Coping with Change

Sector attempts to realign itself with new trends and challenges

The power sector witnessed mixed trends over the past year. The lockdown following the outbreak of the Covid-19 pandemic significantly slowed down economic activity and affected power demand in 2020-21, especially from high-paying commercial and industrial (C&I) consumers, leading to stress in the distribution segment. This disrupted the entire power sector value chain, with gencos and transcos facing significant delays in payments from discoms. The central government’s liquidity package helped address some of the concerns, however, and now power demand is back to pre-Covid levels. Further, the movement restrictions imposed due to Covid-19 disrupted the supply chain and halted construction activities at project sites, delaying the commissioning of thermal and renewable projects as well as the implementation of emission control systems. Despite challenges, the renewable energy sector managed to cross the 100 GW installed capacity milestone in August 2021. Currently, India is ranked fourth in the world in terms of installed renewable energy capacity, fifth in solar and fourth in wind. Another 50 GW of renewable energy capacity is under installation and 27 GW is under tendering. On the transmission front too, grid expansion is being driven by the need to evacuate power from the upcoming renewable energy projects.

Indian Infrastructure provides an overview of the power sector and its future outlook…

Segment-wise trends

Generation

India’s total installed capacity across all sources of generation stood at about 387 GW as of July 2021. Coal- and lignite-based power accounted for the highest share (54.13 per cent) at nearly 209.4 GW, followed by renewables at 98.88 GW (25.56 per cent) and hydropower at 46.37 GW (11.98 per cent). Gas-based installed capacity stood at 24.92 GW (6.44 per cent), nuclear at 6.78 GW (1.75 per cent) and diesel accounted for the remaining 0.13 per cent. In the renewable energy segment, solar power accounted for a major share of 44.4 per cent (43.94 GW), followed by wind with a share of 40 per cent (39.59 GW). The remaining renewable energy capacity was made up by biopower, with a share of 10.7 per cent (10.56 GW) and small-hydro power with a share of 4.8 per cent (4.79 GW). During 2020-21, net capacity of 12 GW was added from various energy sources – the lowest in the past 10 years. Of this net addition, 7.4 GW was from renewable energy sources, followed by 4.13 GW from thermal power plants and 0.51 GW from hydropower plants.

Installed capacity mix (as of July 2021) (%)Overall generation (including imports) during 2020-21 stood at 1,381.86 BUs, recording a 0.52 per cent decline from the 1,389.1 BUs recorded in 2019-20. During 2021-22 (as of July 2021), overall generation has been recorded at 503.97 BUs. The total generation from renewable energy sources stood at 147 BUs in 2020-21, about 6.5 per cent higher than the previous year. Overall, renewable energy generation was 10.6 per cent of the total generation (including imports) during 2020-21. Meanwhile, the plant load factor (PLF) of coal- and lignite-based plants stood at 53.37 per cent during 2020-21, recording a decline from the previous year (55.99 per cent) and a significant decline from the high of 77.5 per cent recorded in 2009-10. During 2021-22 (as of July 2021), the PLF has been recorded at 58.15 per cent.

Transmission

As of July 2021, the total transmission line length (at the 220 kV and above voltage level) stood at 445,496 ckt. km, alternating current (AC) substation capacity stood at 1,014,621 MVA, and HVDC substation capacity at 32,000 MW. During 2020-21, about 16,750 ckt. km of transmission lines were added at the 220 kV and above level. In terms of capacity, AC substation capacity of about 53,575 MVA and HVDC substation capacity of 4,000 MW was added during 2020-21. Interregional transfer capacity has more than trebled from 33,950 MW in March 2014 to 105,050 MW in March 2021, recording a CAGR of 17.5 per cent.

Power Grid Corporation of India Limited (Powergrid) continues to dominate the country’s transmission sector with 169,273 ckt. km of lines and 443,815 MVA of substation capacity (as of July 2021). The share of joint venture or private players in terms of total line length has increased from 3.3 per cent in 2011-12 to 7.6 per cent in 2020-21.

As of July 2021, 55 transmission projects (excluding cancelled and under-litigation projects) have been awarded under the tariff-based competitive bidding process. Of these, 33 projects have been commissioned while the remaining 22 are under construction. Further, of the awarded projects, 35 were secured by private players, while 20 were won by Powergrid.

Distribution

As per India Infrastructure Research, between 2015-16 and 2019-20, the total distribution line length grew at a CAGR of 4.82 per cent to reach 12.45 million ckt. km as of March 2020. The majority of the distribution line length (around 60 per cent) was at the low-tension level, followed by 31 per cent at the 11 kV level and the remaining at the 33 kV level. Further, nearly 718 GVA of transformer capacity was operational at the 33 kV level and below, across 36 utilities in the country.

The total number of consumers was estimated to be around 287 million (based on data for 53 utilities) as of March 2020. The total energy sales during 2019-20 stood at 1,005 BUs, as against 709 BUs in 2012-13. Consumer category-wise, domestic consumers accounted for 32 per cent of the total sales in 2019-20, followed by industrial (30 per cent), agricultural (21 per cent) and commercial (9 per cent) consumers.

As per the audited annual accounts of power distribution utilities, discoms have shown an improvement in their operational and financial performance over the past few years. Aggregate technical and commercial (AT&C) losses came down from 23.5 per cent in 2016-17 to 21.83 per cent in 2019-20. The gap between the average cost of supply and the average revenue realised narrowed to Re 0.28 per kWh in 2019-20 from Re 0.33 per kWh in 2016-17. The annual profit after tax remained negative but showed an improvement from Rs 338.94 billion in 2016-17 to Rs 328.98 billion in 2019-20.

Regarding the outstanding dues of discoms to gencos, as per the PRAAPTI portal, the total overdue amount stood at Rs 1,129.43 billion in June 2021. To tide over the liquidity problems of increasing discom payables to gencos due to the Covid-induced lockdowns, the central government launched a liquidity infusion scheme. As of June 30, 2021, the Power Finance Corporation and REC Limited have sanctioned Rs 1,355.37 billion and disbursed Rs 796.78 billion respectively to states under the scheme, to help discoms clear their outstanding dues towards the purchase of power. Smart meters, offering remote monitoring and reading facilities, came as a major relief for discoms during the lockdowns. Discoms with smart meters registered much better billing efficiency and revenue collection.

Growth in transmission line lengthOther key trends and developments

Power trading

During 2020-21, short-term trading volumes were recorded at 146.01 BUs, which accounted for 10.6 per cent of the total generation during the year. The remaining 88.2 per cent power was procured by discoms through long-term contracts and short-term intra-state transactions. Of the total volume transacted in the short-term market during 2020-21, the volumes traded through the power exchanges accounted for around 54.5 per cent (79.59 BUs), recording an increase of 41 per cent from the 56.45 BUs recorded in the previous year. Despite a nationwide lockdown during March-May 2020 and a reduction in the demand for electricity, especially in the first half of the fiscal year, overall volumes on the exchanges grew as new products (real-time market and green term-ahead market) were added. Also, discoms and industrial consumers took advantage of the prevailing low prices on the exchanges to optimise their power portfolio.

Emission norms

As per the Central Electricity Authority, flue gas desulphurisation (FGD) systems, which aid in SOx emission control, are to be deployed in a phased manner by 442 thermal units aggregating nearly 169 GW. The status of compliance with this directive, as of August 2021, is quite poor, with only six units totalling 2,160 MW having commissioned FGDs. Meanwhile, tenders have been issued for 132.3 GW of capacity and bids have been awarded for nearly 69.3 GW. In a key development, in April 2021, the Ministry of Environment, Forest and Climate Change extended the timeline for complying with the emission norms. As per the revised timeline, thermal power plants (TPPs) within a distance of 10 km from the National Capital Region and TPPs in cities with populations of over 1 million need to comply with the new emission norms by December 31, 2022, whereas TPPs in non-attainment cities and those within 10 km of critically polluted areas need to comply by December 31, 2023. TPPs in the remaining areas have to comply with the norms by December 31, 2024.

Outlook

The rapid addition of renewables capacity poses a threat to grid stability owing to the intermittent nature of renewable generation. The challenge needs to be addressed if the country is to reach the target of 450 GW of renewable energy capacity by 2030. The other key challenge is with respect to the distribution segment, the weakest link in the power value chain. Although AT&C losses have decreased over the years, they are still quite high compared to developed countries, where these losses stand at 6-7 per cent. This puts pressure on discoms’ finances, most of which are running into net losses. Although discoms losses decreased to Rs 328.98 billion in 2019-20, as compared to Rs 338.94 billion in 2016-17, they are likely to increase in 2020-21 due to revenue constraints with respect to high-paying C&I consumers, limited tariff hikes and higher interest outgo.

Going forward, in view of the large renewable energy capacity addition planned over the next few years, the demand for energy storage is expected to increase. A production-linked incentive scheme has been approved under the “National Programme on Advanced Chemistry Cell (ACC) Battery Storage” for achieving a manufacturing capacity of 50 GWh of ACC and 5 GWh of niche ACC. The central government is also reportedly working on a policy for the development and encouragement of pumped storage plants. Further, the prime minister has announced the launch of the National Hydrogen Mission to meet the target of achieving self-reliance in energy by 2047.

 

 

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