As 2012 draws to an end and the New Year set to roll, the power producers in the country look for speedy resolution of existing troubles.
The domestic power sector has witnessed a few success stories in the last 4-5 years; but the road that lies ahead of is dotted with innumerable challenges that result from the gaps that exist between what’s planned versus what the power sector has been able to deliver.
“Apart from the inadequate fuel supply, the delay in land acquisition and environmental clearances as also tariff revisions and distribution reforms are the issues, which NTPC wants to be addressed,” Arup Roy Choudhury, Chairman and Managing Director NTPC, told
“Tackling these concerns should get top priority as the solution to these will contribute immensely to the growth of the power generation sector in the country,” Choudhury added. NTPC has total installed capacity of 39,674 MW, including joint ventures.
Positive legislations, competitive bidding policies, opening up for private investments and surging growth in electricity demand have all contributed to the growth of the sector.
“Revised competitive bid documents for procurement of power should come out early next year,” said Debasish Mishra, Senior Director, Deloitte in India.
Coal supply hurdle
However, there are a number of persisting bottlenecks.
“The challenge as one sees compared to previous years are deteriorating coal supply on one end of the value chain and poor financial outlook of Discoms where the losses have been increasing to levels far higher than previous years,” Anil Sardana, Managing Director of Tata Power, said.
Despite huge coal reserves in India, the domestic power sector is facing coal shortages and has resorted to imports.
“This shortage may result in increasing stress on assets that are already built by private players, in addition to the targets of capacity additions not being reached,” Sardana added. Tata Power is the largest private player in the sector with installed capacity of 6,899 MW.
The Coal Ministry notified Auction by Competitive Bidding of Coal Mines Rules, 2012 on February 2.
“We view that the coal block auction in the initial phases may benefit the non-power consumers in securing their energy needs for expansion. However, even if the Government comes out with an auction scheme, the auctions would face the risk of fewer takers unless the economy recovers by the first quarter of 2013-14,” said Guru Malladi, Advisory Partner-Infrastructure Practice, Ernst & Young.
Not only shortage of domestic coal, private producers such as Tata Power and Adani suffered from the sudden spike in price of imported coal from Indonesia and Australia, due to change of tax regime.
“Affordable pricing of our natural resources, both gas and coal, is key to the growth of the power sector,” Choudhury said.
The spike in price has made imported coal-based power projects unviable.
Gas shortage
Another major challenge to the sector is the shortage of natural gas in India. This shortage has stranded gas-based power projects with a combined capacity of around 18,903.5 MW, accounting for only 9.13 per cent of the total generation capacity.
“The Government should evolve a robust energy security policy for the country as also issue advisory to all State Regulatory Commissions to plan bulk supply procurement in line with basket of fuels that meet India’s energy security needs,” Sardana said.
Malladi said that looking from the supply deficit point of view; coal imports are likely to grow at a rapid pace over the next five years.
“Such imports will have immediate effect on cost of electricity that may lead to an increasingly skewed cost of generation across various players. To address this disparity, it is imperative to come up with a price pooling mechanism that will balance interests of consumers, power producers and distribution companies,” Malladi explained.
Setting up a coal regulator is the best option, according to the NTPC Chairman.
“This is because it would act as a single point of contact for anybody who wants to invest in the coal sector. There would also be transparency on account of quality, production and pricing of coal,” Choudhury said.
Mishra of Deloitte said hopefully all the disputed power purchase agreements (PPAs) such as Tata Power Mundra, Adani and Lanco, among others will find some compromise solution in 2013.
The average Aggregated Technical and Commercial (AT&C) losses in the country hover around 35 per cent and are higher in both technical and commercial fields. Electricity theft, metering regulations, financial distress, agricultural and rural consumption, operational inefficiencies and low private sector participation are some of the key challenges faced by the distribution segment.
With Discoms’ improved financial health, the regulators would impose Renewable Purchase Obligation (RPO) more strictly and that should give boost to the Renewable Energy Certificate (REC) market and improve the investment in the renewable sector, said Mishra.
“We are also expecting the Government to come out with a clear policy on Generation based Incentive (GBI) for wind sector,” Mishra added.