution Risk India has historically failed to meet its power sector targets by a significant margin and with tremendous opportunities ahead; the power sector continues to be affected by the shortfall both on generation as well as transmission side.
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Power projects are highly capital intensive and have a long construction as well as operational phase thus exposing them to various macroeconomic as well as project specific risks. The life of a power project can be divided into three different stages: developmental stage, construction stage and operational stage; with each stage having its own set of critical risk elements Development stage: From the conceptualization of a project to the start of construction activities, the key risks that need to be monitored are: Statutory approvals and clearances from the authorities • • Land acquisition Fuel, water and transmission linkages
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•
Availability of both equity and debt funding
Construction stage: From the start of construction to commissioning of projects, the key risks that need to be monitored are: • • •
•
Execution within estimated cost Execution within targeted timelines Transportation/logistics of equipments Hydrological and geological risks in case of hydroelectric projects.
Operation stage: During the operations phase, operating and maintaining the power plant efficiently and ensuring that operational costs and performance are maintained within or better than the norms is the major challenge. 4. Equipment Shortage Equipment shortages have been a significant reason for India missing its capacity addition targets for the 10th five year plan. While the shortage has been primarily in the core components of Boilers, Turbines and Generators, there has been lack of adequate supply of Balance of Plant (BOP) equipment as well. These include coalhandling, ash handling plants, etc. Apart from these, there is shortage of construction equipment as well. The Working Group on Power for 11th Plan has outlined the requirement for construction equipment for Thermal power plants. The major equipment required to be deployed for simultaneous construction of 24 projects of less than 500 MW and 21 projects of more than 500MW is summarized below.
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5. Financials Rapid build up of the generation capacity is being aided by setting up of Ultra Mega Power Projects (UMPPs) each of which is 4000 MW. However, the execution of the Ultra Mega Power Projects (UMPP) is a significant challenge as India has not witnessed an execution of such a large scale power project before. Furthermore, with each UMPP costing above INR 16,000 Crore, financing such a large project is a
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critical constraint for any developer. In addition, considering the high financial stake involved through private investments, delay in payments may put severe pressure on developers/suppliers to meet the performance commitments.
6. Manpower Shortage There is a general consensus that shortage of talent in the construction sector is a long term problem and is likely to continue to push up project costs and risks. The flow of talent into construction and power sector has been gradually drying up as candidates have sought an alternative – and often more lucrative – career options. The Government, which is the biggest buyer of the capital projects, has also not done enough to address this challenge. The education system is often not delivering the required number of specialists across project management, engineering, estimating, surveying and contract management. Facing a desperate game of catch up, the industry needs a genuine collaboration between project owners, contractors and governments to attract more school leavers and graduates. Companies should also seek to stay in touch with changing employee aspirations. By encouraging diversity in its employment practices and by offering greater flexibility in working hours, the sector can reach out to a wider potential audience that perhaps would not previously have considered such a career. Investment in existing employees is also crucial in order to offer better-defined career structures, with a greater focus on training and higher salaries where possible.
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The profile of manpower shortage at supervisory staff level in hydro power and thermal power sector is outlined below:
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CHAPTER-3 DATA ANALYSIS, FACTS & FINDINGS
Power Generation Capacity Grand Total Installed Capacity is 167278.36 MW. Thermal Power Current installed capacity of Thermal Power is 108602.98 MW which is 64.9% of total installed capacity.
•
Current installed base of Coal Based Thermal Power is 89778.38 MW which comes to 53.7% of total installed base. Current installed base of Gas Based Thermal Power is 17624.85 MW which is 10.53% of total installed base. Current installed base of Diesel Based Thermal Power is 1199.75 MW which is 0.71% of total installed base.
•
•
The state of Maharashtra is the largest producer of thermal power in the country. Hydro Power India was one of the pioneering countries in establishing hydro-electric power plants. The power plant at Darjeeling and Shimsha (Shivanasamudra) was established in 1898 and 1902 respectively and is one of the first in Asia. The installed capacity as on oct”2010 is approximately 37328.40MW (22.3%) The public sector has a predominant share of 97% in this sector. Nuclear Power Currently, seventeen nuclear power reactors produce 4,560.00 MW (2.7% of total installed base).
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Renewable Power (Res) Current installed base of Renewable energy is 16786.98 MW which is 10.03% of total installed base with the southern state of Tamil Nadu contributing nearly a third of it (5008.26 MW) largely through wind power. Capacity addition target 11th plan (2007-2012) Megawatts (MW)
Type/sector Central State Thermal Hydro Nuclear Total 24840 8654 3380 36874 2330 1 3482 0 2678
Private Total 11552 3491 0 15043 59693 15627 3380 78700
3 Source: Ministry of Power
Capacity (MW) Addition During (2010-11) PROGRAMMED ACHIEVED QTR 1 5208.7 4063 QTR 2 4831.5 2707 QTR 3 4709.5 QTR 4 6691.5 TOTAL 21441.2
Source: Ministry of Power
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SECTOR-WISE GENERATION CAPACITY
The total installed power generation capacity of India as on March 31, 2010 is 159,398 MW out of which over 18 per cent is contributed by the private sector. Sector wise generation capacity (in MW) as on March 31, 2010*
India has added generation capacity of 9,585 MW in FY09-10, a 177 per cent increase compared to capacity addition of 3,454 MW in FY08-09. Private sector was the biggest contributor with more than two-fifth of the total capacity added in FY09-10.
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Table showing Power deficit scenario. YEAR 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 MILLION UNITS (MU) REQUIREMENT AVAILABILITY SHORTAGE %DEFICIT 507216 467400 -39816 7.80% 522537 483350 -39187 7.50% 545983 497890 -48093 8.80% 559264 519398 -39866 7.10% 591373 548115 -43258 7.30% 631554 578819 -52735 8.40% 690587 624495 -66092 9.60% 737052 664660 -72392 9.80% 777039 691038 -86001 11.10% 830594 746644 -83950 10.10%
Graph showing general energy deficit and energy deficit at peak time.
POWER COMPANIES
Power Utilities Have Underperformed the Broader Market
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Source: Bloomberg, As on 31st December, 2010
The biggest reasons for underperformance of the new breed of power developers (Adani Power, JSW Energy and Reliance Power) is aggressive IPO pricing, more generally, the sector has faced multiple structural issues such as:
• • •
Increasing competition on the back of no discernible entry barriers; Rising project delays; and Mounting dependence on Chinese equipment.
These factors have also resulted in established players such as NTPC and Tata Power marginally underperforming. 1. No Discernible Entry Barriers Capital was once the biggest entry barrier for this industry. However, given that the sector now receives significant financial backing from the banking and equity capital market community, it has allowed new entrants with limited or no experience in power generation to meet their aspirations of setting up power projects. If we look at the current pipeline of projects we find that the share of new entrants constitutes 42% of the total pie.
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Source: Ambit Capital Research
2. Execution Record Of The Private Sector Companies Has Lagged That Of Public Sector. The execution track record for the private sector has been dismal. The average target/achievement ratio for the private sector is 40% if we focus on the 9th plan and thereafter (since that is when private sector participation picked up). The comparable ratio is 64% for the public sector (since the first FYP over 50 years ago). Public Sector
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Source: CEA, FY11 is till November
Private Sector
Source: CEA, FY11 is till November
3. Deteriorating Balance Sheet In pursuit of aggressive growth plans, most of the private developers have already taken on huge debt burdens (the average debt: equity for IPPs is hovering at around 1.5x). Given that projects are getting delayed (the average target/achievement ratio of 54% in the 11th plan implies that every second power project that has been commissioned has been delayed), and given that companies’ balance sheets are highly leveraged, some of the IPPs) could find themselves in a tricky position in FY11 which could result in fresh equity issuance.
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4. 40% Of Equipment Ordered By The Private Utilities Is From The Chinese Companies. Given that BHEL, India’s dominant boiler, turbine and generator (BTG) manufacturer has a full order book and given that BHEL’s pricing is 15-20% more expensive relative to the Chinese manufacturers, private players have been placing BTG orders with the Chinese. In the last three years, China’s share in total MW currently under construction in the 11th plan has increased to 33% compared with nil five years ago.
Source: Ambit Capital Research
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COMPETITIVE BUSINESS POSITIONING OF INDIAN COMPANIES
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TORRENT POWER LTD.
Torrent Power, a part of the Torrent Group, is a fully integrated player with a presence across the power value chain i.e. generation, transmission and distribution. The company has current generation capacity of 1.7GW and distributes power to more than 3 million customers annually in Ahmedabad, Gandhinagar, Surat, Bhiwandi and Agra. The construction of the gas-based Dahej power plant (1.2GW) and expansion at the SUGEN plant near Surat are currently under implementation. The company has been the only successful player in the distribution franchisee business with a presence in the Bhiwandi, Agra and Kanpur circles. It is an integrated player: Torrent is a fully integrated player with presence across generation, transmission and distribution. Torrent also enjoys the luxury of being the only player operating in Surat, Gandhinagar and Ahmedabad. Besides this, it is the only successful player in the distribution franchisee model which is the next big opportunity in the power sector in India. It has zero exposure to Chinese equipment: Unlike peers, Torrent has not purchased Chinese BTG equipment. Minimal exposure to merchant power: Of its capacity of 1.7GW, only 10% (~0.2GW) is exposed to merchant power. Also in the pipeline of 1.5GW, the exposure is restricted to ~20%.
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Torrent Power is the best fitted amongst Peers (Based on Fy10 Financials) Torrent Power Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted return on net worth (%) Return on long term funds (%) Total debt/equit y Current ratio Financial charges coverage ratio 29.98 Tata Powe r 26.17 Adani Powe r CESC Lanco 56.24 28.26 14.71 JSW GVK GMR Enrgy 41.4 39.52 54.27
24.26 14.07
19.44 12.88
48.11 37.07
22.09 12.7
13.7 8.1
41.31 36
38.91 8.33
49.04 35.32
21.1 20.97 0.8 1.04
8.47 9.94 0.56 2.45
2.84 1.52 1.68 2.06
12.19 13.01 1.01 0.93
15.76 15.77 0.88 1.61
0.92 1.27 0.04 268.5 2
-0.04 0.89 0.44 27.11
14.96 16.11 0.39 1.9
5.84
5.02
7.18
3.14
4.94
22
0.97
5
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SWOT Analysis Strengths:
•
The integrated player in India across the entire value chain –generation, transmission and distribution The only successful player in the private distribution franchisee business The only power utility company with positive FCFF in FY10 Zero reliance on Chinese equipment Stellar operational efficiency (FY10 average PLF was 90%+ and T&D losses were sub-10% compared to the national average of 78% and 25%+ respectively)
• • • •
•
One of the strongest balance sheets in the sector with FY10net debt: equity of 0.6x compared with ~1.5x for peers Strong Board of Directors with a high profile of independent directors such as Keki Mistry and Kiran Karnik
•
Weakness:
•
Lack of disclosure in the annual report on key items. For example, there is no break up of revenues between generation, transmission and distribution The Kanpur franchisee has still not started functioning as the local state electricity board is creating issues in the light of Torrent having won the distribution contract Fuel tie up and financial closure for the near-term pipeline(1.5GW or ~96% of current installed capacity) is yet to take place
•
•
Opportunities:
•
There is a huge opportunity for private sector power utilities in India (particularly for those utilities that have Torrent’s battle hardened execution capabilities)
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•
Private distribution franchisees is a big (and relatively untapped) opportunity in India given the poor financial position of the state electricity boards Given Torrent’s presence in the T&D segment, the growing scope for private sector participation in this space offers a huge opportunity particularly as the Government’s focus switches from power generation to power T&D
•
Threats:
•
The 5x increase in private sector generation capacity by FY13 could result in merchant power rates getting compressed. Difficult to replicate the success of Bhiwandi in other private distribution franchisees as opposition from the local SEBs (who do not want to see private sector distributors in their area) is very strong
•
•
Given that the KG Basin gas does not seem to be ramping up and infrastructure bottlenecks in the transportation of imported LNG (and the resultant crunch in the supply of gas) can be a negative for Torrent as 75% of its incremental capacity is gas based, which does not have fuel tie-up.
•
Any delays in the construction of the Dahej SEZ will also delay the upcoming 1.2GW project in Dahej (will account for 37% of Torrent’s total capacity)
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Operational Projects
Source: Spark Capital Research
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Torrent Power Strengths Improving Debtor and Inventory Turnover Generation Superior Cash
Reduction in T&D Loses
Improving Ratios
Better Plant load Factor (PLF)
Negative Working Capital
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Projects under Development
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ADANI POWER LTD.
Adani Power is a member of the Adani Group which has presence across Energy, Real Estate, Ports, SEZs, Logistics, Agro and Metal & Minerals etc. The company has current installed capacity of 1,980MW (entirely at Mundra, Gujarat). Besides, another 14,520MW of generation capacity is under various stages of construction and development. Notably, the company recently achieved a distinction in terms of synchronizing India’s first supercritical power generation unit of 660MW at its Mundra Power Plant. Adani Power is one of the companies with very good margins but with a highly leveraged balance sheet (Based on Fy10 Financials) Tata Powe r 26.17 Adani Powe r CESC Lanco 56.24 28.26 14.71
Torrent Power Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted return on net worth (%) Return on long term funds (%) Total debt/equit y Current ratio Financial charges coverage ratio 29.98
JSW GVK GMR Enrgy 41.4 39.52 54.27
24.26 14.07
19.44 12.88
48.11 37.07
22.09 12.7
13.7 8.1
41.31 36
38.91 8.33
49.04 35.32
21.1 20.97 0.8 1.04
8.47 9.94 0.56 2.45
2.84 1.52 1.68 2.06
12.19 13.01 1.01 0.93
15.76 15.77 0.88 1.61
0.92 1.27 0.04 268.5 2
-0.04 0.89 0.44 27.11
14.96 16.11 0.39 1.9
5.84
5.02
7.18
3.14
4.94
22
0.97
5
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SWOT Analysis Strengths
• •
Strong execution track record on the back of the huge success of Mundra Port The diversified nature of the Adani Group (especially its presence in ports and coal trading) augurs well for Adani Power Stellar operational efficiency (FY10 average PLF was 85%+ compared with India’s national average of 78%) Minimal exposure to merchant power (23% compared with JSW’s 56%)
•
•
Weakness • • • All of Adani’s power plants use Chinese equipment Conflict of interest given that other promoter owned companies are also in power generation Limited bargaining power vis a vis delays in coal supplies from Adani Enterprises as it is Adani Power’s holding company Opportunities • • private sector (this is equivalent to 10x Adani’s installed capacity) and Adani Power will be a relatively strong contender for these UMPPs Given group’s presence in coal mining and India’s rising coal imports, domestic coal mining offers a huge opportunity for Adani Enterprises This in turn will reduce • Adani Power’s coal cost as currently Adani Enterprises is the biggest supplier of coal to Adani Power
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Threats • • • The 5x increase in private sector generation capacity by FY13 could result in merchant power rates getting compressed. The rising Maoist insurgency (with its greatest influence in states having the largest coal resources) could result in delays and higher costs. The improving trend in T&D losses due to rising investment in T&D could result in the fading of India’s power deficit at a quicker pace than expected.
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Operational Projects
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Adani Power Strengths Average PLF in excess of 85%
Group’s presence in coal mining, port and logistics complements Adani’s Power Generation
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One of the Highest Fuel tie Ups
Majority of Adani’s capacity is tied to PPA’s
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Project under Execution
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DATABASE:
• • • • • Capital line plus CEA Central Electricity Authority India Indiaenergyportal.org Ministry of Power
SEARCH ENGINES • • • • Google.com Askjeeves.com Soople.com Yahoo.com
WEBSITES:
• • • • • • • •
www.Ibef.org www.india.gov.in www.teriin.org www.coreinternational.com www.energywatch.org.in www.hansuttam.com www.elsevier.com www.sciencedirect.com
WEB PAGES:
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• • • • • • •
http://www.indexmundi.com/India/electricity_consumption.html http://www.indexmundi.com/India/electricity_production.html http://www.cea.nic.in http://www.topnews.in/business-news/power-sector.html http://www.energywatch.org.in http://www.bharatbook.com/Market-Research-Reports/Indian-power-sectordatabase.html http://www.marketresearch.com/product/display.asp?productid=1695991
ARTICLES & MAGAZINES
• • • • • • •
http://recindia.nic.in/download/T_D_Overw.pdf www.wwf.org.uk/filelibrary/pdf/ipareport.pdf www.ibef.org/Attachment/Investment%20opportunities%20in%20Power %20Sector.pdf http://www.adb.org/Documents/Studies/Timor-Power-Sector-Dev/default.asp www.appanet.org/files/PDFs/RestructuringStudyKwoka1.pdf www.saneinetwork.net/pdf/SANEI_II/Reforms_and_PowerSector_in_SouthAsia. pdf www.ebrd.com/projects/eval/showcase/psr.pdf
LITERATURE REFERENCE:
Augustine .A(2007), “Modeling Indian Power Sector”, pp: 173-181. www.cs.utexas.edu/~achal/IndianPowerSector.pdf Banerjee. R (2004), “Comparison of options for distributed generation in India”, Journal of Energy Policy, Elsevier - Article in Press, 6th June, 2004, Vol – 37 (1), pp: 1-11. http://www.whrc.org/Policy/COP/India/Banerejee_Energy%20Policy%20(in %20press).pdf Kumar. S, A. Khetan & B. Thapa (2005),“Indian Power Sector – Emerging Challenges to Growth”. Reprinted from World Power, pp: 1-5. http://www.icfi.com/Markets/Energy/doc_files/indian-power-sector.pdf
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Newbery. D ,(2005), ‘Power sector reform, private investment and regional cooperation’, Journal of South Asia: Growth and Regional Integration, pp: 143-170 http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/448813 -1171648504958/SAR_integration_ch6.pdf Remes .M (2007), “Russia forerunning EU in power sector forum”, Journal of Baltic Rim Economies, Expert article 154, 21st December,2007, pp: 20-21 http://www.tse.fi/FI/yksikot/erillislaitokset/pei/Documents/bre/expert_article154_620 07.pdf Schwartz. J (2008), “Lighting Update (ENERGY STAR, Legislation, Trends, Incentives and Opportunities)” Journal of Today’s Lighting Distributor, May/June 2008, pp: 12-13. http://www.icfi.com/Markets/Energy/doc_files/lighting-update-schwartz.pdf Singh. A (2006), “Power sector reform in India: current issues and prospects”, Elsevier in its journal Energy Policy, Vol: 34 (16) http://ideas.repec.org/s/eee/enepol.html Soronow. D, M. Pierce & K. Wang (2003), “The Power Sector Model”, Journal of NEWFRONTIERS, pp: 18-19. www.fea.com/resources/pdf/a_power_sector_model.pdf Sreekumar. N (2008), “Market-Oriented Power Sector Reforms: A Critique”, Journal of Governance and Public Policy. http://ideas.repec.org/s/icf/icfjgp.html Swain. N, J P Singh and D. Kumar (2004) “Analysis of Power Sector in India: A Structural Perspective”. http://www.ieiglobal.org/ESDVol5No2/indianreform.pdf Tongia R. (2003), “Power Sector Reform India – The Long Road Ahead”, CEIC Seminar Carnegie Mellon University http://wpweb2.tepper.cmu.edu/ceic/SeminarPDFs/Tongia_CEIC_Seminar_4_8_03.pd f Yemula P, A. Medhekar, P. Maheshwari, S. A. Kharpade, R. K. Joshi(2007), “Role of Interoperability in the Indian Power Sector”, Journal of Grid Interop Forum 2007, pp: 1- 6. http://www.gridwiseac.org/pdfs/forum_papers/117_paper_final.pdf
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doc_689416362.doc
A Study of Indian Thermal Power Sector with refernce to ADani and Torrent Power. Also covers the issues faced by Indian Power Country
Chapter – 1 Introduction to Industry: INDIAN POWER SECTOR
There was a significant slowdown in the growth rate in fiscal 2009 with GDP growth at 6.7% due to global financial crisis. There was apprehension that this trend would persist for some time, however, Indian economy has shown resilience and grew by 7.4% in fiscal 2010. The momentum was particularly pronounced in Q4 of 2009-10 with growth at 8.6%. RBI has estimated the GDP growth for fiscal 2011 will be at 8.5%. Though Indian economy has regained its growth momentum after global crisis, the real question is whether it will be able to achieve higher sustainable growth for a longer term. The major area of concern while India looks at sustainable higher economic growth is lack of adequate physical infrastructure, which is adding to production costs, denting productivity of capital and eroding competitiveness of productive sectors. As per a recent RBI report on infrastructure financing, the phenomenal transformation of some of the South-East Asian nations was preceded by quantum investments in infrastructure. The emerging economies particularly need huge infrastructure investment, for instance China invests about 20% of GDP in infrastructure as against 6% of GDP by India. As per Planning Commission’s MidTerm Appraisal of the 11th Plan, investment in infrastructure required during the 12th plan (2012-17) is about 41 Lakh Crores (constituting 9.95% of GDP) to sustain 9% GDP growth. It is therefore imperative that infrastructure investment in India has to gain momentum going forward for higher and sustainable economic growth. Power sector being the key infrastructure area it will be at the centre stage driving India on higher economic growth path. The current all India installed power generation capacity as on November, 2010 is 1,67,077.36 MW and the 11th plan targeted capacity addition is 78,700 MW and 12th plan aims at adding 1,00,000 MW. However, the energy shortage and peak shortage still continues to be 10.1% and 13.3% given that demand continues to outstrip supply. The power sector in India is mainly controlled by the Government of India’s Public Sector Undertakings (PSUs), have about 51867.63MW i.e 31.0% of total installed capacity of 167278.36MW(as on 31/10/2010) in India is being produced by them. Major PSUs involved in the generation of electricity include National Hydroelectric
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Power Corporation (NHPC) National Thermal Power Corporation (NTPC), and Nuclear Power Corporation of India (NPCIL). Besides PSUs, several state-level corporations are there which accounts for about 82227.05MW i.e 49.15% of overall generation , such as Jharkhand State Electricity Board (JSEB), Maharashtra State Electricity Board (MSEB), Kerala State Electricity Board (KSEB), in Gujarat (MGVCL, PGVCL, DGVCL, UGVCL four distribution Companies and one controlling body GUVNL, and one generation company GSEC), are also involved in the generation and intra-state distribution of electricity. Other than PSUs and state level corporations, private sector enterprises also play a major role in generation, transmission and distribution, about 33183.68 MW i.e 19.85% of total installed capacity(as on 31/10/2010) is generated by private sector. The PowerGrid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid. India is world’s 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India’s economic rise, the demand for energy has grown at an average of 3.6% per annum over the past 30 years. The total demand for electricity in India is expected to cross 950,000 MW by 2030. India is the sixth largest in terms of power generation. About 65% of the electricity consumed in India is generated by thermal power plants, 22% by hydroelectric power plants, 3% by nuclear power plants and rest by 10% from other alternate sources like solar, wind, biomass etc. 53.7% of India’s commercial energy demand is met through the country’s vast coal reserves. The country has also invested heavily in recent years on renewable sources of energy such as wind energy. As of Oct 2010, India’s installed wind power generation capacity stood at 11632.44 MW. Additionally, India has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW. The per capita power consumption in India is 733.54KWh/yr, which is very minimal as compared to global average of 2340KWh/yr.
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Energy Transmission Transmission of electricity is defined as bulk transfer of power over a long distance at high voltage, generally of 132kV and above. In India bulk transmission has increased from 3,708 ckm in 1950 to more than 166000ckm, out of which 75556ckm is transmitted by Power Grid Corporation of India ltd (as on 30 Sep. 2010 ). The entire country has been divided into five regions for transmission systems, namely, Northern Region, North Eastern Region, Eastern Region, Southern Region and Western Region. The Interconnected transmission system within each region is also called the regional grid. Creation of high capacity “Transmission Highways” is being planned to address the existing constraints. Power Grid Corporation of India ltd. (PGCIL) notes that these plants need to be progressively commissioned from 2011, at a total estimated cost of Rs. 58,000 Crores. As per Power Finance Corporation (PFC) an investment of about Rs. 1,40,000 Crores has been estimated in the transmission sector for the 11th plan. Energy Distribution India has a Transmission & Distribution (T&D) network of 6.6 million circuit km the third largest in the world. Distribution is the key segment of the electricity supply chain. Distribution segment is characterized by wide dispersal of network over large areas with long lines, high consumer density, high cost of supply, unmetered flat rate supply to farmers, non-metering (due to high cost and practical difficulties), higher rate of growth of load, cross-subsidies, large number of unauthorized connections and power theft. The biggest challenge of the power sector is the high T&D losses. With increased private sector participation, consumer awareness, improved demand side management and prevention of theft there can be marked decrease in the losses. With R-APDRP a large number of initiatives have been introduced with the objective of reducing the AT&C losses to below 15% by FY12, compared to a national average of about 32% at present. As per Power Finance Corporation (PFC) an investment of
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about Rs. 2,87,000 Crores has been estimated in the distribution sector for the 11th Plan. SOURCES OF ELECTRICITY GENERATION Thermal Power Thermal power plants are one of the main sources of electricity in both industrialized and developing countries. The variation in the thermal power stations is due to the different fuel sources (coal, natural gas, naptha, etc). In a thermal power plant, one of coal, oil or natural gas is used to heat the boiler to convert the water into steam. In fact, more than half of the electricity generated in the world is by using coal as the primary fuel. The function of the coal fired thermal power plant is to convert the energy available in the coal to electricity. Coal power plants work by using several steps to convert stored energy in coal to usable electricity that we find in our home that powers our lights, computers, and sometimes, back into heat for our homes. The working of a coal power plant is explained in brief: Firstly, water is taken into the boiler from a water source. The boiler is heated with the help of coal. The increase in temperature helps in the transformation of water into steam. The steam generated in the boiler is sent through a steam turbine. The turbine has blades that rotate when high velocity steam flows across them. This rotation of turbine blades is used to generate electricity. A generator is connected to the steam turbine. When the turbine turns, electricity is generated and given as output by the generator, which is then supplied to the consumers through high-voltage power lines. Apart from thermal power plants, there are other types of energy resources being used to generate electricity. The various types of energy sources include hydro electricity, solar power, wind power, nuclear power, etc. Hydro Power Hydroelectric power or hydroelectricity is electrical power which is generated through the energy of falling water. A hydroelectric power plant uses the force of the water to
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push a turbine which in turn powers a generator, creating electricity which can be used on-site or transported to other regions. This method of energy generation is viewed as very environmentally friendly by many people, since no waste occurs during energy generation. It is the most widely used form of renewable energy. Solar Power Solar power is energy that is derived from the sun and converted into heat or electricity. It is a versatile source of renewable energy that can be used in an amazing number of applications. Energy from the sun can be converted into solar power in two ways. The first way of obtaining solar power involves the use of photoelectric applications. Photoelectric applications use photovoltaic cells in converting energy from the sun into electricity. The second way involves the use of solar thermal applications wherein heating a transfer fluid is done to produce steam to run a generator. Wind Energy Wind power is power which is derived from wind. There are a number of ways to collect and use wind power, and wind power is among the most ancient forms of energy used by human. Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity. Nuclear Power Nuclear energy is produced in two different ways. In one method, large nuclei are split to release energy. Here, nuclear energy originates from the splitting of uranium atoms in a process called fission. At the power plant, the fission process is used to generate heat for producing steam, which is used by a turbine to generate electricity. In the other method, small nuclei are combined to release energy.
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FISCA L YEAR 2005 2006 2007 2008 2009 2010
Source: Ministry of Power
CAPACITY (MW) THERMAL HYDRO NUCLEAR RENEWABLE TOTAL
80,902 82,411 86,015 91,907 93,998 102,454
30,942 32,326 34,654 35,909 36,878 36,863
2,770 3,360 3,900 4,120 4,120 4,560
3,811 6,191 7,761 11,125 13,243 15,521
118,426 124,287 132,329 143,061 148,238 159,398
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LITERATURE REVIEW
Schwartz (2008), Studies the business of NAILD distributor through this article. The NAILD is an organisation supporting lighting distributors in the US with publications, training, and conferences. According to him, recent changes and trends in the lighting market provide new opportunities. The keys to taking advantage of the opportunities is to understand the market, know where to get more information, provide updates to your customers, and turn information into active marketing and promotional efforts. The Energy Independence and Security Act of 2007 add to the programs and efforts introduced in EPACT 2005. A key component of the ENERGY STAR qualified light fixtures program is the Advanced Lighting Package (ALP). As market trends and legislation move purchasers away from inefficient technologies and towards energyefficient products, NAILD distributors that become ENERGY STAR Partners have an opportunity to increase sales and profits.
Sreekumar (2008) reviews the market-oriented power sector reforms initiated in India in the early 1990s. It brings out a public interest oriented critique of the three phases of the reforms—firstly, privatization of generation, secondly, state sector restructuring and finally, the ongoing reforms since the passage of the Electricity Act 2003. Reforms were taken up as a response to the crisis in the sector. The article questions the success of the process in solving the crisis. While acknowledging positive elements like increase in transparency and participation, it criticizes the process for neglect of development issues like rural electrification and energy efficiency. The article concludes with some thoughts on developing an alternate reform approach.
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Augustine (2007), tries to put forth a model pertaining to transportation because India is facing a huge increase in power consumption. The model is done with an aid of GAMS (General Algebraic Modelling System). The power sector is represented in the model by production capacities, cost of production and transmission, demand for power and the distances between power plants and consumption centres. The author has considered major power generating areas of the country like Ranchi, Bhopal, bhubwaneshwar, dhanbad, Vishakhapatnam etc. The model described is very realistic, scalable and easy to implement, but has only considered coal, hydroelectric and natural gas technologies. It can be expanded to include other technologies and also can be made dynamic to provide solutions for different time periods representing the maturing of the power generation plants during the duration of the model.
Remes (2007) talks about Russia fourth largest user of electricity in the world, he talks about RAO UES which controls all the transmission, distribution and supply of electricity, it controls everything except nuclear power. Anatoly Chubais, The very core of the reform has been to separate competitive businesses from natural monopolies, both legally, functionally and regulatory. Consequently, competitive parts – generation companies, supply/sales companies and service companies – have been separated into legally different companies from natural monopolies – from Transmission Company, distribution companies and system Operator Company. It is of utmost importance for the future, to prevent the creation of any monopoly structures on the markets. UES is suggesting a change in the law allowing the Antimonopoly Agency to interfere immediately when the share of any company in any regional free-flow markets. Finally, concluding it can be said that Russia is ahead of the EU in the reform of the power sector and power sector monopolies. Russia has been able to create very sophisticated markets, with new elements, and with rational elements to the regulations.
Yemula, Medhekar, Maheshwari, Khaparde, Joshi(2007) have put their opinion about Interoperability in the power sector. According to Wikipedia, Interoperability is a property referring to the ability of diverse systems and
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organizations to work together (inter-operate). The term is often used in a technical systems engineering sense, or alternatively in a broad sense, taking into account social, political, and organizational factors that impact system to system performance. Basically they have considered organizational, application, information and technical level interoperability. They believe that organization interoperability is ensured by standard inter-organization protocol, which expresses the way in which organization share data. Application Interoperability is achieved by enforcement of interapplication protocol. Information interoperability is ensured at lower level by the compliance of standard information model. Technical Interoperability is the result of application of standard device level protocols.
Singh (2006) address the Power sector reforms in India. Reforms were initiated at a juncture when the sector was plagued with commercial losses and burgeoning subsidy burden. Investment in the sector was not able to keep pace with growing demand for electricity. This paper takes stock of pre-reform situation in Indian power sector and identifies key concerns that led to initiation of the process of reform. The paper discusses major policy and regulatory changes undertaken since the early 1990s. The paper also illustrates changes in the market structure as we move along the reform process. It also discuss some of the major provisions of the recently enacted Electricity Act 2003 that aims to replace the prevailing acts which govern the functioning of the power sector in the country. In this context, it discuss two issues arising out of it, namely open access and multi-year tariff that we think would have a significant bearing on the performance of the sector in the near future. The paper also evaluates the reform process in the light of some of the regulatory changes undertaken. Finally, the paper briefly discusses the issues involved in introduction of competition in the power sector primarily through development of a market for bulk power.
Kumar, Khetan & Thapa (2005) highlights that India has set itself an ambitious target of more than doubling per-capita electricity consumption by 2011. Indian power sector, with current electricity shortages of over 11% of peak and 7% of
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energy, will be one of the key determinants to future growth. The Indian government has worked steadily to liberalise the sector and initiated reforms that culminated in the Electricity Act 2003. The Act brought together structural and regulatory reforms designed to foster competitive markets, encourage private participation and transform the state’s role from service provider to regulator. The Act afforded consumers the ability to directly source their electricity from suppliers using existing networks and recognised trading as a separate line of business. Despite the potential offered by the India’s power sector, investors have long been weary of the sector’s bureaucracy and regulatory complexity. With a critical mass of progress in regulatory reforms and soaring economic growth, the Indian power sector is now primed for take off. How India deals with the remaining challenges of the restructuring process and emerging fuel shortages will dictate what happens in the years to come.
Newbery (2005) says that Modern infrastructure, particularly electricity, telecom and roads, is critical to economic development. Electricity provides light, the ability to use modern equipment, computers and access to ICT. Telecom facilitate information exchange and access to the rest of the world, while transport infrastructure is critical for trade, and by lowering transport costs extends the market and increases competition. If there is a surplus of infrastructure, more investment adds little to total output, but if there is a deficit, then shortages constrain total output, magnifying the impact, so that the return to reducing that deficit can be very high indeed.
Banerjee (2004) says that the earliest electric power systems were distributed generation (DG) systems intended to cater to the requirements of local areas. Subsequent technology developments driven by economies of scale resulted in the development of large centralized grids connecting up entire regions and countries. The design and operating philosophies of power systems have emerged with a focus on centralized generation. During the last decade, there has been renewed interest in DG. This paper reviews the different technological options available for DG, their current status and evaluates them based on the cost of generation and future potential.
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The relevance of these options for a developing country context is examined using data for India.
Different definitions of DG have been proposed. Some have linked this to the size of the plant, suggesting that DG should be from a few kW to sizes less than 10 or 50MW. This provides a review of alternative definitions of DG and suggests that DG be defined as the installation and operation of electric power generation units connected directly to the distribution network or connected to the network on the customer site of the meter. DG is also referred to as dispersed generation or embedded generation. DG options can be classified based on the prime movers used—engines, turbines, fuel cells or based on the fuel source as renewable or non-renewable. There are a large number of possible system configurations.
Swain, Singh and Kumar (2004) ,describes there were many inhibitors to growth in power sector but the main problem in the growth was Government Policy, which made it difficult for a private player to enter. This further created the problem that Indian entrepreneurs didn’t have enough knowledge and experience in developing power projects. A whole new system was evolved where private players were invited to be an active participant. The system demanded financial, political and other major requirement in roads and communication. Some of the bold steps taken in the Act were moving generation and distribution out of ‘License Raj’, opening access to national grid and demolishing the ‘Single Buyer’ model. The failure of the large structure and the changing global scenario has forced Government to think of ways to revive this fundamental infrastructure sector. Two ways that government can count on for future growth of this sector are “Small Power Plants” and “Clean Development Mechanism”.
Soronow, Pierce & Wang(2003), introduces FEA's Power Sector Model as the next step in derivatives pricing. Here the authors identified weather and marginal fuel
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prices as independent variables driving load levels and power prices. This is grounded in the understanding that, to a large extent, weather dictates load conditions, which, together with the marginal fuel price, determines the power price. The second step is to conduct a detailed empirical study of the nature and relationships among the various components under analysis. The goal of the study is twofold: to understand the relationship between the variables, as well as to determine the seasonal aspects inherent in each component. The approach is capable of capturing the essential power price characteristics such as seasonality in price and volatility, mean-reversion, price spikes, volatility clustering, and regional correlations. The model is self-contained, and when fully calibrated, Monte Carlo simulation provides the basis for valuing power contracts and generation assets directly.
Tongia (2003), describes that India’s power sector is undergoing significant reforms, beginning in 1991, which are changing and diminishing the role of the government, which functioned earlier as the near monopoly integrated utility. Because of significant financial difficulties faced by the SEBs 1991 saw the enactment of legislation, the 1991 Electricity (Supply) Act, which opened up the sector to private participation, primarily in generation. The current thrust of reforms is on the distribution sector, reducing losses and increasing efficiency. This might just be a precursor to privatization, but there is a goal to full electrification by 2012. In the last few years, the T&D losses have stabilized somewhat, but there is only limited interest of private players into the sector, especially new players. Those who state that overall financial losses have increased after the reforms do not factor in the increase in costs due to generator price increases regardless of reforms, even from government generators and PSUs. Electricity Bill 2001 opens up the sector to private participation with limited approval obligations. This sector is vital to India’s growth and development. At the same time they have not sufficiently addressed structural changes for grid operation and discipline (dispatch), such as based on load duration curves, or access and penetration for the poor (especially how that affects financial performance). They are a step in the right direction, ending years of Government control and mindset.
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Ch-2 INTRODUCTION TO PROJECT
Objectives of Study:
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To understand the power sector in India. To understand which power fuel is widely used in power generation. To know the states, regions which have abundant resource for thermal power. To understand the ultra mega power plants, which are being developed by private sector. To understand annual coal production and consumption of coal by power industry. To know the power deficit in our country, and how much capacity addition is needed in power sector. To understand the risks and concerns in thermal power generation. To understand demand and supply outlook of power generation. To understand the position of various power companies.
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•
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Scope of Study The researcher has made this project to understand thermal power generation need of nation. The scope is limited to trend in thermal power generation, the capacity addition in thermal power in recent period. It also shows some analysis of the companies, which are present in thermal power generation. The report shows the coal resources in the country, the trend in coal production, the consumption of coal as a raw-material by thermal power plants. The report shows the key concerns, issues which affect the coal production, coal supply to power plants. It shows the long term demand and supply of coal in nation, which can affect thermal power plants. It shows the features of ultra mega power plants. The report does not give detail on other sources of electricity. The researcher is not doing the financial viability of thermal power projects and its comparison with other types of power plants
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Research Methodology: The research is basically a descriptive research. Secondary data is collected from the articles in newspapers. The researcher has used the database of power ministry, central electricity authority. Also reports of financial institutions, annual reports of companies in power generation business are read and considered for getting proper and reliable information
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THERMAL ENERGY
The total power generation in the country during FY10 was 771.5 Billion Units (BUs) as compared to 723.794 billion units during last year. The annual growth in the energy generation during the year has been 6.6% against the CAGR of 5.2% during the period 2001-02 to 2009-10.The total thermal capacity, including gas stations and diesel generation accounts for about 64.27% of installed capacity of the country followed by hydro capacity at 23.13%. Nuclear stations account for 2.86% and the balance 9.74% is contributed by Renewable Energy Sources. With 84,198.38 MW of the installed capacity contributed by coal based stations which is 52.82% of nation’s capacity, coal remains key fuel for power generation. Fuel wise breakup of generation for the year 2009-10 Total Generation Thermal Hydro Nuclear Others Total Billion Units 640.876 106.68 18.636 5.359 771.551
Source: Ministry of Power
( IN MW) SR.NO. 1 2 3 4 5 6 7
Source: Ministry of Power
Region Northern Western Southern Eastern N. Eastern Islands All India
THERMAL COAL GAS DIESEL TOTAL 23620.00 3813.26 12.99 27446.25 29290.50 7903.81 17.48 37211.79 19172.50 4690.78 939.32 24802.60 17635.38 190.00 17.20 17842.58 60 787.00 142.74 989.74 0 0 70.02 70.02 89778.38 17384.85 1199.75 108362.98
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A thermal power plant is generally a steam driven power plant. The force that spins the turbines in the plant is steam that is either used to drive an electric generator or any other work that requires power. However there are variations in the functioning of different types of thermal power plants which mostly depends of the kind of fuel used. The most frequently used fuel for thermal power plants in India is coal. More than 70% of the electricity consumed in India is generated through thermal power plants. India is home to numerous thermal power plants which are renowned all over the world. Domestic coal based power plants, are economical source of power. Compared to other primary energy sources like nuclear, gas as well as renewable, domestic coalbased power plants are the most cost economic options at the current energy price levels. Coal-based power work as base load stations providing grid stability unlike renewable and hydro based stations. For a growing economy, given the current resource situation and geo-political linkages, coal-based stations are the best response to the country’s needs.
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SOME OF THE MAJOR THERMAL POWER PLANTS IN INDIA
Anpara Thermal Power Station- Uttar Pradesh Located on the banks of rihand reservoir in the district of sonebhadra in Uttar Pradesh the Anpara thermal power station is a coal fired thermal power plant. Situated at a distance of 200 km from Varanasi on pipri-singrauli road this power station is well connected by air/rail and road route from other major cities. This thermal power plant has 5 operational units with a total installed capacity of 500 MW. Bakreswar Thermal Power Project - West Bengal The Bakreswar Thermal Power Project is one of the most prominent thermal power projects in India. It is situated at a distance of just 260 Km away from Kolkata. The project has clear rail track access via Chinpai on the Andal-Sinthia Line of Eastern Railways. The Bakreswar Thermal Power Project is running with five operational units having total installed capacity of 1050 MW. Expansion of another 600 MW unit (sixth unit) has been envisaged for implementation during the Eleventh-Five-year Plan period. Panipat Thermal Power Station Ii A coal based Thermal Power Plants in India the Panipat Thermal Power Station II is located in Panipat in Haryana. Developed under four stages this thermal power plant has 8 units in total with an installed capacity of 250 MW. Deenbandhu Chhotu Ram Thermal Power Station A coal based power plant of HPGCL the Deenbandhu Chhotu Ram Thermal Power Plant is located at Yamunagar in Haryana. Commissioned in April 2008 with its first unit today this power plant has two units with a total installed capacity of 600 MW.
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Rajiv Gandhi Thermal Power Station The Rajiv Gandhi Thermal Power Station is situated in Kedar in the Hisar district of Haryana. One of the lowest costing power projects in India so far this power plant is a coal based power plants of HPGCL. This thermal power plant has 2 units with a total installed capacity of 600 MW. Kota Super Thermal Power Plant Situated on the bank of River Chambal near Kota in Rajasthan this thermal power station is the state's first major coal fired power plant. Known as one of the most efficient and prestigious thermal power plants in India the Kota Super Thermal Power Plant has received many awards for productivity during 1984,1987, 1989, 1981 and every year since 1992 onwards. This thermal power plant has 28 units with an installed capacity of 1240 MW.
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FUEL AVAILABILITY FOR POWER GENERATION
With about 84,198 MW, i.e. 52.82% of the installed capacity, contributed by coal based power plants; coal remains a key fuel for power generation. As per the MidTerm Appraisal of the Eleventh Plan, it is estimated that the coal demand for FY12 would be about 713 Million Tonnes (MT), out of which 520 MT would be required for the Power sector. Against this, as per the Annual Report of Ministry of Coal for FY10, the indigenous availability is estimated to be about 630 MT, out of which 486 MT is to be supplied from Coal India Limited (CIL). A likely gap of 83 MT would be met through imports, of which about 60 MT would be required for the Power sector. INDIA COAL PRODUCTION (In Million tonnes) AND GROWTH
All India Coal Consumption By Power Generation By far Power is the biggest segment and accounted for 71% of India’s coal demand, including both thermal utilities and captive power plants. This segment is likely to see strong growth over next few years given the large capacity build out expected in the power segment. India’s cost of production is on the lower end, driven by lower stripping ratios, dominance of open cast mining. YEAR mn.tonnes 2004-05 2005-06 2006-07 2007-08 2008-09 278 280 302 330 355
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Reserves and Location India’s total coal reserves as of Apr-10 stood at 276.8bn tonnes (source Ministry of Coal). However most of the reserves are of thermal coal (87%) and prime coking coal reserves are 5%. Indian coal reserves are mostly in the eastern and central parts of the country. The states of Orissa, Jharkhand, West Bengal and Chattisgarh accounted for 79% of Indian coal reserves. In terms of proved coal reserves, India’s coal reserves stood at ~110bn tonnes, of which thermal coal accounted for 83% and the above 4 states accounted for 78%. Indian thermal coal is predominantly of high ash content. Indian coal also has relatively lower calorific value and this is one of the key reasons why port based users in India prefer imported coal which has lower ash and higher calorific value. In India, coal is classified in grades (which are based on useful heat value) and pricing is set based on the grade of coal. Most of India’s mines are open-cast mines(one of the key reasons for their lower cost)
Key Sources of Coal Supply In India. Coal India: CIL’s production increased at a CAGR of 5% between FY02-07, but over FY08-10 period production picked up pace at a CAGR of 6.6%. Given CIL’s dominant status in India's coal industry, any shortfall in CIL's production growth would likely push up imports, while an increase should result in lower imports.
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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SCCL: Singareni Collieries Co (SCCL) is an undertaking of the Andhra Pradesh State Government and the Central Government. SCCL coal production has increased by a CAGR of 5.8% over FY01-10 period. Captive coal blocks This has been among the bigger disappointments in terms of coal supply. Currently accounting for 6% of India’s coal demand, it has sharply lagged targets. This has mainly been on account of the various delays associated with captive coal blocks being allocated over the last few years. As of now 215 number of coal blocks has been allocated for captive mining, of which only 26 blocks are currently producing total coal. Coal production from block allocations meant for captive coal consumption has been below targets and estimates as the captive coal blocks have not able to get the necessary approvals in time and there have delays going into years. The average time taken so far for the blocks under production has been ~6.5 years, with many blocks taking more than 8 years to get the required proposals. The key problems which have impacted captive coal block allottees are land acquisition, relief and rehabilitation issues, forest clearances, environment clearances. Imports India total coal imports (thermal + coking coal) have increased by a CAGR of 16% over FY05-10. The key countries from where India imports coal are - Australia, South Africa, and Indonesia. Australia is a source mainly for coking coal, while Indonesia is the source of thermal coal. Indonesian thermal coal has relatively the lowest calorific value among the 3 countries, and also relatively high moisture content (which increases the actual cost of coal).
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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ULTRA MEGA POWER PLANTS (UMPP)
For meeting the growing needs of the economy, generation capacity is to double itself in every ten years in next three decades at least. As such there is need to develop large capacity projects at the national level to meet the requirement of different States. Development of Ultra Mega Power Projects (UMPPs) is one step in that direction. These are very large sized projects, approximately 4000 MW each involving an estimated investment of about Rs.17 – 18’000 crore. The projects will substantially reduce power shortages in the country. The Central Government has accordingly taken the initiative for facilitating the development of a few ultra mega power projects of about 4,000 MW capacity each under tariff based competitive bidding route using super critical technology on build, own and operate basis. These projects will meet the power needs of a number of States/ distribution companies located in these States, and are being developed on a Build, Own, and Operate (BOO) basis. In view of the fact that promotion of competition is one of the key objectives of the Electricity Act, 2003, and of the legal provisions regarding procurement of electricity by distribution companies, identification of the project developer for these projects is being done on the basis of tariff based competitive bidding. Salient Features of the Plant and Choice of Technology • The Ultra Mega Power Projects would use Super Critical Technology with a view to achieve higher levels of fuel efficiency, which results in fuel saving and lower green-house gas emissions. • • • Flexibility in unit size subject to adoption of specified minimum Supercritical parameters. Integrated power project with dedicated captive coal blocks for pithead projects. Coastal projects to use imported coal.
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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The Bidding Process For these projects, as per the provisions of the competitive bidding guidelines, a two stage selection process has been adopted. The first stage of bidding involves Request for Qualification (RfQ) containing qualifying criteria for selection of bidders. The RfQ documents submitted by the bidders are evaluated to identify those bidders who will be eligible to participate in the second stage of the process. The second stage of the bidding process invites Request for Proposals (RfP) from the bidders so qualified. After evaluation of the RfP documents, the successful bidder is identified on the basis of the lowest levellised tariff. Selection of Sites for Setting up of UMPPS Nine such projects had been identified to be taken up, 4 at pithead and 5 at coastal locations. The nine sites for the UMPPs identified by the Central Electricity Authority (CEA) in consultation with the States are as follows:• • Five coastal sites at:- Mundra in Gujarat, Krishnapatnam in Andhra Pradesh, Tadri in Karnataka, Girye in Maharashtra, and Cheyyur in Tamil Nadu. Four pithead sites at :- Sasan in Madhya Pradesh, Tilaiya in Jharkhand, Sundergarh District in Orissa and Akaltara in Chhattisgarh. Role of the Ministry Of Power The Ministry of Power is playing a crucial role for the development of the UMPPs by coordinating between various concerned Ministries/Agencies of the Central Government, and with various State Governments/Agencies. Some of the key areas requiring the Ministry of Power’s intervention include – • Coordination with Central Ministries/Agencies for ensuring: o Coal block allotment/coal linkage o Environment/forest clearances o Water linkage
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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• • • •
Required support from State Governments and their agencies. Working out allocation of power to different States from UMPPs in consultation with the States. Facilitating PPA and proper payment security mechanism with State Governments/State Utilities. Monitoring the progress of Shell companies with respect to predetermined timelines.
Concept of Special Purpose Vehicles As mentioned above, competitive bidding guidelines have been issued under the Electricity Act for procurement of power by distribution licencees. These guidelines permit the procurement of electricity by more than one distribution licencee (also known as a procurer) through a combined bid process, and in such a case the procurers shall have the option to conduct the bid process through an authorised representative. The concept of “Authorised Representative” forms part of the standard bidding documents (issued under the competitive bidding guidelines) and the authorised representative is defined as the corporate body authorised by the procurers to carry out the bid process for the selection of the successful bidder on their behalf. Accordingly, PFC – the nodal agency for the development of these projects –sets up separate Special Purpose Vehicles (SPVs) for each UMPPs to act as authorized representatives of the procurers (distribution companies of the power procuring States). These SPVs are 100% owned subsidiaries of the PFC. The Boards of the SPVs are chaired by a Director of the PFC; their other members are officials of the PFC, and representatives of the distribution companies of the major power procuring States who are inducted on the Boards at the appropriate stage. On completion of the entire process for selection of the project developer, the SPVs are to be transferred to the selected bidders i.e. to the selected project developers. Role of SPVS The SPVs are responsible for carrying out various activities on behalf of the procurers. Completion of these activities prior to award of the project is considered
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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necessary to enhance the investor’s confidence, reduce risk perception and get a good response to the competitive bidding process. Some of the main activities undertaken by the SPVs are:• • • • • • • • Appointment of Consultants to undertake preparation of Project Report, preparation of Rapid Environment Impact Assessment Report etc. Appointment of Consultants for International Competitive Bidding (ICB), document preparation & evaluation To carry out bidding process and award of project Initiation of land acquisition process for the project Allocation of Coal blocks for pit-head projects Getting clearance regarding allocation of water by the State Govt. for pithead locations Approval for use of sea water from Maritime Board/ other Govt. Agencies for coastal locations Obtain clearance from the State Pollution Control Board, initiate forest clearance etc. as are required for the project and for the coal mines, followed by environment and forest clearances from the Central Government. • • Obtaining geological reports/ other related data from CMPDI for the coal blocks. Tie up the off-take/ sale of power
Role of States States hosting the UMPPs and the other power procuring States are playing a proactive role. In particular, some of the activities in which the concerned States play a decisive role include implementation of the Rehabilitation & Resettlement Plan, provide authorization to the PFC/SPV to carry out the bidding process on behalf of the distribution utilities, participate through its representatives in various committees set up for undertaking the competitive bidding process, facilitate signing of the Power Purchase Agreement, ensure proper payment security mechanism with the distribution utilities etc.
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Awarded UMPP Projects Four UMPPs namely Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand have already been awarded to the successful bidders and are at different state of development. A brief details of these projects are as below: SR. NO.
1 2 3 4 Mundra, Gujarat Sasan, Madhya Pradesh Krishnapatnam, Andhra Pradesh Tilaiya, Jharkhand COASTAL PITHEAD COASTAL PITHEAD
NAME OF UMPP
TYPE
DATE OF TRANSFE R
23.04.2007 07.08.2007 29.01.2008 07.08.2009
LEVELISED TARIFF (In Rs.Per kWh)
2.264 1.196 2.333 1.77
SUCCESSFUL DEVELOPER
TATA POWER LTD. RELIANCE POWER LTD. RELIANCE POWER LTD. RELIANCE POWER LTD.
Projects in Pipeline • Two more coastal UMPPs are planned in Andhra Pradesh. The site for the first UMPP is in Prakasham district and site finalization for the other UMPP is being done by CEA and PFC.
• Two more UMPPs in Orissa at pithead are also planned. The captive coal
blocks for one UMPP have been allocated by Ministry of Coal. Site finalization for these UMPPs is in progress. • One more additional UMPP each in the States of Gujarat, Tamilnadu and Jharkhand are envisaged.
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UMPP TYPE AND BENEFICIARY STATES.
SR.NO. 1
UMPP (EACH OF 4000 MW) MUNDRA, GUJARAT BY TATA POWER LTD.
TYPE COASTAL
BENEFICIARY STATES GUJARAT MAHARASHTRA PUNJAB RAJASTHAN HARYANA
(MW) 1900 800 500 400 400
2
SASAN, MADHYA PRADESH BY RELIANCE POWER LTD.
PITHEAD
MADHYA PRADESH RAJASTHAN UTTAR PRADESH DELHI HARYANA UTTARAKHAND PUNJAB
1500 400 500 450 450 100 600
3
KRISHNAPATNAM, ANDHRA PRADESH BY RELIANCE POWER LTD.
COASTAL
ANDHRA PRADESH MAHARASHTRA TAMIL NADU KARNATAKA
1600 800 800 800
4
TILAIYA, JHARKHAND BY RELIANCE POWER LTD.
PITHEAD
JHARKHAND UTTAR PRADESH BIHAR PUNJAB GUJARAT MAHARASHTRA RAJASTHAN MADHYA PRADESH HARYANA DELHI
1000 650 500 450 300 300 250 200 200 150
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KEY CONCERNS
Power sector is a highly capital intensive business with long gestation periods before commencement of revenue streams (construction periods of 4-5 years) and an even longer operating period (over 25 years). Since most of the projects have such a long time frame, there are some inherent risks in both the internal and external environment. Some of the key concerns being faced by the sector currently are: 1. Coal Supply Position More than 50 per cent of India’s generation capacity is coal based. According to the Integrated Energy Policy, by FY31-32, India requires 2,040 million tonnes of coal for power generation, more than 5 times its current consumption levels. The shortage of coal is so acute that most of the power generation companies are looking at imported coal as a viable alternative to domestic coal. Coal requirement of power sector (in million tonnes per annum)
Coal-Imports
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The Key Risks to India’s Coal Production Outlook essentially come From 3 Directions: Continued long delays in getting required approvals: Captive coal block allocations have not been successful given the long time required for getting the required approvals. The current GO/NO GO area classification could also create further issues. As of now the Ministry of Coal and the MoEF are currently working to resolve this issue. Deteriorating law and order situation in key coal mining regions: ~90% of India’s coal reserves are found in Eastern and Central India. Some parts of these states currently are facing law and order issues related to Naxalite activities. As Coal India’s prospectus highlights that the company has faced interruptions to its operations because of such attacks. Additionally it also creates transportation issues. ‘In addition, as a result of these disruptions, state-owned railway lines in these areas have been restricted from time to time in the past due to security concerns from possible terrorist activities of Naxalite rebels. Such disruptions have in the past and may affect in the future the availability of adequate transportation capacities for the offtake of our coal, resulting in increased inventory, increased operating costs resulting from inability to complete night-loading schedules due to suspension of night trains or other transportation means at night, as well as increased costs for provision of adequate security personnel in affected areas. Increasing logistics issues: Railway infrastructure needs to keep pace with increasing coal production. ‘Sales volumes have in the past been constrained by inadequate transportation infrastructure’. capacities, including non-availability of adequate railway
2. High AT&C (Aggregate Technical And Commercial) Losses
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India has historically witnessed very high transmission, distribution and commercial losses of power. Despite the government’s continuous efforts to improve the situation, out of every 100 units of power generated, only 70 are available to the paying customer. This puts a significant burden on the customer who has to pay for the losses incurred in the transmission and distribution (T&D) network. A comparison of distribution losses with other developing countries shows that we have a long way to go before we reach global standards or even the standards in emerging market economies. Distribution losses in developing countries in 2008 – a comparison
The high losses result in increasing annual losses of State Electricity Boards (SEB). The losses are mainly due to the high level of subsidies, power theft and inadequate metering. This also results in cross subsidization of tariffs to make the SEBs financially viable. Rising power tariffs will result in higher losses for SEBs which is a major cause for concern in the sector. 3. Execution Risk India has historically failed to meet its power sector targets by a significant margin and with tremendous opportunities ahead; the power sector continues to be affected by the shortfall both on generation as well as transmission side.
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Power projects are highly capital intensive and have a long construction as well as operational phase thus exposing them to various macroeconomic as well as project specific risks. The life of a power project can be divided into three different stages: developmental stage, construction stage and operational stage; with each stage having its own set of critical risk elements Development stage: From the conceptualization of a project to the start of construction activities, the key risks that need to be monitored are: Statutory approvals and clearances from the authorities • • Land acquisition Fuel, water and transmission linkages
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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•
Availability of both equity and debt funding
Construction stage: From the start of construction to commissioning of projects, the key risks that need to be monitored are: • • •
•
Execution within estimated cost Execution within targeted timelines Transportation/logistics of equipments Hydrological and geological risks in case of hydroelectric projects.
Operation stage: During the operations phase, operating and maintaining the power plant efficiently and ensuring that operational costs and performance are maintained within or better than the norms is the major challenge. 4. Equipment Shortage Equipment shortages have been a significant reason for India missing its capacity addition targets for the 10th five year plan. While the shortage has been primarily in the core components of Boilers, Turbines and Generators, there has been lack of adequate supply of Balance of Plant (BOP) equipment as well. These include coalhandling, ash handling plants, etc. Apart from these, there is shortage of construction equipment as well. The Working Group on Power for 11th Plan has outlined the requirement for construction equipment for Thermal power plants. The major equipment required to be deployed for simultaneous construction of 24 projects of less than 500 MW and 21 projects of more than 500MW is summarized below.
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5. Financials Rapid build up of the generation capacity is being aided by setting up of Ultra Mega Power Projects (UMPPs) each of which is 4000 MW. However, the execution of the Ultra Mega Power Projects (UMPP) is a significant challenge as India has not witnessed an execution of such a large scale power project before. Furthermore, with each UMPP costing above INR 16,000 Crore, financing such a large project is a
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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critical constraint for any developer. In addition, considering the high financial stake involved through private investments, delay in payments may put severe pressure on developers/suppliers to meet the performance commitments.
6. Manpower Shortage There is a general consensus that shortage of talent in the construction sector is a long term problem and is likely to continue to push up project costs and risks. The flow of talent into construction and power sector has been gradually drying up as candidates have sought an alternative – and often more lucrative – career options. The Government, which is the biggest buyer of the capital projects, has also not done enough to address this challenge. The education system is often not delivering the required number of specialists across project management, engineering, estimating, surveying and contract management. Facing a desperate game of catch up, the industry needs a genuine collaboration between project owners, contractors and governments to attract more school leavers and graduates. Companies should also seek to stay in touch with changing employee aspirations. By encouraging diversity in its employment practices and by offering greater flexibility in working hours, the sector can reach out to a wider potential audience that perhaps would not previously have considered such a career. Investment in existing employees is also crucial in order to offer better-defined career structures, with a greater focus on training and higher salaries where possible.
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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The profile of manpower shortage at supervisory staff level in hydro power and thermal power sector is outlined below:
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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CHAPTER-3 DATA ANALYSIS, FACTS & FINDINGS
Power Generation Capacity Grand Total Installed Capacity is 167278.36 MW. Thermal Power Current installed capacity of Thermal Power is 108602.98 MW which is 64.9% of total installed capacity.
•
Current installed base of Coal Based Thermal Power is 89778.38 MW which comes to 53.7% of total installed base. Current installed base of Gas Based Thermal Power is 17624.85 MW which is 10.53% of total installed base. Current installed base of Diesel Based Thermal Power is 1199.75 MW which is 0.71% of total installed base.
•
•
The state of Maharashtra is the largest producer of thermal power in the country. Hydro Power India was one of the pioneering countries in establishing hydro-electric power plants. The power plant at Darjeeling and Shimsha (Shivanasamudra) was established in 1898 and 1902 respectively and is one of the first in Asia. The installed capacity as on oct”2010 is approximately 37328.40MW (22.3%) The public sector has a predominant share of 97% in this sector. Nuclear Power Currently, seventeen nuclear power reactors produce 4,560.00 MW (2.7% of total installed base).
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Renewable Power (Res) Current installed base of Renewable energy is 16786.98 MW which is 10.03% of total installed base with the southern state of Tamil Nadu contributing nearly a third of it (5008.26 MW) largely through wind power. Capacity addition target 11th plan (2007-2012) Megawatts (MW)
Type/sector Central State Thermal Hydro Nuclear Total 24840 8654 3380 36874 2330 1 3482 0 2678
Private Total 11552 3491 0 15043 59693 15627 3380 78700
3 Source: Ministry of Power
Capacity (MW) Addition During (2010-11) PROGRAMMED ACHIEVED QTR 1 5208.7 4063 QTR 2 4831.5 2707 QTR 3 4709.5 QTR 4 6691.5 TOTAL 21441.2
Source: Ministry of Power
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SECTOR-WISE GENERATION CAPACITY
The total installed power generation capacity of India as on March 31, 2010 is 159,398 MW out of which over 18 per cent is contributed by the private sector. Sector wise generation capacity (in MW) as on March 31, 2010*
India has added generation capacity of 9,585 MW in FY09-10, a 177 per cent increase compared to capacity addition of 3,454 MW in FY08-09. Private sector was the biggest contributor with more than two-fifth of the total capacity added in FY09-10.
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Table showing Power deficit scenario. YEAR 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 MILLION UNITS (MU) REQUIREMENT AVAILABILITY SHORTAGE %DEFICIT 507216 467400 -39816 7.80% 522537 483350 -39187 7.50% 545983 497890 -48093 8.80% 559264 519398 -39866 7.10% 591373 548115 -43258 7.30% 631554 578819 -52735 8.40% 690587 624495 -66092 9.60% 737052 664660 -72392 9.80% 777039 691038 -86001 11.10% 830594 746644 -83950 10.10%
Graph showing general energy deficit and energy deficit at peak time.
POWER COMPANIES
Power Utilities Have Underperformed the Broader Market
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Source: Bloomberg, As on 31st December, 2010
The biggest reasons for underperformance of the new breed of power developers (Adani Power, JSW Energy and Reliance Power) is aggressive IPO pricing, more generally, the sector has faced multiple structural issues such as:
• • •
Increasing competition on the back of no discernible entry barriers; Rising project delays; and Mounting dependence on Chinese equipment.
These factors have also resulted in established players such as NTPC and Tata Power marginally underperforming. 1. No Discernible Entry Barriers Capital was once the biggest entry barrier for this industry. However, given that the sector now receives significant financial backing from the banking and equity capital market community, it has allowed new entrants with limited or no experience in power generation to meet their aspirations of setting up power projects. If we look at the current pipeline of projects we find that the share of new entrants constitutes 42% of the total pie.
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Source: Ambit Capital Research
2. Execution Record Of The Private Sector Companies Has Lagged That Of Public Sector. The execution track record for the private sector has been dismal. The average target/achievement ratio for the private sector is 40% if we focus on the 9th plan and thereafter (since that is when private sector participation picked up). The comparable ratio is 64% for the public sector (since the first FYP over 50 years ago). Public Sector
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Source: CEA, FY11 is till November
Private Sector
Source: CEA, FY11 is till November
3. Deteriorating Balance Sheet In pursuit of aggressive growth plans, most of the private developers have already taken on huge debt burdens (the average debt: equity for IPPs is hovering at around 1.5x). Given that projects are getting delayed (the average target/achievement ratio of 54% in the 11th plan implies that every second power project that has been commissioned has been delayed), and given that companies’ balance sheets are highly leveraged, some of the IPPs) could find themselves in a tricky position in FY11 which could result in fresh equity issuance.
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4. 40% Of Equipment Ordered By The Private Utilities Is From The Chinese Companies. Given that BHEL, India’s dominant boiler, turbine and generator (BTG) manufacturer has a full order book and given that BHEL’s pricing is 15-20% more expensive relative to the Chinese manufacturers, private players have been placing BTG orders with the Chinese. In the last three years, China’s share in total MW currently under construction in the 11th plan has increased to 33% compared with nil five years ago.
Source: Ambit Capital Research
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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COMPETITIVE BUSINESS POSITIONING OF INDIAN COMPANIES
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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TORRENT POWER LTD.
Torrent Power, a part of the Torrent Group, is a fully integrated player with a presence across the power value chain i.e. generation, transmission and distribution. The company has current generation capacity of 1.7GW and distributes power to more than 3 million customers annually in Ahmedabad, Gandhinagar, Surat, Bhiwandi and Agra. The construction of the gas-based Dahej power plant (1.2GW) and expansion at the SUGEN plant near Surat are currently under implementation. The company has been the only successful player in the distribution franchisee business with a presence in the Bhiwandi, Agra and Kanpur circles. It is an integrated player: Torrent is a fully integrated player with presence across generation, transmission and distribution. Torrent also enjoys the luxury of being the only player operating in Surat, Gandhinagar and Ahmedabad. Besides this, it is the only successful player in the distribution franchisee model which is the next big opportunity in the power sector in India. It has zero exposure to Chinese equipment: Unlike peers, Torrent has not purchased Chinese BTG equipment. Minimal exposure to merchant power: Of its capacity of 1.7GW, only 10% (~0.2GW) is exposed to merchant power. Also in the pipeline of 1.5GW, the exposure is restricted to ~20%.
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Torrent Power is the best fitted amongst Peers (Based on Fy10 Financials) Torrent Power Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted return on net worth (%) Return on long term funds (%) Total debt/equit y Current ratio Financial charges coverage ratio 29.98 Tata Powe r 26.17 Adani Powe r CESC Lanco 56.24 28.26 14.71 JSW GVK GMR Enrgy 41.4 39.52 54.27
24.26 14.07
19.44 12.88
48.11 37.07
22.09 12.7
13.7 8.1
41.31 36
38.91 8.33
49.04 35.32
21.1 20.97 0.8 1.04
8.47 9.94 0.56 2.45
2.84 1.52 1.68 2.06
12.19 13.01 1.01 0.93
15.76 15.77 0.88 1.61
0.92 1.27 0.04 268.5 2
-0.04 0.89 0.44 27.11
14.96 16.11 0.39 1.9
5.84
5.02
7.18
3.14
4.94
22
0.97
5
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SWOT Analysis Strengths:
•
The integrated player in India across the entire value chain –generation, transmission and distribution The only successful player in the private distribution franchisee business The only power utility company with positive FCFF in FY10 Zero reliance on Chinese equipment Stellar operational efficiency (FY10 average PLF was 90%+ and T&D losses were sub-10% compared to the national average of 78% and 25%+ respectively)
• • • •
•
One of the strongest balance sheets in the sector with FY10net debt: equity of 0.6x compared with ~1.5x for peers Strong Board of Directors with a high profile of independent directors such as Keki Mistry and Kiran Karnik
•
Weakness:
•
Lack of disclosure in the annual report on key items. For example, there is no break up of revenues between generation, transmission and distribution The Kanpur franchisee has still not started functioning as the local state electricity board is creating issues in the light of Torrent having won the distribution contract Fuel tie up and financial closure for the near-term pipeline(1.5GW or ~96% of current installed capacity) is yet to take place
•
•
Opportunities:
•
There is a huge opportunity for private sector power utilities in India (particularly for those utilities that have Torrent’s battle hardened execution capabilities)
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•
Private distribution franchisees is a big (and relatively untapped) opportunity in India given the poor financial position of the state electricity boards Given Torrent’s presence in the T&D segment, the growing scope for private sector participation in this space offers a huge opportunity particularly as the Government’s focus switches from power generation to power T&D
•
Threats:
•
The 5x increase in private sector generation capacity by FY13 could result in merchant power rates getting compressed. Difficult to replicate the success of Bhiwandi in other private distribution franchisees as opposition from the local SEBs (who do not want to see private sector distributors in their area) is very strong
•
•
Given that the KG Basin gas does not seem to be ramping up and infrastructure bottlenecks in the transportation of imported LNG (and the resultant crunch in the supply of gas) can be a negative for Torrent as 75% of its incremental capacity is gas based, which does not have fuel tie-up.
•
Any delays in the construction of the Dahej SEZ will also delay the upcoming 1.2GW project in Dahej (will account for 37% of Torrent’s total capacity)
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Operational Projects
Source: Spark Capital Research
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Torrent Power Strengths Improving Debtor and Inventory Turnover Generation Superior Cash
Reduction in T&D Loses
Improving Ratios
Better Plant load Factor (PLF)
Negative Working Capital
Thermal Power Sector Analysis with reference to Torrent Power & Adani Power.
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Projects under Development
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ADANI POWER LTD.
Adani Power is a member of the Adani Group which has presence across Energy, Real Estate, Ports, SEZs, Logistics, Agro and Metal & Minerals etc. The company has current installed capacity of 1,980MW (entirely at Mundra, Gujarat). Besides, another 14,520MW of generation capacity is under various stages of construction and development. Notably, the company recently achieved a distinction in terms of synchronizing India’s first supercritical power generation unit of 660MW at its Mundra Power Plant. Adani Power is one of the companies with very good margins but with a highly leveraged balance sheet (Based on Fy10 Financials) Tata Powe r 26.17 Adani Powe r CESC Lanco 56.24 28.26 14.71
Torrent Power Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted return on net worth (%) Return on long term funds (%) Total debt/equit y Current ratio Financial charges coverage ratio 29.98
JSW GVK GMR Enrgy 41.4 39.52 54.27
24.26 14.07
19.44 12.88
48.11 37.07
22.09 12.7
13.7 8.1
41.31 36
38.91 8.33
49.04 35.32
21.1 20.97 0.8 1.04
8.47 9.94 0.56 2.45
2.84 1.52 1.68 2.06
12.19 13.01 1.01 0.93
15.76 15.77 0.88 1.61
0.92 1.27 0.04 268.5 2
-0.04 0.89 0.44 27.11
14.96 16.11 0.39 1.9
5.84
5.02
7.18
3.14
4.94
22
0.97
5
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SWOT Analysis Strengths
• •
Strong execution track record on the back of the huge success of Mundra Port The diversified nature of the Adani Group (especially its presence in ports and coal trading) augurs well for Adani Power Stellar operational efficiency (FY10 average PLF was 85%+ compared with India’s national average of 78%) Minimal exposure to merchant power (23% compared with JSW’s 56%)
•
•
Weakness • • • All of Adani’s power plants use Chinese equipment Conflict of interest given that other promoter owned companies are also in power generation Limited bargaining power vis a vis delays in coal supplies from Adani Enterprises as it is Adani Power’s holding company Opportunities • • private sector (this is equivalent to 10x Adani’s installed capacity) and Adani Power will be a relatively strong contender for these UMPPs Given group’s presence in coal mining and India’s rising coal imports, domestic coal mining offers a huge opportunity for Adani Enterprises This in turn will reduce • Adani Power’s coal cost as currently Adani Enterprises is the biggest supplier of coal to Adani Power
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Threats • • • The 5x increase in private sector generation capacity by FY13 could result in merchant power rates getting compressed. The rising Maoist insurgency (with its greatest influence in states having the largest coal resources) could result in delays and higher costs. The improving trend in T&D losses due to rising investment in T&D could result in the fading of India’s power deficit at a quicker pace than expected.
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Operational Projects
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Adani Power Strengths Average PLF in excess of 85%
Group’s presence in coal mining, port and logistics complements Adani’s Power Generation
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One of the Highest Fuel tie Ups
Majority of Adani’s capacity is tied to PPA’s
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Project under Execution
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DATABASE:
• • • • • Capital line plus CEA Central Electricity Authority India Indiaenergyportal.org Ministry of Power
SEARCH ENGINES • • • • Google.com Askjeeves.com Soople.com Yahoo.com
WEBSITES:
• • • • • • • •
www.Ibef.org www.india.gov.in www.teriin.org www.coreinternational.com www.energywatch.org.in www.hansuttam.com www.elsevier.com www.sciencedirect.com
WEB PAGES:
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• • • • • • •
http://www.indexmundi.com/India/electricity_consumption.html http://www.indexmundi.com/India/electricity_production.html http://www.cea.nic.in http://www.topnews.in/business-news/power-sector.html http://www.energywatch.org.in http://www.bharatbook.com/Market-Research-Reports/Indian-power-sectordatabase.html http://www.marketresearch.com/product/display.asp?productid=1695991
ARTICLES & MAGAZINES
• • • • • • •
http://recindia.nic.in/download/T_D_Overw.pdf www.wwf.org.uk/filelibrary/pdf/ipareport.pdf www.ibef.org/Attachment/Investment%20opportunities%20in%20Power %20Sector.pdf http://www.adb.org/Documents/Studies/Timor-Power-Sector-Dev/default.asp www.appanet.org/files/PDFs/RestructuringStudyKwoka1.pdf www.saneinetwork.net/pdf/SANEI_II/Reforms_and_PowerSector_in_SouthAsia. pdf www.ebrd.com/projects/eval/showcase/psr.pdf
LITERATURE REFERENCE:
Augustine .A(2007), “Modeling Indian Power Sector”, pp: 173-181. www.cs.utexas.edu/~achal/IndianPowerSector.pdf Banerjee. R (2004), “Comparison of options for distributed generation in India”, Journal of Energy Policy, Elsevier - Article in Press, 6th June, 2004, Vol – 37 (1), pp: 1-11. http://www.whrc.org/Policy/COP/India/Banerejee_Energy%20Policy%20(in %20press).pdf Kumar. S, A. Khetan & B. Thapa (2005),“Indian Power Sector – Emerging Challenges to Growth”. Reprinted from World Power, pp: 1-5. http://www.icfi.com/Markets/Energy/doc_files/indian-power-sector.pdf
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Newbery. D ,(2005), ‘Power sector reform, private investment and regional cooperation’, Journal of South Asia: Growth and Regional Integration, pp: 143-170 http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/448813 -1171648504958/SAR_integration_ch6.pdf Remes .M (2007), “Russia forerunning EU in power sector forum”, Journal of Baltic Rim Economies, Expert article 154, 21st December,2007, pp: 20-21 http://www.tse.fi/FI/yksikot/erillislaitokset/pei/Documents/bre/expert_article154_620 07.pdf Schwartz. J (2008), “Lighting Update (ENERGY STAR, Legislation, Trends, Incentives and Opportunities)” Journal of Today’s Lighting Distributor, May/June 2008, pp: 12-13. http://www.icfi.com/Markets/Energy/doc_files/lighting-update-schwartz.pdf Singh. A (2006), “Power sector reform in India: current issues and prospects”, Elsevier in its journal Energy Policy, Vol: 34 (16) http://ideas.repec.org/s/eee/enepol.html Soronow. D, M. Pierce & K. Wang (2003), “The Power Sector Model”, Journal of NEWFRONTIERS, pp: 18-19. www.fea.com/resources/pdf/a_power_sector_model.pdf Sreekumar. N (2008), “Market-Oriented Power Sector Reforms: A Critique”, Journal of Governance and Public Policy. http://ideas.repec.org/s/icf/icfjgp.html Swain. N, J P Singh and D. Kumar (2004) “Analysis of Power Sector in India: A Structural Perspective”. http://www.ieiglobal.org/ESDVol5No2/indianreform.pdf Tongia R. (2003), “Power Sector Reform India – The Long Road Ahead”, CEIC Seminar Carnegie Mellon University http://wpweb2.tepper.cmu.edu/ceic/SeminarPDFs/Tongia_CEIC_Seminar_4_8_03.pd f Yemula P, A. Medhekar, P. Maheshwari, S. A. Kharpade, R. K. Joshi(2007), “Role of Interoperability in the Indian Power Sector”, Journal of Grid Interop Forum 2007, pp: 1- 6. http://www.gridwiseac.org/pdfs/forum_papers/117_paper_final.pdf
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