Power Report.doc

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An Analytical Report on

INDIAN POWER SECTOR: IMPLICATIONS OF THE

CURRENT FUEL CRISIS

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ABSTRACT

India is one of those few countries which are largely self-serving energy centres with minimum

import of power (about 23%). The ower !ector has always played an eminent role in shaping

the economy and has become the bac"bone of growth in the industrial and manufacturing

sectors. #owever$ even after its massive impact$ power sector itself$ relies heavily on Thermal

source of production which uses oal and &atural 'as as its raw material. The recent fuel

supply problems and price escalations have posed a severe challenge before the sector to meet

the eponentially growing demand and fulfil its stated obectives of *providing reliable$

affordable and +uality power for all by 2,2. It will be interesting to see how India counters

these supply side challenges in the thermal fuel sources as it will decide the future shifts in the

operating domain of ower !ector industries. This report focuses on studying the current issuesfaced by the Indian ower !ector in respect of the recent fuel crisis and its long term

implications on the power sector industries.

[174 words]

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CONTENTS

Overview. 4

Introduction to Sector. 5

Fuel Resources.6

Current Issues..7

Imported Col !sed "ro#ects..$

"ro#ects %vin& letter o' ssurnce ()O*+ !ut inde,ute col suppl-...$

"ro#ects %vin& col!loc/s in no&o res..0

Recommendtions..1

Conclusion..11

2ndnotes.13

2%i!its...14

2%i!it 114

2%i!it ..14

2%i!it 3..15

2%i!it 4..16

2%i!it 5..16

Re'erences..17

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OERIEW

/ spectre of acute fuel shortage looms large on the ower !ector. /bout 0,$,,, 1 of

operating and upcoming power capacity would be impacted8. 9%ese words o' :r. *s%o/

;%urn< =irector >enerl< *ssocition o' "ower "roducers (comprisin& seventeen vitl powerproducin& compnies o' Indi+< ptl- sum up t%e current 'uel crisis sitution o' Indi. It

cnvsses t%e dul spects o' nonvil!ilit- s well s t%e price %i/e component o' t%e m#or

'uel sources comprisin& o' col nd nturl &s.

9%e "ower sector is one o' t%e criticl components o' t%e Indin econom- nd n importnt

in&redient needed to ensure st!le &rowt% in &ross domestic product (>="+. ?owever< t%e recent

escltions in 'uel price ccompnied !- scnt- supplies nd 're,uent impediments in

environmentl clernces %ve stlled its &rowt%. *ll o' t%is %s come t crunc% time w%enIndi is recoverin& 'rom t%e in'ltionr- pressures nd consistentl- tr-in& to pus% up t%e &rowt%

rte in t%e industril nd mnu'cturin& sectors. 9%e demnd 'or power %s !een consistentl-

risin& wit% t%e economic epnsion< 'or domestic s well s industril consumption (ig. +.

Indi %s lred- !een 'ound s%ort (ig. 2)o' t%e demnd ,untit- in terms o' power &enertion

in spite o' t%e incresin& num!er o' privte pl-ers in t%e industr-. 9%ese recent dverse

developments %ve succeeded in ddin& to t%e woes. )et us loo/ into t%e cuses nd

repercussions o' suc% developments nd tr- to !uild %-pot%esis o' %ow t%e 'uture stnds 'or t%e

"ower sector industries< t%rou&% detiled nl-sis o' t%is sector in recent times.

ig. =istri!ution o' 9otl "ower Consumption ig. 2=emnd *vil!ilit- >p

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INTRODUCTION TO THE SECTOR

Since independence< t%e power sector %s c%ie'l- remined in t%e %nds o' centrl nd stte

&overnments. 9%e 2lectricit- Suppl- *ct[1] (104$+< mde t%e Centrl nd Stte 2lectricit-

@ords (S2@s+ s t%e sole licensees o' 'or power &enertion< trnsmission nd distri!ution.

?owever wit% t%e &rowt% in popultion< t%e demnd &rew vi&orousl- t n ver&e rte o'

1.3A. Conse,uentl- t%e per'ormnce o' Stte 2lectricit- @ords strted to deteriorte wit% time

nd t%e- !e&n runnin& into %u&e losses (4hibit-).9%us t%e Stte llowed privte pl-ers to

step in !- issuin& licenses< to !rid&e t%e de'icit nd !rin& opertionl e''iciencies. Since t%enroup< 9orrent

"ower< etc. %ve si&ni'icntl- contri!uted to meetin& t%e demnd s%ort'll (ig. 3).

ig. 3"ower "rovider Se&menttion

In Indi< t%e power sector mostl- relies on 9%erml power plnts 'or demnd 'ul'illment since

col is in !undnce nd provides c%ep production. 9%erml power plnts ccount 'or nerl-

65A o' totl electricit- produced per nnum. ?-droelectric power plnts< one o' t%e m#or

renew!le sources ccount 'or onl- A w%eres nucler ener&- cters to 3A o' demnd.

9%erml power itsel' depends %evil- upon t%e vil!ilit- o' Col ($6A+ nd nturl &s (13A+.

Recentl-< t%e "rivte pl-ers %ve lso epnded t%eir port'olio in t%e t%erml power division

nd %ve t%us !ecome %evil- dependent upon t%e vil!ilit- o' domestic nd imported col.

*prt 'rom t%ese< severl industries %ve come up wit% t%eir own plnts 'or 'ul'illin& indi&enous

ener&- re,uirements. Col (47.1A+ nd Bturl >s (17A+ 'orm m#or prt o' t%ese so clled

captive plants[] lso. 9%is cptive power cpcit- supplies onet%ird o' t%e totl industril

electricit- demnd nd is incresin& t %elt%- rte o' 57A w%en compred to n ver&e o'

41A in t%e cse o' pu!lic sector cpcit-. Bucler power sources re nticipted to ttin

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si&ni'icnt onus in power &enertion in t%e due course o' time !ut currentl- nd 'or some -ers

in 'uture< it will remin in its in'nc-. In suc% scenrio< it is not possi!le 'or Indi to run w-

'rom t%e insecurities o' t%e t%erml power plnts nd %ence< possi!le solution needs to !e

,uic/l- determined.

FUEL RESOURCES

@- virtue o' its &eo&rp%-< Indi %s !een &i'ted wit% col reserves. Indi %olds t%e sit% lr&est

reserves o' indi&enous col in t%e world ccountin& 'or 6.7A o' totl &lo!l vil!ilit-. It %s

more t%n 5$ !illion tonnes o' indi&enous col nd produces nerl- 40 tonnes o' %rd co/in&

col. ?owever< t%is is insu''icient to 'ul'ill t%e current demnd ,ulittivel- s well s

,untittivel- (4hibit52).Indin col contins lr&e mount o' s% (15A 45A+ nd %ence

o''ers low e''icienc- o' 34A. Indi imports col 'rom Indonesi nd *ustrli (round 5A o'

totl col demnd+ w%ic% %ve superior vrieties o' col< %vin& %i&% clori'ic vlue o'

5$/cl/& (http677en.wi"ipedia.org7wi"i78lac"9coal9e+uivalent). In Indi< t%e col reserves re

mostl- 'ound in t%e sttes o' Oriss< D%r/%nd< Eest @en&l< C%%ttis&r%< :d%- "rdes% nd

*nd%r "rdes%. 9%e production o' Col is lr&el- controlled !- Col Indi )imited (CI)+ wit%

$ A s%re in t%e col mr/et. 9%is monopol- %s 'iled to /eep !rest wit% t%e demnd 'or

indi&enous col (4hibit-3).It %s resulted in s%i'tin& t%e suppl- side d-nmics towrds import

o' col 'or t%e ultr me&power pro#ects (:""+ comin& up on t%e est nd west costs.

Bturl &s strted 'eturin& in production post 100 er nd currentl- ccounts 'or nerl- 13A

o' totl t%erml power production. Currentl-< Indi produces 65 !cm (billion cubic metres+ o'

nturl &s. 9%is demnded is epected to escalate to the levels of 2, bcm by year 2,3, and the

rate of its use for electricity generation is also epected to increase to : bcm per year. 9%e

nturl &s reserves in Indi re minl- con'ined to t%e o''s%ore :um!iCm!- !sin lon&

wit% t%e recent eplortions t t%e ;ris%n>odvri !sin. :et%ne nd S%le &s %ve lso

!een 'ound to !e o' 'ir economic vlue !ut t%eir potentil reserves still need to !e ssessedproperl-. @esides indi&enous &s suppl- Indi lso imports li,ue'ied nturl &s ()B>+ t%rou&%

its two importin& terminls on t%e west cost. >s *ut%orit- o' Indi )imited (>*I)+ is lso

comin& up wit% renew!le li,ue'ied nturl &s (R)B>+ terminl to provide uninterrupted &s

suppl-. 9wo more import terminls re in t%e pipeline (ig. 0).

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http://en.wikipedia.org/wiki/Black_coal_equivalenthttp://en.wikipedia.org/wiki/Black_coal_equivalent


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ig. 0* di&rm depictin& t%e contri!ution o' di''erent sources to totl power

CURRENT ISSUES

9%e -er 11 sw n outstndin& per'ormnce !- t%e Indin power sector. 9%e domin o'

conventionl power &enertion %d cpcit- ddition o' round 1


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In t%e words o' :r. *nil Srdn< mn&in& director o' 9t "ower Co. )td< IndiGs lr&est

independent power producer !- cpcit-< The acute shortage of domestic coal in the country

has become a maor concern?. It has led to apprehensions that the ambitious capacity addition

target of :,-,, gigawatts in the upcoming 2th ive-@ear lan period may not be met and also

cause avoidable stress on assets already built or committed by many private sector players8. *s

discussed !e'ore< col contri!utes 55A to IndiGs 9%erml power< nd conse,uentl- t%e col

!sed pro#ects re t%e worst ''ected !- escltin& 'uel costs nd suppl- uncertinties. 9%ese

plnts cn !e !rodl- clssi'ied into t%ree cte&ories.

I!porte" coal #a$e" pro%ect$::n- power pro#ects re dependent on imported col w%ic% is

o' %i&%er &rde. Indonesi w%ic% is m#or source recentl- introduced new col pricin&

re&ultion w%ic% %s led to increse in t%e lnded price o' 'uel. 9%e new polic- stipultions stte

t%t col prices !e !enc%mr/ed &inst set o' interntionl nd domestic indices[3].

Conse,uentl- ll eistin& col contrcts would %ve to !e modi'ied. 9%is implies t%t n- lon&

term contrcts !sed on discounts or 'lt pricin& will no lon&er !e %onoured. 9%is will directl-

impct !out 17 :E o' Indin pro#ects (4hibit-0). *not%er m#or source< *ustrli is

plnnin& to lev- cr!on t[4] w%ic% mi&%t !e 'ollowed !- ot%er col eportin& countries lso.

Pro%ect$ &a'in( letter o) a$$*rance +LOA, #*t ina"e-*ate coal $*pply:Col Indi )imited

(CI)+< t%e !i&&est domestic producer o' col %s provided )O*s to some opertin& pro#ects< !ut

is -et to si&n t%e 'uel suppl- &reement[5] (FS*+. In 'ct< CI) %s not si&ned n- FS*s since

*pril< 0. =urin& 111< IA set a target of 0>,.B million tonnes but had a shortfall of

2:.C million tonnes. 9%is %s creted lot o' discontent in t%e sector.

*IA is an instrument of the state and should honour its commitment< sid :r. *s%o/ ;%urnO:+ nd t%e :o2F. 9%e process 'or &rntin& clernce

must !e epedited. "ower plnts w%ic% re lred- under opertion s%ould not !e prevented 'rom

'unctionin& due to re&ultions w%ic% %ve recentl- come into e''ect. Insted !etter pproc%

would !e to promote ''oresttion drives to miti&te t%e dm&e cused< nd ensure t%t in 'uture

environmentl concerns re properl- ddressed.

Eit% re&rd to procurement o' col< vrious mesures cn !e implemented to !rin& !out cost

minimiHtion. 9rnsporttion 'cilities suc% s rodw-s< ril routes nd ports %ve to !e

stren&t%ened to remove ine''iciencies in col trnsit nd reduce !ot% trnsit time nd costs. Ot%er

in'rstructure nd !ureucrtic !ottlenec/s %ve to !e removed. )in/&es !etween col sources

nd power plnts cn lso !e improved !- proper lloction o' cptive mines nd selectin&

optiml loctions 'or new pro#ects.

)stl- steps must !e t/en to improve t%e 'inncil %elt% o' t%e stte run power distri!utors.

Currentl- mn- !n/s re'use to provide line o' credit to t%ese compnies owin& to t%e

uncertinties wit% re&rds to resources nd cost o' opertions< s well s previousl- unpid lons.

*s result t%e- 'ce di''iculties in meetin& t%eir cpitl re,uirements. * rdicl de!t

restructurin& inititive is re,uired to !rin& t%ese compnies !c/ on trc/. 9%e &overnment could

lso ct s &urntor to promote con'idence mon& t%e lenders. 9%us t%ere is need 'or

coordinted ction !etween t%e :inistr- o' "ower< t%e :inistr- o' Finnce nd t%e Reserve @n/

o' Indi< s t%e !n/in& re&ultor< to put n end to t%e 'inncil crisis nd promote st!ilit- in t%e

lon& run.

CONCLUSION

9%e Indin econom- is !e&innin& to recover 'rom t%e recessionr- p%se t%t %s &ripped t%e

entire world. 9%e new er o' >=" &rowt% re,uires consider!le investment in t%e power sector

w%ic% 'orms t%e !c/!one o' t%e Indin econom-. ?istoricll- Indi %s !een c%rcteriHed !-

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ppreci!le s%ort'll !etween t%e demnd nd vil!le suppl- o' power. In recent -ers severl

m!itious pro#ects %ve !een commissioned !- t%e &overnment to 'ul'ill its tr&et o' 'ull power

sustin!ilit-. Conse,uentl- t%e power sector %s witnessed ccelerted &rowt% cpped !- t%e

%i&%est recorded cpcit- ddition in t%e current 'iscl -er. ?owever t%e spectre o' uncertint-

in t%e suppl- o' 'uel s well s risin& 'uel costs looms lr&e. * prt o' it cn !e ttri!uted to t%e

%ev- dependenc- o' t%e sector on 'ossiliHed 'uels suc% s col nd nturl &s. 2ven t%ou&%

Indi possesses su''icient mounts o' col reserves< lc/ o' proper development s well s

utiliHtion issues %ve led to &rowin& dependenc- on imported sources. Risin& prices in t%e

interntionl mr/et coupled wit% low returns 'rom domestic suppliers li/e CI) %ve pus%ed

power suppliers into corner. 9%e pro!lems re 'urt%er compounded !- t%e 'iin& o' low tri''s

nd t%e prevlent 'inncil stru&&les o' t%e stte run power distri!utors.

>oin& 'orwrd it is essentil 'or t%e &overnment to !rin& !out c%n&es in t%e re&ultions w%ic%

'cilitte !etter s%rin& o' t%e cost !urden mon& di''erent st/e%olders. =omestic suppl- o' col

needs to !e u&mented nd &encies li/e CI) need to meet t%eir tr&ets to reduce s%ort'lls. *

structured s-stem o' pricin& wit% re&rd to imported col needs to !e implemented. In t%e lon&

run !etter plnnin& wit% re&rd to lloction o' cptive mines nd prospective loctions o' new

pro#ects would !e %i&%l- !ene'icil. In conclusion< t%e Indin power sector is &oin& to eperience

%u&e sur&e in t%e comin& -ers nd !uildin& t%e in'rstructure to mn&e t%e sur&e is t%e need

o' t%e %our.

[3135 words]

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ENDNOTES

. *The !tate 4lectricity !upply /ct$ :0C provided the basis for the ta"eover of most

electricity generation and distribution by the !tate 4lectricity 8oards constituted under

it. Its provisions mainly govern the constitution of the entral 4lectricity /uthority$ !tate4lectricity 8oards$ 'enerating ompanies$ onsultative ouncils and local /dvisory

ommittees$ their statutory powers and functions.

2. *The 4lectricity /ct$ 2,,3 was passed to transform the power sector in India by inviting

participation of private players in the generation$ transmission and distribution of

power.

3. */ captive power plant () is any generating station set up by an organisation to meet

its own power re+uirement. The s cater to the electricity re+uirement of industrial

units in a large scale. The captive power generation capacity in India is :$B,:.0: 1

(/pr 2,,C).

0. *The Indonesian government has$ in an order$ decided to lin" the price of coal eported

from the country with a benchmar" based on international prices of coal. The new coal

price benchmar" is an average of monthly prices from four coal indices that include the

Indonesian oal-price Inde or II$ the 'lobal coal &ewcastle Inde$ the &ewcastle

4port Inde and the latts- Inde.

B. */ carbon ta is anenvironmental talevied on the carboncontent offuels. It is a form

of carbon pricing. /ustralia passed the carbon ta /ct in 2, and it will come into effect

in 2,2$ increasing the price of coal for the countries importing coal from /ustralia.

>. *The uel !upply /greement is a long-term pact between coal producers and consumers

aimed at ensuring a dedicated supply of fuel. Trigger level is the minimum assured level

of coal supply and off-ta"e$ failing which both the parties attract penalty.

E0HIBIT 1

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http://en.wikipedia.org/wiki/Environmental_taxhttp://en.wikipedia.org/wiki/Environmental_taxhttp://en.wikipedia.org/wiki/Carbonhttp://en.wikipedia.org/wiki/Carbonhttp://en.wikipedia.org/wiki/Fuelhttp://en.wikipedia.org/wiki/Carbon_pricinghttp://en.wikipedia.org/wiki/Environmental_taxhttp://en.wikipedia.org/wiki/Carbonhttp://en.wikipedia.org/wiki/Fuelhttp://en.wikipedia.org/wiki/Carbon_pricing


14/18

COMMERCIAL PROFIT2LOSS +/, OF SEB$ WITH SUBSID3

(Sourceower sector reform6 / case study in restructuring+

E0HIBIT 4

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3ear Lo$$e$

+crore$,

003 73

0304 71

0405 0$5

0506 1165

0607 4344

070$ 7$0

0$00 1356

00 140


15/18

ariation in De!an" an" Pro"*ction o) Coal in recent year$ (SourceInfraline4nergy+

Year

Annual

Target(BE) Actual Production

Rate ofgrowth of

Production(%)

2007-08

460.5 457.082 6.1

2008-09

497.29 492.757 7.8

2009-10

532.33 532.042 8

2010-11

572.37 533.076 0.2

2011-12

554 118.914 (up to 06-11)

E0HIBIT 5

S&ort to Me"i*! Ter! De!an" )or Coal )or Po6er 7eneration

(Source=eport 5 the epert committee on roadmap for coal sector reforms+

3ear

In$talle"

Capacity

MW

A'era(e

PLF

+8,

Po6er

7enerati

on +BU,

Speci)ic

Con$*!pti

on

+9(2.6&,

CoalDe!an"

)or

Po6er

7enerati

on +Mt,

A"%*$t!ent )or

-*ality o)

I!porte"

Coal +Mt,

Total

a"%*$te"re-*ire!e

nt )or

i!port

coal

-*ality

+Mt,

34 64$ 7.45 3$1.1 .60 63.0 60.1

45 674$ 7.67 300.45 .603 76.00 $5.10

56 643$ 74.07 4.45 .607 04.37 5.6 3.11

67 77$ 71.$ 45.$4 .71 317.3 $.5 31.$

7$ 740$ 76.67 53.1 .75 354.75 17.6 35.40

$0 7$0$ 77.14 57.74 .7$ 373.74 1$.30 371.35

01 $$ 76.1 5$7.51 .77 415.07 4 40.37

111 065 74.7$ 63.16 .77 446.04 $.5$ 43$.36

111 14 74.66 6$.1 .77 4$.01 31.$ 471.63

E0HIBIT

Li$t o) a))ecte" i!porte" coal #a$e" pro%ect$ (Source T/T/ E4=+

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Bo. Bme Cpcit- (:E+

1 9t "ower :undr :"" 4.

*dni "ower :undr 46.

3 *dni "ower 9irod 10$.

4 )nco In'rtec% dipi 57.5

5 DSE 2ner&- Rtn&iri 3.

Li$t o) pro%ect$ )acin( $&ort)all in $*pply )ro! CIL

Bo. Bme Re,uirement sourced

1 )nco In'rtec% *mr/nt/ I nd II 65A

Relince "ower Ros 6A

Ot%er impcted pro#ects include B9"C Fr//< ;S; Erd% nd )nco In'rtec% *npr.

Li$t o) pro%ect$ &a'in( capti'e !ine$ in no/(o area$

Bo. Bme Cpcit- (:E+

1 B9"C =uln& 16

Oriss "ower >enertion Corportion @ed!%l

:""

13

3 IFFCO C%ttis&r% 66

E0HIBIT ;

A'aila#ility o) Coal )or Po6er Sector "*rin( 4


17/18

CCI. (11+.E4= /&F 4&4='@ I&F

presenttionpower&ensi.pd'

=eep< I. ($+./ny solution for IndiaGs power crisisHRetrieved Dnur- 6< 1< 'rom 9oostep

%ttptoostep.comtrendsn-solution'orindispowercrisis

>d&il< :.< K =tt< *. (11< =ecem!er 3+.uel$ finance crunch to haunt energy sector.

Retrieved Dnur- 6< 1< 'rom livemint

%ttpwww.livemint.com11103$53Fuel'inncecrunc%to%unt.%tml

Indin "ower :r/et. (11< :- 3+.Indian ower 1ar"et. Retrieved Dnur- 7< 1< 'rom

Indin "ower Sector * snps%ot %ttpwww.indinpowermr/et.com115indin

powersectorsnps%ot.%tml

In'rline2ner&-. (11< =ecem!er 1+./vailability of oal for ower !ector as on &ovember

2, . Retrieved Dnur- 7< 1< 'rom In'rline2ner&-

%ttpwww.in'rline.comdetilsdecem!er11vil!ilit-o'col'orpowersectors

onnovem!er111630$$.%tm

In'rline2ner&-. (11< =ecem!er 0+.uel woes hit power sector. Retrieved Dnur- 7< 1enertion nd Suppl-+ "owerin& t%e >rowt% o' Indin

2conom-+ %ttpstoc/s%str.mone-wor/s4me.comindinpowersectornl-sis

industr-overviewndreserc%11

"ill-< *. (1< Fe!rur- 4+. !teep rise in coal imports re+uired to power India. Retrieved

Dnur- 6< 1< 'rom mone-li'e %ttpwww.mone-li'e.inrticle$3$0.%tml

Ro< =. B. (6< Dune+.Aow on fuel6 risis ahead . Retrieved Dnur- 6< 1< 'rom

in'oc%n&e %ttpin'oc%n&eindi.or&&endener&-vsenvironmentlowon'uelcrisis

%ed.%tml

Remme< .< 9rudeu< B.< >rcH-/< =.< K 9-lor< ". (11< Fe! 6+. Technology Fevelopment

rospects for the Indian ower !ector.Retrieved Dnur- 7< 1< 'rom Interntionl

2ner&- *&enc- %ttpwww.ie.or&ppers11tec%nolo&-JdevelopmentJindi.pd'

9t "ower. (11< Septem!er 6+.uel risis Feepens. Retrieved Dnur- 6< 1< 'rom

9t"ower %ttpwww.ttpower.commedicornerpressreportspress6sep11.pd'

Ei/ipedi. (11+.4lectricity sector in India. Retrieved Dnur- 6< 1< 'rom Ei/ipedi

%ttpen.wi/ipedi.or&wi/i2lectricit-JsectorJinJIndi

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