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ECONOMIC ENVIRONMENT OF BUSINESS

2/11/2013

SECTORAL ANALYSIS ON INDIANPOWER SECTOR

SUBMITTED BY: SNEHA NAIR 62 RISHIKA NANGALIA 63 ANKITA PARMAR 68 KINJAL SHAH 85 DIVYA SHARMA 87 ANISHA VICHARE 117

The origin of the power sector in India dates back to the pre independence period.000 MW.4% of global energy consumption. SIGNIFICANCE OF THE POWER SECTOR: The power sector provides one of the most important inputs for the development of a country and availability of reliable and inexpensive power is critical for its sustainable economic development. many parts of the country continue to face severe power shortages as consumption by commercial and industrial consumers has been increasing at much faster rate than electricity supply. Even after the considerable growth in the power sector infrastructure and the supply of electricity. the country‟s energy demand has grown at an average of 3. 50.SECTORAL ANALYSIS ON INDIANPOWER SECTOR INDIAN POWER SECTOR Power is one of the most important components of infrastructure that affects economic growth and well-being of nations. Power is one area of infrastructure where India lags far behind even in comparison to other developing countries. Only 15 per cent capacity is from the private sector. the country was faced with capacity restraint. Immediately after Independence. 1 . of which majority of capabilities is with public sector companies. India is the fifth largest electricity producing nation in the world and it is the 6th largest energy consumer accounting for 3. over the past 30 years. it is imperative that the power sector also grows at the same rate. To sustain GDP growth rate of around 8-9 %.a. where the British controlled the Indian power industry firmly. The total installed capacity in India is above 1. The then legal and policy framework was conducive to private ownership. The per capita annual consumption of electricity in India is one of the lowest in the world at approximately 734(2008-09) kwh. though this is now starting to increase. Due to the fast-paced growth of the Indian economy.6% p.

5%) is from States. 47. It involves providing the transmitted power to individual homes. The same can be described with the help of the below chart: 2 .470. Distribution: It is the final stage in the delivery of electricity to end users.5%) is from Private sector initiatives. etc.93 mega watts (52. Generation is further divided into central sector (Public Sector Undertakings).17 per cent respectively.837.99 mega watt (34%) from Centre. chemical.SECTORAL ANALYSIS ON INDIANPOWER SECTOR The power sector is normally divided into three sub-systems: Generation: It is done at power plants that converts mechanical.97 mega watts.49 per cent and 21.21 per cent. commercial areas. state sector. 48. out of which 75.554. and 21.05 mega watt (13. SNAPSHOT OF THE POWER SECTOR Size of the industry The total installed capacity of power in India is calculated to be 145.246. Transmission: It is the process of transferring the generated power to a distribution system. which constitutes total installed capacity of 31. or nuclear energy into electrical energy. and private sector.

hydro. nuclear and other renewable sources of energy have a considerable portion in the total installed capacity of the power sector with the majority source of power being thermal sources of energy followed by hydro source of energy.SECTORAL ANALYSIS ON INDIANPOWER SECTOR The various segment of the power segment in terms of the thermal. as evident from the below pie diagram: 3 .

Top leading Players National Thermal Power Corporation (NTPC) with a market capitalization of Rs.340. This player is a part of the government project in the power sector. 600 crores per annum with a market capitalization sufficient enough to achieve 8% GDP.SECTORAL ANALYSIS ON INDIANPOWER SECTOR The output per annum of the power sector is approximately Rs. Nuclear Power Corporation of India Limited. North Eastern Electric Power Corporation (NEEPC). Essar Group. Some of the other players in the sector are National Hydro Electric Corporation (NHEC). Power Trading Corporation (PTC). etc Many government and private organizations have taken up the task of power generation in India. 128. Power Grid Corporation of India Ltd (Power Grid India).58 leads the list of the companies within the power sector. The major Indian power companies playing are: Enercon Systems India. Power Finance Corporation of India (PFCI). Gujarat 4 .

2011 and is expected to increase in the future. potential for lower reliance on imported fossil fuels and lower CO2 emissions. Reliance Energy Ltd. The Planning Commission‟s expert suggested in its report that there is a possibility of reaching a nuclear power capacity of 21-29 GW by 2020 and 48-63 GW by 2030.SECTORAL ANALYSIS ON INDIANPOWER SECTOR State Petroleum Corporation Ltd. GE Power Controls India. Nuclear power projects account for 2. Companies are diversifying their power portfolios to take advantage of opportunities therefore its share in the country‟s total generation capacity has increased from 1.000 MW.00. other power generation sources like nuclear. Using renewable sources to generate electricity has several advantages like a perennial energy source. This creates enormous opportunities for private players because of high energy shortage. Karnataka Power Transmission Corporation Limited (KPTCL).000 MW by the end of this year. Hydro and Renewable Energy Sources: – With the thermal power generation segment facing the issue of shortages of coal (major raw material). The hydro power segment offers investment opportunities as India is considered to have hydro power generation potential worth 1. This aims to provide cent per cent access to electricity along with reliable and good quality power to enhance commercial feasibility. “Mission 2012: Power for all”. etc. there is a huge demand for power in India. A huge expansion in the power generation sector. GROWTH Due to rapid urbanization and industrialization.75% of India‟s total installed capacity which is about 4. of which only 25% has been harnessed till date. Resources are distributed unevenly in the country. 5 .000 MW. from the present level of 1.1% in 2001-02 to 10.77 GW.14.50. hydro and renewable energy sources will get attention in the coming years. This dream of power for every Indian can only come true if we can take our installed generation capacity to at least 2. The Indian Ministry of Power has set a goal. Jindal Steel & Power Limited. must also lead to corresponding expansion of the transmission networks.. Growth Drivers for Power from Nuclear.63% as on 31st March. and power needs to be carried over great distances to areas where load centers exist.

up rating and life extension of old thermal and hydro power plants Threats  Rise in prices of raw materials 6 . Also with the number of buyer significantly exceeding the number of the sellers. there are chances of buyer exploitation which to some extend is controlled by the government regulations in the power sector  High losses: Low metering efficiency. modernization. nuclear and renewable energy sources Weakness     Unavailability of fuel and unwillingness of fuel suppliers to enter into bankable contracts Lack of necessary infrastructure to transport and store fuel Huge Capital Base is required to establish the power projects The buying position of the buyers is low due to presence of limited number of companies producing power.SECTORAL ANALYSIS ON INDIANPOWER SECTOR SWOT Analysis Strength     No barriers to entry Increasing focus on renewable sources of energy Government presence in the sector(encouraging entry of foreign players) The power sector as a whole does not has any substitute. Opportunities     Huge population base Opportunities in generation of power Coal based plants at coastal regions is still untapped Renovation. hydro. thermal. theft and pilferages are primarily to be blamed for losses of commercial nature. but it can be generated from different sources of energy like coal.

Electricity Act. choice of dispensing with vertically integrated state enterprises and encouraging private enterprise. thus creating competition. power trading. 2003 is a very important Act as it allowed private sector participation in the generation of power. transmission and distribution. thus inducing investments in the power sector. non discriminatory open access. Apart from this. the Government is investing in this industry through various development schemes:  The Rural Electrification Program is an effort to lighten up villages which have faced acute shortage of Power over the years. It also allowed 100% FDI participation in the power generation. Energy Conservation Act 2001 The Act was enacted by the Indian government to facilitate stringent steps to ensure the efficient use of energy and its conservation.SECTORAL ANALYSIS ON INDIANPOWER SECTOR    Tariffs are distorted and do not cover the basic costs Competition to domestic players from foreign players Increasing emissions regulations ROLE OF THE GOVERNMENT The role of the Government in the development of Indian power industry has been very crucial. A Bureau of Energy Efficiency was set up to monitor and regulate the Power Industry according to the provisions of the act. which aims at protecting consumer interests and making the sector commercially viable. To address the issues of developing industry including regulation. 7 . Electricity Bill 2001 The Bill seeks to • • Consolidate and rationalize existing laws. The government provides encouragement to the companies to establish themselves in this sector. As far as regulation is concerned.

 India and Malaysia have agreed to strengthen and promote cooperation in renewable energies.000 units by 2012. The Government of India has also constituted independent regulatory commissions in 22 states.SECTORAL ANALYSIS ON INDIANPOWER SECTOR  „Power for All by 2012′ plan aims at a per capita consumption of 1000kWh by the end of the 11th Five Year Plan (2007-12). There is no customs duty on the import of capital goods for mega power projects. Indian Government provides income tax holiday for a block of 10 years in the first 15 years of operation and waiver of capital goods‟ import duties on mega power projects (above 1. stipulates power for all and annual per capita consumption of electricity to rise to 1.  The Accelerated Power Development and Reform Program (APDRP) program is being implemented so that the desired level of 15 per cent AT&C (Aggregate Technical and Commercial) loss can be achieved by the end of 11th plan (Currently it is 30%).000 MW generation capacities). so that each State has its own electricity regulatory commission.   Power procurement is permitted through a transparent bidding process. and to take necessary steps to encourage their development for mutual benefits GOVERNMENT INITIATIVE:    The National Electricity Policy (NEP) in fact. 8 . Distribution reforms have been initiated with distribution being privatized in few states like Mumbai. The requirement of licenses to set up new power plants in India has been withdrawn by the government to promote more establishments. Orissa and Delhi.

'Indian Power Sector Analysis'. have depleted the cash reserves of state run electricity distribution system and financially crippled the distribution network. India currently has 4. according to a RNCOS research report.4 GW of net electricity generation capacity using nuclear fuels 9 .000 MW of hydro-electric power generation. on back of favorable government policies and initiatives. Renewable energy is the new keyword in the Indian power sector and most of public and private players are coming up with plans to tap the potential market. With a large swathe of rivers and water bodies. Twelfth Five Year Plan (2012-2017) includes additional 30.000 megawatt (MW) to its total installed capacity by 2013-14 to the existing production.  Poor pipeline connectivity and infrastructure to harness India‟s abundant coal bed methane and shale gas potential. partly to curry political favor. being one of the fastest growing economies with ever increasing demand represents an attractive destination for the power industry. The Indian power sector will add nearly 45. distribution and supply of power in India. Negative impact:  Government giveaways such as free electricity for farmers.SECTORAL ANALYSIS ON INDIANPOWER SECTOR GOVERNMENT POLICY IMPACT Positive impact:  The Government of India is adopting constructive steps towards implementing largescale solar power projects and is poised to position itself as one of the world's major solar producer.  The Power Finance Corporation of India provides finance to major power projects in India for power generation and conversion. India has enormous potential for hydro power. This situation has been worsened by government departments of India that do not pay their bills. India is endowed with vast potential of solar energy and is quickly developing itself as a major manufacturing hub for solar power plants. FUTURE GROWTH OF POWER SECTOR India.

India's proven natural gas reserves measure about 1. The state-owned company has ambitious plans to establish 63 GW generations capacity by 2032. India has large reserves of coal. estimates for FY11 put the figure at about 285. Road Ahead India Ratings believes that the implementation of reforms at the state power utility (SPU) level as well as of those initiated to mitigate fuel shortages remain key to power sector growth. as a safe. both domestic and international. India has huge potential in nuclear energy. in India. there will be a significant growth in the Transmission & Distribution systems as the per capita power consumption increases to global levels and the per capita GDP moves closer the developed nations.074 billion cubic meters. 10 .SECTORAL ANALYSIS ON INDIANPOWER SECTOR (across 20 reactors) and aims to increase it up to 20 GW by 2020. opens up tremendous opportunities for electrical companies. In India.000 MW of solar power by 2022) is creating a positive environment among investors keen to exploit India's potential. The agency expects that its rated entities will manage the key sector risks in 2013 considering a favorable tariff mechanism. projects like the Jawaharlal Nehru National Solar Mission (which aims to generate 20. India Ratings has maintained a Stable Outlook on its rated power sector entities for the year. Therefore. The government is providing subsidy of up to 30-50 percent to companies engaged in solar power generation. their comfortable liquidity and support from the central and state governments. Wind energy is the largest renewable energy source in India. with one of the world's largest reserves of thorium.8 billion tonnes. environmentally benign and economically viable source of electrical energy to meet the increasing electricity needs Growing Indian Economy coupled with Indian government‟s goal of Power for all by 2012.

But developers are seeking almost double the tariff.5% of its 84.5% stake in NTPC through auction. whose slow progress could impact the country's economic growth. the power and finance ministries have asked coal ministry to re-allocate the three mines to NTPC to boost the power producer's valuation ahead of its Rs 12. Country's largest power producer NTPC is likely to get back mining licenses for three coal blocks Licenses for the three blocks. The three blocks hold 836 million tonnes of reserves.3 and Rs 7. The government plans to divest 9. citing uncertainty over fuel supply. Sluggish power sector could hit economic growth: India Ratings Fuel supply risks and precarious financial health of electricity distribution companies continue to pose challenges for the power sector. ending a nearly two-year-long dry spell for power generators. "The three coal blocks of NTPC would be re-allocated to the company after law ministry's approval. while ChattiBariatu (South) coal block was given to public sector firm in 2007.000 crores divestment next month. ChattiBariatu and Kerandari coal blocks were allocated to NTPC in 2006. The per unit price in their quotations are between Rs 4.SECTORAL ANALYSIS ON INDIANPOWER SECTOR SPECIAL ISSUES Electricity boards start calling bids for long-term power supply State electricity utilities of Andhra Pradesh and Uttar Pradesh have started calling bids for long term supply. Kerandari and Chatti-Bariatu (South) .1. A final decision to this effect will be taken after an approval from the law ministry is obtained. a report said.were revoked by the coal ministry in 2011 as NTPC failed to meet the set milestones for development. 11 .Chatti-Bariatu.

000 MW achieved out of the targeted 78. renewables & hydel share up at 31%. during the 11th plan. there would be inadequate electricity supply that can impact not just the power sector but also other industries." Garg noted. The sector is expected to suffer this year (also) and investors are not likely to be enthused to put money into the sector. only 31% of the originally targeted capacity was added . Capacity Addition trips in FY13 too (ET 29th January 2013) Overall.700 MW. "The progress of reforms in the power sector is happening at a slow pace. the power generation needs to increase by one per cent.54. However. power generation doubled over 10 years. Major Reasons for delay and the inability to achieve the set targets were• • • • Clearances for coal mining( for thermal plans) Land acquisition Equipment delivery Gas availability 12 . Otherwise.SECTORAL ANALYSIS ON INDIANPOWER SECTOR For every one per cent increase in Gross Domestic Product (GDP).