Power-hungry India is the 4th largest economy in the world and is estimated to have registered a growth of 4.7 <g data-gr-id="93">per cent</g> in 2013-2014 (in terms of GDP at factor cost at constant prices). While moderate recovery of the Indian economy is expected to set in, there is <g data-gr-id="148">consensus</g> that infrastructure inadequacies, including insufficient power generation, would constitute a significant constraint in realising the development potential of India. While power demand expanded at a compounded annual growth rate (CAGR) of six <g data-gr-id="114">per cent</g> between fiscal 2006 and fiscal 2014, India’s GDP augmented at a CAGR of 7.8 <g data-gr-id="115">per cent</g> during the period. The similarity between India’s GDP growth and power demand underlines a healthy relation between them.
The total installed capacity (excluding renewable energy) in India has increased to 212 GW in fiscal 2014 from 142 GW in fiscal 2010, representing a CAGR of around 10 <g data-gr-id="144">per cent</g>, which is in addition to around 43,300 MW of captive power capacity that is also connected to the grid, as on March 2013. From fiscal 2011 to fiscal 2014, around 70 GW of capacities were added primarily led by the private sector, which accounted for 55 <g data-gr-id="145">per cent</g> of the total additions. A record 20 GW of capacities was added in fiscal 2012 and 2013, followed by 17.8 GW in fiscal 2014. This was primarily due to the opening of the sector to private players through the introduction of competitive bidding in 2006.
Energy generation over the past five years has grown at CAGR of 5.8 <g data-gr-id="140">per cent</g> to 961 TWh (Tera Watt Hour) in fiscal 2014 from 766 TWh in fiscal 2010. The share of private sector energy generation has increased rapidly over the years to 23.5 <g data-gr-id="141">per cent</g> in fiscal 2014. The growth in private sector energy generation is predominantly due to their significant capacity additions, which has seen their share in the total installed capacity rise to 26.5 <g data-gr-id="142">per cent</g> in 2013-2014 from 8.5 per cent in 2008-2009. Of the conventional energy sources, coal continues to garner a share of over 80 per cent as fuel energy generation over the last five years, as it is the most widely available and cheapest source of fuel. The share of hydro based capacities has declined to 14.0 <g data-gr-id="143">per cent</g> in 2013-2014, primarily owing to land acquisition issues.
Meanwhile, the demand-supply deficit has narrowed down from 12.6 <g data-gr-id="102">per cent</g> in 2009-2010 to 2.1 <g data-gr-id="103">per cent</g> in 2013-2014. Demand growth picked up in 2011-2012 and 2012-2013 on account of higher availability led by capacity additions of close to 20 GW in each of these years. Demand grew at a muted pace of 0.4 <g data-gr-id="104">per cent</g> in 2013-2014 on account of weak demand from industrial and commercial consumers due to subdued economic growth. Base demand (sum of actual consumption and transmission and distribution losses) for power has expanded at a CAGR of 4.8 <g data-gr-id="105">per </g><g data-gr-id="106"><g data-gr-id="105">cent</g> o</g> 1,002 billion KWh on 2013-2014 from 831 billion KWh in 2009-2010. During the same period, supply has increased to 960 billion KWh from 747 billion KWh at a CAGR of 6.5 <g data-gr-id="126">per cent</g>. This has led to a reduction in base energy deficit to 42 billion KWh in 2013-2014 from 84 billion KWh in 2009-2010 as significant capacity additions (-57 GW) in the last three years have led to supply growth outpacing demand growth. Moreover, demand growth has been subdued in the last two years owing to <g data-gr-id="149">slowdown</g> in economic growth. The demand-supply deficit narrowed down from 10.1 <g data-gr-id="127">per cent</g> in 2009-2010 to 4.2 <g data-gr-id="128">per cent</g> in 2013-2014. Similarly, peak demand for energy increased at a CAGR of 4.9 <g data-gr-id="129">per cent</g> to 144 GW in 2013-2014 from 119 GW in 2009-2010, while peak supply grew at CAGR of 7.9 <g data-gr-id="130">per cent</g> during the same period. Consequently, peak shortage has declined over the years to 3 GW in 2013-2014 from 15 GW in 2009-10.
Based on parameters such as land acquisition, obtaining environmental and forest clearances, achievement of financial closure, extent of fuel supply, power purchase agreements and ordering of boiler turbine generator (BTG) equipment, about 51 GW of capacities is expected to be commissioned over 2014 to 2018. Going forward (2016-2018), capacity additions are expected to slow down. This will be driven by declining power deficit, completion of large announced projects, as well as continued concerns of fuel availability over the medium term. Moreover, banks are also adopting a cautious approach given high power sector exposure.
<g data-gr-id="147">Private</g> sector is expected to lead capacity additions in the next four years accounting for 52 <g data-gr-id="138">per cent</g> of total capacity additions. On the other hand, capacity additions by the state sector are expected to slow down due poor execution efficiencies and limited fuel supply pacts signed for announced projects. As a result, it is expected that the share of the state sector would decline to 22 <g data-gr-id="139">per cent</g> over 2015-2018 from 25 per cent over 2011-2014. It is also expected that states such as Andhra Pradesh, Tamil Nadu, Madhya Pradesh and Uttar Pradesh will lead capacity additions within the state sector.
Power demand growth is estimated to be at 6.2 <g data-gr-id="116">per cent</g> CAGR over 2014-2018, Industrial demand which declined in 2013-2014 is expected to revive from 2014-2015 onwards led by gradual improvement in demand from key infrastructure and manufacturing sectors such as metals, mining, cement and auto. It is also expected that the strong growth in demand from the residential segment would continue on account of high latent demand. The new government’s thrust on improving access to electricity through higher investments in power distribution infrastructure is expected to increase demand from rural residential consumers. Demand growth will also be supported by higher power availability on the back of strong capacity additions coupled with gradual improvement in fuel availability. Moreover, a gradual improvement in the financial health of <g data-gr-id="117">discoms</g> is expected with the implementation of the financial restructuring plan and regular tariff hikes leading to increased power off-take.
It is expected that base demand for power would grow at a rate of 6.2 <g data-gr-id="97">per cent</g> CAGR through the forecast period. Demand, which was subdued in 2014-2014, is expected to revise on account of increase in manufacturing as well as commercial activity led by higher demand from sectors such as auto, cement, paper, IT and retail among others. Moreover, improved supply, on the back of strong capacity additions over the past three years and next two years (expected) coupled with robust investments in transmission infrastructure is expected to support rising demand. Consequently, <g data-gr-id="134">base</g> deficit is expected to decline from 4.2 <g data-gr-id="119">per cent</g> in 2013-2014 to 0.9 <g data-gr-id="120">per cent</g> in 2017-2018.
While there are around 95 GW of capacities under construction as on March 2014, it is expected that only 51 GW would be commissioned over 2014-2015 to 2017-2018. Key factors that are expected to delay the pace of capacity additions include:
Limited Fuel Availability; While Coal India has been mandated to sign FSAs with 78 GW (74 GW signed as on April-2014) to be commissioned between fiscals 2009 and 2015, supply under the new FSAs is expected to supply PLFs of only 55-65 per cent as against 77 per cent in pre-2009 FSAs. This is because the new FSAs assure domestic coal supply only to the extent of 65-75 per cent of average contracted quantity (ACQ or 85 per cent PLF). Balance is expected to be imported and supplied on a cost plus basis. As a result, coal-based projects which are at nascent stages are likely to be postponed until coal availability situation improves. Constraint in gas availability is also expected to continue until 2016-2017, thereby limiting gas based capacity additions.
Expansion through acquisitions: New project announcements have also declined as large players are increasingly seeking the inorganic route for expansion. This is due to rising execution risks in the power sector owing to land acquisition issues, delays in clearances and lack of visibility on fuel supply. Several large conglomerates such as Adani Power, Reliance Power, JSW Energy and NTPC have either acquired capacities or are evaluating existing projects for acquisition. Close to 5 GW of capacities have been acquired over the past 12 months.
Delay in Clearances: Delays in acquisition of land and obtaining environment and forest clearances are also expected to delay project commissioning. Some large projects of participants such as NTPC (Nabhinagar TPP), Reliance Power (Tilaiya UMPP), and Essar Power (Tori TPP), amongst others, have been delayed due to lack of adequate environmental and forest clearances. This is also true in case of projects with captive mines. Of the 40 GW of capacities based on captive coal, only 11 GW including Kudgi TPP (Pakri Barwadih), Sasan UMPP (Moher, Moher-Amlori Extn & Chhatrasal), and Mahan TPP (Mahan) have secured requisite clearances.
Stretched Financials of Developers: The financial position of most private developers is stretched owing to high amount of debt raised to fund acquisitions or projects across the infrastructure space. Further, cash flows from operational projects have been under severe pressure due to weak volume growth. This has constrained the financial flexibility of participants, which has resulted in a slowdown in investments on projects under construction. This view is corroborated by the fact that no new
generation project has been announced over the past 18-24 months.
Meanwhile, Power Mech Projects Limited made a public issue of 42,69,000 equity shares at Rs 615 to Rs 640 per share which opened on August 7, 2015 and will close on August 11, 2015, with proposal to be listed on the National Stock Exchange of India Limited and BSE Limited.
S Kishore Babu, Chairman and Managing director, Power Mech Projects Limited, told the
Millennium Post that challenges facing his company in the power sector included: transmission, coal and tariffs with international companies. “We are working with the government on a war-footing towards finding a solution in this regard. We are also pursuing international contracts vigorously with the main focus on Africa and have completed 60 per cent of one such contract – worth $60 million – in Yemen, though we will not be going later in places like Yemen and Syria due to the war problems there,” he added.
“We are engaged in: Erection, testing and commissioning of boilers, turbines and generators (ETC-BTG) and balance of plant (BOP) for power sector; Operation and maintenance including annual maintenance contracts, repairs, renovation and modernisation, residual life assessment, scheduled shutdowns, retro fits, as well as overhauling, maintenance and upgradation services for power plants; civil works including various civil and construction jobs for the main plant and BOP requirements including excavation, piling, concreting, architectural and building works.”