Private investment dips in conventional power

In its draft National Electricity Plan, the Central Electricity Authority (CEA) makes an interesting observation on peak power demand to be half of the installed generation capacity by 2022. Low demand now marks every part of the power supply chain – generation, equipment, transmission, accessibility. Since this government came to power in mid-2014, there has been no call for investment in conventional generation.

The government expects the plant load factor (PLF or operating ratio) of thermal power units to come down to around 55 per cent in five years from the current 69 per cent. "If renewable capacity comes up as envisaged, I think we are comfortable with a PLF around 50 per cent," said a senior power ministry official.

Close to 50,000 Mw of coal-based capacity is under construction, of which 20,000 Mw is being built by NTPC alone. The project pipeline for the private sector is almost empty after 2017. There is likely to be considerable slippage in the capacity addition target in respect of hydro and nuclear power in the 12th Plan period (2012-17), as per the National Electricity Plan of CEA.

During the first three years of the 12th plan, the private sector contributed 63 per cent to the record total thermal power capacity addition of 57,719 Mw. With no state coming forward to sign long-term power purchase agreements (PPAs), these investments are likely to be hit. The latest PPA signed was by Uttar Pradesh in 2016, when rates touched `5 a unit, from `3.9 a unit in 2014. Debt-ridden state power distribution companies lack the funds to buy surplus power.

"My current capacity is not finding takers and PLF continues to fall. So, how can I invest more? There is no positive projection on power demand and distribution reforms are yet to fructify. I am assuming a three-year down cycle, at least," said the chief executive of a leading private generating company.

The increasing risk in long-term power sale is pushing developers to sell in the spot market at half the rate they quote in bidding for PPAs. This has led to spot power prices spiralling down to `2 a unit. To turn around the ailing distribution sector, the Centre announced an Ujwal Discoms Assurance Yojana. So far, 18 states have joined, agreeing to improve their entities, financial and commercial status. Rating agency CRISIL says the discoms require capital investment of `3 lakh crore between 2015-16 and 2018-19, of which half is tied up.

"The discoms have to bring down AT&C (aggregate technical and commercial losses) from 24 per cent now to 15 per cent by FY19. Even a one per cent default would result in accumulated unfunded cash loss of `20,000 crore. At least a four per cent rise in power tariffs (rates) would help achieve revenue neutrality," said Vivek Sharma, director at CRISIL.

None of the biggest loan defaulters among the discoms are on target to reduce their losses. Power demand from states is expected to remain low and has already pushed the Centre to bring down the demand projection to 235 Gw (one Gw is 1,000 Mw) by 2022 from the earlier projection of 289 Gw.

The government has hailed transmission as the next sunrise sector but private investment is not coming forth. As of last month, `54,806 crore of projects had been offered to the private sector over 30 months, against the Centre's announcement of `1 lakh crore worth to be so offered.

"Neither Centre or the states are offering transmission projects through competitive bids. The state undertakings continue to control close to 97 per cent of the market in allocated transmission projects, without considerations of cost and time. NTPC improved its efficiency following competition from the private sector. The same environment needs to be created in transmission to ensure success of distribution reforms," said a senior sector analyst.

Renewable energy (RE) seems a brighter option, with tenders being issued by Centre and states. In a calculation done by Bridge to India, the country has added total solar energy capacity of 4.9 Gw. The total of new tenders floated were 9 Gw of grid-connected projects, including 900 Mw for rooftop solar systems. The ambiguity over states' power purchase from renewable sources and lack of PPAs is an issue. In 2016, against projects tendered by the Centre totalling 5,350 Mw, PPAs were signed for 3,265 Mw. One big programme the RE sector is looking at is auctions for wind energy projects. The rate expected by the Centre is close to `4 a unit, similar to that for solar energy in the past year.

Energy Efficiency Services, a joint venture of state power entities, has made a cumulative investment of `2,270 crore for its LED and street lighting programme. For the coming year, it has raised debt of 300 million from German development bank KfW. Recently, the Asian Development Bank approved a line of credit for $200 million.

In line with climate change commitments, the Union ministry of power wishes to shut down close to 6,000 MW of units owned by states which are older than 25 years. Also, NTPC would revamp 20,000 Mw of its old units. Power Grid has been asked to sell its assets to lighten its balance sheet. These could open new investment avenues in the sector.

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