Challenges in Building the 21st Century Energy Infrastructure in India

8/12/2019 Challenges in Building the 21st Century Energy Infrastructure in India

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Challenges in Building the 21Challenges in Building the 21stst Century EnergyCentury Energy

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Management of Risks and Constraints of Low Carbon EconomyManagement of Risks and Constraints of Low Carbon Economy

Presented By:Presented By:

Himadri BanerjiHimadri Banerji


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India Infrastructure Country Outlook


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Planned Infrastructure Investments: IndiaPlanned Infrastructure Investments: India


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Present Status:

A Visible Gap Target vs. Actual

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The informal System of Jugaad

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Indias informal system of jugaad allows counterparties toIndias informal system of jugaad allows counterparties toa project to recognize the systemic problems affecting mosta project to recognize the systemic problems affecting mostinfrastructure projects and evolve workable solutions on ainfrastructure projects and evolve workable solutions on acasecasebybycase basis (whereas in other developed markets,case basis (whereas in other developed markets,

such situations may be deemed as contractual failures,such situations may be deemed as contractual failures,leading to the collapse of the projects).leading to the collapse of the projects).


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Country Outlook India:

Ignore to Redress Common Project Risks

Financing structures and debt levels do not seem to adequatelyaddress Common project risks

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(a) Propensity for execution delays

(b) Cost over run

(c) Demand overestimation

(d) Lack of a strong regime for contract observance and enforcement.


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ec or cenar oec or cenar oPower Sector ProjectsPower Sector Projects


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Five Yr Plan: Power Production Target Vs achievementsFive Yr Plan: Power Production Target Vs achievements


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Region Wise: Power Generation and Peak DeficitRegion Wise: Power Generation and Peak Deficit

Eastern Regions Status

Western Regions Status


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Region Wise: Power Generation and Peak DeficitRegion Wise: Power Generation and Peak Deficit

North- Eastern Regions Status

Southen Regions Status


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RegionRegion--wise Installed Generating Capacity: Indiawise Installed Generating Capacity: India


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Electricity Demand Projections: IndiaElectricity Demand Projections: India


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Electricity Demand Vs Achievements: IndiaElectricity Demand Vs Achievements: India


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(EPC) route for construction, companies are choosing to break down the entire activity

Power Sector Projects

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into packages

System against the best practices in developed countries

New Merchant power plants as unrelated diversification of the promoters

Many projects continue to depend on Bharat Heavy Electrical Ltd (BHEL) for the supply ofthe critical boilerturbinegenerator (BTG) island, even though it has an overflowing orderbook


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What to Watch

Financial health of state governmentowned

utility offtake counterparties.

Visible constraints on land availability,equipment vendor capacity, and sustainable fuelsupplies for projects under construction

Capacity of domestic commercial bank sector tocontinue to finance mega power projects, givenlending exposure limits.

Impact, if any, of the ongoing Climate ChangeSummit 2009 discussions for restricting carbonemissions.


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The Challenges to Managing Growth of Infrastructure:What is needed?

1. Innovative Approaches to Project Finance Needed

Encourage public private partnerships (PPPs) to raise additional.

Encourage investment by pension funds and other large institutionalinvestors.

Make greater use of user charges for funding infrastructure.

Diversify and expand traditional revenue-raising sources.

Explore the funding possibilities offered by land value capture.


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The Challenges to Managing Growth of Infrastructure:The Challenges to Managing Growth of Infrastructure:

ImprovingImproving thethe RegulatoryRegulatory andand InstitutionalInstitutional FrameworkFrameworkConditionsConditions

ExamineExamine thethe legallegal andand regulatoryregulatory frameworkframework conditionsconditions withwith aa

viewview toto encouragingencouraging thethe emergenceemergence ofof freshfresh sourcessources ofof capitalcapitalandand newnew businessbusiness modelsmodels forfor infrastructureinfrastructure..

AvoidAvoid PatronizationPatronization andand Corru tCorru t PracticesPractices

PlacePlace greatergreater emphasisemphasis onon thethe reliabilityreliability ofof infrastructureinfrastructurefunctioningfunctioning..

StrengthenStrengthen thethe frameworkframework forfor standardsstandards..

ExploreExplore newnew institutionalinstitutional arrangementsarrangements thatthat maymay provideprovide moremoreeffectiveeffective andand efficientefficient financingfinancing andand oror deliverydelivery ofof

infrastructureinfrastructure..


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The Challenges to Managing Growth of Infrastructure:The Challenges to Managing Growth of Infrastructure:

Strengthening Governance and Strategic Planning

Support the development of long-term, coordinated approaches to

infrastructure development.

Reduce the vulnerability of long-term infrastructure planning to short-

.

Ensure the involvement of a broader range of stakeholders in the

infrastructure process.

Step up efforts to reduce the length and complexity of the planning-

to-implementation process.

Strengthen international co-operation for trans-border infrastructure.


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The Challenges to Managing Growth of Infrastructure:

Building Capacity in Executing Project and Managing Financial and

Project Risks

Financing constraints

Land acquisition problems

Delays in the supply of equipment

Environmental and governmental clearances

Problems of technology selection


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Building Capacity in Executing Project and Managing Financialand Project Risks

Three factors in particular have contributed to the perception of thisThree factors in particular have contributed to the perception of thisdearth of execution capacity being a key Riskdearth of execution capacity being a key Risk

- Growth in new project construction activity

- increasing scale and complexity of projects

- A small base of large, qualified developers available to accomplish

this task.


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Risk management is an essential and integral part of project

management in major construction projects


Managing Risks in Execution of Infrastructure Projects

Risks which have the major impact on any infrastructureprojects.

Financial risk

Project Risk


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Managing Financial Risk

Three main considerations with respect to financial risk.

Impact of higher debt loads and interest rates

Risk of Cash flows


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Managing Project Risk: Probabilistic Risk Assessment (PRA)

Evaluation of the value of project risk

Probability of Completing activities project in Time and Cost

Criticality of Activities

Monte Carlo Simulation Techniques


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Infrastructure Growth Constraints and Low Carbon Economy

India contributes about 4 per cent of the total global CO2 emissions and theIndia contributes about 4 per cent of the total global CO2 emissions and the

country has conveyed that per capita emission levels would never exceed thecountry has conveyed that per capita emission levels would never exceed theaverage levels of developed countries.average levels of developed countries.

India's per capita carbon dioxide emissions will increase by nearlyIndia's per capita carbon dioxide emissions will increase by nearlythreethree--fold to 3.5 tones by 2030fold to 3.5 tones by 2030

Target Carbon emission intensity to decline by 20Target Carbon emission intensity to decline by 20--25 per cent by25 per cent by20202020


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The Challenges to Managing Growth of InfrastructureInfrastructure Growth Constraints and Low Carbon Economy

Emerging markets will have the largest growth in CO2 emissions up to 2025


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Infrastructure Development in Low carbon Economy

Infrastructure Development has traditionally been carbonintensive.

The energy sector is responsible for 58% of the countrys totalgreen house gas (GHG) gross emissions of 1.9 billion tons ofCO2eq

electricity: 38%

transport: 8%

petroleum refining: 5%

Urban and rural residential: 7%


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The low carbon pathway :India ever green

Changing the institutional framework financing and creatingappropriate incentives for adoption of cleaner and greentechnologies and practice

Target reduction in energy intensity through :

mprovemen s n agr cu ura an non agr cu ura prac ce an

rural areas

Development of local power generation capacities based onrenewable recourses to service unserved areas and reduction

pressure on grid

Improvements in practices in urban manufacturing ,constructionand service


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As an example, there are a range of policies and policyAs an example, there are a range of policies and policyinstruments at the state level that have been passed in recentinstruments at the state level that have been passed in recentyears with the mandate to promote renewable energy projectsyears with the mandate to promote renewable energy projects

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an n t at ves. o ar o cy s t e atest examp e. owever,an n t at ves. o ar o cy s t e atest examp e. owever,

when it comes to the legal framework it is the Electricity Act,when it comes to the legal framework it is the Electricity Act,2003 and more specifically, the New Tariff Policy (2006) under2003 and more specifically, the New Tariff Policy (2006) underthe Actthe Actwhich states that a minimum percentage of energy, aswhich states that a minimum percentage of energy, asspecified by the Regulatory Commission, is to be purchasedspecified by the Regulatory Commission, is to be purchasedfrom renewable energy sourcesfrom renewable energy sourcesthat alone contains a legallythat alone contains a legallybinding obligation requiring the creation, transmission, andbinding obligation requiring the creation, transmission, anddeployment of renewable energy to address the countrysdeployment of renewable energy to address the countrysenergy and environmental insecurity.energy and environmental insecurity.


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Current transportation System: IndiaCurrent transportation System: India

Investment Challenges in Logistic Growth:Investment Challenges in Logistic Growth:


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Investment Challenges in Logistic Growth:Investment Challenges in Logistic Growth:IndiaIndia


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NILP: From Strategy to ImplementationNILP: From Strategy to Implementation


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Model Mix for Balanced Strategy: Logistic IndiaModel Mix for Balanced Strategy: Logistic India


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Challenges in Building the 21st Century Energy Infrastructure in India