Indias power market is the fifth largest in the world.

Coal fuels about 55 % of Indias power generation, and if current positions are accurate, the proportion will grow substantially in the next 20 years. To this point, India has met its burgeoning demand for electricity primarily with the development of conventional thermal power generation with coal representing the lions share of generating fuel. The power sector is high on Indias priority as it offers tremendous potential for investing companies based on the sheer size of the market and the returns available on investment capital. But of late Coal based Power Projects are facing various challenges or threats in order to get accomplished and commissioned in due time. If we arrange the challenges as well as problems faced by a coal based Thermal Power Project (TPP) in a descending order, it would be like (1) Shortage of coal (2) Problems regarding land acquisition (3) Water allocation problem (4) Environmental problem regarding emission standards of the criteria pollutants (5) Problem in transportation of coal (6) Transmission & Distribution Problem (7) Power Trading Issues (8) Availability of power equipment / EPC players (9) Lean focus on BoP-Civil & Structural issues (10) Investment & Financial Risk Issues (1) In India there are three major suppliers of coal namely Coal India Limited (CIL), Singareni Collieries Company Limited (SCCL), Neyveli Lignite Corporation (NLC) and among them CIL contributes 81.1% of India's overall coal production (Feeds 82 out of 86 coal based thermal power plants in India). But the production is not enough to meet the demand of the power sector. Fuel (Coal) Demand- Supply gap during 12th Plan is as below Installed Capacity by 2016-17: 167 GW Domestic coal required: 842 MT Expected domestic coal production: 550 MT Demand supply gap: 292 MT Equivalent imported coal requirement to domestic coal: 54 MT (Considering 82.5 % PLF for greater than 200 MW units). So there is a huge amount of coal shortage which has to be cover up either by imported coal or my increasing mining capacity. But use of imported coal will lead to the high generation cost (coal cost+ customs duty+ transportation cost of coal from port to plant) again in India sufficient infrastructure is not available i.e. port, railways to take care of the imported coal. In case of indigenous coal ash content is quite high so we are already unwillingly transporting a huge amount of ash when we transporting the coal. Regarding coal mining CIL has shown a decline in its production rate and increasing the coal cost. NTPC CMD has said that CIL is the only company whose production is decreased but net profit is increased. Again due to this decline in production existing Thermal Power Plants are running shortage of coal. The main reasons behind the reduce in productions are (i) Environmental issues coal mines are not properly filled with sand after the evacuation of coal so MOEF restricting the coal mining. Again a huge amount of coal reserve is underneath the forest again we are unable to dig out the coal without MOEFs clearance. (ii) Coal storage & evacuation problem i.e. unavailability of ample Coal Handling Plant/Coal Washeries in the mines. Coal crushing capacity is not developed due to facilitate more storage. (iii) Coal mines are not distributed in India they are confined to Eastern & Northern Eastern zone so it is problematic with respect to coal linkage for plants located on Southern/Western zones. (iv) Sector wise priority and allocation is not done (v) Surplus coal distribution policy is not been regarded (vi) No up gradation in the coal mine equipments especially in case of the open cut mines. The requirement of coal also necessitates introduction of higher size equipment to work at a larger stripping ratio. Future Challenges In Coal Based Thermal Power Projects Page 1

Again captive coal blocks are been allocated previously to both PSU and private developer but they have failed to develop the mines due to land acquisition , Environment & Forest Clearance , policy issues ,R & R problem, investment risk, opposition from local people etc. Problem faced by the power developers are (i) A.C.Q in L.O.A-85% P.L.F Against requirement for Fixed Cost Recovery (ii) G.C.V of coal for calculation of A.C.Q 80% against-85% (iii) Term of Model F.S.A only 5 years against long term P.P.A term of 20-25 years.

(2) Land acquisition has become the most difficult problem for policy makers in India. Names like Singur, Nandigram, Kalinganagar, Jaitapur and Bhatta Parsaul, Noida have entered in our vocabulary as distressing images of social conflict. The post-liberalisation economic boom continues to create a voracious appetite for space to meet the demands of industrialisation, infrastructure building, urban expansion and resource extraction. Finding a way to balance the needs of economic growth, equitable distribution and human rights and rescuing these complex and sometimes conflicting objectives from the political opportunists, is perhaps the greatest challenge facing our democracy. (3) Power plants are the largest water consumer among all.So allocation of water is an important factor for the power plants. The raw cooling water required depends on the ultimate station capacity planned. For a 2000 MW plant approx water requirement is 96 cusecs and it is a huge amount. The preferred location for a power station from the cooling water view point is near a river or sea coast. But nearly two-thirds of Indias power plants are located in water-scarce or water-stressed areas. And nearly 80 % of the plants planned for the future will be located in such areas. This conflict illustrates the importance of taking water related risks into account when planning future developments. With a rapidly growing population and increased industrialization, Indias water demand is expected to outpace supply by 50 percent in 2030. Already today, water shortages are creating delays in construction of new power plants, causing a decreased return on investment for power companies. It is important to take water resources into consideration before deciding what kind of energy producing plant is best suited for development. But sometimes a nation has no choice but to place power plants in water-scarce areas. Every decision has tradeoffs, and in some instances the tradeoffs can be severe. In the case of India, its decision to locate its energy supplies in water-scarce areas will likely require the implementation of innovative water management approaches to preserve energy reliability. (4) The environmental issues are always present with from the beginning of the power development in India. Various issues related to standards of Green House Gas Emission, COX, NOX, SOX, suspended particular matters emissions (criteria pollutants) etc. are the hindrances for getting approval from MOEF,CPCB and other statutory state bodies. Though several technological developments (Clean Coal Technology) for clean and green energy are done in process design to reduce emission but due to real scenarios) of the existing Thermal Power Stations i.e. high ash content of Indian coal and subsequent high ash disposal and less thermal efficiency (high emissions) environmental regulatory bodies are not giving approval and a considerable number of projects remain in the beginning stage due to these problems. (5) For pit head power stations the MGR (Railway) system & for coastal power plants conveyor (coal directly enters to the plant from ship through conveyor) are used. So in this case both the transportation cost and time is less. But in case of load centre power stations we have to construct private railway siding (a side railway track from the main railway line) for transporting coal from mine to plant. The track may or may not be electrified. This includes a large amount of construction cost (approximate 6-7 Cr. /KM including land acquisition) as well as O & M cost which is added to the generation cost. Again the main railway lines are always congested (unavailability of surplus railway line in India), so it becomes very difficult to allocate line for the new plants. Also there is a problem regarding availability of wagon. Generally Indian Railway provides BOBR & BOXN Future Challenges In Coal Based Thermal Power Projects Page 2

(BOXNHL, BOXNHS) type wagon for coal transport and BTPN type wagon for fuel oil transport. Depending upon the type of wagon we design unloading system i.e. for BOBR wagon we use Track Hopper (takes lesser time to unload) and for BOXN wagon we use wagon tippler (takes larger time to unload). Once BOBR type wagon is unloaded it is very much difficult to load it again with the other commodity, but for BOXN it is easier to load it again. Now according to Indian Railways policy loaded wagons will move on the track. So for load centre plants those are built far away from the mines Indian Railways does not prefer to provide BOBR wagon, as a result the Track Hopper system becomes useless and the entire unloading pressure comes to Wagon Tippler and the unloading /operation time becomes high and which leads to reduce the efficiency and in this case to decrease the operation time we have to built additional Wagon Tippler and consequently additional expenses. (6) While capacity addition and availability of fuel are some of the constraints, T&D losses power lost during transmission of electricity is also substantially higher than the global benchmarks, at approximately 30%.The central and the state utilities own nearly 40% and 60% respectively of the total transmission lines. The Power Grid Corporation of India (PGCIL), the central transmission utility, is Indias largest transmission company. Similarly, in the power distribution segment, the state electricity boards own nearly 95% of the distribution network. The transmission network in the country was comprised of 3187 circuit kilometre in 750 KV segment, 91359 ckm in 400 KV segment, and 124201 ckm in 220 KV segment. The ownership of the grid is predominantly with PGCIL and State Transcos / SEBs. Currently, the interregional transmission capacity is about 21000 MW, which connects northern, western, eastern and north eastern regions in a synchronous mode operating at the same frequency and the southern region asynchronously. The transmission grid is presently experiencing problems on account of insufficient interregional transfer capacity which is hampering the increasing volume of traded power as also encountering problems pertaining to increasing short circuits levels, operational voltage excursions due to fluctuating reactive balance and grid stability. (7) Power trading inherently means a transaction where the price of power is negotiable and options exist about whom to trade with and for what quantum. In India, power trading is in an evolving stage and the volumes of exchange are not huge. All ultimate consumers of electricity are largely served by their respective State Electricity Boards (SEB) or their successor entities, Power Departments, private licenses etc. and their relationship is primarily that of captive customers versus monopoly suppliers. In India, the generators of electricity like Central Generating Stations (CGSs), Independent Power Producers (IPPs) and SEBs have all their capacities tied up. Each SEB has an allocated share in central sector/ jointly owned projects and is expected to draw its share without much say about the price. In other words, the suppliers of electricity have little choice about whom to sell the power and the buyers have no choice about whom to purchase their power from. (8) There are constraints pertaining to availability of power equipment as also the availability of quality EPC players to cater to the requirements of increasing number of thermal power generation projects. There has been increasing dependence as well as on Chinese equipment and manpower by private players who have witnessed problems on account of restrictions of Chinese manpower by Government of India (GoI) as also concerns pertaining to the quality of equipment during operations. About 30,000 MW of capacity (of which 10,000 MW are planned for twelfth plan projects) has been ordered with Chinese equipment companies. Several companies have also been awarding Engineering, Procurement and Construction (EPC) contracts to Chinese companies. While there have been issues pertaining to design and technical parameters (such as improper design, ability to run on domestic / low calorific value and high ash content coal, boiler tube failures, water leakage, etc) with Chinese equipment, several domestic companies have had a satisfactory experience with Chinese equipment. Thus as the lifetime costs of main plant equipment are influenced by operation and maintenance costs, availability of spare parts and technical support, the long run cost to performance will remain critical for the companies relying on Chinese equipment. GoI has also directed the Central and State sector generation players to source supercritical equipment from domestic companies. While Future Challenges In Coal Based Thermal Power Projects Page 3

the major domestic companies (BHEL etc.) who are currently running full order books are augmenting their capacities, several joint ventures (L&T and NTPC, JSW Group and Toshiba Corporation etc.) have come in to power equipment market to cater to the increasing demand for BTG (Main Plant) and other equipment. It is estimated the to fulfil the demand for power by different sectors, domestic power equipment manufacturing capacity of about 40,000 MW needs to be created every year till FY2017.Restrictions on Chinese workforce may compel the domestic players to restrict the contracts to boiler turbine and generator (BTG/Main Plant) only rather than the manpower intensive EPC contracts. Thus, the availability of quality EPC players assumes significance for the increasing requirements of power projects in the country .Regarding Balance of Plant (BoP) there are only a few companies in the market that can undertake complete BoP works including Design, Engineering, Supply, Erection & Commissioning. As per industry estimate there are more than 40 IPPs in the country & 5-7 vendors for each BoP system category. So limited availability of BoP vendors result in bunching up of orders and subsequent delay in the equipment delivery schedule. (9) Developers focus more on main plant equipments as project performance is governed by it. Substandard BoP equipment is often used to reduce costs as for an example in a typical 660 MW power project BoP systems account for roughly 50 % of the total capital cost. However, it must be realised that BoP systems are a critical component of a power plant. With the implementation of the Perform, Achieve and Trade scheme developer need to focus on procuring efficient and improved BoP solutions which would help enhance plant productivity by reducing the auxiliary heat consumption and heat rate. Again in BoP Civil & Structural (C & S) works constitute a major cost component accounting for 20 % of the EPC expenditure and 40-50 % of BoP costs. C & S works account for about 50 % of a power plants labour requirement and are a key input from electromechanical packages. In several cases, project delays result from labour non availability. If adequate attention is paid to C & S planning and execution delays in the delivery of main plant equipment and mechanical packages can be reduced to 6-12 months. This is crucial given that the timelines for power project execution becoming shorter, ranging from 24-44 months, depending on the unit size. The current C & S capacity needs to be increased by 30-50 % in order to meet the 12th plan objectives. There need to be a focus on improving engineering inputs, increased mechanisation, improved interface management, engineering co-ordination and appropriate planning & sequence of work. Again site related issues like site location which is often unfavourable for logistics (access roads are in poor condition), electricity and water availability , local agitation, space requirement, site infrastructure, and storage and fabrication yard leads to transportation bottleneck particularly for heavy equipments; other engineering issues like interface drawings are often incorrect resulting in remaking, delayed approvals and issue to site, often details of equipment, loading & sizing are not available in advance, delay in payment certification etc. leads to delay of the project with an increased cost because time is money. (10) Indian banks are at an increased risk of defaults on loans to companies linked to the power sector, as mounting losses in state electricity boards and delays in execution of new power plants have made recovery difficult, analysts said. Credit to the infrastructure sector in general, and power sector in particular, in the past two years has fuelled loan demand. Disbursal to the power sector rose 47% between fiscal 2009 and 2011, more than doubled the 21% rise in total bank credit in the period. In a research note on the bank exposure to this sector said that the power sector has been a key driver of bank credit in the last two years. As a result developers are now reluctant to invest in the power projects and also banks are less interested to provide loan. Again tariff of the electricity is not revised, so it also discourages the investors from rate of return point of view.

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