ftp power.docx

8/11/2019 ftp power.docx

1/12

Submitted by:

Bhavya Kapoor

14020241025

IB Div-A

[TYPE THE COMPANY NAME]

INDIAN POWER SECTOR

FOREIGN TRADE POLICY

16-Jul-14

[Type the abstract of the document here. The abstract is typically a short summary of thecontents of the document. Type the abstract of the document here. The abstract is typically ashort summary of the contents of the document.]


2/12

INTRODUCTION

Power or electricity is one of the most critical components of infrastructure, affecting

economic growth and wellbeing of nations. The existence and development of adequatepower infrastructure is essential for sustained growth of the Indian economy. With a

production of 1,006 terawatt hours (TWh), India is the fifth largest producer and

consumer of electricity in the world after US, China, Japan and Russia.

The Indian power sector is one of the most diversified in the world. Sources for power

generation range from commercial sources such as coal, lignite, natural gas, oil, hydro

and nuclear power to other viable non-conventional sources such as wind, solar, and

agriculture and domestic waste. The demand for electricity in the country has been

growing at a rapid rate and is expected to grow further in the years to come. In order to

meet the increasing requirement of electricity, massive addition to the installed

generating capacity in the country is required.

HISTORY OF POWER SECTOR

The power sector in India has undergone significant progress after Independence.

When India became independent in 1947, the country had a power generating capacity

of 1,362 MW. Hydro power and coal based thermal power have been the main sources

of generating electricity. Generation and distribution of electrical power was carried out

primarily by private utility companies. Notable amongst them and still in existence isCalcutta Electric. Power was available only in a few urban centers; rural areas and

villages did not have electricity. After 1947, all new power generation, transmission and

distribution in the rural sector and the urban centers (which was not served by private

utilities) came under the purview of State and Central government agencies. State

Electricity Boards (SEBs) were formed in all the states. Nuclear power development is

at slower pace, which was introduced, in late sixties. The concept of operating power

systems on a regional basis crossing the political boundaries of states was introduced in

the early sixties. In spite of the overall development that has taken place, the power

supply industry has been under constant pressure to bridge the gap between supply

and demand.

Development of Power Sector is the key to the economic development. The power

Sector has been receiving adequate priority ever since the process of planned

development began in 1950. The Power Sector has been getting 18-20% of the total

Public Sector outlay in initial plan periods. Remarkable growth and progress have led to

extensive use of electricity in all the sectors of economy in the successive five years


3/12

plans. Over the years (since 1950) the installed capacity of Power Plants (Utilities) has

increased to 89090 MW (31.3.98) from meager 1713 MW in 1950, registering a 52d fold

increase in 48 years. Similarly, the electricity generation increased from about 5.1 billion

units to 420 Billion units82 fold increases. The per capita consumption of electricity in

the country also increased from 15 kWh in 1950 to about 338 kWh in 1997-98, which is

about 23 times. In the field of Rural Electrification and pump set energisation, country

has made a tremendous progress. About 85% of the villages have been electrified

except far-flung areas in North Eastern states, where it is difficult to extend the grid

supply.

POINTS ON HISTORY:

The Indian Power Industry before independence was controlled firmly by the

British. Then legal and policy framework was conducive to private ownership,

with not much regulation with regard to operational safety.

In line with the Industrial Policy Resolution of 1948, the government played a

dominant role in initiating and regulating development in key sectors of the

economy, which inter alia included the Indian Electricity Sector. It was embodied

in the constitution, the principle that both the Central Government and the States

should be able to legislate on power.

Legislative authority was more formally divided in the Electricity Supply Act of

1948. The Act provided for the establishment of the Central Electricity Authority

(CEA) and of State Electricity Boards (SEBs) which were to become the main

agencies for supplying power throughout India.

The SEBs were autonomous bodies responsible for the development andoperation of generation, transmission and distribution in the most economical

and efficient way.

The CEA was to develop national plans and help formulate national power policy,

to report the progress of the electricity supply industry, to provide technical

assistance, to advise Central Government/ State Government/Boards/generating

company, act as arbitrator between State or Board or licensees, to train

personnel in the sector, to promote research and, in general, to facilitate efficient

power supply. Its role, however, was essentially advisory rather than executive.

The Industrial Policy Resolution of 1956 reserved the generation and distribution

of electricity almost exclusively for the states, letting, existing private licensees,however, to continue. This led to the gradual domination of the electricity sector

by government enterprises.

Amendment in 1976 enabled generation companies to be set up by the central

and state governments resulting in the establishment of National Thermal Power

Corporation Ltd. (NTPC Ltd.), National Hydro Power Corporation Ltd. (NHPC),

North Eastern Electric Power Corporation Ltd. (NEEPCO), Mysore (now


4/12

Karnataka) Power Corporation and Water & Power Consultancy Services (a

consulting firm), etc. The development of the sector took place essentially

through various public sector utilities some under the central government and

the majority under the state governments between them they accounted for

more than 95% ownership.

Until the 1980s, electricity services in most developing countries of the world, as

also in many developed countries of Europe, were delivered by state-owned

monopolies. It was considered that monopolies were best suited to deliver

electricity services, as they enjoyed economies of scale and scope.

In India until 1991, power sector in the states was managed by one large,

vertically integrated entity that generated, transmitted and distributed power,

under the respective State Ministries of Power.

However, the absence of competition led to poor quality of services, sub optimal

utilization of resources, and little consideration for consumer interests. The

inability of state-owned enterprises to deliver services in an efficient and cost-effective manner led to reassessment of the policies relating to the provision of

services, and there was a growing perception that corporatization of the sectors

could improve efficiencies, quality of service and improve the bottom-line.

Following UK & USA and developing countries like Argentina, Chile, Brazil,

Philippines & Pakistan, the Indian government also commenced the restructuring

of the Indian power sector, which commenced with the unbundling,

corporatization and privatization of Orissa power utility.

The Indian power sector has witnessed significant changes since early 1990s.

Beginning with allowing private investment in power generation in 1991, initiating

regulatory reforms through Electricity Regulatory Commissions Act, 1998, theIndian government has enacted the Electricity Act, 2003 which seeks a paradigm

shift.

The Electricity Act, 2003 mandates that Regulatory Commissions shall regulate

tariff and issue of licenses and that State Electricity Boards (SEBs) will no longer

exist in the existing form and will be restructured into separate generation,

transmission and distribution entities. Regulatory function has been taken away

from the purview of the government. The Electricity Act, 2003 mandates

licensee-free thermal generation, non-discriminatory open access of the

transmission system and gradual implementation of open access in the

distribution system which will pave way for creation of power market in India.


5/12

PRESENT STATUS OF POWER SECTOR:

Electricity production in India (excluding captive generation) stood at 911.6 TWh in FY

13, a 4 per cent growth over the previous fiscal. Over FY 0713, electricity production

expanded at a compound annual growth rate (CAGR) of 5.5 per cent. The Planning

Commissions 12th Plan projects that total domestic energy production would reach669.6 million tonnes of oil equivalent (MTOE) by 201617 and 844 MTOE by 202122.

As of October 2013, total thermal installed capacity stood at 156.5 gigawatt (GW), while

hydro and renewable energy installed capacity totaled 39.8 GW and 28.2 GW,

respectively. Nuclear energy capacity remained broadly constant from that in the

previous year, at 4.8 GW.

Indian solar installations are forecast to be approximately 1,000 megawatt (MW) in

2014, according to Mercom Capital Group, a global clean energy communications and

consulting firm.

The growth in energy demand in India would be the highest among all countries by

203035, beating even China, according to the 2014 energy outlook report by British oil

giant BP.


6/12

Indian Power is derived from many sources like:

Thermal Power is mainly generated through coal, gas and oil. As India being vested

with major sources for coal.

Hydropoweris one of the mega power generators in India. Various hydropower

projects & plants have been set up by the ministry of power for generation of hydro

power through construction of various dams and reservoirs on major rivers. The kinetic

energy of the flowing water is being used to generate hydroelectricity.

Wind Power is available in plenty as India witnesses high intensity winds in various

regions due to the topographical diversity in India.

Solar Power is being utilized to generate electricity on a smaller scale by setting up

massive solar panels and capturing the solar power which is instead used by the smallscale industries.

Nuclear Poweris generated at huge nuclear power plants and nuclear power stations

in India using the nuclear energy. All the nuclear power plants are managed by the

Nuclear Power Corp of India Ltd (NPCL).

Biogas Poweris still in its infancy stage as India is the largest domestic cattle producer

and has plenty of biogas fuel and thus utilization of the fuel for mass biogas production

by setting up more biogas plants would solve the power shortage problem to some

extent.


7/12

Investments

The investment climate is very positive in the power sector. Due to policy liberalisation,

the sector has witnessed higher investment flows than envisaged. The power ministry

has set a target for adding 76,000 MW of electricity generation capacity in the 12th Plan

(201217) and 93,000 MW in the 13th Plan (20172022).

The Working group on power for formulation of the 12th Five Year Plan has estimated

total fund requirement of Rs 1,372,580 crore (US$ 227.98 billion) for the power sector.

The industry attracted foreign direct investment (FDI) worth Rs 40,417.6 crore (US$

6.72 billion) during April 2000 to January 2014.

The following are some of the major investments made into the Indian power sector:

Suzlon Group through its wholly-owned US subsidiary Suzlon Wind Energy Corp

(SWECO) has acquired Big Sky wind park from US-based Edison Mission

Energy (EME). With this acquisition, Big Sky will become Suzlons biggest wind

park in the US and one of the best performing installations in the country. BS Ltd has won several orders worth Rs 722 crore (US$ 119.95 million) from

various power utilities. The orders are for turnkey engineering, procurement and

construction (EPC) contracts for 220 kilovolt (KV) and 132 KV transmission lines

and associated sub-stations in Madhya Pradesh.

Jaiprakash Power Ventures Ltd (JPVL) has signed a deal with Abu Dhabi

National Energy Company PJSC (TAQA) for selling two hydropower projects in

Himachal Pradesh for Rs 10,500 crore (US$ 1.74 billion).

Elecon Engineering Company Ltd has announced that its subsidiary Elecon EPC

Projects Ltd has been awarded an order worth Rs 246.78 crores (US$ 40.93

million) by National Thermal Power Corporation Ltd (NTPC). The order is forsupply of coal handling plant package of Gadarwara Super Thermal Power

Projects, Stage-I (2x800MW), said Mr Prayasvin Patel, Chairman and Managing

Director, Elecon Engineering.

Government Initiatives

India has emerged as one of the fastest growing economies in the world. Its current

economic performance reflects a healthy trend based on increased consumption,

investment and exports. Over the next five years, this growth is expected to continue.

The Government of India has identified the power sector as a key sector of focus to

promote sustained industrial growth.

The following are some of the initiatives taken by the Government of India to boost the

power sector:


8/12

India and Sudan have good potential for enhancing cooperation in promoting

renewable energy, according to Dr Farooq Abdullah, Union Minister of New and

Renewable Energy, Government of India. He also offered Indian assistance for

developing renewable energy resources in Sudan.

The Ministry of Environment and Forests (MoEF) has given clearance for a

reworked plan of the power generator NTPC's Rs 15,000 crore (US$ 2.48 billion)

North Karanpura Super Thermal Power Project to come up in Jharkhand.

The Government of India plans to reintroduce 'generation-based incentives' for

wind power projects to boost capacity addition in the sector.

During FY 13, the government liberalised FDI policy for Power Trading

Exchanges. Foreign investments in power exchanges registered under the

Central Electricity Regulatory Commission Regulations, 2010, are allowed up to

49 per cent (FDI 26 per cent and FII 23 per cent).

India and the Netherlands have signed a memorandum of understanding (MoU)

to set up an IndoDutch Joint Working Group to facilitate the exchange oftechnical and institutional knowledge on clean energy.

India and Argentina have agreed to enhance cooperation in the field of

renewable energy. The two countries decided to explore avenues for cooperation

in the fields of solar energy, wind energy and bio-fuel generation.

CHALLENGES & LOOPHOLES:

Fuel Shortages:

Power is a capital intensive industry with long gestation periods, and the shortage of

fuel can be a major challenge in the long term. Traditionally, most power plants in India

use coal or natural gas as fuel, both of which are fast depleting reserves. Further, the

Working Committee on Power forecasts a shortage of 238 metric tons of coal per

annum by FY17. Additionally, there is also a shortage of natural gas in the market,though the deficit has reduced by 25 per cent over the past

decade to reach 20 per cent over FY11.As a remedy, the Indian government plans to

allot 40 billion tons of coal reserves through a bidding process, and deregulate the

power sector to promote investments. Further, the government will explore the

possibility of importing natural gas from countries, such as Bangladesh, which have

surplus of coal reserves.


9/12

Difficulty in obtaining environmental approvals and land clearances

Land acquisition is one of the key challenges impeding the growth of the power sector in

India. Further, obtaining environmental approvals is also difficult as a large number of

government bodies need to be contacted for clearances, including the Ministry of

Environment and Forests, Ministry of Aviation, Department of Forests and other

government institutions. These challenges

primarily arise due to concerns over environmental pollution, issues regarding

rehabilitation, afforestation and regulatory delays.

Degrading financial health of state distribution utilities

Eight state electricity boards (SEBs) had stopped making payments to NTPC in 2011,

despite getting discounts of up to 2 per cent on immediate payments, and 1 per cent onpayments made within one month. The losses of distribution utilities in India were

pegged at Rs 75,000 crores (US$ 13.9 billion) in 2011, and are expected to rise to Rs

1.16 trillion (US$ 21.4 billion) by 2014-15.

Detractors or risks associated with competitive bidding

The power sector is inviting bids from private investors, which in turn is increasing price

competition. This is a positive sign for the sector but it might increase risk for private

companies primarily because during the bidding process, power generation companies

normally quote prices for a period of 25 years and power transmission companies quotefor a period of 35 years.

Competition from international OEM manufacturers

Indian companies manufacturing equipment for the power sector face significant

competition from international companies, especially Chinese companies, offering faster

delivery schedules and lower costs. The prices of Chinese players are 50 per cent lowerthan that of domestic manufacturers.

These challenges now set a context to discuss the measures that the Indian

Government is expected to take in the future through the implementation of corrective

policies as described in the Union Budget of 201213 and the 12th Five year Plan.


10/12

INDIAN EXPORTS & IMPORTS IN POWER SECTOR:

INDIAN ELECTRICAL EQUIPMENT:

Global trade in electrical equipment reached US$ 453 billion in 2010. India

accounts for less than 1% of the total share of global exports of electrical

equipment.

In 2011, the Export Strategy Paper of the Department of Commerce set a target

of doubling exports in three years to US$ 500 billion by 2013-14, with the long-

term objective of doubling Indias share in global trade by the end of 2020

through appropriate policy support.

In 2011-12, Indias electrical equipment exports, including power project exports,

were only US$ 4.6 billion as against total exports of US$ 306 billion, which was

about 1.5% of the total exports from the country. Imports of electrical equipmentin 2011-12 were US$ 15.7 billion as against total imports of US$ 489 billion

dollars, amounting to about 3.2% of the total imports. During the last five years,

exports of electrical equipment have increased at a CAGR of 9.7% whereas

imports have increased at a CAGR of 27.2%. While the share of power projects

in exports is negligible, their share in imports is growing rapidly and was about

43% in 2011-12. The trade deficit in electrical equipment is, therefore, increasing

year by year.

Indian industry is improving its image globally by taking part in international

exhibitions, arranging visits of large number of foreign buyers to ELECRAMA (a

showcase exhibition of the Indian electrical equipment industry by IEEMA, which

is held once every two years). Industry also needs to focus on the emerging

markets and take proactive and timely action to improve quality of products and

productivity to be more competitive.

In order to make the industry more competitive and increase exports, the

following areas need to be addressed.

o Transaction cost of exports

o Port infrastructure

o Exports to emerging markets

o Review of trade agreementso Funds availability and long term buyers credit

o Support from Government and Indian missions abroad

o Technical barriers to exports

o Industry initiatives and Policy support


11/12

COAL IMPORT:

India is the 3rd largest producer of coal. It has a production capacity of around 600

million tones and contributes to 5.6% of worlds coal production. The consumption of

coal in India is approximately 800 million tones which is about 9.9% of worlds

consumption. Due to this mismatch in demand and supply India imports about 200million tonnes of coal, 73% of the coal is used in thermal power production.

Relevant Articles

Fitch: India Budget has Limited Short Term Impact on Power Sector

(The following statement was released by the rating agency) SINGAPORE, July 16(Fitch) Fitch Ratings says that the measures announced relating to India's electricity

sector in the budget for FY2015 are directionally correct but involve relatively small

steps or lack specifics to support a meaningful improvement in the short-term. There are

entrenched structural issues affecting the performance of the power sector of India and

the solution would require a sustained and disciplined policy focus. There is no

immediate rating impact on any of the Fitch-rated power companies - NTPC Limited,

NHPC Limited and Power Grid Corporation of India Ltd (all rated at 'BBB-'/Stable). In

the Indian budget for FY15, the finance minister announced several measures for the

power sector. These include an extension of the tax holiday for power projects to March

2017 from March 2015, which we consider to be positive for investment activity. Thebudget also called for the provision of adequate quantity of coal to power plants

commissioned by March 2015. However, the budget lacked very specific measures

detailing how this will be achieved. Fitch believes that it will not be possible to raise the

production of coal significantly within a year. Aside from inadequate domestic

production, infrastructure bottlenecks such as rail infrastructure also continue to act as a

constraint to ensuring adequate coal supplies to power plants. Among the announced

measures is the rationalization of coal linkages to reduce transportation costs of coal;

while this is a good measure, we believe such a reallocation of coal resources would

have operational issues and can take some time to achieve. Domestic coal production

is much lower than the requirements of the power sector, and hence we think the coal

shortage at various power plants will continue. India's total coal based power capacity at

April 2014 was around 140 gigawatts (GW). This is expected to increase by around

15GW per year, which would require an additional 60 million tonnes of coal. There

needs to be a sustained and long term plan in order to consistently increase domestic

coal production. The new administration has intensified pressure on Coal India Limited


12/12

to improve its coal delivery. At the same time, the agency understands the government

may revive coal pooling (i.e. pooled prices by combining both domestic and imported

coal) as the country will have to import higher quantities of coal to support demand

given that domestic production may be slow to ramp-up. India also has around 20GW of

gas based power plants which are severely affected due to the low availability of

domestic gas. The budget also focuses on the renewable sector - most notably solar -

for which there is an allocation of INR10bn for setting up solar plants in a few states and

solar power driven agricultural pumpsets. The entire ecosystem of the power sector -

from generation to distribution - needs to be strengthened. The financial health of the

various state utilities needs to be improved through tariff rationalization and by

addressing transmission and distribution losses.

CONCLUSION:

Renewable energy is the new keyword in Indian power sector and most of the public

and private players are coming up with plans to tap the potential market, on back of

favorable government policies and initiatives. To tap the underlying potential, the States

are focusing on those aspects of energy, in which they have an edge, such as solar

power, wind power, hydro power etc.India has been one of the top performing clean

energy economies in the 21st century, registering the fifth highest five-year rate of

investment growth and eighth highest in installed renewable energy capacity.

Over a longer term, this sector will definitely flourish, because as everyone is aware,

power is a key element for BJP to ensure that the country prospers over the next five

years. Within the power space we have been telling our clients to gradually accumulate

something like Coal India. We believe that ifCoal India is managed better, and hopefully

if the Modi government ensures that production volumes from Coal India pick up, there

could be a case for furtherre-rating here.

Bibliography

http://www.cea.nic.in/reports/planning/dmlf/growth.pdf

http://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-

2022.pdf

http://www.pwc.in/assets/pdfs/power-

mining/energing_opportunities_and_challenges.pdf
http://economictimes.indiatimes.com/topic/Coal%20Indiahttp://economictimes.indiatimes.com/topic/re-ratinghttp://www.cea.nic.in/reports/planning/dmlf/growth.pdfhttp://www.cea.nic.in/reports/planning/dmlf/growth.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://www.pwc.in/assets/pdfs/power-mining/energing_opportunities_and_challenges.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-2022.pdfhttp://www.cea.nic.in/reports/planning/dmlf/growth.pdfhttp://economictimes.indiatimes.com/topic/re-ratinghttp://economictimes.indiatimes.com/topic/Coal%20India

Date post:	02-Jun-2018
Category:	Documents
Upload:	bhavya-kapoor
View:	228 times
Download:	0 times

ftp power.docx

Documents