It has been nearly one and a half years since the current government took over amidst high hopes of reviving the crippled power sector. During this period, several strong measures have been taken to revive both the growth cycle and investor sentiment. The most recent of these is the discom debt restructuring scheme, Ujwal Discom Assurance Yojana (UDAY). Reforms have also been undertaken in coal, which has helped improve coal production to healthy levels; 32 mines have been auctioned and efforts for linkage rationalisation are now under way. There is increased availability of gas for reviving stalled projects. Renewable energy has witnessed rapid progress during this period, with significant upscaling of targets. Twenty-five solar parks have been announced and a new policy has been put in place for tapping offshore wind. There is a greater focus on enhancing energy efficiency under the Domestic Efficient Lighting Programme. To be sure, the past 18 months have witnessed an overall improvement in the sector on several counts.
Highlighting its achievements, the government recently presented its half-year report for all infrastructure sectors, including energy. Brought out by policy think tank NITI Aayog, the report outlines the achievement of targets in the power, coal and renewable energy sectors for 2015-16 up to October. This is the third such report prepared by NITI Aayog. The first report, presented in May 2015, highlighted the achievements for the past fiscal year, after which a report on the first-quarter performance, till June 2015, was presented. The latest report covers the government’s record on parameters such as growth in electricity generation, number of transmission lines and coal production. In addition to taking stock of the sector’s performance, the report highlights the actions initiated in the past six months or so on critical aspects such as discom losses, high capacity power transmission corridors, rural electrification, coal washing and utilisation of the National Clean Energy Fund (NCEF). Further, new reform measures that are planned to be taken are presented in the report.
Overall, the statistics in the report point to reasonable progress on most parameters in the ongoing fiscal. For example, coal and power, which are two of the eight core industries in the Index for Industrial Production, posted an increase of 7.7 per cent and 10.4 per cent respectively during April to September 2015, as compared to 4.2 per cent and 4.1 per cent respectively in the same period in the previous year. Capacity additions in conventional power, renewables and transmission, as well as coal production by public coal mining companies, have now reached the halfway mark of this year’s targets. In terms of rural electrification, the statistics in the report state that around 70 per cent of the target has been achieved for the current fiscal. Regarding the Power for All scheme, which was announced late last year, the report states that eight states are already on board to participate. On the renewables front, the blueprint for achieving the steep 175 GW target is now ready, with NITI Aayog submitting its report recently. Also, in what indicates the government’s keenness to fast-track projects, the report states that 21 energy projects (13 power, six coal and two renewables) out of 62 infrastructure projects have been reviewed by the prime minister.
The following is a brief look at the progress of the power sector in the first half of the current fiscal year based on the NITI Aayog report…
Power
For 2015-16, the capacity addition target was set at 20,037 MW, of which 41 per cent has been achieved so far. Of this, around 3,280 MW was added in the first quarter (till June) and another 4,916 MW by October 2015. The power generation target set for 2015-16 is 1,137 MUs, which is around 11 per cent higher than that for 2014-15. More than 57 per cent of this target had been achieved till October 2015. A transmission line length of 17,156 ckt. km was added, against a target of 23,712 ckt. km, which is nearly 72 per cent of the target.
Giving an update on the various central government programmes, the report notes that on the Restructured Accelerated Power Development and Reforms Programme (R-APDRP) front, around 229 towns have achieved “go-live” status, against a target of 360 towns that were supposed to go live this year. Under the Power for All scheme, the signing of state-specific documents has been carried out with eight states. For another three states, the documents are under finalisation while they are currently under preparation for 18 other states.
Rural electrification has also witnessed fairly good progress. Around 70 per cent of the target of 3,500 villages has been met this year. Overall, the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) targets the electrification of 18,542 unelectrified villages by March 31, 2018. Across states, the report notes that Bihar, Madhya Pradesh and West Bengal have achieved a high share of their annual electrification targets, whereas Arunachal Pradesh, Assam, Odisha and Uttar Pradesh have high balance electrification work against this year’s target.
One of the key achievements in the past seven months, as stated in the report, is the finalisation of the UDAY scheme for discoms. In the first quarterly report of NITI Aayog for 2015-16, the issue of the financial health of discoms was discussed in detail.
On the subject of expediting the proposed 11 high capacity transmission corridors, the report notes that two of the corridors have been completed by Power Grid Corporation of India Limited. For another seven, work is in progress, and of the 93 substations and lines that are proposed to be set up, 49 have been completed. These high capacity power transmission corridors, with HVDC links/765 kV UHVAC lines/400 kV high capacity lines entail an estimated cost of Rs 750 billion. They are being developed to facilitate the evacuation of power from various generation projects, currently being developed by independent power producers across the country.
Another key issue faced in the previous fiscal was the provision of coal linkages to stranded power projects. The coal and power ministries were asked to work out a mechanism to resolve the issue. Accordingly, the report states that a methodology has been worked out for giving long-term linkages to thermal power plants.
Some of the thrust areas on the government’s agenda for this year, based on the report, are mapping go-live towns with smart cities, as well as the promotion of rooftop solar and energy efficiency in smart cities, and assured power supply to telecom towers in go-live and DDUGJY towns/villages.
Coal
The coal production target for the two public sector coal companies – Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL) – has been cumulatively set at 606 million tonnes (mt) for 2015-16. Coal production of 306 mt has been achieved, which is nearly half of the target.
For captive coal blocks, the production target is 94 mt, of which only around 24 per cent has been achieved with 22 mt of coal produced.
The coal import target for the power sector is around 115 mt – 73 mt for blending with domestic coal and 42 mt for imported coal-based plants. So far, around 48 mt has been imported overall, 25.2 mt of it for imported coal-based plants and 22.4 mt for domestic coal-based plants.
One of the issues identified in the first-quarter report was the need to promote coastal shipping of coal, that is, the movement of coal freight between ports, in order to reduce the burden on the road and rail systems for coal transportation. The report notes that steps are being taken by Mahanadi Coalfields Limited to develop berths at Paradip port in order to facilitate coal transportation from the Talcher coal mines in Odisha to consumers in the southern and western regions. Further, a pre-feasibility study report for dedicated port-rail connectivity from the Talcher mines to Paradip port has been prepared by the railway consultancy arm, Rites Limited.
Another major area of concern highlighted by the report is the need to fast-track the development of sufficient coal washeries. To this end, the report states that detailed plans have been worked out to commission all new washeries by October 1, 2017. CIL plans to set up 15 washeries across its various subsidiaries, through private companies, under a build and operate model. CIL currently owns 17 washeries, five for coking coal and 12 for non-coking coal. Of the new units, six are for handling coking coal and nine for non-coking coal. The cumulative washing capacity is estimated to be around 112 mt. The coal ministry has recently stated that coal with a grade of over G10 will not be delivered unwashed after October 1, 2017.
Renewable energy
The total renewable energy capacity addition target for 2015-16 is 4,460 MW. So far, 2,060 MW or 46 per cent of this has been achieved. Capacity addition for the first two quarters has been the highest in the wind energy segment at 982.65 MW. Solar follows with an addition of 827.22 MW. The achievements for biopower, small hydro and waste-to-power are 132 MW, 106.5 MW and 12 MW respectively. For waste-to-power, the entire 10 MW target for the fiscal has been achieved, with the commissioning of a 12 MW plant at Ghazipur in Delhi.
However, the above targets correspond to the previously targeted 37.8 GW. In view of the revised target of 175 GW, the report states that an expert group was constituted under NITI Aayog to determine ways to achieve the scaled-up target. The group has now submitted its report, which states that the expected capacity addition target for 2015-16 would be scaled up by four times to 16,825 MW in 2015-16 and to 21,110 MW in 2016-17. The expert group also notes that financing the 175 GW target would not be a challenge as innovative financing options, other than generation-based incentives and viability gap funding, are now available. In order to expand rooftop solar capacity, the expert group report notes that the commercial/ industrial deployment of rooftop solar does not require any subsidy. For the rest, depending on the financing options, support of Rs 83 billion-Rs 434 billion would be needed till 2028-29 in net present value terms.
In the latest review meeting, one of the action points to be outlined for the current fiscal was the proper deployment of the NCEF. The fund was created in 2010-11 with the amount collected as coal cess comprising its corpus. In 2014-15, around Rs 164 billion was collected as coal cess for the NCEF. Concerns have been raised by sector experts regarding its poor utilisation and disbursements to the renewable energy sector. Taking cognisance of this issue, the report highlights that a sum of Rs 66.05 billion has been allocated from the NCEF. Of this, Rs 16.2 billion will be used for specific projects and the remaining Rs 49.84 billion for ongoing programmes of the Ministry of New and Renewable Energy (MNRE).
Meanwhile, on the issue of enhancing renewable purchase obligation (RPO) targets for states, the report notes that the government has drafted amendments to the Tariff Policy, which would revise the RPO target to 8 per cent by 2019. Under the RPO, discoms are mandated to purchase a certain amount of power from renewable sources. Further, the issue of promoting domestic manufacturing for renewable energy projects has been a key area that the government is seeking to address. The second-quarter report highlights that 100 per cent domestically manufactured equipment is currently being used for wind and biomass projects. In addition, the entire range of small-hydro project equipment in India is being domestically fabricated by 27 turbine manufacturers. For solar, a domestic content requirement has been put in place in the bidding guidelines.
Going forward, an action point for the government for the current fiscal will be the promotion of the achievements of Kochi airport in terms of solar energy. The airport in Kerala has become the first in the world to operate on solar power, and meets its electricity requirement by generating over 48,000 units of electricity through a 12 MW solar power plant. The report also discusses the government’s plans to set up solar projects at railway stations. To this end, the MNRE and Indian Railways will work together to achieve the commissioning target of 3,000 MW of solar projects at nearly 8,000 stations.
Conclusion
Overall, the macro indicators covered in the report show that the sector’s performance is looking up and is broadly on track to achieving its full-year targets. This, however, is the big picture; there are many other issues facing the sector which are yet to be resolved. Declining capacity utilisation, cost overruns for projects, financial weakness of discoms and the lack of adequate power purchase agreements are a few such hurdles. Nonetheless, given that many issues and flagship schemes are being monitored at a high policy level, the quarterly reports suggest better times that can be expected for the power sector.
