Energy Handbook 2011 - GBR

P o w e r S u m m i t - T h e E n e r g y H a n d b o o k 2 0 1 1
C o u n t r y P r o f i l e : I n d i a
India in Focus
The Indian power sector presents one of the largest business
opportunities in the world at present. India, the world’s second
most populous state, combines rapidly growing demand with a
crippling 12 percent power deficit.
Article by:
Oliver Cushing and
Jolanta Ksiezniak
Section Cover
(previous page):
CLP’s Wind
Power Project,
Photo courtesy of
CLP Power India
Private Limited
The power sector needs to expand
rapidly if the country is to
continue on its path of economic
development. “India’s current installed
capacity is about 150 GW and this needs
to go up to nearly 800 GW in the next
fifteen years,” says Baba Kalyani, owner
of Bharat Forge and one of India’s most
celebrated industrialists. “The power
market is the biggest opportunity in the
Indian manufacturing sector today”.
“Income per capita is growing at a faster
rate in rural areas that in urban areas…
Therefore it is expected that demand
for electricity will grow at a faster rate
in the countryside.” Development of
India’s power sector will require not just
investment in new generation capacity
and upgrades to the existing transmission
and distribution (T&D) infrastructure, but
also a new greenfield T&D infrastructure
capable of supplying a population larger
than that of the USA. India has changed
dramatically in the space of a decade.
This was the power market where Enron
first started to unravel publicly, and issues
surrounding Enron’s Dabhol plant have
deterred international investors from the
generation sector for many years. After
the plant finally shut in 2001 the country
embarked on a second phase of power
market liberalisation culminating in the
Since the reforms of 2003 Indian privatesector
investors have become extremely
active in generation, but the major foreign
players are notable by their absence.
“When the sector was initially opened
to investment there was an abundance
of investors. But the experience was
not pleasant for some of them, which
explains the current reticence on the
part of international investors to re-enter
the market,” says the manager of the
power sector’s largest debt portfolio,
B.K. Batra, Executive Director & Group
Head of Corporate Banking at IDBI Bank.
Batra argues: “This is the time for major
players to reconsider India and perceive it
as an attractive area for investment. ROI
is at an impressive level of 15.5 percent,
which strengthens the business case for
investing in the power sector.”
For the power equipment manufacturer or
service provider, India presents the perfect
combination of demand and supply. The
Indian power manufacturing sector is
still dominated by large state-controlled
companies, both producers and clients,
and is not perfectly liberal. The market
is open to new entrants, however, and
international companies are rushing to
secure joint ventures with local partners
as they enter the country.
Power is a “concurrent” subject in India,
meaning that it falls under the jurisdiction
of both the central and state Governments.
This division of authority has led to a
wide variation in investor activity across
the country, with the more liberalised
and creditworthy states enjoying the
most development. The prime central
Government law regulating the power
sector is the Electricity Act 2003, which
revised earlier attempts at liberalisation
and has resulted in a solid and stable legal
framework for private-sector involvement
in the Indian power market.
however, there is clearly space for
growth. The Government has set out
plans for capacity to more than double
by 2017. Generation has traditionally
been the exclusive domain of central
and state-owned companies, in some
regions integrated with transmission and
distribution operations to form utilities.
Today the largest generation company
remains the central-Governmentcontrolled
National Thermal Power
Corporation (NTPC), with 30,600 MW of
capacity generating some 27 percent of
the nation’s power output in 2009. Fellow
public sector undertakings National Hydro
Power Corporation (NHPC) and Nuclear
Power Corporation of India Ltd (NPCIL)
run 5,300 MW and 4,500 MW of capacity
and generate 2.2 percent and 2.4 percent
of the nation’s output respectively. The
private sector controls only 13.5 percent
of Indian generation capacity, stateowned
generators own 52 percent, and
central Government is responsible for the
remaining 34 percent.
Government policy since the Electricity
Act of 2003 has been that private capital
should fund the majority of capacity
addition. The market has been opened
to private investment in three ways.
First, the Government has floated the
public-sector undertakings, raising capital
through a series of initial public offerings
that have seen up to 33 percent of
equity sold to investors. Although the
public-sector undertakings remain very
much in the control of the Government
and there are limits on who may own
shares, the fresh capital has allowed the
under-funded generators to invest in new
projects and they are increasingly acting
as joint venture partners.
The Act also permitted any company or
group of companies to develop captive
Above:
power plants. This ruling has had a
According to some estimates there are
A crowd gathers
substantial effect on the wider sector.
as many as 400m people without access
Generation
in front of the
Industrial users are charged higher rates
to electricity in India, the Government
Mysore Palace, lit
India has a total installed capacity of for power and are far more likely to pay
up for the Dasara
having failed to meet the 2005 RGGVY
162 GW and generated some 803 TWh in their bills than their fellow consumers
festival
plan’s target of connecting all villages
2007. India is now the world’s fifth-largest in the retail market. Allowing industrial
to the grid by 2010. Dr. J.M. Phatak,
producer of electricity, representing consumers to generate their own power
Chairman and Managing Director of the
4.1 percent of total world output in 2007 has forced distribution companies to
Rural Electrification Corporation and
according to the International Energy strengthen collection efforts and freed
the man tasked by the Government
Agency. Given that Indians represent over industrial consumers from paying crosssubsidies.
22
with funding rural electrification, notes: Electricity Act 2003.
17.3 percent of the world’s population,
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