It was a transformational year for the power generation segment. In 2016-17, for the first time in the country, the capacity addition by the renewable segment was the highest across all the sources of generation. While coal, hydro and nuclear additions were 10.6 GW, 1.6 GW and 1 GW respectively, capacity addition from renewables alone accounted for 11.3 GW. In fact, this is also the first time that capacity addition from conventional sources declined year on year, from the 23.9 GW that was added in 2015-16.
A round-up of the key trends in capacity addition, the operational performance of existing capacity, and the recent significant developments impacting the generation segment in the past one year…
As of March 2017, the country’s installed capacity touched 326,848 MW. This includes close to 60 per cent (192 GW) of coal-based capacity, followed by 17 per cent (57 GW) of renewable capacity and 14 per cent (44 GW) of hydropower capacity. Gas-based capacity accounted for another 8 per cent (25 GW) while nuclear power (7 GW) and diesel-based capacity (1 GW) together accounted for the remaining 2 per cent share.
During 2016-17, only 10,625 MW of coal-based capacity was added. In fact, capacity addition fell by 51 per cent against the 20.5 GW that was added in 2015-16. Low plant load factors (PLFs) continue to be a cause for concern. During 2016-17, the PLF of coal-based plants fell further to 59.77 per cent as against 62.15 per cent in the previous year.
Gas-based capacity addition during 2016-17 was 926 MW, while installed gas-based power capacity operated at a suboptimal PLF of 22 per cent. Meanwhile, at present, ready-to-commission gas-based power plants totalling 4,340 MW are unable to commence operations due to a shortage of gas. While the government’s Scheme for Utilisation of Stranded Gas-based Capacity, launched in March 2015 for a period of two years (2015-16 to 2016-17), gave a shot in the arm to the plants, it expired in March 2017, once again impacting these plants.
Capacity addition in the hydro segment was 1,695 MW in 2016-17. On a year-on-year basis, capacity increased by almost 12 per cent in 2016-17, the highest growth witnessed in the past five years. However, the share of hydropower in total installed capacity has been declining consistently, from 17.7 per cent as of March 2013 to 13.9 per cent as of March 2017.
Nuclear capacity addition during the year under consideration was 1,000 MW. The second unit of the Kudankulam project in Tamil Nadu commenced operations during the year (the first having been operationalised in 2014-15). The country’s total installed nuclear capacity has now reached 6,780 MW, distributed across seven nuclear plants.
During 2016-17, power generation was 1,154,192 GWh, most of which was accounted for by thermal sources at 86 per cent, followed by hydropower at 11 per cent and the rest by nuclear power. For the period April 2016-February 2017, generation through renewable sources was 75,991 GWh, which translates into a contribution of 7 per cent to the overall generation of 1,052,160 GWh.
A key development in the generation segment took place in March 2017, when the Supreme Court rejected Adani Power’s and Tata Power’s claim to charge compensatory tariffs for their respective imported coal-based power plants located in Mundra, Gujarat. The apex court overturned the earlier favourable orders by the Appellate Tribunal for Electricity and the Central Electricity Regulatory Commission which granted relief through compensatory tariffs payable by state discoms to the two companies. The decision brought an end to a contentious legal battle that has extended for over five years, thereby impacting two of the largest private power generators in the country. It also set a precedent for other imported coal-based projects which have sought relief on similar grounds.
Meanwhile, a positive policy announcement for the coal-based power generation segment has been an amendment to the Mega Power Policy, 2009, for 25 provisional mega power projects aggregating about 32 GW, of which over 27 GW is coal based. The time period for furnishing the final mega certificates to the tax authorities to avail of the benefit of importing equipment free of duty has been extended to 120 months instead of the earlier 60 months, from the date of import. The policy was due to end on March 31, 2017, but has now been extended up to 2022. These projects have to enter into long-term power purchase agreements (PPAs) within this extended period to get the benefits.
Reportedly, only 11,000 MW of capacity has been commissioned, with the remaining at various stages of implementation. The relaxation in the time frame will help these projects unlock benefits of over Rs 100 billion (ranging from Rs 3 million to Rs 4 million per MW) under the policy.
Another important policy development for coal-based power plants was the issue of the methodology for the use of domestic coal allocated to states by independent power producers. The methodology aims to bring down the cost of power generation by reducing coal transportation charges. Released in February 2017, this was in continuation of the methodology for flexibility in the utilisation of coal among state and central generating stations released by the Central Electricity Authority (CEA).
A key development in the hydro segment was the Ministry of Power issuing guidelines on cross-border electricity trade in December 2016, in a bid to promote such trade. The guidelines are expected to facilitate major hydropower projects being developed in Nepal and Bhutan in exporting surplus power to India.
In the nuclear segment, a key development was India taking over full operational control of the first unit at the Kudankulam power plant from its Russian contractor entity, the ASE Group of Companies, a subsidiary of ROSATOM State Atomic Energy Corporation of Russia. Further, the government has finalised agreements with its Russian counterpart for constructing the fifth and sixth units of the Kudankulam nuclear power project. The third and fourth units are already under construction and are scheduled to be commissioned in 2022 and 2023, respectively, while Units 5 and 6 are likely to be commissioned in 2025.
In terms of capacity addition in the coal-based segment, no new plants have achieved financial closure in the past two to three years. The draft National Electricity Plan, released in December 2016 by the CEA for the period 2017-22, has indicated that no new coal-based capacity addition is required over the next decade as coal-based capacity of 50,025 MW is already under construction. These plants are likely to yield benefits during 2017-22 and will fulfil the capacity requirement for the period 2022-27.
For gas-based projects, the outlook is bleak at present. As per the draft National Electricity Plan, except the ready-for-commissioning/under-construction gas-based plants totalling 4,340 MW, no other plants are expected to be commissioned during the Thirteenth Five Year Plan period (2017-22), owing to a shortage of gas.
Meanwhile, in the hydro segment, about 10.8 GW of capacity is under construction as of March 2017 and is expected to be completed by 2021-22. About half of this is being developed by the central government. The future pipeline of hydro projects includes 15.3 GW of capacity to be added during the Thirteenth Plan period, while another 12 GW is expected to be added during the Fourteenth Plan period (2022-27).
Given the lack of new projects in the pipeline, going forward, the focus is expected to be on improving the operational performance of existing power plants. Poor offtake demand is in part responsible for the low PLFs in the country and the build-up of stressed assets. As per KPMG estimates, nearly 50 GW of the 70 GW of operational coal-based power plants in the private sector are stressed. Further, 80-90 per cent of under-construction plants in the private sector are also stressed. In this regard, the Ujwal Discom Assurance Yojana is expected to turn around the financial position of discoms.
Meanwhile, to revive the hydro segment, a new hydropower policy for addressing regulatory and financial issues to push stalled projects is also under discussion. Extension of tax benefits and subsidies allowed for renewable sources to hydro projects that are over 25 MW is under consideration. The government is also mulling over a central procurement agency that will procure power from existing and upcoming hydro projects along the lines of the solar power bundling scheme.
Overall, though 2016-17 was a good year for renewables, conventional fuel-based generation faced headwinds.