Growth momentum in the Indian power sector continues to gather pace in response to policy initiatives by the central government. The generation segment has witnessed record capacity additions, with renewables taking the lead in recent years. Installed generation capacity has increased at a compound annual growth rate (CAGR) of 8.6 per cent from nearly 200 GW in March 2012 to 329.2 GW in June 2017. The share of renewables in installed capacity has increased from 12 per cent to over 17 per cent during this period. In 2016-17, renewable capacity addition stood at a record 11.3 GW, higher than capacity addition in coal, hydro or nuclear (11 GW, 1.6 GW and 1 GW respectively).
The power demand-supply gap has reduced significantly from 10.6 per cent (peak) and 8.5 per cent (energy) respectively in March 2012 to 0.9 per cent and 0.6 per cent in June 2017. This can be mainly attributed to the increase in supply and to some extent to the muted demand growth in recent years. Further, state discoms have started to show positive operational and financial outcomes courtesy the Ujwal Discom Assurance Yojana (UDAY). The transmission segment has moved to higher voltages including 1,200 kV alternating current (AC) and 800 kV high voltage direct current (HVDC). The grid has expanded significantly and now comprises 374,706 ckt. km of lines and 743,070 MVA of transformer capacity.
The coal segment too, has witnessed a turnaround from shortages to surpluses, owing to a significant increase in domestic production coupled with the introduction of transparent allocation policies. However, despite these improvements, the sector is still weighed down by a number of unaddressed issues such as declining plant load factors (PLFs), stressed thermal power assets, and a decline in power demand.
Indian Infrastructure presents a round-up of key trends in the sector over the past year…
Capacity additions continue apace,
- A capacity addition of 14.2 GW was achieved from conventional power sources in 2016-17, marking a decline of 4 per cent over the nearly 24 GW in the previous year (when the highest addition ever was achieved).
- At about 11 GW, coal-based power capacity addition accounted for a share of 77.5 per cent of the total addition in the conventional segment, while hydro (1,659 MW), nuclear (1,000 MW) and gas (538 MW) accounted for shares of 11.7 per cent, 7 per cent and 3.8 per cent respectively. Renewable energy capacity addition in the year was 11.3 GW with over 5,256 MW of solar and 5,400 MW of wind capacity added, a record in itself.
- However, the PLF of thermal power plants (TPPs) declined from 62.24 per cent in 2015-16 to 59.88 in 2016-17. The PLF declined further to 57.43 per cent in June 2017.
Strides in transmission
- In the transmission segment, about 26,300 ckt. km of lines were added at 220 kV and above voltage in 2016-17, a decline of 6.4 per cent over the previous year. Meanwhile, AC transformer capacity of about 77,316 MVA and HVDC transformer capacity of 4,500 MW was added during the year.
- A notable development is the introduction of ± 800 kV HVDC lines in the transmission system with the commissioning of the Champa Pooling Station-Kurukshetra HVDC bipole line (2,574 ckt. km) in September 2016 and the Biswanath Chariyali-Agra HVDC bipole line (3,506 ckt. km) in September 2015. Also, Pole 1 of the Champa-Kurukshetra transmission system was commissioned recently in March 2017.
Coal availability: From shortage to surplus
- The coal sector has witnessed a slew of reforms in recent years from auctions of captive coal blocks to the recent coal linkage auction policy SHAKTI, aimed at increasing transparency and efficiency in coal allocation to consumers. To increase domestic coal production, the government is also proposing the introduction of commercial coal mining by private companies and a discussion paper on this is already in the public domain.
- Coal India Limited’s production performance has witnessed a turnaround in the past two-three years. The company recorded a year-on-year increase in production of about 9 per cent in 2015-16 and 7 per cent in 2014-15, against an almost stagnant production growth rate during 2010 to 2014. The improvement can be attributed to easing of land acquisition and environmental clearances in 2014-15 besides better management of operational affairs. In 2016-17, however, the production stood at 554 million tonnes (mt), a modest increase of 2.8 per cent over the previous year.
- With an increase in domestic production, coal imports have declined over the years, from 218 mt in 2014-15 to 204 mt in 2015-16 and further to 191 mt in 2016-17.
UDAY shows promising early results
- Launched in November 2015, UDAY has so far shown promising results in terms of improvements in the financial and operational performance of state discoms. So far, 27 states/union territories (UTs) have joined UDAY and bonds worth Rs 2.32 trillion have been issued under the scheme, and this accounts for 86 per cent of total restructurable debt of discoms.
- Overall aggregate technical and commercial (AT&C) losses have reduced from 23.84 per cent in 2015-16 to 20.14 per cent in 2016-17 for 23 UDAY states. Meanwhile, the gap between average cost of supply and average revenue realised has reduced from Re 0.59 per unit to Re 0.45 per unit in the same period. Further, discoms saved about Rs 120 billion during April-December 2016 through savings in interest cost under the scheme.
Mixed outlook for equipment manufacturers
- Equipment orders, particularly in the transmission and distribution space, have picked up pace in the past year, backed by government schemes such as Green Energy Corridors, the Integrated Power Development Scheme, the Deen Dayal Upadhyaya Gram Jyoti Yojana and the National Smart Grid Mission. For instance, the market size of the transmission tower industry is estimated to have increased from Rs 215 billion in 2015-16 to Rs 235 billion in 2016-17, marking a growth rate of 9 per cent (CRISIL). Also, the capacity utilisation rate of transformer manufacturers improved from 47 per cent in 2014-15 to 55 per cent in 2015-16. It is further expected to increase to 68 per cent by 2017-18 (Edelweiss Research). The demand for smart meters is also rising backed by stipulations under the Tariff Policy, 2016.
- However, the market for generation equipment is still recovering and has fewer order inflows. On an average, less than 9 GW of orders have been placed annually in recent years as against 24 GW-25 GW during the 2007-10 period. The market is currently facing overcapacity and the severe price competition is affecting margins of suppliers. However, the revised environmental norms for TPPs are likely to open up new avenues for equipment manufacturers, especially those in the business of emission control solutions such as flue gas desulphurisation (FGD) and NOx control systems. It is estimated that about 130 GW-145 GW of new and existing TPPs will require FGD and NOx control systems in the near future.
Increase in stressed assets
- Due to the lack of long-term power purchase agreements and firm fuel supply arrangements, inadequate funds with promoters, and regulatory and contractual issues, several power projects are facing financial viability issues. This is posing a risk to the banking system as well in terms of rising non-performing assets. As per the Department of Financial Services, the total advances towards the electricity generation segment reported by scheduled commercial banks is about Rs 4.71 trillion and the majority of these advances are stranded assets. The central government is working to resolve the issue of stressed assets through a takeover of these assets by public sector units and debt restructuring.
- The country is actively diversifying its fuel mix, moving away from coal and towards renewables. The Central Electricity Authority’s draft National Electricity Plan released in December 2016 projects that no additional coal-based capacity is required during the Thirteenth Plan (2017-22). The plan takes into account committed capacities of hydro (15,330 MW), gas (4,340 MW) and nuclear (2,800 MW) power with various renewable energy capacity addition scenarios (175,000 MW in Case 1, 150,000 MW in Case 2 and 125,000 MW in Case 3). The report states that coal-based capacity of 50,025 MW which is already under construction is likely to be commissioned during 2017-22. The PLFs are, however, expected to remain in the range of 47-52 per cent.
- Meanwhile, the total transmission line length is expected to increase to 470,515 ckt. km and AC substation capacity is expected to cross 979,637 MVA by 2022. Further, HVDC capacity is expected to reach 30,000 MW by 2022. The Central Electricity Authority projects an investment of Rs 10 trillion for generation and Rs 2.6 trillion for transmission capacity additions during 2017-22. Further, AT&C losses under UDAY are expected to fall further to 10-15 per cent.
- In the long term (by 2040), the energy sector is expected to witness a quantum leap in the uptake of renewable energy, a drastic reduction in energy intensity, the doubling of per capita energy consumption and the tripling of per capita electricity consumption, as iterated by the draft National Energy Policy.