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Operational challenges faced by India’s Power Sector
Sushil Pradhan
MitKat Advisory Services Pvt. Ltd.
Na#onalIns#tuteofInterna#onalStrategy(NIIS)Beijing,25thJune2015
What am I going to speak about?!
• Whatarethepeculiarcharacteris/csofIndia’spowersector?
• Whereisthescopeforinvestment?
• Whataretheopera#onalchallengesthataffectthepowersectorinIndiaandhowwilltheaffecttheforeigninvestor?
• Howcanwetrytomi/gatethesechallenges?
Indian Power Sector Dynamics!
• Complexarrangements–central,stategovernments,privateagencies
• Regulatoryinconsistencies–mul/pleclearences
• Tariffdistor/ons
• Demand-supplygap
• Highrelianceoncoal
• Cau/ousreformandrestructuring
• Mul#pleopera#onalchallenges
Case study -Dabhol Power Plant!
• TheDabholPowerSta/onwasamajorinvestmentbyEnron/Bechtel/GEinIndiain1992.
• Gasfiredplant.
• Theprojectwascancelledandtakenoverbyastate-ownedcompanyduetoagovernmentalcontroversy.
Case study -Mundra UMPP!
• Dependentonhigh-gradecoalfromIndonesia
• TataPowerwantedtoincreasesellingpriceattheirMundraPlantduetoanincreaseincoalprices.
• Theprocessforappealstookaverylong/me,andonlyapar/alsolu/onwasestablished.
Case study - Kahalgaon Power Plant!
• The Kahalgaon Power Station has a chronic shortage of coal.!
• This problem is peculiar because the plant is located next to an active coal field.!
• This highlights poor resource management.!
Power Generation in India (2014-15)!
69.5!
15.3!2.1! 13.1!
0!10!20!30!40!50!60!70!80!
Thermal! Hydro! Nuclear! Renewable!
Sector wise generation!Percentage!
CENTRAL!STATE!PRIVATE!
Coal!
• Coalisthemostcommonfuelsource,accoun/ngformorethan60%ofallgenera/ngcapacity.
• Coalpowerplantsuseeitherdomes/corimportedcoal,basedontheirloca/on.
• Indiancoalhasalowcalorificvalue,andisinefficient–importofexpensivehighgradecoal.
• Significantprivateinvestmentsincoalpowerplants.
• Coalreservesmostlylocatedininsurgencyproneareas!
Hydroelectric power!
• Accountsformorethan15%ofallgenera/ngcapacityinIndia.
• LargehydropowerplantsarelocatedinhillyregionsoftheNorthandalsointheWest.
• State-ownedNa/onalHydroelectricPowerCorpora/onoperatesalllargepowerplants.
• Privatecompaniesarenotinvolvedduetohighcostsofconstruc/ngandopera/ngsuchplants.
Basin/Rivers Probable Potential (MW)
Indus Basin 33,832
Ganga Basin 20,711
Central Indian River system 4,152
Western Flowing Rivers of southern India 9,430
Eastern Flowing Rivers of southern India 14,511
Brahmaputra Basin 66,065
Total 1,48,701
Natural Gas!
• Naturalgasconsistsof8.5%ofthetotalgenera/ngcapacity
• PlantsarelocatedinWesternandSouthernIndia.
• Thereisashortageofnaturalgasresources,whichmakesgas-basedplantsexpensivetooperate.
Other renewables!
• Solarenergyproduc/onislessthanthatofwindorbiomass.
• However,Indiahasahugesolarenergypoten/al.
• Manyprivatecompaniesinvolvedinsolarenergyproduc/on.
Central Power Organization!
Government of India! State Government!
Ministry of !Power!
Dept. Of Atomic Energy!
National !Development !
Council!MNES! CERC!
NRB! AEC! NFC!Nitya Ayog!
DVC!BBMB!
THDC! PGCIL! PFC!REC!
Central!Electricity!Authority!
NJPC! NTPC!NHPC!
NEEPCO!
Energy!Management!
Centre!NPTI!CPRI!
State Power Organization!
PRIVATE SECTOR
LICENSES STATE
ELECTRICITY BOARDS
STATE ELECTRICITY
DEPARTMENTS
STATE ELECTRICITY INSPECTION ORGANIZATION
MINISTRY OF POWER
STATE GOVERNMENT
SERC
Where is the scope for investment?!
• Coal-supply,modernisa/onofplants(technology),UMPPs
• Gas–assistinconstruc/onandmanagementofgaspipelines(TAPI)
• Hydroelectricpower–infrastructure,turbines,switchgear
• Solar–Chinaisalreadytheworldleader,Indiacanbenefitfromthis
• Wind–Vastscope,equipmentsupply,transmissiongrid
• Modernisa/onofelectricitygrids–transmissionlinesandinfrastructure
• Distribu/oncompanies–equipmentandprocessintensive
• Nuclear-whynot?-securityconcerns,wehavethetechnologybutonlyneedthefuel,safetyconcerns(coastalareas)
Risks and Challenges!
NaxalThreat
§ Cri/calinfrastructuresecurity§ Extortion!§ Kidnapping§ Law and order!§ Labourunrest
NortheastInsurgency
§ Rule of the gun!§ Terrorism§ Illegalimmigra/on-popula/onpressure§ Paramilitaryopera/ons§ Poli/calconnec/ons§ Bandhs and hartals
§ BorderSecurity§ Terrorism§ Law&orderissues§ Corrup/onoflocalgovernment§ Pakistansupporttoinsurgents
Jammu&Kashmir
Risks and Challenges!
• Insurgency
• Terrorism
• Organisedcrimeandcoalmafia
with reference to power plants !
Risks and Challenges!
• Fuelshortages
• Transmissionlosses–inefficientequipment,linkingofgrids
• Powerthehanddistribu/onlosses
• Infrastructurechallenges
• Otherinfrastructureshortage
Risks and Challenges!
• Landacquisi/onandrehabilita/on
• Poli/calinstabilityandelectoralviolence
• Labourissuesandpoli/calinterference
• Skilledmanpoweravailability
Risks and Challenges!
• Corrup/onandnepo/sm
• Bureaucra/churdlesandgovernmentalapprovals
• Socialandregionaldynamics
• Percep/onofforeigninvestment
• Monopoliesandotherentrybarriers
Potential for Chinese Investment!
• 100%FDIallowedinallpowersectors,exceptnuclear.
• Manytaxincen/vesbyIndianGovernment.
• FewforeignfirmsalreadypresentinthepowersectorinIndia.
• ChinesefirmsinIndiaarealreadypresentinothersectors.
Major Power Sector Players!
Company
Businessdescrip/on
•PowerFinanceCorporationLimited(PFC) isanNBFCengagedinfinancinganddevelopmentactivitieswithintheIndianpowersector
•Major products and services include project term loans, lease financing, direct discoun/ng of bills,short-termloansandconsultancyservices
•Adani Power is one of India’s largest private thermal power producers,with total capacity of 4,620MW;thecompanyaimstogenerate20,000MWofpowerby2020
•Thecompanyisbuildingoneoftheworld’slargestsingle-locationthermalpowerplantsinMundra
• Power Grid Corporation of India Limited (PGCIL) is the single largest transmission u/lity in India;it is responsible for planning, co-ordination, supervision and control over inter-state transmissionsystems
•DamodarValleyCorpora/onisengagedinpowergeneration,distributionandtransmissionofelectricpower,irriga/onandfloodcontrol
•SJVNLimitedisthesecondlargesthydropowercompanyinIndia•Thecompanyplanstodiversifyintowindpowerprojectssoon
Major Power Sector Players!
Company
Businessdescrip/on
•NTPC is India’s largest power producer and the sixth-largest thermal power producer in the world, withinstalledcapacityof41,184MW(including5,364MWthroughJVs).By2032,NTPCplanstoreach128,000MWpowercapacity.Coal-basedpoweraccountsformorethan90percentofthetotalcapacity
•Ithasalsodiversifiedintohydropower,coalmining,powerequipmentmanufacturing,oilandgasexploration,powertradinganddistribution
• Tata Power is India’s largest integrated power company, with significant presence in solar, hydro, wind andgeothermal energy space.Thecompanyaccounts for52per centof total generationcapacity in theprivatesector,withaninstalledcapacityof8,521MW
•Thecompanyhasover35,000MWofpowergenerationcapacity,bothoperationalandunderdevelopment.ReliancePowerhasanoperationalpowergenera/oncapacityof2,500MW.FY13sawthedevelopmentofthe3,960MWSasanUMPPinMadhyaPradesh
•CESC Limited is a vertically integratedplayer engaged in coalmining,andgeneration anddistributionofpower
•NHPC is the largest hydropower u/lity in India,with an installed capacity of 5,295MW; it hasdrawnup amassivecapacityexpansionplanofadding6,697MWby2017
• Carefulmarketevalua/on• Engagewiththelocalpeopleatprojectareas-overcometrustbarriers• Uselocalconsultancies
• ConductRiskAssessmentsandBusinessResiliencyfeasibility–workoutRiskMi#ga#onstrategy
• Engagementwithcenterandstategovernmentssimultaneously• Engagewithprivatesector-JVsandPPPs• Preparefordelaysandaddi/onalcosts
• Professionalprojectmanagement
The way forward!
Threat-Vulnerability-Risk Assessment (Specimen matrix for a Natural Gas supply company)
Assets Threats Vulnerabili/es Risks Controls
• Na/onalpride• Harbingerofpeace&prosperity
• Pipeline/SupplyChainassets
• NaturalGas• Infrastructure• People• Informa/on
• Terrorism• Tribalrivalries• Talibanfac/ons• Insurgents/unemployedyouth
• Internalthreats• Mines• Earthquake
• Geo-poli/calinstability/weakgovernancestructures
• Inadequatelawenforcement,securityandemergencyapparatus
• Porousborders• Lackofjudiciary• Challengingenvironment
• Sabotage• Fire/explosion• Hostage• HSEandSecurityrisks
• Brand/reputa/onrisks
• Economic/Financialrisks
• Regulatoryrisks• Riskstolifeandproperty
• Mul/-countryandmul/agencycoordina/onandborderareacontrols
• Supplychainsecurityframework
• Security,businesscon/nuity,IM,emergencyresponseprocesses&technologies
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