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Report On Power Generation Industry

Press Release   •   Oct 22, 2012 12:37 IST

Reort On Power Generation Industry

Indian generation industry-Staring at reforms...
The 12th Plan (2012-17) is expected to add 76GW of capacity (v/s initial MoP target of 100GW). Presently, Indian power generation industry is currently suffering on account of fuel related issues and poor health of state distribution companies.

India’s 56% of the installed capacity (187GW) is coal-based. In 11th Plan, the domestic coal supply grew at 4.4% CAGR vis-à-vis demand i.e. capacity addition of 8-9% CAGR over the same period. Consequently, the power generators are facing acute shortage of domestic coal. To add to the woes, the imported coal price revision by Indonesian government has created problems for private IPPs which entered into power supply agreements based on lower contracted coal prices. CARE Research has critically analysed the muted domestic coal supply, imported coal pricing problems and reasons for a non-starter Captive coal Policy and feasibility of blended coal for Indian power plants.

CARE Research has also evaluated the reasons behind low Indian per capita electricity consumption, UMPP policy flaws, fate of merchant power plants, declining hydro share, problems faced by power lenders, gas shortage and possible solutions and most importantly impact of poor financial health of state distribution companies on power generation capacity addition in the 12th Plan.

CARE Research estimated the 12th Plan capacity addition of ~49GW with Renewable share to reach to 20% i.e. 52GW by FY17. However, clarity over imported coal and gas pricing is likely to be a major boost for improvement in power sector. Generation Industry

Since 2007, banks and specialized lenders had aggressively lent to power sector resulting into rising share of power exposure to 7.6% (of gross advances) by 9MFY12. This has resulted into impending risk of rising bad loans for lenders, if the current policy stalemate is not addressed effectively and if GoI doesn’t come out with clear policy roadmap in terms of fuel supply (both imported coal and gas) and addresses the issues such as land acquisition delays, MoEF clearances, Rehabilitation and Resettlement problems and other infrastructure related issues in a time bound manner. CARE Research indicates that the integrated business model with captive coal mines scores over the other prevailing business models and increasing trend among the power developers to shun from Merchant Power model to secure domestic fuel going forward. CARE Research also observes that power industry may witness some kind of project level consolidation if domestic coal availability doesn’t improve materially.

• 12th plan capacity addition expected to falter on coal scarcity
• Renewable share to double to 20% by 12th Plan-end
• Clarity yet to emerge on imported projects; fuel pass through expected
• Power Sector-Consolidation on cards; a key growth driver for large IPPs
• Gas resources constrained; R-LNG may be pooled to run power plants
• Power lenders staring at restructuring power portfolios
• Improvement in Distribution Sector; key for sustainability
• Productive captive mine/binding FSAs--business models with inherent advantage

• Pre-2003-Dire State
• 2003-2006- Path breaking reforms
• 2007-2009- initial euphoria and merchant boom
• 2009-11-Self correction
• 2011 onwards- Redefining period
Power Sector – Regulatory evolution
• Pre-reform stage (1947-1991)
• Post-reform (1992-2003)
• Electricity Act, 2003 (2003-till date)
Demand Characteristics and behaviour
• Power demand charterstics
• Seasonality
• Ailing SEBs to stifle growth
• State elections- fair unmet demand indicator
• Consumers ready to pay for quality and reliability
Capacity addition in the 12th Plan
• Thermal PLFs reached record low
• Installed capacity is coal dominated; renewable push expected
• What is in store for the 12th Plan
• Private sector participation to rise
• Case II bids would gets preference
• Only silver lining is 49% of the capacity addition is supercritical
Coal supply- biggest impediment
• Coal demand supply gap widening
• CIL non-committal on new power projects
• Coal stock pile up at pitheads
• Impact of No-Go areas
• A new curse-GCV mechanism
• Economics of imported coal
• Captive coal policy- a non starter
• Feasibility of coal blending
Natural Gas- Is it a game changer?
• Global outlook

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