Recent Developments

Government initiatives increase momentum

The past year was marked by key developments across various segments in the power sector. There was significant focus on improving fuel supplies for coal- and gas-based generation plants through new policies. On the transmission and distribution front, two flagship schemes – the Integrated Power Development Scheme (IPDS) and the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) – gained traction. The most notable development, however, was the launch of the Ujwal Discom Assurance Yojana (UDAY) for addressing the pressing issue of poor discom health.

Indian Infrastructure presents an overview of the major developments across the power sector…

Policies and programmes

  • In January 2016, the cabinet approved the much-awaited amendments to the National Tariff Policy, 2006. Such comprehensive amendments have been made for the first time in a decade since the policy’s notification. These focus on the four Es: electricity for all, efficiency to ensure affordable tariffs, environment for a sustainable future and ease of doing business to attract investments.
  • In December 2015, Parliament passed the Atomic Energy (Amendment) Bill, 2015, which made changes to the Atomic Energy Act, 1962, expanding the scope of the latter to allow all public sector undertakings (earlier restricted to Nuclear Power Corporation of India Limited and Bhartiya Nabhikiya Vidyut Nigam Limited) to set up nuclear power plants in the country.
  • In March 2016, the Union cabinet notified the guidelines for the procurement of power on a short-term basis (a period of one day to one year) through the tariff-based bidding process. To this end, in May 2016, the government launched the Discovery of Efficient Electricity Price e-bidding and e-reverse auction portal.
  • Also, in April 2016, in the backdrop of the success of the Unnat Jyoti by Affordable LEDs for All programme, the central government launched two new energy efficiency schemes, the National Energy Efficient Agriculture Pumps Programme and the National Energy Efficient Fan Programme.

Fuel

  • In March 2016, the Ministry of Power conducted the third round of reverse auctions for power plants to avail of Power System Development Fund support for the use of imported regasified liquefied natural gas. (The earlier two rounds were held in September 2015 and May 2015.) While the first two rounds of auctions under the scheme saw a good response from power stations with the entire subsidy amount being used up, gas-based power plants decided to forgo the subsidy in the third round.
  • On the coal front, in May 2016, the Union cabinet approved the proposal for allowing the flexible utilisation of domestic coal. The policy is expected to result in optimal utilisation of linkage coal from mines and lower the transportation cost of domestic coal used, thereby reducing the cost of generation. Following this, the Central Electricity Authority released the methodology for its implementation in July 2016.
  • Earlier, in February 2016, the Ministry of Coal (MoC) finalised the guidelines for the automatic coal linkage transfer policy to enable the seamless transfer of fuel from old thermal power plants that have been scrapped to new supercritical plants.
  • Meanwhile, action on the coal block auction front was muted. The fourth round of auctions was held by the MoC in December 2015. However, owing to tepid industry response to the bids, this round was ultimately cancelled.

Generation

  • In 2015-16, the overall capacity addition (including renewables) stood at 30 GW (an increase of 23.6 per cent over the previous year) with the majority of the addition taking place in the thermal power segment (76.1 per cent), followed by renewable energy (23.4 per cent).
  • A notable development in the generation segment (in December 2015) was the notification of draft guidelines for imported coal-based ultra mega power projects (UMPPs). The guidelines, based on the recommendations of the Pratyush Sinha Committee, propose the build-own-operate model for imported coal-based UMPPs as opposed to the existing design-build-finance-operate-transfer model.
  • Meanwhile, an important development impacting all thermal plants was the notification of the new emission standards for coal-based plants in January 2016 by the Ministry of Environment, Forest and Climate Change. The revised standards, aimed at limiting air emissions and water consumption levels, make it mandatory for new thermal plants to meet the revised parameters within two years.
  • There were also significant merger and acquisition deals in the conventional power segment. Prominent amongst these was JSW Energy’s acquisition of Jaiprakash Power Ventures Limited’s Bina thermal power project in July 2016 as well as Jindal Steel and Power Limited’s 1,000 MW Chhattisgarh plant in May 2016. Further, GMR Energy Limited sold a 30 per cent stake to Tenaga Nasional Berhad, Malaysia’s largest electric utility, in May 2016.

Renewables

  • In October 2015, India outlined its intended nationally determined contribution goals of achieving 40 per cent of its cumulative power requirements from renewable energy sources by 2030. These targets build on the earlier announced targets of achieving 175 GW of renewable energy by 2022, which includes 100 GW from solar and 60 GW from wind.
  • Earlier in September 2015, the government launched the National Offshore Wind Policy with the aim of providing a framework for offshore wind energy development. Another key development in the wind segment was the reduction in the accelerated depreciation benefit from 80 per cent to 40 per cent (effective from April 1, 2017) as announced in the 2016-17 budget.
  • Meanwhile, in February 2016, the Ministry of New and Renewable Energy approved guidelines for setting up 33 solar parks, in 21 states, comprising an aggregate capacity of 19,900 MW.

Transmission

  • Transmission line length addition stood at 28,114 ckt. km in 2015-16 while transformer capacity addition stood at 62,849 MVA.
  • One of the significant achievements in the transmission segment was the commissioning of the first 800 kV high voltage direct current line – the 3,500 ckt. km Biswanath Chariali-Agra bi-pole line – in September 2015, which links the north-eastern region to the rest of the country.
  • Two important cross-border lines were also commissioned in the past year – the 400 kV double circuit (D/C) Muzaffarpur-Dhalkebar transmission line connecting India and Nepal was commissioned in February 2016 and the 400 kV D/C Surjyamaninagar-Comilla transmission line was commissioned connecting India and Bangladesh in March 2016.

Distribution

  • UDAY was launched in November 2015 for the operational and financial turnaround of discoms. As per the scheme, state governments are required to take over 75 per cent of the debt of their respective discoms (50 per cent of the debt in the first year and 25 per cent in the second year). States can then issue bonds in the market or directly to banks or financial institutions holding the debt. Since its launch, the scheme has attracted many states and received a fairly good response from investors as well. Till July 2016, 14 states had signed MoUs under the scheme – Jharkhand, Chhattisgarh, Rajasthan, Uttar Pradesh, Gujarat, Bihar, Punjab, Jammu & Kashmir, Haryana, Uttarakhand, Goa, Karnataka, Manipur and Andhra Pradesh.
  • Under the IPDS, till July 2016, projects worth around Rs 258 billion were sanctioned across 30 states (and union territories) covering 3,597 towns. Also, IT enablement or “go-live” status was achieved for 1,222 towns of the originally targeted 1,405 towns. The rest of the towns are expected to achieve go-live status by March 2017.
  • Significant progress was made under the DDUGJY. Out of the target of electrifying 18,542 villages by March 2017, 9,874 villages were electrified till August 8, 2016. Further, as of July 31, 2016, 6,155 projects were sanctioned under the scheme. These projects entail an investment of Rs 1,087.42 billion.

Outlook

  • Over the past year, the government has undertaken significant measures to energise the power sector. That said, certain grey areas still remain. These include the lack of a policy for the hydropower segment, delays in the finalisation of standard bidding documents for UMPPs and amendments to the Electricity Act, 2003, and subdued private participation in the transmission segment.
  • On a positive note, however, the government is proactively working on a number of these issues. For instance, the process of revising the standard bidding documents for the transmission segment has been initiated, while a new and comprehensive hydro policy is under preparation and could be announced by September 2016.
  •  Overall, things appear to be moving forward for the sector. The new schemes – UDAY, IPDS and DDUGJY – and the tariff policy amendments are well-drawn-up measures that could help address the sector’s structural problems in the long run.

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