Power Sector Overview & Challenges - IEEMAieema.org/.../LFE_Overview_of_Indian_Power_Sector... · Power Sector Overview & Challenges December 2012 ©2012 Deloitte Touche Tohmatsu

Power Sector Overview & Challenges

December 2012

©2012 Deloitte Touche Tohmatsu India Private Limited

Contents

• Overview

• State Finances

• Generation Review

• Fuel Review

• Transmission & Distribution Review

• Development in Renewable Energy and Energy Efficiency

Deloitte 2

Sector Overview

3 Deloitte


Deficit situation has improved in FY 2011, partly on account of lower growth in demand

• Peak demand has grown at an average rate of 7.1% in the last five years till FY10. (9% in FY 2010)

• Energy consumption has grown at an average of 6.3% in the last five years till FY10 (10% in FY 2007)

• Installed capacity has grown at an average of 6.9% in last six years.

• Deficit is also on account of underutilization of existing capacity and T&D losses

Deloitte 4

Year Average Demand

Peak demand

Installed capacity

Peak Deficit

2011* 98416 125077 173626 12910

2010 94817 119166 159398 15157

2009 88703 109809 147965 13024

2008 84409 108866 143060 18073

2007 79146 100715 132330 13897

2006 72157 93255 124287 11463

Deficit situation for the last 6 years (in MW)

60%

65%

70%

2006 2007 2008 2009 2010 2011

Peak met to installed capacity for last 6 years

Source: CEA Power Reports

* Provisional


40000

50000

60000

70000

80000

90000

100000

110000

Apri

l-0

8

Ma

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8

June

-08

July

-08

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Octo

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r-0

8

No

ve

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r-08

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ce

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r-08

Janu

ary

-09

Feb

ruary

-09

Ma

rch

-09

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l-0

9

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-09

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ary

-11

Feb

ruary

-11

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rch

-11

Avera

ge D

em

an

d i

n M

W

Average Energy Demand Variation & Shortfall

Deloitte 5

Unrestricted demand Restricted demand

Energy Shortage

Energy Shortfall in FY 2009-10 is of 83949 MU (10.1%)




40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000A

pril-0

8

Ma

y-0

8

June

-08

July

-08

Augu

st-

08

Septe

mb

…

Octo

be

r-0

8

No

ve

mb…

De

ce

mb…

Janu

ary

-09

Feb

ruary

…

Ma

rch

-09

April-0

9

Ma

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9

June

-09

July

-09

Augu

st-

09

Septe

mb

…

Octo

be

r-0

9

No

ve

mb…

De

ce

mb…

Janu

ary

-10

Feb

ruary

…

Ma

rch

-10

April-1

0

Ma

y-1

0

June

-10

July

-10

Augu

st-

10

Septe

mb

…

Octo

be

r-1

0

No

ve

mb…

De

ce

mb…

Janu

ary

-11

Feb

ruary

…

Ma

rch

-11

Pe

ak

De

ma

nd

in

MW

Peak Demand Variation & Shortfall

Deloitte 6

Unrestricted Peak demand

Peak Supplied (Restricted Peak)

Peak

Shortage

125077 MW

Peak Shortfall FY 09 is 13177 MW ( 12%) Peak Shortfall FY 11 is 12910 MW ( 10.3%)

Peak Shortfall FY 10 is 15157 MW ( 12.7%)


4675

7665

7955

11120

15350 10700

6385

3380

3660

0

5

10

15

20

25

30

35

40

45

50

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Un

it A

ge G

rou

p

% of Total Thermal Capacity

Age Analysis – Thermal Power Generation Capacity

7

0-5

6-10

11-15

16-20

21-25

26-30

31-35

36-40

>40 34% of Capacity (24124 MW) are

of Unit Age >25 years

Thermal power plants under state & central sector which amount to 71,000 MW and a capacity of 6030 MW (>40 yrs in FY 14) is to be phased out by FY 14 & cumulative capacity of 8769 MW to be phased out in FY 17

Deloitte

Generation Capacity addition has remained below the targets

8

1,3

00

3,5

00

7,0

40

9,2

64

12,4

99

19,6

66

22,2

45

30,5

38

40,2

45

41,1

10

78,5

00

1,1

00

2,2

50

4,5

20

4,5

79

10,2

02

14,2

26

21,4

01

16,4

23

19,1

19

21,1

80

54,9

64

85%

64% 64%

49%

82%

72%

96%

54% 48%

52%

70%

0%

20%

40%

60%

80%

100%

120%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th

Target (MW) Achievement (MW) Achievement (%) RHS

Inferences

• Despite slippages, capacity addition in the 11th Plan

period @ 54,964 MW is significantly higher than that

added during the previous plan periods.

• Increased share of private sector is amongst the most

positive developments leading to higher capacity

additions. The share of 19% in the 11th Plan vs. the 42%

in actual additions is reflective of the on-time

commissioning of private sector projects

Source 11th

Plan

Target 11th Plan

Actual

12th

Plan

Target

Hydro 15,627 5,544 11,897

Thermal 59,693 48,540 68,690

Nuclear 3,380 880 2,538

Total 78,700 54,964 83,125

47%

28

%

32%

34%

30%

19%

19%

42%

55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

11thPlan

11thPlan

Actual

12thPlan

Private

State

Central


Expected merit order dispatch in FY2017

Deloitte 9

-

50,000

100,000

150,000

200,000

250,000

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

FY 17

Firm Allotment Captive Linkage Imported

Hydro Gas Captive Linkage Merchant

Imported Merchant Hydro Merchant Gas Merchant Demand

State finances

10 Deloitte

©2012 Deloitte Touche Tohmatsu India Private Limited 11

-8,6

72

-13

,83

0

-15

,38

9

-37

,98

6

-44

,46

9

-20

,26

7

-27

,15

3

-31

,91

0

-53

,71

3

-63

,54

8

-70,000

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

FY06 FY07 FY08 FY09 FY10

Financial Losses of Utilities (Rs. Cr.)

Aggregate Loss on subsidy received basis of all utilities

Aggregate Losses without subsidy of all utilities

24

6

23

8

23

9

25

4

25

8

27

6

29

3

34

0

35

4

18

1

19

5

20

3

20

9

22

1

22

7

23

9

26

2

26

8

654336

45

37

4954

7886

0

20

40

60

80

100

0

50

100

150

200

250

300

350

400

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Avg CoS Vs. Avg Realization

Cost of supply (paise/ unit) Realisation (paise/ unit) Gap (p/u)

Inferences

• Sharp increase in the financial losses of the

utilities in the recent years with four states

namely i.e. Tamil Nadu, Rajasthan, MP, Uttar

Pradesh, contributing the maximum.

• Reasons like tariff not reflecting Cost of

Supply and expansion in business (supply &

procurement) resulting in higher financial

losses even at same AT&C % levels are the

prime concerns

• Aggregate losses of Rs.63,548 Cr in FY 2010

has crossed Rs. 1,00,000 Cr in 2010-11

• 16 SERCs have revised tariffs for 2012-13,

which is a positive.

• AT&C losses continue to be a major concern.

Losses in states like Bihar, Jharkhand, MP

are still > 40% while other states like AP,

Delhi, Punjab have reduced losses < 20%

Financial health of power distribution companies is worrisome


State Electricity Board successor entities are in bad financial health

Deloitte 12

State 2007 2008 2009 2010

Loss

as % of

sales

Rajasthan 299 2167 6486 10978 102%

TN 901 3108 6640 9792 52%

Bihar 750 662 822 1444 52%

UP 4884 2985 5483 6711 45%

MP 1300 2136 4538 3621 37%

AP (466) (846) 2529 4084 20%

Delhi (556) 671 (890) 1490 13%

Haryana 36 703 1394 1427 12%

Karnataka 171 621 1769 930 7%

Maharashtra 653 949 3460 1097 4%

Chhattisgarh (526) (507) (890) 183 4%

Gujarat (208) 38 (222) -565 -3%

Kerala (1128) (1377) (681) -1148 -18%

All India 12884 15268 32339 44402 21%

• State utility finances are deteriorating. On

subsidy and revenue received basis, all

utilities combined made a loss of about

Rs. 44,402 crore - – now it is expected to

go up to Rs 75,000 Crores in FY12.

• The financials of some key States like

TN, Rajasthan, UP etc. are worrisome.

• Kerala, Chhattisgarh, Delhi, Gujarat are

few of the profit making utilities, with

Gujarat being one of the best performers.

• The tariff hikes proposed are not

consistent with rise in costs of distribution

utilities

Cash losses/(profits) over the years (Rs crores)

The comparison is on revenue and subsidy received basis.

Figures in negative are profits


Several states have increased revenues by about 40% in last 3 years

Deloitte 13

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2013

2012

2011


Governments and Regulators have drafted plans to tackle past losses

No State Status

1 Tamil Nadu Still significantly dependent on government subsidy and Revenue assets of

around Rs. 27,000 crores are to be amortized over 5 years commencing FY

2014

2 Rajasthan Significantly dependent on government subsidy. Deficit of about Rs. 4800 crores

in FY 13 carried forward to next year. State government has promised

• Annual cash support of Rs.400 crores would increase at a rate of 5% per

annum from FY 2014 upto FY 2022.

• Subsidy of Rs.120 crores would be increased to Rs.700 crores for FY 2013

and thereafter an increase of 5% per annum upto FY 2022 to meet the past

revenue deficit.

• For FY 2012-13 interest free loan of Rs.450 crores would be allowed which

will be continued with an increase of 5% per annum till FY 2021-22.

• With effect from FY 2012-13, the equity support would be increased from

20% to 30%.

• Interest free loan of Rs.1070 crores given by the State Government in the

past would be converted into equity.

Deloitte 14


Governments and Regulators have drafted plans to tackle past losses

No State Status

3 Bihar Changed the target consumers for the subsidy (Rs. 1080 crs) from everyone to

just rural and agricultural consumers. In addition, State Government has decided

to compensate in full for the financial losses caused to BSEB on account of

additional power purchase due to difference in the actual T&D loss and the T&D

loss as determined/ approved by the Commission .

4 Uttar Pradesh Utilities had not submitted petition for tariff revision till May 2012. The tariff

determination process is under way currently. The utilities have proposed to

meet the revenue gap without any tariff hike, but have requested additional

8500crores of subsidy support from the Government (along with 4500crores

already payable)

5 Madhya

Pradesh

The Regulator has not allowed formation of any regulatory asset and has

passed on entire tariff hike to consumers.

6 Andhra

Pradesh

The Regulator has hiked the tariff after considering 5350crores subsidy payable

by the Government. Government has communicated its approval for payment of

this subsidy. The Regulator has not considered any amounts related to previous

years while determining the tariff for FY 2013 and has asked utilities to seek

separate tariff increase for revenue gap of earlier years.

Deloitte 15


The proposed Short term debt restructuring may improve their finances, however onus of tariff hikes is still on Regulators and subsidy payments on state governments

• The Shunglu Committee has recommended restructuring of short term loans for loss making utilities

• As per the restructuring proposal, 50% of SEBs’ outstanding short-term liabilities shall be completely

taken over by the state governments by FY17, and the remaining 50% of short-term loans shall be

restructured by the lenders

• As an incentive, if SEBs and state governments comply with the terms of restructuring and repay the

loans as per the revised timelines, the Central government shall make a one-time payment equivalent

to 25% of restructured loans to the state governments at the end of 15 years

• The table below shows the year wise takeover of 50% of SEBs short term loans by the state Govts:

• The above step regarding the restructuring plan will help turn around the utilities, however this will

depend on the actual take over of loan and the operational performance of the state utilities going

forward

State 50% of STL FY 13 FY 14 FY 15 FY 16 FY 17

Rajasthan 199 26 35 40 45 52

UP 130 19 22 26 29 33

Tamil Nadu 96 9 25 29 33 -

Haryana 70 25 25 20 - -

Punjab 58 9 10 11 13 15

AP 32 22 9 - - -

MP 6 1 5 - - -

16 Deloitte


Most states will see reduction in power purchase expenses due to Case 1 bids

• Most coal rich states viz Chhattisgarh and Madhya Pradesh have signed MoUs and executed Power purchase agreements with project developers in their states to provide 5% (or 7.5%) power at variable rates and 30% power at CERC determined cost plus tariff

• Earlier Case 1 bids were all based on fixed tariffs and hence, even due to increase in coal prices, utilities will get cheaper power from private plants

• States having allocation from Sasan UMPP will also be benefited

• This power will make the old inefficient state owned plants uneconomical leading to their eventual phase out

Deloitte 17

0

0.5

1

1.5

2

2.5

3

3.5

2013 2014 2015 2016

Ta

riff

in

Rs

/kw

h

Sasan Adani -MH

Adani - Guj1 Adani - Guj2

Essar-Guj Essar-Bihar


Open access regulations have enabled developers to supply directly to consumers; but this has an additional cost in terms of Cross Subsidy Surcharge

Open access provision

• Power can be sold directly to consumers (with demand > 1 MW)

• The supply would still utilize the distribution network and therefore wheeling charges are payable

• Cross Subsidy Surcharge (CSS) would be applicable for any consumer moving out of state utility supply

‒ this is to compensate for the cross subsidy element inbuilt in the tariff charged by the utility

• States like Maharashtra, where there is huge deficit, had made the cross subsidy element zero to reduce the system load. However, the state utility has recently approached the regulator to impose CSS to reduce loss of paying industrial consumers

Cross subsidy surcharge

Deloitte 18

State CSS (Rs /kwh)

Maharashtra Zero

Punjab Zero

Gujarat 0.51

Karnataka Zero

Tamil Nadu 1.08

West Bengal 1.69

Haryana Zero

Source:: SERC Orders

Generation

19 Deloitte


Electricity Act 2003 de-licensed the generation sector

Private Power Policy of 1991

• Under this policy CEA became pivotal with its project appraisal role

• CEA’s function was to evaluate PPA’s entered into by SEB’s, approve tariffs and issue techno economic clearances (TEC)

• CEA approval was a huge bottle neck for most of the projects

Electricity Act 2003

• CEA approval for TEC for generation projects was done away with but for large hydro projects

• Under EA 2003, as per Sec 82, setting up of state regulatory commissions is made mandatory and under Sec 86 (b), Commissions are given authority to regulate power purchases

• Section 63 of EA has revolutionized power purchase procedure and erstwhile MoU route with state utilities is made invalid

Deloitte 20


Guided by Section 63 of Electricity Act 2003, National Tariff Policy mandates the utilities to procure power through competitive bidding route

Before 06 Jan 2006

• Approval of PPA is governed through individual State Regulatory Acts, which was on a cost plus basis and offered a regulated return of only 14%

• There was lack of clarity on the basis for approval of PPA and the scope for negotiations on almost every cost item resulted in long drawn processes

After 06 Jan 2006

• National Tariff Policy mandates that the power procurement for future requirements should be through a transparent competitive bidding mechanism

• Process to be followed as per the guidelines issued by the Central Government

• Competitive bidding mechanism allows for the bidder to bid on a competitive return basis and the process is transparent and time bound

• From 6th January 2011, all new public sector projects would have to participate in competitive bidding

Deloitte 21

Clause 5.1 of tariff policy “Even for the Public Sector projects, tariff of all new generation and transmission projects should be decided on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition.”


Developers now have option to invest in mega power projects, facilitated by Government, through a tariff based competitive bidding process

Power procurement under Case 2

• Central Government/State Government facilitates these projects and the procurers are the state utilities

• location, technology and fuel is specified by the procurer

• tariff (capacity and energy charges) for 25 years to be quoted in the bid

‒ selection is based on lowest levelized tariff

Deloitte 22

Project Fuel Tariff (Rs./kWh)

Winner

Sasan Captive 1.19 Reliance

Tilaiya Captive 1.77 Reliance

Mundra Imported 2.26 Tata

Krishnapatnam Imported 2.33 Reliance

Winning Bids for Ultra Mega Power Projects

Winning Bids for state sponsored Case 2 projects

Project State Tariff (Rs./kWh)

Winner

Jhajjar Haryana 2.996 CLP

Talwandi sabo

Punjab 2.864 Sterlite

Bhaiyathan Chhattisgarh 0.81 (35% merchant)

Indiabulls

Karchana UP 2.97 JaiPrakash

Bara UP 3.02 JaiPrakash

• Bidders have bid higher for levelized fixed cost for linkage projects (state specific risks/ transaction costs being factored into higher FC)

• Reliance, Lanco, Tata Power, Sterlite, CLP etc. have all quoted FC in a narrow range on all other Projects – Key differentiator is Fuel Strategy!!!


Sasan to Tilaiya Ultra mega bids

• Tariffs of Tata Power in Sasan & Sterlite more realistic than Lanco’s / Reliance’s, which are with aggressive fuel-side strategies

Deloitte 23

Player Non Esc Capacity

Esc Capacity

Non Esc Energy

Esc Energy Total capacity

Total Energy

Total Tariff

Lanco 0.915 0.001 0.276 0.002 0.916 0.278 1.196

Reliance 0.163 0.093 1.036 0.002 0.256 1.038 1.296

Tata 0.494 0.126 0.545 0.246 0.620 0.791 1.412

Sterlite 0.866 0.278 0.245 0.351 1.144 0.596 1.742

NTPC 1.139 0.261 0.458 0.267 1.400 0.725 2.126

Player Capacity Energy Total

Reliance 0.82 0.95 1.77

NTPC 0.76 1.63 2.39

JSPL 2.03 0.66 2.69

Sterlite 1.04 1.93 2.97

(Rs./kWh)

(Rs./kWh)


Mundra Ultra mega bids

• Bid won primarily on superior fuel strategy!

Deloitte 24

Player NECap Es.Cap NEFuel EsFuel NETran Es Trans NEHand EsHand Total

Tata 0.83133 0.05133 0.37252 0.50298 0.14969 0.22671 0.05476 0.09787 2.28718

Adani 1.05673 0.00000 1.15154 0.00000 0.33078 0.00000 0.18444 0.00000 2.72348

Reliance 1.06638 0.00156 0.00000 0.93890 0.21535 0.32654 0.04697 0.08297 2.67867

Player Capacity Coal Coal transportation

Coal Handling Total

Tata 0.88 0.87 0.37 0.15 2.27

39% 38% 16% 7%

Adani 1.05 1.15 0.33 0.18 2.72

39% 42% 12% 7%

Reliance 1.06 0.93 0.55 0.12 2.67

40% 35% 21% 4%

(Rs./kWh)

(Rs./kWh)


Independent Power Plants can tie up their capacities under long term PPAs through a transparent tariff based competitive bidding process

Power procurement under Case 1

• State utilities are now mandated to procure power through competitive bidding process

‒ quantum is to be approved by the Commission and bid process must be as per standard guidelines

‒ tariff discovered need not be approved by regulator

• power can be sourced from any developer

‒ location, technology or fuel is specified by the procurer

• IPPs have an option to tie-up only part of their capacity

Deloitte 25

Players participating in Case 1 bids

Developer Capacity bid* Adani Power 8500 CLP 1150 Essar 4050 Indiabulls 1200 JSW Energy 1500 Lanco 1500 PTC + Players 2200 Reliance Power 5400 Tata 800

- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

Gu

jara

t

Mah

ara

shtr

a

Hary

ana

Mah

ara

shtr

a

Bih

ar

Gu

jara

t

Raja

sth

an

Karn

ata

ka

R-infr

a

UP

AP

2007 2008 2008 2009 2010 2010 2010 2010 2011 2011 2011

* Same plant may have been offered in different bids


More Peaking Case 1 bids are expected in future

• Traditional Case 1 bids were long term bids for base load for a duration of 25 years

• Gujarat and Haryana have called for fuel based bids or restricting bids on non-escalable basis

• There have been many short term bids and some medium term bids.

• Recently, some utilities have called for peaking medium term bids, but have not got any participation.

• There is a gradual shift to tie up for peaking loads as base loads are expected to be met by UMPP and state and central additions.

State Type Capacity

Maharashtra LT Base 4000

Gujarat LT Base 6000

Haryana LT Base 2000

Bihar LT Base 1500

Rajasthan LT Base 1000

Karnataka LT Base 2000

Torrent Power MT Base 150

R-infra LT Base 1500

R-infra MT Base 450

R-infra MT Peak 450

UP LT Base 5000

AP LT Base 2500

AP MT Base 700

Tata Power MT Base 200

Tata Power MT Peak 150

Deloitte 26

Pricing trends in the ST Power Market

27

Merchant Prices Trend Analysis

• Sharp increase in

merchant volumes coupled

with weaker finances of

distribution utilities –

primary causes of

downward trend in the

short-term power prices.

• Prices in exchanges, which

is largely comprised of the

day-ahead market has

been consistently lower

than the bilateral market.

• Over the years several

SERCs have imposed

ceilings for short-term

power purchase beyond

which utilities are not

allowed to recover from

consumers.

7.2

9

5.3

6

4.7

9

4.1

7

7.4

9

4.9

6

3.4

7

3.5

7

7.3

1

5.2

8

4.3

2

3.9

9

24.69

33.91

43.22

51.38

10

15

20

25

30

35

40

45

50

55

0

1

2

3

4

5

6

7

8

2008-09 2009-10 2010-11 2011-12

Traders Avg.Price (Rs./Unit)

ExchangesAvg. Price(Rs./Unit)

Wt. AveragePrice (Rs./Unit)

Volume (MUs)RHS

Pricing trends in the ST Power Market, Continued…..

28


• The RTC as well as Peak, Off-

peak tariffs are higher in the non-

monsoon months.

• The peaking tariff was

comparatively higher during winter

months while the RTC was

comparatively higher during the

summer months which also

happen to be the peak deficit

season.

• All ST power tariff declines during

monsoon season due to reduced

demand and increased availability

of hydro power.

• The prices for supply under peak

hours consistently remains higher

than RTC Tariff by 60% (Nov, 11).

• The prices for power sold under

specific slots both peak and off-

peak are higher than RTC tariffs

almost throughout the year,

except monsoon months (May,

June, July, August).

1.39 1.34

1.31

1.07 1.11

1.30

1.01

1.22

1.58

1.23

1.60

1.47

1.17

1.07 1.11

0.99 0.93

1.00 0.95 0.93

1.17 1.20

1.12 1.08

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

Peak

Off-Peak

RTC

Peak and Off-Peak Tariff SCALED w.r.t. RTC Tariff

6.1 5.93

5.74

5.07 5.02 4.94

3.95

4.73

6.26

5.16

6.8

6.05

5.12

4.7 4.86

4.72

4.22

3.81 3.7 3.61

4.63

5.02 4.75

4.46

4.38 4.41 4.37

4.76 4.52

3.81 3.9 3.88 3.95 4.19 4.25 4.12

3

3.5

4

4.5

5

5.5

6

6.5

7

Peak

Off-Peak

RTC

RTC, Peak and Off-Peak Tariff Trend (Rs./ kWh)

Pricing trends in the ST Power Market, Continued…..

29


• Bulk of the transactions

are RTC is nature: peak

and off-peak taken

together are only 6% of

the total RTC power

during FY12.

• Weighted average tariffs

are thus driven by the

RTC contracts.

• In-terms of the Market

Clearing Tariffs for the

IEX, the tariff during the

evening peak hours (8 to

12 O’clock) is seen to

substantially higher than

the price during other

time slots.

2385

2510

2496

2472

2519

2611

2499

2447

2443

2426

2549

2562

2484

2588

2554

2532

2484

2443

2497

2205

2228

2337

2396

2394

3.9 3.7

3.5 3.6 3.5 3.6

3.3 3.3 3.4

3.7

4.0

4.4 4.3 4.3

4.1 4.0

3.9 3.8

4.8

5.6 5.6 5.6 5.6

5.3

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1

501

1001

1501

2001

2501

3001

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

MC Volume (MW) LHS MC Price (Rs./kWh) RHS

Hourly Volume & U/C Pricing for IEX (25/07/2012 to 24/08/2012)

22157.38

171.12 1084.48

4.14

5.39

4.45

0

1

2

3

4

5

6

3

5003

10003

15003

20003

25003

RTC Peak Off-Peak

Volume (MUs) LHS Price (Rs./ kWh) RHS

RTC, Peak and Off-Peak Tariff Trend (Rs./ kWh), excluding banking


Availability of Finance from Indian FIs not a concern for Power

• Credit growth in the Indian banking sector

at 16.3 % in 2011-12, was lower than the

22.6 % recorded in 2010-11.

‒ Growth of credit to Power Sector

decelerated dramatically to 9% for 2011-

12 compared with an average of 50% p.a.

over the last 5 years.

‒ Power accounted for only 8.34% of total

advances of SCBs, indicating adequate

combined head-room for the sector.

‒ Concerns of a few PSBs having reached

their exposure limits for power sector in

2010-11 have eased over 2011-12.

‒ PSBs are crucial to infrastructure

financing in the country, as they account

for 85% of the combined exposure of

SCBs to the sector.

Annual Growth Rate of Bank Credit to Power Sector

0%

10%

20%

30%

40%

50%

60%

70%

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

Source: RBI’s Financial Stability Report – June 2011 &

June 2012

• Sector specific concerns have slowed down power sector financing in 2011-12 but most

FIs / Arrangers consulted in the study expected reversal in tide over 2012-13.

• Common well-known concerns about SCBs financing long-term projects (ALM concerns)

& lack of depth in re-financing market were voiced – applies to infra financing in general.


Commercial Banks have led financing for the Private Sector Total Loans of Indian Financial Institutions outstanding to Power Sector (Rs. ‘000 Crores, October, 2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

State Centre Private

180

40

80

60

30

160

10

50

20

10

10

300 550 650 610 0

300 550 650 610 0

Scheduled Commercial Banks Infrastructure Finance Companies Govt. Other FIs

Total loans outstanding for power sector estimated to be ~Rs. 650,000 Cr. Banks account ~46.1% IFC

~38.5%, Govt lending through grants & other FIs such as LIC & EPFO account for remaining 15.4%

Of this Rs. 650,000 Crores outstanding, SEBs account for 46.1% of the loan outstanding followed by

private sector IPPs at ~40% and projects under Centre at 13.9%

SC Banks’ exposure to power sector has grown in the past few years and within power sector, private

IPPs account for 60% of this exposure, indicating banks’ inclination towards lending to private sector

For IFCs such as PFC and REC, the exposure to SEBs and private IPPs is ~ 64% and ~24% respectively,

demonstrating their track record of supporting state utilities over the past 2 decades

Source: Deloitte Industry Analysis, RBI Reports and PFC

Fuel

32 Deloitte


Coal accounts for more than half of India’s current installed capacity and will remain to be the major fuel source for the next 10 years

• Coal accounts for more than 50% of installed capacity

• Even though Hydro contributes around 22%, of installed capacity, in terms of availability its share is only 14%

• There has been huge thrust on renewable energy with Government providing incentives like RPO, advance depreciation, subsidy, REC, concessional benefits etc

• Nuclear capacity addition is also expected to pick up in the next 8-10 yrs

• Majority of private sector generation capacity is based on renewables (15446 MW); Hydro is 1425 MW

Deloitte 33

Source: CEA Power Reports

Generation Mix as on Feb 2011

Utility share* as on Feb 2011

Fuel Capacity in MW %

Coal 92418 54

Hydro 37367 22

Gas 17706 10

Renewable 18455 11

Nuclear 4780 3

Diesel 1200 1

Captive 19509

Sector Capacity in MW %

State 82453 48

Central 52713 31

Private 36761 21

* other than captive


Coal Deficit is a major concern for the sector

• For FY13, of thermal coal requirement of 650 MT for FY13, total domestic supply is likely

to be 530 MT (CIL

‒ will lead to about 85 MT of imports for FY13

‒ loss of some generation for available plants in the power sector

• CIL supply for power sector estimated to rise from 325 MT in FT12 to 477 MT in FY17

‒ Will limit capacity addition over FY12-17 to about ~30 GW on domestic coal.

‒ Prevailing confusion around captive blocks will impact ~10 GW of capacity addition

‒ Mechanisms to sort out stations based on imported coal is critical for Southern Region –

uncertainty will impact a further ~8 GW of capacity

‒ About 20 GW of planned capacity addition in 12th Five Year Plan is in danger

unless CIL production capacity increases!!

Deloitte 34


Captive coal blocks with estimated capacity of 28000 MT have been allocated so far. This could ideally support an addition of 1,80,000 MW

Deloitte 35

> 3 Yrs 1-3 Yrs 0-1 yr Total

Number 38 64 3 105

MT 10518 16430 1182 28130

• Ministry of Coal has awarded around 105 blocks

with a cumulative capacity of around 28000 MT

• More than 80% of the captive block have been

allotted only in the last 5 years

Timeline of allocation of captive coal mines

Issues faced by mine developers

• Land acquisition – social issues pertaining to land acquisition, rehabilitation and resettlement have delayed several

projects including those of the large central public sector undertaking

• Environmental and forest clearances – with the implementation of go-no go classifications, coal mining projects

have run into further delays

• Implementing projects – many mining projects have faced inordinate delays lack of experience and expertise in coal

mining. Many captive coal block owners have preferred to appoint mine developers and operators on turn-key basis

• Financing – the world has changed since the financial downturn and the miners have to face cautious financiers

even when they have cash surpluses to pick the equity components

• Infrastructure development – miners are faced with projects with no infrastructure backbone to support

productions and dispatches and the missing link between the coal and their power plants


Indonesia has emerged as largest exporter of thermal coal to the world

• The rise in global thermal coal trades are not as much

as the expected demand for the commodity in the

Indian market.

• Indonesia has emerged as the largest exporter of

thermal coal.

• The demand for imports has led to pricing spikes and

large volatilities.

36

Source: IEA,EIA,UN, country statistical agencies

0

100

200

300

400

500

600

700

800

2002 2003 2004 2005 2006 2007 2008 2009 2010

Mn

T

Thermal Coal Imports (MT)

America Europe CIS,Middle East & Africa India China Rest of Asia

0

50

100

150

200

250

Coal exports in MT

Indonesia Australia South Africa

020406080

100120140160180200

Price in USD/tonne

Richard Bay Newcastle


Competition for coal assets is heating up acquisition prices

• Increasingly, the quality of assets available in the market is downgrading, low hanging fruits are taken.

• Asset prices have moved up from the early 2009 lows.

• Several mining companies with cash surplus have been in the market, unable to deploy resources through acquisitions – scarcity of good assets, valuations and geo-politics of mining.

• Competition for coal assets is heating up with the Chinese aggression on the play.

37

Major deals in the recent times:

• Adani Enterprises bought Linc Energy's Queensland

coal tenements in a deal worth up to $3 billion. The

tenement has a resource base of 7.8 billion tonnes

of coal. Annual capacity will be up to 60 million

tonnes.

• Lanco Infratech bought Griffin Coal for AUD 730

million. Western Australia-based Griffin Coal’s

assets include thermal coal mines with a

production capacity of about 5 million tonnes at

present. Lanco Infra plans to increase it to about 18

MT by 2015.

• JSW Energy bought Botswana assets of CIC valuing

it at USD 414.5 million. CIC has 2.6 billion tonnes of

measured resources (NI 43-101 compliant) with an

average gross calorific value of 6000 kCal/kg.

Source: Deloitte China and Merger market Survey

4%

69%

11%

12%

4%

Chinese M&A Outlook for the next 12 months

Increase greatly IncreaseRemain the same Decrease

Transmission and distribution

38 Deloitte


Transmission capacity would not be huge hurdle as long as the planned region of sale is taken into account by PGCIL

• Application to be submitted to PGCIL or state utilities for grant of long term or short term open access

– governed by open access regulations

• Injection points to be identified for evacuation

– Distance to nearest PGCIL substation is critical

• For long term open access, identification of beneficiaries is necessary to plan capacity addition and load flow studies

• Transmission charges are determined by Regulatory Commissions as Rs/MW/Day

• Besides, transmission charges, developer will also incur approved transmission losses

Deloitte 39

W

2100

/760

0

3600

/360

0

S

N

E

NE

1700/2700

5000/8500

0/4000

12

50

/

22

50

2800/8500

Proposed Transmission Capacity

*X plan / XI plan

*


IPTC bids won so far

Deloitte 40

Bongaigaon

Siliguri

Purnea

Biharsharif

Bina

Jabalpur

Dhramjaygarh

Talcher

Rourkela

Behrampur

Gazuwaka

Solapur

Raichur

Sipat Seoni

Lucknow

Bareilly

Meerut

Agra

Gurgaon

Project: East North East Interconnection Winner: Sterlite Technologies Limited

Project: North karanpura Winner: Reliance Power Transmission Limited

Project: Talcher

Winner: Reliance Power Transmission Limited

Rajasthan: Bids conducted for

1. 400 kV Bikaner-Deedwana-Ajmer Line; 400/220 kV GSS at

Deedwana – won by GMR 2. 400 kV Hindaun-Alwar with 400

kV GSS at Alwar won by GMR 3. 220 kV Sikar-Nawalgarh-Jhunjunu

won by EMCO Ltd

Project: System Strengthnening Common for WR & NR Winner: Sterlite Transmission Project Private Limited

Project: Raichur Solapur 765 kV Winner: Patel Engineering+Simplex

Infrastructure+BS Transcomm

Aurangabad Dhule

Vadodara Bhopal

Project: System Strengthnening Common for WR Winner: Sterlite Transmission Project Private Limited


Private investments in transmission sector are increasing

• Projects envisaged to attract private sector investment in transmission

• Decision on Projects to be awarded through IPTC route decided by Empowered Committee

• Formation of SPV, route survey and bid process management conducted by Bid Process Coordinators (BPC – currently PFC and REC)

• Transfer of SPV to winning bidder on BOOM (Build, Own, Operate & Maintain) basis

• Upcoming opportunities

‒ Rajasthan: (1) 400 kV D/C Babai (Jhunjunu) – Jaipur(North) with sub-station at Jaipur (2) PPP 5: 400 kV D/C Jodhpur – Udaipur with sub-station at Udaipur

‒ Transmission System associated with IPPs of Vemagiri Area (REC Transmission Projects)

Deloitte 41

357 222

93

297

1995

1421 1440

1188

2580

0

500

1000

1500

2000

2500

3000

INR

Mil

lio

n

Levelized Transmission Tariff


Experience of Bhiwandi has encouraged other states to try out distribution franchisee

• Bhiwandi was awarded by MSEDCL to Torrent Power in 2007 for distribution franchisee for 10 years.

• Torrent has achieved following

‒ Improved losses from 31% to less than 19%

‒ Improved collection efficiency from 67% to above 99%

‒ Invested in improving distribution infrastructure and reduced technical losses

• UP had tried out franchisee for 9 circles and Bihar had tried it for 3 circles

• Franchising may help utilities improve revenue collection along with quality of supply

Deloitte 42

State Area Winner

Maharashtra Bhiwandi Torrent Power

Maharashtra Nagpur Spanco

Maharashtra Aurangabad GTL Infra

Maharashtra Jalgaon Crompton Greaves

Uttar Pradesh Agra Torrent Power

Uttar Pradesh Kanpur Torrent Power


Performance of Torrent in Bhiwandi

Deloitte 43

0%

5%

10%

15%

20%

25%

30%

35%

40%

Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun May Apr

Losses

2,009 2,008

50%

60%

70%

80%

90%

100%

-

10

20

30

40

50

60

70

Co

llect

ion

Eff

icie

ncy

Mo

nth

ly D

em

and

Rs

Cro

res

Collection of Bills

Demand (Rs Crs) Collection Efficiency

0

10

20

30

40

50

60

70

80

0

5000

10000

15000

20000

25000

30000

Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun May Apr

Nu

mb

er

KV

A

Transformer failure analysis

2009 KVA 2008 KVA2009 No. 2008 No.

-

100

200

300

400

500

600

-

10

20

30

40

50

60

70

80

90

Au

g-0

7

Sep

-07

Oct

-07

No

v-0

7

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-0

8

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

Dec

-08

Jan

-09

Cu

mu

lati

ve k

m

km

Line addition

Line addition Cumulative

Renewable Energy and Energy efficiency initiatives

44 Deloitte


Renewable energy is expected to be 74000 MW by 2022

• Renewable power is expected to contribute significantly part of India’s incremental capacity addition, and a robust regulatory framework has been put in place to realize India’s wind, hydel, solar and biomass potential

• Total grid installed renewable capacity in India is around 18,655 MW (as on 31.12.2010).

• Cumulative renewable energy targets by year 2022 :

‒ 54,000 MW (Wind, SHP and Biomass)

‒ 20,000 MW from Solar energy

• Amongst all RE technologies which are explored, India has huge potential for wind and solar energy. Out of the total wind potential of 50,000 MW around 26% of it is been exploited

• Tamil Nadu has the maximum wind power installed capacity in the country contributing to around 40% of India’s total wind capacity. Karnataka and Maharashtra together has around 12,500 MW of untapped wind potential

Deloitte 45

Source: MNRE (31.12.2010)

50000

15000 16000

5000 7000

50000

13066

2939 997 1562 72 18 0

10000

20000

30000

40000

50000

60000

Wind Small hydro Biomass Cogeneration Waste of energy SolarPotential Installed capacity


RPO obligations is one of the key driver for growth of renewable energy

• National Action Plan on Climate Change (NAPCC) a major step to mitigate climate change issues and encourage generation from RE sources

‒ Dynamic minimum Renewable Purchase target: 5% of the total grid purchase in 2009 -10 and to increase by 1% each year for 10 years

Deloitte 46

• .

• Feed-in tariff

• Fiscal incentive ( Accelerated Depreciation, tax incentive)

• Production subsidies/GBI

• Soft loans

Supply Side drivers

• Renewable Purchase Obligation

• RECs

• Net metering

• Carbon, NOx, SOx trading

Demand Side drivers

* Estimation based on 17th EPS, 98259 MU will require installed capacity of 55000 MW @ 20% CUF

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

National RPO target

(NAPCC) 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%

Total Energy

consumption (MU) * 684328 755843 831424 907006 982587

RE target (As per

NAPCC target) (MU) 41060 52909 66514 81631 98259


RPO obligations imposed in major states

States Obligated entities RPO Obligation

Licensee Captive Open Access 2009-10 2010-11 2011-12

Tamil Nadu 13% 14% -

Karnataka BESCOM, MESCOM, CESC – 10%

GESCOM, HESCOM – 7%

Maharashtra 6% Solar – 0.25%, Others

– 5.75% Solar – 0.25%, Others

– 6.75%

AP 5% 5% 5%

Rajasthan * Wind – 6%

Biomass - 1.45% Wind – 6.75% Total - 1.75%

Wind – 7.5% Total - 2%

Gujarat 2%

Wind – 4.5% Solar – 0.25%

Biomass – 0.25% Total – 5%

Wind – 5% Solar – 0.5%

Others – 0.5% Total – 6%

Delhi 1% 1% 1%

Haryana 1.5% 1.5% 1.5%

UP Non Solar – 3.75%

Solar – 0.25% Non Solar – 4.5%

Solar – 0.5%

Deloitte 47

*In addition to the above, distribution licensees have to meet solar obligation of upto 100 MW through PPA, excluding capacity under

GBI/incentive scheme of GoI. RPO for CPP/OA consumers are independent of the RE technology and have to meet the total RPO of 8.5%

and 9% in FY 11 and FY 12 respectively


Profile of developers is changing from fiscal beneficiaries to serious wind developers • Wind accounts for around 70% of the total

installed renewable capacity.

• The sector has attracted several companies dedicated towards wind capacity addition.

• In addition to the above there are several large power companies and local renewable IPP’s operating in respective states.

• Companies adopt different strategy for capacity addition:

‒ Green field capacity addition by placing turnkey contracts to wind turbine manufacturers

‒ Green field capacity addition by acquiring wind potential sites on their own and then procuring wind turbines by placing bulk contracts

‒ Acquisition of existing wind assets

Deloitte 48

Players PE funding

Operating wind

capacity (MW)

Under development

/ planned (MW)

Orient Green Power Company Limited

Olympus Capital,

Bessemer Ventrure,

Sriram EPC

153 622

Green Infra Limited

IDFC PE Fund II and Fund III

124 165

Greenko Group Global

Environment fund

- 200

Auro Mira Energy Company Private Limited

Baring PE - 500

Indowind Energy Limited

68 100


Policy initiatives to promote solar energy

• The objective of the Jawaharlal Nehru National Solar Mission (JNNSM) has set a target of 20,000MW

• In order to prevent bunching of large capacities and the difficulty that may arise in achieving financial closure, it is proposed that selection of PV projects be done in a phased manner.

• JNNSM proposes to add 200 MW capacity in first phase for off grid applications like solar lighting, rural power supply, telecom towers etc

‒ Solar plants commissioned in the next three years enjoy zero transmission charges and losses for entire life of the project. This has enabled solar plants to supply power anywhere in India without incurring transmission charges and losses

Deloitte 49

Application Segment

Target for Phase 1

(2010-13)

Target for Phase 2

(2013-17)

Target for Phase 3

(2017-22)

Solar Collectors

7 Million Sq meters

8 Million Sq meters

5 Million Sq meters

Off Grid Solar applications

200 MW 800 MW 1000 MW

Utility grid power, inc roof top

1000 MW 4000 MW 16000 MW


Energy efficiency initiatives are expected to be around Rs. 74,000 crore by 2014-15 • Market-based approach to unlock energy

efficiency opportunities, estimated to be about Rs. 74,000 crore by 2014-15 with 19,000 MW avoided capacity addition

• PAT scheme covers 563 designated consumers (DCs) in 8 key sectors identified in First Cycle of PAT project ( April 2011 – March 2014)

‒ All DCs consume about 231 mtoe energy i.e. about 60% of total energy consumption of the country

• Targets of avg. 4.32 % energy savings given to DCs to be achieved within three years

‒ Achievement > Target : E-Scerts

‒ Achievement < Target: Purchase E-Scerts/Penalty

• E-Scerts are tradable only after March 2014

• National Target = 10 mtoe at the end of 1st PAT cycle given to DCs to implement EE projects & reduce Specific Energy Consumption as per the targets

Deloitte 50

Sector Energy Consumption

(MTOE) No. of

identified DCs

Power (Thermal) 160.30 146

Iron & Steel 36.08 101

Cement 14.47 83

Fertilizers 11.95 23

Textile 4.50 128

Aluminium 2.42 11

Paper & pulp 1.38 51

Chlor-Alkali 0.43 20

Total 231.53 563


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms This material and the information contained herein prepared by Deloitte Touche Tohmatsu India Private Limited (DTTIPL) is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of DTTIPL, Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this material. ©2012 Deloitte Touche Tohmatsu India Private Limited

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