Power Sector Analysis Report 

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• Indian power sector has had eventful developments in not only generation and transmission capacity addition, but also from the distribution reforms aspect. The total installed power generation capacity of India as on 31 March 2018 was 344 GW, of which 45% is contributed by the private sector.
• The major growth has been witnessed in renewable source with capacity reaching to 69,022 MW (growth of 20%). During FY18, renewable capacity surpassed conventional sector addition to the total generation capacity. The energy generation observed 6.1% growth to reach at 1,203 Bn Units as compared to previous year’s generation of 1134 Bn Units. Transmission capacity addition was 23,119 ckms as against a target of 23,086 ckms. However, despite the capacity addition in generation and transmission there was a slight increase in the peak deficit situation from 1.6% to 2.0% during FY18. The Energy deficit remained constant at 0.7% during FY17 and FY18. The market witnessed higher liquidity and greater depth, with more participants than previous years.
• On the policy and regulatory front, the Government and Regulatory bodies continued the reform process for improvement in efficiency in various aspects of power supply. Government of India launched “Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA)” to achieve universal household electrification in the country. Under UDAY scheme for financial and operational improvement of Discoms, bonds have been issued by various States for a total amount of Rs 2,321.6 billion. Ministry of New and Renewable Energy (MNRE) launched competitive bidding for procurement of power from wind projects and so far bidding for more than 6,000 MW has taken place in four phases.
• In further development for making coal allocation more transparent, Scheme for Harnessing and Allocating Koyala (Coal) (SHAKTI) was launched through which allocation of linkages for power sector shall be based on auction of linkages or through Power Purchase Agreement (PPA) based on competitive bidding of tariffs except for the State and the Central Power Generating companies, and the exceptions provided in Tariff Policy, 2016. Coal drawal will be permitted against valid Long Term PPAs and to be concluded Medium Term PPAs. The sector also witnessed emphasis on transparency through various web/mobile applications and digitization of competitive bidding through MSTC platform for short and medium term power procurement.
• Government’s thrust on renewable energy with core focus on solar power dominated the power sector in the fiscal year 2018. The government has planned to add 175 GW of renewable energy by 2022 and increase the share of renewable energy to power at 40% by 2030. It is also anticipated that India’s peak demand for power will increase from current level of 153 GW to 226 GW by 2021-22 and 299 GW by 2026-27. Considering the demand projections and likely retirement of 22.7 GW of capacity, total capacity addition of 175 GW, including 47.8 GW of coal-based power projects currently under construction is envisaged in the period 2017 to 2022. Similarly, for the period 2022 to 2027, another 175 GW of capacity addition and retirement of 25 GW have been envisaged.
• However, solar power tariffs continue to trade at levels higher than thermal power tariffs. Tariffs in some of the agreements that State Electricity Boards (SEBs) have signed with renewable developers are as high as Rs 7 per unit. Burdened with a huge pile of losses, the SEBs are increasingly shifting to purchase cheaper power from the power exchanges wherein the spot price is hovering somewhere around Rs 2.68 per unit. This puts into jeopardy the massive renewable projects that are scheduled to come up going forward. Solar power offtake is already seeing curtailment in the state of Rajasthan and Tamil Nadu.
• Average transmission and distribution losses (T&D) exceed 22% of total power generation. India’s T&D losses are almost 2.5 times the world average. The T&D losses are due to variety of reasons viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage.
• Lack of coal supply was a major hurdle in the power sector till some time back. Majority of power generation takes place through thermal power plants which uses coal as its raw material. However, with e-coal auctions coming in the picture, this problem seems to have been resolved considerably. Major players in the generation space were sitting on sufficient inventories of coal as at the end of the previous fiscal year.
• Presently, major concern for the power generators is the off-take of electricity. Power generators sell power to SEBs or DISCOMs. SEBs are facing financial crisis and are suffering losses to the extent of Rs 700 billion annually. The SEBs do not have enough resources to purchase power from the generators. Hence a situation has risen wherein there is excess of power but no takers for the same.

• Supply
• The total installed capacity in the country as on 31 March 2017 was 344 GW as on 31 March 2018, out of this 64.8% is accounted by the thermal power stations. With this the total capacity addition during the 12th plan period is 99,209.5 MW (excluding renewable) which is about 112.1% of the planned capacity addition of 88,537 MW for the Plan. Hence, sufficient capacity is being built to meet the demand requirements.
• Demand
• The long-term average demand growth rate is expected to remain in the higher single-digit growth levels given the much lower per capita power consumption in India as compared to the global average. Not only this, the poor financial state of SEBs could possibly lead to lower demand for power going ahead.
• Barriers to entry
• Barriers to entry are high, especially in the transmission and distribution segments, which are largely state monopolies. Also, entering the power generation business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from state governments that buy power and retail distribution license.
• Bargaining power of suppliers
• Not very high since the tariff structure is mainly regulated.
• Competition
• Getting intense, but despite there being enough room for many players, shortage of inputs such as and natural gas and regulatory hurdles has dissuaded new entrants.

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• The demand supply gap for FY18 was range bound between 0.6-0.9% with few months reporting record-low peak and base deficit of 0.6%. The demand, however, still remains low due to various reasons including the low paying capacity of financially distressed Discoms and last mile connectivity to all consumers yet to be achieved. This has, in turn, led to a heavy financial burden in the form of NPAs to the banking sector.
• PLF of thermal plants which includes coal and gas-based power plants improved from 59.8% in FY17 to 60.7% in FY18. Gas based power plants continued to witness below-par capacity utilization at 22.9% during FY18. Around 11% of the thermal power plants are gas based and have been facing fuel shortage due to limited production of natural gas domestically and most of the imported and domestically produced natural gas being diverted to other priority sectors like fertilizers, CGD etc. Nevertheless, the Central Public Sector Undertakings continued to be the best performers, followed by private sector.
• Energy deficit (difference between requirement and availability) was the lowest ever as numbers improved tremendously during the year with the same standing at about 1.1% (3.6% in FY15).
• It has been a land mark year for renewable energy, as 11.2GW capacity was added during the year. It accounted accounting for over 2/3rd of the new capacity addition during the year.
• As far as the Transmission & Distribution space is concerned, there has been rapid growth in the transmission sector with over 70 circuit-kilometers (CKms) of transmission capacity being added daily against an addition of 46 CKms a day between 2012 and 2014. However, the financial health of state electricity utilities in retail distribution continues to remain the most critical issue for the sector’s viability. To resolve the challenge in the distribution business, the Government of India launched the Ujwal DISCOM Assurance Yojna (UDAY) to reduce the financial burden on state DISCOMs by transferring 75% of accumulated losses/debts of the DISCOM to the state in a 2-step phased manner over financial years 2016-2018. Nevertheless, the country continues to reel under the pressure of higher T&D losses with the government going slow with the reforms process in these segments. Financial turnaround of the distribution sector is essential for commercial viability of the entire sector.

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• Recognising that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the government and the industry has set itself the target of providing electricity access to all households over the next few years. As per government reports, about one third of the households do not have access to electricity. Hence, meeting the target of providing universal access is a daunting task requiring significant addition to generation capacity and expansion of the transmission and distribution network.
• Restoration of the financial health of SEBs and improvement of their operating performances continue to remain the critical issue for the sector. As such, effective implementation of the restructuring package remains the key. While the power distribution space has been a loss-making business in India on an overall basis, the investments in T&D are expected to improve with privatisation coming in.
• Going forward, it is expected that the demand will grow to cater to the continued economic growth of the country, creating more volume in the power market with strengthening of financials of Discoms. The demand is also likely to come from shift of usage from fuel to electricity in transport and agriculture sector in particular from distributed generation with solar installations.
• Trading of solar power is one segment that has not picked up yet due to aggressive tariffs, however, this also maybe an opportunity in future from the perspective of stronger payment security mechanism. Efficiency improvement measures in the sector especially through the IT enablement, promotion of environment-friendly renewable technologies and energy efficiency solutions in the coming future are expected to provide business opportunities to various stakeholders.

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