Operational challenges faced by India’s Power Sector

Sushil Pradhan

MitKat Advisory Services Pvt. Ltd.

Na#onalIns#tuteofInterna#onalStrategy(NIIS)Beijing,25thJune2015

What am I going to speak about?!

•  Whatarethepeculiarcharacteris/csofIndia’spowersector?

•  Whereisthescopeforinvestment?

•  Whataretheopera#onalchallengesthataffectthepowersectorinIndiaandhowwilltheaffecttheforeigninvestor?

•  Howcanwetrytomi/gatethesechallenges?

Indian Power Sector Dynamics!

•  Complexarrangements–central,stategovernments,privateagencies

•  Regulatoryinconsistencies–mul/pleclearences

•  Tariffdistor/ons

•  Demand-supplygap

•  Highrelianceoncoal

•  Cau/ousreformandrestructuring

•  Mul#pleopera#onalchallenges

Case study -Dabhol Power Plant!

•  TheDabholPowerSta/onwasamajorinvestmentbyEnron/Bechtel/GEinIndiain1992.

•  Gasfiredplant.

•  Theprojectwascancelledandtakenoverbyastate-ownedcompanyduetoagovernmentalcontroversy.

Case study -Mundra UMPP!

•  Dependentonhigh-gradecoalfromIndonesia

•  TataPowerwantedtoincreasesellingpriceattheirMundraPlantduetoanincreaseincoalprices.

•  Theprocessforappealstookaverylong/me,andonlyapar/alsolu/onwasestablished.

Case study - Kahalgaon Power Plant!

•  The Kahalgaon Power Station has a chronic shortage of coal.!

•  This problem is peculiar because the plant is located next to an active coal field.!

•  This highlights poor resource management.!

Power Generation in India (2014-15)!

69.5!

15.3!2.1! 13.1!

0!10!20!30!40!50!60!70!80!

Thermal! Hydro! Nuclear! Renewable!

Sector wise generation!Percentage!

CENTRAL!STATE!PRIVATE!

Coal!

•  Coalisthemostcommonfuelsource,accoun/ngformorethan60%ofallgenera/ngcapacity.

•  Coalpowerplantsuseeitherdomes/corimportedcoal,basedontheirloca/on.

•  Indiancoalhasalowcalorificvalue,andisinefficient–importofexpensivehighgradecoal.

•  Significantprivateinvestmentsincoalpowerplants.

•  Coalreservesmostlylocatedininsurgencyproneareas!

Hydroelectric power!

•  Accountsformorethan15%ofallgenera/ngcapacityinIndia.

•  LargehydropowerplantsarelocatedinhillyregionsoftheNorthandalsointheWest.

•  State-ownedNa/onalHydroelectricPowerCorpora/onoperatesalllargepowerplants.

•  Privatecompaniesarenotinvolvedduetohighcostsofconstruc/ngandopera/ngsuchplants.

Basin/Rivers Probable Potential (MW)

Indus Basin 33,832

Ganga Basin 20,711

Central Indian River system 4,152

Western Flowing Rivers of southern India 9,430

Eastern Flowing Rivers of southern India 14,511

Brahmaputra Basin 66,065

Total 1,48,701

Natural Gas!

•  Naturalgasconsistsof8.5%ofthetotalgenera/ngcapacity

•  PlantsarelocatedinWesternandSouthernIndia.

•  Thereisashortageofnaturalgasresources,whichmakesgas-basedplantsexpensivetooperate.

Other renewables!

•  Solarenergyproduc/onislessthanthatofwindorbiomass.

•  However,Indiahasahugesolarenergypoten/al.

•  Manyprivatecompaniesinvolvedinsolarenergyproduc/on.

Central Power Organization!

Government of India! State Government!

Ministry of !Power!

Dept. Of Atomic Energy!

National !Development !

Council!MNES! CERC!

NRB! AEC! NFC!Nitya Ayog!

DVC!BBMB!

THDC! PGCIL! PFC!REC!

Central!Electricity!Authority!

NJPC! NTPC!NHPC!

NEEPCO!

Energy!Management!

Centre!NPTI!CPRI!

State Power Organization!

PRIVATE SECTOR

LICENSES STATE

ELECTRICITY BOARDS

STATE ELECTRICITY

DEPARTMENTS

STATE ELECTRICITY INSPECTION ORGANIZATION

MINISTRY OF POWER

STATE GOVERNMENT

SERC

Where is the scope for investment?!

•  Coal-supply,modernisa/onofplants(technology),UMPPs

•  Gas–assistinconstruc/onandmanagementofgaspipelines(TAPI)

•  Hydroelectricpower–infrastructure,turbines,switchgear

•  Solar–Chinaisalreadytheworldleader,Indiacanbenefitfromthis

•  Wind–Vastscope,equipmentsupply,transmissiongrid

•  Modernisa/onofelectricitygrids–transmissionlinesandinfrastructure

•  Distribu/oncompanies–equipmentandprocessintensive

•  Nuclear-whynot?-securityconcerns,wehavethetechnologybutonlyneedthefuel,safetyconcerns(coastalareas)

Risks and Challenges!

NaxalThreat

§ Cri/calinfrastructuresecurity§ Extortion!§ Kidnapping§ Law and order!§ Labourunrest

NortheastInsurgency

§ Rule of the gun!§ Terrorism§ Illegalimmigra/on-popula/onpressure§ Paramilitaryopera/ons§ Poli/calconnec/ons§ Bandhs and hartals

§ BorderSecurity§ Terrorism§ Law&orderissues§ Corrup/onoflocalgovernment§ Pakistansupporttoinsurgents

Jammu&Kashmir

Risks and Challenges!

•  Insurgency

•  Terrorism

•  Organisedcrimeandcoalmafia

with reference to power plants !

Risks and Challenges!

Environmentalhazards

Risks and Challenges!

•  Fuelshortages

•  Transmissionlosses–inefficientequipment,linkingofgrids

•  Powerthehanddistribu/onlosses

•  Infrastructurechallenges

•  Otherinfrastructureshortage

Risks and Challenges!

•  Landacquisi/onandrehabilita/on

•  Poli/calinstabilityandelectoralviolence

•  Labourissuesandpoli/calinterference

•  Skilledmanpoweravailability

Risks and Challenges!

•  Corrup/onandnepo/sm

•  Bureaucra/churdlesandgovernmentalapprovals

•  Socialandregionaldynamics

•  Percep/onofforeigninvestment

•  Monopoliesandotherentrybarriers

Potential for Chinese Investment!

•  100%FDIallowedinallpowersectors,exceptnuclear.

•  Manytaxincen/vesbyIndianGovernment.

•  FewforeignfirmsalreadypresentinthepowersectorinIndia.

•  ChinesefirmsinIndiaarealreadypresentinothersectors.

Major Power Sector Players!

Company

Businessdescrip/on

•PowerFinanceCorporationLimited(PFC) isanNBFCengagedinfinancinganddevelopmentactivitieswithintheIndianpowersector

•Major products and services include project term loans, lease financing, direct discoun/ng of bills,short-termloansandconsultancyservices

•Adani Power is one of India’s largest private thermal power producers,with total capacity of 4,620MW;thecompanyaimstogenerate20,000MWofpowerby2020

•Thecompanyisbuildingoneoftheworld’slargestsingle-locationthermalpowerplantsinMundra

• Power Grid Corporation of India Limited (PGCIL) is the single largest transmission u/lity in India;it is responsible for planning, co-ordination, supervision and control over inter-state transmissionsystems

•DamodarValleyCorpora/onisengagedinpowergeneration,distributionandtransmissionofelectricpower,irriga/onandfloodcontrol

•SJVNLimitedisthesecondlargesthydropowercompanyinIndia•Thecompanyplanstodiversifyintowindpowerprojectssoon

Major Power Sector Players!

Company

Businessdescrip/on

•NTPC is India’s largest power producer and the sixth-largest thermal power producer in the world, withinstalledcapacityof41,184MW(including5,364MWthroughJVs).By2032,NTPCplanstoreach128,000MWpowercapacity.Coal-basedpoweraccountsformorethan90percentofthetotalcapacity

•Ithasalsodiversifiedintohydropower,coalmining,powerequipmentmanufacturing,oilandgasexploration,powertradinganddistribution

• Tata Power is India’s largest integrated power company, with significant presence in solar, hydro, wind andgeothermal energy space.Thecompanyaccounts for52per centof total generationcapacity in theprivatesector,withaninstalledcapacityof8,521MW

•Thecompanyhasover35,000MWofpowergenerationcapacity,bothoperationalandunderdevelopment.ReliancePowerhasanoperationalpowergenera/oncapacityof2,500MW.FY13sawthedevelopmentofthe3,960MWSasanUMPPinMadhyaPradesh

•CESC Limited is a vertically integratedplayer engaged in coalmining,andgeneration anddistributionofpower

•NHPC is the largest hydropower u/lity in India,with an installed capacity of 5,295MW; it hasdrawnup amassivecapacityexpansionplanofadding6,697MWby2017

•  Carefulmarketevalua/on•  Engagewiththelocalpeopleatprojectareas-overcometrustbarriers•  Uselocalconsultancies

•  ConductRiskAssessmentsandBusinessResiliencyfeasibility–workoutRiskMi#ga#onstrategy

•  Engagementwithcenterandstategovernmentssimultaneously•  Engagewithprivatesector-JVsandPPPs•  Preparefordelaysandaddi/onalcosts

•  Professionalprojectmanagement

The way forward!

Threat-Vulnerability-Risk Assessment (Specimen matrix for a Natural Gas supply company)

Assets Threats Vulnerabili/es Risks Controls

• Na/onalpride• Harbingerofpeace&prosperity

• Pipeline/SupplyChainassets

• NaturalGas•  Infrastructure• People•  Informa/on

• Terrorism• Tribalrivalries• Talibanfac/ons•  Insurgents/unemployedyouth

•  Internalthreats• Mines• Earthquake

• Geo-poli/calinstability/weakgovernancestructures

•  Inadequatelawenforcement,securityandemergencyapparatus

• Porousborders•  Lackofjudiciary• Challengingenvironment

•  Sabotage•  Fire/explosion• Hostage• HSEandSecurityrisks

• Brand/reputa/onrisks

• Economic/Financialrisks

• Regulatoryrisks• Riskstolifeandproperty

• Mul/-countryandmul/agencycoordina/onandborderareacontrols

•  Supplychainsecurityframework

•  Security,businesscon/nuity,IM,emergencyresponseprocesses&technologies

Risk mitigation – an example!

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