Generation Overview

Significant capacity addition and resolution of fuel issues augur well

The power generation segment in the country continues to grow rapidly. The total installed generation capacity increased at a compound annual growth rate of over 10 per cent from 2012-13 to reach 298 GW in March 2016. Of this capacity, about 82 per cent is fired by coal, which remains the mainstay of power generation. The central government’s proactive measures in the coal sector have helped immensely in resolving fuel issues that plagued the generation segment a few years ago. However, hydropower growth continues to wane in the absence of supportive policies. This segment accounted for about 14 per cent of total installed capacity as compared to 18 per cent in 2012-13, and its share continues to decline. Meanwhile, the renewable energy segment has begun to outperform other segments with a strong push from the government.

A round-up of key trends and developments in the power generation segment…

Capacity addition

The total capacity addition of conventional power in the country stood at 23,976 MW in 2015-16, marking an increase of about 6 per cent over the previous year. At around 22,460 MW, thermal power accounted for 94 per cent of this capacity, while the rest (1,516 MW) was contributed by hydropower. In 2015-16, capacity addition in the thermal and hydro segments recorded a year-on-year growth of 8 per cent and 106 per cent respectively. Interestingly, over 9.7 GW of thermal capacity addition took place in March 2016 alone. However, the nuclear segment remained subdued with no capacity addition during the fiscal year.

Meanwhile, the renewable energy segment performed extremely well as capacity addition exceeded the annual target by over 55 per cent. A total of 6,937 MW of grid-connected capacity was added during 2015-16 as against a target of 4,460 MW. The government’s push to the solar power segment paid off with 3,018 MW of capacity being added vis-à-vis a target of 1,400 MW. Meanwhile, wind power capacity addition stood at 3,300 MW while the rest was accounted for by small-hydro and biomass-based power.

Key projects commissioned

Some of the key coal-based projects commissioned during 2015-16 are NTPC Limited’s Mouda thermal power plant (TPP), GMR Energy’s Talwandi Sabo TPP, GVK Power and Infrastructure Limited’s Goindwal Sahib TPP, Jaiprakash Power Ventures Limited’s Prayagraj (Bara) TPP and Karnataka Power Corporation Limited’s Bellary TPP.  In March 2016, state-run coal producer Singareni Collieries Company Limited also commissioned a 600 MW unit of its 1,200 MW coal-based Singareni TPP at Adilabad in Telangana, thereby diversifying into power generation. In the hydro segment, key projects commissioned include Teesta Low Dam Stage IV in West Bengal and Lower Jurala in Telangana.

Generation performance

Total power generation (including imports from Bhutan) rose from 1,049 billion units (BUs) in 2014-15 to 1,107 BUs in 2015-16, an increase of 5.6 per cent. Of the total generation, over 85 per cent was accounted for by thermal, 3.4 per cent by hydro, 0.5 per cent by nuclear and the rest by imports from Bhutan.

While thermal power generation increased by 7.4 per cent in 2015-16 vis-à-vis the previous year, hydropower generation registered a decline of over 6 per cent owing to seasonal fluctuations.

PLF trend

The plant load factor (PLF) of coal-based capacity declined marginally from 63.86 per cent in 2014-15 to 62 per cent (provisional) in 2015-16. This can be attributed to the frequent backing down of generators by cash-strapped discoms. Meanwhile, the PLF of gas-based capacity improved slightly from 20 per cent in 2014-15 to 22.51 per cent in 2015-16 owing to increased availability of gas under the government’s Scheme for Utilisation of Stranded Gas-based Generation Capacity.

Coal supply trend

Coal supply to power plants improved considerably in 2015-16 given Coal India Limited’s (CIL) record production of 536 million tonnes (mt) during 2015-16, about 42 mt more than the previous year, and a year-on-year growth of over 8.5 per cent. As a result, the average inventory of coal stock at power plants reached 28 days in end-March 2016 with no plant reporting critical or supercritical status for want of coal.

Higher domestic coal availability also translated into lower coal imports during the year.  The total coal import was 212 mt during 2014-15 while there was a 34.26 mt reduction in 2015-16, resulting in foreign exchange savings of Rs 280.7 billion during the year.

However, even after successful captive coal block auctions, the production from the auctioned blocks stood at about 20 mt as only 10 blocks are estimated to have begun production.

Revival of gas-based capacity

The cabinet approved the Scheme for Utilisation of Stranded Gas-based Generation Capacity in March 2015. Under the scheme, imported spot liquefied natural gas is supplied to stranded and partially stranded gas-based power plants at a reduced price selected through a reverse bidding process. The auction helps select the plants which seek the lowest per unit subsidy support for sale of power to discoms, thereby placing a premium on efficiency. In the latest round, held on March 20, 2016, the bidding process resulted in a premium of Re 0.03 per unit of power generated and savings of Rs 1.83 billion of government subsidy, which is provided through the Power System Development Fund (PSDF). This is a deviation from the earlier two bidding rounds conducted in May 2015 and September 2015 in which the Ministry of Power (MoP) doled out subsidies of Rs 26.4 billion from the PSDF for stranded (receive no domestic gas) and partially stranded (receive limited domestic gas) plants.

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UMPP-related developments

Several key developments took place on the ultra mega power project (UMPP) front. The central government released draft standard bidding documents (SBDs) for imported coal-based UMPPs in January 2016 and is likely to come out with SBDs for domestic coal-based UMPPs soon. A key feature of the draft SBDs for imported coal-based UMPPs is reverting to the build-own-operate model of development rather than the earlier design-build-finance-operate-transfer model. The SBDs have new provisions that address developer concerns relating to variations in the cost of imported coal through a provision for coal blending. The MoP plans to soon float tenders for five domestic coal-based UMPPs at Banka in Bihar, Tilaiya in Jharkhand, Bedabahal in Odisha, Deoghar in Jharkhand and Surguja in Chhattisgarh. The Tilaiya UMPP, which was earlier awarded to Reliance Power Limited, will be put up for bidding again as the company exited the project due to delays in land acquisition.

Further, the Appellate Tribunal for Electricity (APTEL) passed an order on the issue of compensatory tariffs for Adani Power Limited’s and Tata Power Limited’s respective projects at Mundra in Gujarat. APTEL referred the case back to the Central Electricity Regulatory Commission asking it to consider the “change in law” and “force majeure” provisions for resolving the issue.

M&A trend

As private sector players take steps to consolidate their position in the power sector, there was an increasing trend in mergers and acquisitions (M&As). In February 2016, India Power Corporation Limited entered into an agreement with France-based ENGIE for acquiring the latter’s 89 per cent stake in Meenakshi Energy Private Limited (MEPL). MEPL operates a 300 MW coal-fired power plant in Nellore, Andhra Pradesh, and is executing another 700 MW unit there as well. Further, JSW Energy entered into a binding MoU with Jaiprakash Power Ventures Limited for acquiring a 100 per cent stake in its 500 MW Bina TPP in Madhya Pradesh in September 2015. JSW Energy is also at advanced stages of discussion to acquire Jindal Steel and Power Limited’s 1,000 MW Raigarh TPP.

Outlook

Given the low per capita electricity consumption in the country (about 1,010 kWh as of 2014-15) and the large scope for rural electrification, the demand for power will continue to increase in the coming years. Industrial power demand is also expected to pick up with signs of revival visible in the economic growth rate and the index of industrial production. Moreover, with the launch of the Ujwal Discom Assurance Yojana, the financial condition of discoms is likely to improve and they could come up with power procurement bids in the coming months. All these factors augur well for the generation segment’s growth in the near future.

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