The power generation segment has grown at a rapid pace over the past few years, but the Covid-19 pandemic and consequent lockdowns have severely affected electricity demand. This has led to a drastic reduction in the power generation and plant load factors (PLFs) of thermal power plants (TPPs). Gencos are increasingly facing payment defaults, as the liquidity of discoms has been further constrained owing to the crisis. As per the PRAAPTI portal, the outstanding dues as of end July 2020 stood at Rs 1,172 billion vis-à-vis Rs 760 billion in July 2019. The central government has taken quick steps by introducing the Rs 900 billion liquidity infusion scheme to help discoms pay their dues to generation companies (gencos). An update on the key trends and developments in the generation segment over the past year…
Size and growth
The total installed capacity across all sources of power stood at 372.7 GW as of August 2020. Coal- and lignite-based power accounted for the highest share of 55 per cent with nearly 206 GW of capacity, followed by renewables at 24 per cent (88.7 GW), hydropower at 12 per cent (45.7 GW), gas at 7 per cent (24.9 GW) and nuclear at 2 per cent (6.78 GW).
During 2019-20, capacity addition from conventional energy sources stood at 7,065 MW. Of this capacity, about 6,765 MW was accounted for by coal-based power plants and the remaining 300 MW by hydro. Capacity addition by grid-connected renewable energy sources stood at 9,386 MW, with solar accounting for over 6,447 MW and wind accounting for about 2,068 MW of the total. The rest was accounted for by biomass (781 MW) and small hydro (90 MW).
In 2020-21 so far, thermal capacity addition stood at 1,106.15 MW during April-July 2020 and renewable capacity addition stood at 1,715.73 MW for April-August 2020.
Operational performance
The total power generation stood at 1,250 BUs in 2019-20, almost the same as in the previous year. Of the total generation, the majority, 83.4 per cent, was accounted for by thermal sources, 12.5 per cent by hydro, 3.7 per cent by nuclear and the rest by imports from Bhutan. In addition to this, renewable energy generation stood at 138 MUs during 2019-20, marking an increase of more than 9 per cent over the previous year.
During April-August 2020, the total power generation stood at around 490 BUs – about 11.5 per cent lower than the 554 BUs recorded in the corresponding period last year, mainly owing to lower demand due to the Covid-induced lockdowns. Generation from thermal sources recorded the maximum decline of 15 per cent to 387 BUs during the period April-August 2020 vis-à-vis 456 BUs during April-August 2019. Generation from renewables recorded a marginal decline during April-July 2020 to 51.55 BUs versus 52.4 BUs in the corresponding period last year.
With regard to PLFs, the PLF of coal-based power plants decreased from 60.24 per cent in 2018-19 to 55.89 per cent in 2019-20. Meanwhile, the PLF of gas-based plants stood at 22.2 per cent in 2019-20, almost the same as in the previous year, owing to a paucity of fuel.
Key recent developments
Relief measures for Covid-19: The Ministry of Power (MoP) notified the essential operation of power generation utilities amidst the lockdown to maintain uninterrupted power supply. The ministry stated that gencos would continue to supply electricity even to discoms that had large outstanding dues and there would be no curtailment of supply. The MoP also directed the Central Electricity Regulatory Commission (CERC) to provide a moratorium of three months to discoms to make payments to gencos. Apart from this, the MoP stated that till June 30, 2020, the payment security mechanism to be maintained by discoms with gencos for the despatch of power was to be reduced by 50 per cent. Recently, the MoP advised all power generating companies and transmission companies to charge distribution utilities late payment surcharge at a rate not exceeding 12 per cent per annum for all payments made under the liquidity infusion scheme as part of the Atmanirbhar Bharat initiative.
Update on emission norms compliance: As per the Central Electricity Authority (CEA), flue gas desulphurisation (FGD) systems, which aid in SOx emission control, are to be deployed by 437 thermal units aggregating 166 GW in a phased manner by 2022. The deadline for the installation of emission control equipment in captive power plants (CPPs) was June 2020. The compliance status as of March 2020 was quite poor, with only four units totalling 1,740 MW having commissioned FGDs, or just 1 per cent of the targeted capacity. However, tenders have been issued for 113.6 GW of capacity and bids have been awarded for nearly 40 GW. Gencos are facing project execution delays owing to the disruption in the supply chain due to the pandemic. With the majority of the tendered capacity expected to miss the 2022 deadline, the MoP recently wrote to the Ministry of Environment, Forest and Climate Change to grant an extension of two years to 322 units, aggregating about 100 GW. In a move that brought major relief, the Supreme Court, in July 2020, relaxed the NOx limit for coal-based power plants commissioned between December 2003 and 2016 to 450 mg per Nm3 from 300 mg per Nm3.
Coal supply update: Owing to a decline in power demand due to the lockdown, TPPs currently have sufficient coal stocks and are, therefore, not lifting coal. Gencos’ payments to Coal India Limited (CIL) have also been affected. The MoP has issued a letter to gencos to reduce coal imports and use domestic supplies as coal stocks are piling up at pitheads. Currently, imported coal is used by about 162 GW of coal-based capacity. While 144.6 GW of this capacity imports coal for blending with domestic coal, about 17.6 GW is designed to run exclusively on imported coal. As a result of the ministry’s advice as well as owing to low demand, coal imports fell by over 36 per cent during April-July 2020 to 14.8 mt, as opposed to 23.4 mt during April-July 2019.
Hydro’s role in grid management: Hydropower played a crucial role in the management of the pan-India lights-off event managed by the Power System Operation Corporation, which took place at 9 p.m. on April 5, 2020 during the Covid-19 lockdown. The anticipated reduction in all-India demand during this event was estimated at 12-14 GW; however, the total reduction recorded during the event was much higher, at 31,089 MW. Hydropower plants played a key role by providing the flexibility to quickly ramp generation up or down as they take the least time to switch on or off. After the reclassification of hydro as renewables under the hydro policy issued last year, the centre plans to impose hydropower obligations to ensure firm offtake of hydropower.
Stressed assets: As of March 2018, there are about 40.1 GW of stressed assets – worth Rs 2,366 billion – in the thermal power sector (24.4 GW commissioned and 15.7 GW deemed under construction) as per the Parliamentary Standing Committee on Energy. So far, the resolution of stressed assets has been slow despite the efforts of lenders and the government. Only about 10 per cent of the 40 GW stressed capacity has achieved resolution, mainly through acquisitions by new sponsors, as per ICRA.
Power procurement under Pilot Scheme II: In February 2020, a tender was called for the second round of the pilot scheme for the procurement of 2.5 GW of power. PTC India was the aggregator for this round. The lowest tariff discovered in this round was Rs 3.26 per unit, quoted by Adani Power.
Issues and challenges
The Covid-19 pandemic has dealt a major blow to the generation segment, which was already struggling with a number of issues. Pan-Indian electricity demand, which has seen a drastic reduction due to a decrease in commercial and industrial activities, is likely to decline further by 5-8 per cent in 2020-21. The decline in demand is expected to suppress the PLF of TPPs across India to technical minimum levels. This will further delay the resolution of stressed thermal assets, the majority of which are impacted by the lack of long-term PPAs. The demand glut comes at a time when the generation segment is already struggling with huge unpaid dues.
Future outlook
The conventional generation segment, especially coal-based power, is facing challenging times not only because of Covid-19-related disruptions and strong competition from renewables, but also due to long-standing issues such as lack of domestic coal linkages and power purchase agreements. The government’s recent move to open up the coal sector to commercial mining is likely to address the issue of fuel shortage, while the proposed reforms in distribution (under the Electricity Act, 2003) are expected to revive power procurement by discoms in the long run. However, in the coming years, the role of coal in the power generation segment is likely to transition to a supportive one from the dominant position that it has enjoyed over the years. As per the CEA’s study on Optimal Generation Capacity Mix for 2029-30, the installed capacity by the end of this period will reach 831,502 MW, with solar (300,000 MW) surpassing coal-based power (266,827 MW). The expected installed capacity of other sources is 64,089 MW of hydro, 5,000 MW of small hydro, 4,356 MW of hydro imports, 24,350 MW of gas, 16,880 MW of nuclear, 140,000 MW of wind and 10,000 MW of biomass, along with a battery energy storage capacity of 34,000 MW/136,000 MWh. Going forward, flexibilisation will be key for coal-based power plants as renewables gradually take centre stage.