power september 2006 . power market overview government regulations & policy business...

PowerSeptember 2006

www.imacs.in

POWER www.imacs.in

• Market Overview

• Government regulations & policy

• Business opportunities and Advantage India

Contents

POWER www.imacs.in

Market Overview• Market Overview



POWER www.imacs.in

India

• Federal : Division of power between between Union and State

• 29 States & 9 UT

• Constitution specifies distribution of legislative subjects into

• Union List• State List• Concurrent List

• Electricity falls under the Concurrent List whereby both the Union and State Government can regulate the sector

Market Overview

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India’s Energy Position/Consumption

• Total energy consumption at 387.3 MMTOE

• Targeted GDP growth : 7 to 8%

• Per capita electricity consumption is approx at 600 kwh per capita

• Energy-GDP Elasticity = 0.58

• Low by world standards and expected to grow in the coming years

Market Overview

0 2000 4000 6000 8000 10000 12000 14000

Japan

China

USA

World

India

KWh Mtoe

Relative Primary Energy and Electricity Consumption

Relative Primary Energy and Electricity Consumption

POWER www.imacs.in

Indian Power Industry- Installed Capacity

Source: www.infraline.com

Market Overview

70,394

15,231

41,213

0

20,000

40,000

60,000

80,000

State Private Central

Installed Capacity

Installed Capacity (MW)

83,772

32,976

3,900 6,191

0

20,000

40,000

60,000

80,000

100,000

Thermal Hydro Nuclear Renewables

Fuel wise Breakup of Insatalled Capacity

Insatalled Capacity (in MW)

• Total installed capacity is 126839 MW

• Electricity generation mix is heavily dependent on coal /thermal at around 70% with hydro contributing to 26%

India’s Power Position

POWER www.imacs.in

India Power Industry: Transmission & Distribution Structure

Market Overview

22%5%

2%

1%

9%31%

30%

Domestic Commercial AgricultureIndustrial Traction Inter-stateOthers

Source: Ministry of Power

• At Regional Level

• Five Regional Load Despatch Centre

• Operated & Owned by System Operator

• Power Grid Corporation India Ltd (PGCIL)

• Energy Accounting by NRLDC

• Financial Accounting by Regional Power Committee

• Managed by CEA ( Technical wing of Ministry of Power)

• At State Level

• State Load Despatch Centre

• Operated & Owned by State Transco

• Transmission Network

• EHV:

• Central Sector : 47000 ckm

• State Sector : 2,25,000 ckm

• HVDC:

• Central Sector:4300 ckm

• State Sector: 1500 ckm

• The Domestic and Agricultural categories account for over 50% of power consumption in the country

SIL

NRLDC

WRLDC

SRLDC

ERLDC

NERLDC

POWER www.imacs.in

Power Sector Structure

Policy

Regulations

Generation

Transmission

System Operations

Distribution

Trading

Centre

MOP

CEA

Central Generating Units

CTU

Appellate Tribunal

CERC

State

State Government

SERC

Some Private

Players in Generation

& Distribution

IPPsGENCOs

STU

Plan

Appeal

Trading Licencee

NRLDC RLDC SLDC

Distribution Licencee

Trading Licencee

Appellate Tribunal

Market Overview

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Roles of institutional players• Central Government

• Formulate National Electricity Policy and National Tariff Policy

• Formulate national policy on stand alone systems

• Formulate national policy on Rural Electrification

• Make Rules & Procedure for implementing provisions of Electricity Act 2003

• Appoint Chairpersons& other members of CEA

• State Government

• Assist Central Govt. in formulating National Electricity Policy, Tariff Policy, etc


• Form SLDCs for optimal scheduling & dispatch for the power systems


• Central Electricity Authority

• Advice Central Government on matters relating to National Electricity Policy

• Advice appropriate government on technical matters related to electrical systems

• Formulate plans for optimal utilization of resources in accordance with National Electricity policy

• Central Electricity Regulatory Commission

• Fix tariff for generating stations either owned by central government or having sales in more than one state

• Regulate inter-state transmission tariff & fix trading margin

• Grant of licenses for interstate transmission & trading

• State Electricity Regulatory Commission

• Fix tariff for generation, Supply, transmission & wheeling with in the state

• Fix Cross Subsidy Surcharge when open access is allowed

• Fix trading margin for intra-state operations

• Grant of licenses for intrastate transmission & trading

• Advice the State Govt. on policy matters

• National Load Despatch Centre

• Interface with all the five Regional Load Dispatch Centres (RLDCs) that are operational at present to acquire real-time data to continuously monitor integrated operation of the proposed National Grid

• To ensure optimal Scheduling & Dispatch among the RLDCs

Market Overview

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Government regulations & policy• Market Overview



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Salient Features of the Electricity Act 2003

Government regulations & policy

• Encouraging investment by introducing competition and reforming distribution

• Reduction in entry barriers by:

• Delicensing generation,

• Freedom to the captive generation and group captives

• Recognition of trading as separate activity

• Introduction of transmission level open access

• Open access to consumers consuming more than 1 MW by January 2009;

• Multiple licenses in distribution; and

• Setting up of regulatory commission to fix tariff and develop the sector.

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Salient Features of the Electricity Act 2003


• Independent Regulatory Commissions in the States as well as in the Center

• Freeing up of thermal generation from the requirement of any prior clearances/licenses

• Full freedom for setting up captive power plants including group captive power plants

• Open access in transmission; creation of an all-India market

• Private investment in transmission through licensing by Regulatory Commission.

This is in addition to fuel freedom for building dedicated transmission lines

• Open access in distribution to be introduces in phased with consumers above 1 MW

getting the right to open access latest by January, 2009

• Enabling provisions for more than one distribution licenses in the same area

• Prescription of performance standards for distribution licensees and its enforcement

by Regulatory Commissions

• Competitively bid generation tariffs to be accepted by Regulatory Commissions. Power

purchase costs of customers availing open access to be market determined

• An Appellate Tribunal for quick disposal of appeals against decisions of the State

Regulatory Commission/Central Commission

POWER www.imacs.in

Electricity Act 2003: Enabled Market Model-Intermediate


Generators

DistributionUtilities

Single buyer

Single Buyer model (SBM)

PPAs

BST

Generators

Single Buyer

Multi Buyer model (MBM) – Intermediate Phase

Traders

PPAs

BST

Direct Contracts



POWER www.imacs.in

Electricity Act 2003:Enabled Market Model- Final

Government regulations & policyG

en

era

tio

n

CustomerCustomer

Genco Genco

Disco Disco

CustomerCustomer

Dis

trib

uti

on

Tra

nsm

issi

on

CustomerCustomer

Genco

Open Access in

Transmission

Open Access in

Transmission

TradersTraders

Disco

Open Access in

Distribution

TradersTraders

Creating whole sale competitionCreating whole

sale competition

Creating Retail Competition

Creating Retail Competition

POWER www.imacs.in

Electricity Act 2003 :Impact on industry Structure


Generators

Transmission

Distribution

Consumers

• Long Term PPAs• Licensing of capacity;

extended project lead times• Need for guarantees• Restrictions on captive

generation

• Bulk Supply Tariffs (BST)

• Single Buyer Model (SBM)

• Natural monopolies

• No private investment

• Retail Supply Tariffs• Monopoly over consumers• Lopsided tariff structure• Power Theft• Poor collections

• Unreliable supply

• Poor quality

•Free access to consumers and traders ofchoice

• No restrictions on captive generation

• Reduced lead times

• Reduced financial and regulatory risk

• Non -discriminatory open access totransmission lines

• Multi Buyer Model• Private captive investment allowed

• Open access (in 5 years)• Surcharge on open access (not

applicable to captive generation)• No monopoly over consumers• Parallel distribution networks allowed• 100% metering in 2 years

• Consumer choice available

•Provisions to develop a robust powertrading market

• Will mitigate off-take risk for generators

• Will balance inter-regional disparities inpower availability

Generators

Consumers

Transmission

Distribution

Traders

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Implementation Status of the Electricity Act 2003


• National Electricity Policy Announced

• National Tariff Policy Announced

• Appellate Tribunal for Electricity operationalized

• Regulations on Transmission Open Access by the central regulator notified

• Regulations on Distribution Open Access notified by many state regulators

• Guidelines for tariff based competitive bidding in generation and transmission notified

• Regional Power Committee for five regions operationalized

POWER www.imacs.in

Salient Features of National Electricity Policy


• Total village electrification by 2010

• By 2012:

• Per capita consumption of 1000 kwh;

• Installed capacity over 200,000 MW;

• Spinning reserve of 5% of total capacity;

• Minimum lifeline consumption of 1 unit per day per household;

• Inter-regional transmission capacity of 37000 MW;

• Energy efficiency/conservation about 15%

• Quality and reliable power supply.

POWER www.imacs.in

Salient Features of Tariff PolicyGovernment regulations & policy

• Tariff of all generation and transmission projects in private sector by competitive bidding-public sector to compete in five years

• Reduction of cross subsidy to +-20% in next five years

• Emphasis on distribution level open access; clear computation of cross subsidy surcharge

• Transmission tariff sensitive to direction and distance

• Strict implementation of performance standards

• Agricultural tariff to encourage sustainable use of ground water

• Time bound introduction of Multi-Year-Tariff structure

POWER www.imacs.in

Summary of Policy and Regulations Scenario


• EA 2003 introducing

• Non-discriminatory open access to transmission at least

• Section 63 and – ERCs to follow competitive bidding process

• Section 79(2) - CERC to advise GoI on promoting competition

• Section 60 – Controlling abuse of market power

• Competitive Bidding Guidelines - 2004/5

• Competitive acquisition of new generation – contestability

• National Tariff Policy – 2006

• Promoting retail competition

• Supporting competitive acquisition of generation capacity

• Enabling choice

Recent policy/regulatory actions

Electricity

Act 2003

Comp. Bidding Guidelines -2004/5

National ‘Tariff’ Policy -2006

Open Access, Sec 63/ Section 79( 2)/

Sec 60

Contestable Price Discovery

Facilitating open access, supporting

comp bidding , separating

wires businessesenforcing

USO

Possible Wholesale /

Retail Competition

Competitive new generation

Incr

easing

pot

entia

l

com

petit

ion

+

+Red

ucin

g ne

ed fo

r mic

ro m

anag

emen

t by

regu

lato

rs

Evolving market structure in power sector

The market is evolving towards competitive structure with minimal regulatory micro-management

POWER www.imacs.in

Business opportunities and Advantage India• Market Overview



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Generation: Huge capacity addition requirement

Business opportunities and Advantage India

• Generation capacity addition target

may

be revised upwards by 5000 MW

provided gas/LNG available at right

price

• Additional generation by RE sources

by 5000 MW

• Captive generation not included in the

targets

• Opportunity in distributed generation

in

the poorly served areas; in such areas

there is no need of distribution license

under the Electricity Act 03


0

5000

10000

15000

20000

25000

MW

Thermal Hydro Nuclear

Fuel Type

Generation Capacity Addition Target by 2011-12

Central State Private

POWER www.imacs.in

Ultra Mega Power Projects by Government of India


• Government of India (GoI) has launched Ultra Mega Power Projects initiatives to step up power generation capacity at rapid speed

• Seven projects of capacity 4000 MW each identified to be allocated to the developers on tariff based competitive bidding

• Each Project to cost around USD 3 bn

• Tariff determined in this manner to be accepted by the regulator under the Electricity Act

• GoI to acquire land, secure environment clearance, arrange water linkage and secure Captive Coal Mine (for pit head plants) before handing over the projects

• Payment Security Mechanism in terms of Letter of Credit, Escrow Arrangement and Third Party Sale

• In two projects, the bidders have been qualified and RFP documents have been handed over to submit the final proposal by November 22, 2006. PPA to be signed by January 2007

• Other five projects are moving at fast pace

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Transmission: To match the generation capacity addition


• National grid to comprise hybrid

system

of HVDC, UEHV and EHV lines

• Inter-regional transmission capacity to

be augmented to 37000 MW from the

current level of 9500 MW

• Intra-region transmission capacity

needs

to expand according to generation

capacity addition


0

10000

20000

30000

40000

MW

Current 2007 2012

Inter-regional Transmission Capacity Addition Target

Capacity

POWER www.imacs.in

Distribution: All set to goBusiness opportunities and Advantage

India

• Old distribution licensees are working satisfactorily in Kolkata, Mumbai, Ahemdabad and Surat

• Positive impact of privatization of Distribution in Orissa in 1999:

• Turned-around after initial difficulties• 11%-14% ATC loss reduction in 3 years• Estimated financial gain to Orissa of USD 330 million during 1996-2003• No tariff hike since 2001

• Positive impact of privatization of Distribution in Delhi in 2002:

• All distribution companies met loss reduction targets• Cash outflow reduced from USD 260 million to USD 35 million in 2005-06• Transformer failure rate decreased from 15% to 1%• Load shedding reduced from 2.32% to 0.85% of the input units

• Positive impact of reforms in distribution sector:

• Commercial losses as percentage of total revenue of the state utilities have reduced from 41% in year 2000 to 14% in 2004

• Revenue gap reduced from 1.61 cents in 2001 to 0.86 cents in 2004

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Investment opportunities are galore


• Foreign Investment:

• 100% FDI is allowed in all segments of power sector including Trading

• No discrimination between domestic or foreign investors

• Fiscal incentives:

• Zero customs duty on import of capital goods for Mega Power Projects

• Income tax holiday for generating plants for 10 years

• Impressive progress in project execution:

• Public sector investment also stepped up to supplement the private sector

• 40,000 MW of generation capacity already under execution and USD 43 bn already committed

• Financial closure of 4400 MW capacity in generation projects in private sector

• Financial Closure of another 2200 MW is in advanced stage

• Another 10000 MW being appraised by Financial Institutions

POWER www.imacs.in

Required investment in the Indian Power Sector (Next 3 to 5 years)


Areas for investment

• Additional generation capacity

• Transmission system to envisaged additional generation capacity

• Renovation and Modernisation

• Cross Country Grid

• Efficiency improvement in generation

• Reduction of T&D losses: Energy Audit /metering

• Energy Conservation & Demand Side Management

Source: Ministry of Power All figures in billion INR

5500

999

950

1260

Generation TransmissionDistribution Rural Electrification

POWER www.imacs.in

Key domestic playersBusiness opportunities and Advantage

India

National Thermal Power Corporation LimitedSixth largest thermal power producer in the world and India’s largest power producer; state owned player operating across the country

Tata PowerThe Tata group pioneered power generation in India nine decades ago. Tata company has presence in all segments - Thermal, Hydro, Solar, Wind Energy, Transmission & Distribution

Reliance Energy Ltd India's leading integrated power utility company in the private sector. It has a significant presence in generation, transmission and distribution of power in the states of Maharashtra, Goa and Andhra Pradesh.

Torrent Power Entered the power sector by acquiring two old state owned electricity companies and turned them into power utilities comparable with the best.

Generation

POWER www.imacs.in

Foreign players entered/planningto enter India


AES Corporation

CLP Power

Sumitomo

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The India Brand Equity Foundation is a public-private

partnership between the Ministry of Commerce & Industry,

Government of India and the Confederation of Indian

Industry. The Foundation’s primary objective is to build

positive economic perceptions of India globally

India Brand Equity Foundation

c/o Confederation of Indian Industry

249-F Sector 18, Udyog Vihar Phase IV

Gurgaon 122015, Haryana, INDIA

Tel +91 124 401 4087, 4060 - 67

Fax +91 124 401 3873

Email [email protected]

Web www.ibef.org

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DisclaimerThis publication has been prepared by ICRA Management Consulting Services (IMaCS) for the India Brand Equity Foundation (“IBEF”).

All rights reserved. All copyright in this publication and related works are jointly owned by IBEF and IMaCS.

The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication), modified or in any manner communicated to any third party except with the written approval of IBEF.

This publication is for information purposes only. While due care has been taken during the compilation of this publication to ensure that the information is accurate to the best of knowledge and belief of IBEF and IMaCS, the content is not to be construed in any manner whatsoever as a substitute for professional advice.

IBEF and IMaCS neither recommend nor endorse any specific products or services that may have been mentioned in this publication and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this publication.

IBEF or IMaCS shall in no way, be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this publication.

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