Jaipuria Institute of Management, Jaipur

POWER SECTOR IN INDIA

Submitted To: Dr. ABHIJIT NAIR

BUSINESS COMMUNICATION

Submitted By:
NIKITA THOMAS PREETI SINGH SUBHAM DARUKA ANUBHAV GUPTA SACHIN GUPTA AJIT KUMAR ROY LATIKA CHHABRA FIRDAUS JAMAAL

DECLARATION

We hereby declare that all the work presented in the project report entitled POWER SECTOR IN INDIA of the subject BUSINESS COMMUNICATION is an authentic record of our own work carried out under the guidance of Dr. ABHIJIT NAIR.

Date: 29.12.2012

ACKNOWLEDGEMENT

We thank our advisor Dr. ABHIJIT NAIR, Jaipuria Institute of Management, Jaipur for assigning us this project and believing in us. He and his continuous support during the project were always there to listen and his valuable advice enabled us to complete the project on time. He taught us how to be inquisitive and express our ideas. He showed different ways to approach a problem and the need to be persistent to accomplish any goal. Their advice and suggestions have been remarkable in handling different types of situations at work. Sincere thanks to Jaipuria Institute of Management, Jaipur.

Table of contents

Introduction - World Energy Consumption

World Energy Consumption refers to the total energy used by all of human civilization. Typically measured per-year, it involves all energy harnessed from every energy source we use, applied towards humanity's endeavors across every industrial and technological sector, across every country. Being the power source metric of civilization, World Energy Consumption has deep implications for humanity's social-economic-political sphere. Various institutions (Such as the IEA, EIA, and EEA) record and publish energy data periodically. Improved data and understanding of World Energy Consumption may reveal systemic trends and patterns, which could help frame current energy issues and encourage movement towards collectively useful solutions. According to IEA (2012) the climate goal of limiting warming to 2 C is becoming more difficult and costly with each year that passes. If action is not taken before 2017, all the allowable CO2 emissions would be locked-in by energy infrastructure existing in 2017. Fossil fuels are dominant in the global energy mix, supported by $523 billion subsidies in 2011, up almost 30% on 2010 and six times more than subsidies to renewable. Fossil energy use increased most in 2000-2008. In October 2012 IEA wrote last decade ca half of the increased energy use is coal, growing faster than all renewable energy. Since Chernobyl disaster in 1986 investments in nuclear power have been small. The volume of renewable energy is not yet substituting fossil energy use. Energy use (TWh)

Fossil

Nuclear

Renewable

1990

83,374

6,113

13,082

2000

94,493

7,857

15,337

2008

117,076

8,283

18,492

Change 2000-2008

22,583

426

3,155

INTRODUCTION OF INDIAN POWER INDUSTRY Power can be generated from coal, water, wind, nuclear & non-renewable energy resources. Power sector is broadly divided into generation, transmission & distribution. The Indian Power Industry is one of the largest and most important industries in India as it fulfills the energy requirements of various other industries. It is one of the most critical components of infrastructure that affects economic growth and the well-being of our nation. India has the worlds 5th largest electricity generation capacity and it is the 6th largest energy consumer accounting for 3.4% of global energy consumption. Due to the fast-paced growth of the Indian economy, the countrys energy demand has grown at an average of 3.6% p.a. over the past 30 years. In India, power is generated by State utilities, Central utilities and Private players. The share of installed capacity of power available with each of the three sectors can be seen in the pie chart below: NTPC is the leader in power generation with installed capacity of more than 30000 MW. Transmission & distribution loss had always been a key concern for the Indian power companies. Indo-US Nuke Deal: On November 16, 2006 the US Senate passes the 'United States-India Peaceful Atomic Energy Cooperation and US Additional Protocol Implementation Act' to "exempt from certain requirements of the Atomic Energy Act of 1954 United States exports of nuclear materials, equipment, and technology to India." 9 Ultra Mega Power Projects of 4000 MW each: The Centre has so far allotted four Ultra Mega Power Projects out of which Reliance Power has bagged three, located at Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand). Tata Power is developing one project in Mundra (Gujarat). StateLocation: Chattisgarh-Akaltara; Gujarat-Mundra; Karnataka-Tadri; Madhya Pradesh-Sasan; Maharashtra-Giriye; Andhra Pradesh-Krishnapatnam; Orissa-Lankahuda(Sundergarh district); Tamil Nadu-Cheyyur; Jharkhand-Tilaiyya. In order to install 1 MW, one needs a cape of Rs 44.5 crores.

: As per the latest Report of CEA (Central Electricity Authority) i.e. as on 31-03-2011, the Total Installed Capacity of Power in India is 173626.40 MW. Of this, more than 75% of the installed capacity is with the public sector (state and central), the state sector having the largest share of 48%.

Thermal Power: - In India, major proportion of power is generated from thermal sources where the main raw material used is coal. Around 83% of thermal power is generated using coal as a raw material whereas 16% of thermal power is generated with the help of Gas and 1% of thermal power is generated with the help of oil. Hydro Power: - Hydroelectric power or hydroelectricity is electrical power which is generated through the energy of falling water. India has hydro power generation potential worth 1,50,000 MW, of which only 25 % has been harnessed till date. Nuclear Power: - A Nuclear Power Plant is a thermal power station in which the heat source is one or more nuclear reactors. A nuclear reactor is a device to initiate and control a sustained nuclear chain reaction. In the process, heat is generated which is then used to generate electricity. Renewable Energy Sources: The energy obtained from renewable sources like sun, wind, biomass can be converted into power. Renewable energy sources have great potential to contribute to improving energy security of India and reducing green-house gas emissions. India is among the five largest wind power generators in the world

Power Sector: History/Background

Electricity, as we know it, is largely a product of eighteenth and nineteenth century scientific and engineering developments. Many electro-scientific discoveries were made in the early part of the nineteenth century, but it was only when significant engineering breakthroughs were made resulting in the development of electro-mechanical generators and transformers that substantial amounts of electricity could be produced and distributed. Very soon it became possible to generate electricity at large central power stations, where economies of scale meant that widespread electrification switched from dream to reality. The US was the first country that generated electricity followed by United Kingdom after 6 years. CESC Limited is the pioneer in the history of generation of electricity in India. It commenced power generation and distribution in Kolkata, in 1899. CESC started as Kilburn & Co when the company acquired the license to provide electricity to Calcutta city on January 7, 1897. The electrification of Kolkata city took place seventeen years after New York, which boasted of Electricity in 1882 and eleven years after London, which was electrified in 1888. India also started hydro electric generation by the end of 19th century. The power plant at Darjeeling and Shimsha (Shivanasamudra) was established in 1898 and 1902 respectively and is one of the first in Asia. The 4.5 megawatt hydroelectric power station near Sivasamudram falls of the Cauvery in Karnataka was the first major power station in India. The Indian power sector has been regulated for almost a century and the Electricity Act 1910 was the first act that was introduced to govern the Indian power sector. The Electricity (Supply) Act 1948 was introduced after independence, but it did not achieve the desired results. , as the power sectors performance started to deteriorate and a need was felt to restructure the sector. Several regulatory changes were made since 1991, which transformed the industrys performance. Based on the governments regulations and policies, the evolution of the Indian power industry can be divided into two broad phases, pre-reform and post-reform phases. The pre-reform phase (up to 1991) can be divided into pre-independence phase (prior to 1947) and post-independence phase (1947-1990) and post-reform phase. Post-independence, the Government of India decided to entrust the development of the electricity sector to respective states through the creation of State Electricity Boards (SEBs). SEBs were expected to develop networks of transmission lines which till then had been quite underdeveloped, and add generation capacity. But SEBs fared miserably and by the 70s, many of the SEBs started incurring losses because of many factors including direct political interference in SEBs operation by their respective governments, mismanagement, poor industrial relations, etc. The low tariffs for agricultural sector were sought to be covered through higher tariffs on industrial and commercial consumers. But the distortions of such cross subsidization, resulted in increasing theft and leakages, loss of accountability of revenue and misreporting. Losses of the SEBs mounted this made SEBs increasingly dependent on budgetary allocations from their respective governments reducing their ability to add generating capacity, and most importantly to carry out the periodic maintenance and upkeep of their distribution assets. Given the deteriorating financial performance and poor operating performance of SEBs, the onus of setting up new generation capacities fell increasingly on the Central Government. It was in

such a situation that the central government set up two central sector utilities; NTPC (National Thermal Power Corporation Limited) for thermal generation and NHPC (National Hydro Power Corporation Limited) for hydro power. Over the 1980s, energy shortages and poor financial condition of SEBs continued. The need to control fiscal deficit led to initiation of reforms in the Electricity Sector in early 1990s with opening of the sector for private Independent Power Producers (IPPs). Following the liberalisation and reform of the economy in 1991-92, the electricity sector too witnessed major policy and regulatory initiatives. Recognizing that electricity and other infrastructure sectors required substantial investments in the face of resource constraints; investment by the private sector (including foreign capital) were allowed in electricity generation. Prior to this, save some private sector licensees operating in a few urban areas, the electricity sector was mostly in the hands of state electricity boards (SEBs) or central government owned utilities created to supplement the efforts of SEBs in generation and transmission sub-sectors. As the entities got unbundled and the role of the private sector in electricity was set in motion through the IPPs, the need for independent regulators was obvious since now there was private sector when the state itself had a significant market role. The institution of independent regulation, the Central Governments guidance and direction of reform efforts, unbundling of the sector, legal initiatives to bring in competition, programmes to improve technical and operational efficiency of the sector to effectively procure power on a long term basis on behalf of state governments, have been initiated since then. The changes that these initiatives have brought about, while significant, have not necessarily been in the direction intended, and the core problems of leakage, viability of distribution, tariff reform and competition still remain to be addressed successfully. The most important amongst all the policies announced by the government is the enactment of the Electricity Act. The year 2003 marked a new beginning of reforms in the Electricity Sector in India with enactment of the Electricity Act replacing the legal framework for the sector hitherto governed by the Electric Supply Act of 1948 and the ERC Act of 1998. There have been a slew of regulatory changes after the enactment of the Electricity Act in 2003 which have opened up the power generation sector and driven the sector on a high growth trajectory. In pursuance of the provisions of the Electricity Act 2003, the Central Government came out with National Electricity Policy on 6th February 2005. Over the past few years, the Government of India has undertaken several legislative measures and carried out extensive policy reforms with a view to accelerating the growth of the power sector and encouraging greater private participation. Some of these measures include National Tariff Policy, National Electricity Plan, Competitive Bidding Guidelines, and Ultra Mega Power Projects. Now 100 percent Foreign Direct Investment (FDI) is allowed in generation, transmission and distribution segments. Incentives are given to the sector through waiver of duties on capital equipments under the Mega Power Policy. These policy initiatives have resulted in building up investor confidence in the power sector and have created an ideal environment for increased participation by the private sector.

When India became independent in 1947, the country had a power generating capacity of 1,362 MW. Generation and distribution of electrical power was carried out primarily by private utility companies. Notable amongst them and still in existence is Calcutta Electric. Power was available only in a few urban centers; rural areas and villages did not have electricity. After 1947, all new power generation, transmission and distribution in the rural sector and the urban centers (which was not served by private utilities) came under the purview of State and Central government agencies. State Electricity Boards (SEBs) were formed in all the states. National Thermal Power Corporation (NTPC), National Hydro-electric Power Corporation (NHPC) and Power Grid Corporation Limited (PGCL) were formed by the government to assist in meeting the increasing demand for electricity throughout the country. The electricity sector is in the 'concurrent list', meaning that both, State and Central governments, participate in the sector's development. The Ministry of Power in the Central government formulates the policies for the power sector. The Central Electricity Authority (CEA) was established as a statutory authority to develop a 2nd National Power Policy and also to function as a regulatory authority. As per government guidelines, all power projects above a certain capacity have to obtain technoeconomic clearance from CEA before they can be implemented. A new Ministry of NonConventional Energy Sources has also been formed to focus on renewable energy sources to augment the generation capacity of electrical power. The Public sector units (PSUs) provided a vital service to the nation in the post-independence era. From the few transmission and distribution networks existing at the time of independence, in few urban centers, the PSUs have established networks covering the entire length and breadth of the country. Besides, massive rural electrification programs have boosted agricultural production in a big way. Today, India is self-sufficient in food grains primarily because of this.

FUTURE FORESIGHTS
According to the latest reports of Indian Power Sector Analysis, the Indian power sector has witnessed a significant period of growth in recent years backed by factors including strong demand, active private sector participation, increasing investments, and favorable government support in the form of feasible programs and policies. The total installed capacity in the country grew from 132,329 MW in 2006-07 to 173,626 MW in 2010-11, which is an impressive growth over the recent past. However, much is needed to be done in order to bridge the demand-supply gap. It is estimated that due to effective investment patterns and well enacted public policies, the total installed power generation capacity will reach to 203,594 MW by 2013-14.

We have found that solar power has emerged as one of the leading sources for power generation in India. With states, such as Rajasthan, Gujarat, Tamil Nadu, and Maharashtra exploring new solar energy avenues, the country is likely to invest more funds in solar power. Private players have also been spending huge amount of money in solar power plants, thereby supporting a fast

growing sector. According to government plants, the country is likely to produce 1,300 MW by 2013, another up to 10 GW by 2017, and more by 2022.

The report, Indian Power Sector Analysis, is an effective source of knowledge and analysis on the fast growing power sector in India that provides an in-depth investigation of the market drivers and prominent trends. The report thoroughly studies the current market status with the help of reliable statistics and proper presentation. Moreover, it analyzes the renewable energy potential in the power generation and illustrates the recent state-wise developments.

The report is an outcome of an extensive research and prudent analysis of the Indian power sector that will help clients to analyze the driving forces and leading-edge opportunities critical to the success of the power industry. The forecasting in key sections of the report makes use of effective methods and techniques that seek to present a realistic market outlook.

Proposed Capacity Additions during 11th Plan (2007-12): The 11th Plan recommends generation planning based on an estimated 9.5% growth in required energy each year. As a result, a capacity addition of 78,577 MW is recommended in the 11th Plan as given below:
Sector Central Hydro 9,685 Thermal 26,800 Nuclear 2,658 Total (%) 39,865 (50.7%) 27,952 (35.6%) 10,760 (13.7%) 78,577 (100%)

State

3,605

24,347

Private

3,263

7,497

All India

16,553

58,644

3,380

Source: Working Group on Power-11th Plan (2007-12)

Required capacity additions foreseen by the 12th Plan: The requirement of installed capacity and capacity addition to meet the generation requirement during the 12th Plan period is given in table below: Capacity addition required during 12th plan (2012-17):

GDP Growth

GDP / Electricity Elasticity

Electricity Generation Required (BU) 1,415 1,470 1,470 1,532 1,525 1,597

Peak Demand (MW)

Installed Capacity Capacity Addition (MW) Required During 12th Plan (MW) 280,300 291,700 291,700 303,800 302,300 317,000 70,800 82,200 82,200 94,300 92,800 107,500

8%

0.8 0.9 0.8 0.9 0.8 0.9

215,700 224,600 224,600 233,300 232,300 244,000

9%

10%

Source: Working Group on Power-11th Plan (2007-12) Under various growth scenarios, the capacity addition required during 12th plan would be in the range of 70,800 - 107,500 MW, based on normative parameters. The 11th Plan Working Group recommends a capacity addition of 82,200 MW for the 12th Plan based on the scenario of 9% GDP growth rate and an elasticity of 0.8%.

Long term demand of power The Ministry of Power has set a goal - Mission 2012: Power for All. Based on the 17th EPS, the total energy requirement in India will increase to 968,659 GWh by fiscal year 2012, 1,392,066 GWh by fiscal year 2017 and to 1,914,508 GWh by fiscal year 2022. This would lead to an annual electric peak load of 152,746 MW in fiscal year 2012, 218,209 MW in fiscal year 2017 and 298,253 MW in fiscal year 2022. The northern region is expected to contribute 30.1% and the western region contributes 28.4% of the overall annual electric peak load in fiscal year 2022. The Government has estimated the total investment potential of the sector at Rs. 9,000 billion for a specified period up to fiscal year 2011. This represents a significant opportunity for capacity expansion and growth opportunity for power generation companies, both in the public and the private sector

CURRENT SCENARIO OF POWER SECTOR IN INDIA

As of March 31, 2012 India had an installed power capacity of almost 2,00,000 MW

Hydro 27,380 STATE 2,525 PRIVATE CENTRAL 9,085 38,990 TOTAL Coal 49,457 23,450 39,115 112,022

Thermal Nuclear R.E.S. Total Gas Diesel Total (MNRE) 4,965 603 55,025 0 3,514 85,919 6,713 597 30,761 0 20,990 54,276 6,702 0 45,817 4,780 0 59,683 18,381 1,200 131,603 4,780 24,503 199,877

The power generation capacity has increased from 1,362 MW in 1947 to 160,000 MW by mid of 2011

MAJOR PLAYERS IN THE WORLD

Vestas, or Vestas Wind Systems, is the leading and the largest wind turbine manufacturer in the world. Vestas has a total market share of 28%. The company operates plants in Denmark, Germany, India, Italy, Britain, Spain, Sweden, Norway, Australia, China, and Windsor, Colorado and employs more than 20,000 people globally.

The General Electric Company, or GE is a multinational American technology and services conglomerate incorporated in the State of New York. In terms of market capitalization as of September 2008, The General Electric Company is the worlds tenth largest company.

Gamesa Corporacin Tecnolgica is a manufacturing company mainly concerned with the fabrication of wind turbines and the construction of wind farms. Its headquarters are in VitoriaGasteiz, Spain. It develops, manages and sells wind farms, for which it also supplies the turbines. It is the market leader in Spain and is the second largest company in the sector worldwide with a market share of 15.5 % in 2008.

Enercon GmbH is based in Aurich, Northern Germany and is the fourth-largest wind turbine manufacturer in the world and has been the market leader in Germany for several years.

Suzlon Energy is a wind power company from India. In terms of market share, the company is the largest wind turbine manufacturer in Asia (and the fifth largest worldwide. In terms of net worth, it is the worlds most valuable wind power company. With headquarters in Pune, it has several manufacturing sites in India including Pondicherry, Daman, Bhuj and Gandhidham as well as in mainland China, Germany and Belgium.

Siemens AG is Europes largest engineering conglomerate. Siemens international headquarters are located in Berlin and Munich, Germany. The company is a conglomerate of three main business sectors: Industry, Energy and Healthcare with a total of 15 Divisions. Worldwide, Siemens and its subsidiaries employ approximately 480,000 people in nearly 190 countries and reported global revenue of $110.82 billion as of 2008.

Acciona SA is a Spanish conglomerate group dedicated to civil engineering, construction and infrastructures. The company was founded in 1997 through the merger of Entrecanales y Tavora and Cubiertas y MZOV. The companys headquarters is in Alcobendas, Community of Madrid, Spain. The companys U.S. operations are headquartered in Chicago.

Xinjiang Goldwind Science & Technology Company is a Chinese wind turbine manufacturer based in Urumqi, Xinjiang. The company is the largest turbine manufacturer in China and one of the ten largest in the world. Goldwind acquired a 70% stake in Vensys Energy AG for 41.24 million on February 1, 2008.

Nordex was founded in 1985 in Give, Denmark and in 2000 they moved their headquarters to Germany and became Nordex A.G. and launched their IPO in 2001. Today, their primary production facilities are in Rostock, Germany and also have manufacturing joint ventures in China. The company has a total global work force of over 1500 people. In 2006, Nordex was ranked in 7th place for worldwide wind turbine sales, holding a 3.2% global share of the global wind turbine market.

Sinovel Wind Co., Ltd is a high-tech company engaged in developing, engineering, manufacturing and marketing of the wind turbine generator system. Sinovel Wind is the first company which introduced the technology of 1.5MW wind turbine generator system into China.

MAJOR PLAYERS IN POWER SECTOR IN INDIA

1) NTPC with around 33 GW of power generation capacity is Indias largest power utility by far and is planning to more than double that capacity to 75 GW by 2017 . 2) NHPC The company aims to double its electricity generation of 5 GW in the next 5 years or so by focusing on hydro electricity generation in the Northern states of India. 3) Tata Power The largest private utility in India and has a presence in thermal, hydro, solar and wind areas of power generation, transmission and retail with a capacity of nearly 3 GW. 4) Reliance Power .The company is currently constructing 3 4000 MW projects and has plans of building 35 GW capacity with a mix of hydel,gas and coal based plants.The company also win a solar thermal project in JNNSM bidding. 5) Adani Power Power Limited is part of Adani Group with capacity of 1980MW.The company currently operates Indias only super-critical power plant in Gujarat. The company is currently implementing 16500 MW at different stages.

6) Damodar Valley Corporation DVC is a state owned organization with interests in flood control, irrigation, generation, transmission and distribution of electricity located in the Damdoar Valley in the east of the country DVC is expanding its thermal power capacity and with the completion of its present plans by 2012 it would be generating more than 11000 MW of power 7) Lanco Infratech - Lanco is fast emerging Andhra Pradesh based Group and has become a top private sector power developer with 2 GW capacity. 8) SJVN The company owns the largest hydro plant in India the Nathpa Jhakri Hydroelectric 1500 MW Power Project .The company is trying to expand like NHPC but has been facing execution problems. 9) Nuclear Power Corporation of India( NPCIL) The company operates around 4.5 GW of Nuclear Capacity in 6 locations.The company is expected to expand hugely in the future with India planning to add around 2 GW of Nuclear Power over the next decade

TRENDS OF THE INDUSTRY Investment Opportunities

The investment climate is very positive in the power sector. Due to the surge in the sector, the power sector has witnessed higher investment flows than envisaged. The Ministry of Power is believed to have sent its proposal for addition of 76,000 MW of power capacity in the 12th fiveyear plan to the planning commission. The power ministry has set a target for adding 76,000 MW of electricity capacity in the 12th Plan (2012-17) and 93,000 MW in the 13th Five-Year Plan (2017-2022). The Working Group on Power for formulation of the 12th Five Year Plan has estimated total fund requirement of INR 13,72,580 crore for the power sector. During the Twelfth Five Year Plan, the main sources of financing are commercial banks, public financial institutions, dedicated infrastructure/power finance institutions, insurance companies, overseas markets, bilateral/multilateral credit, bond markets and equity markets. In addition, steps have been taken by Government to make available funds through Credit Enhancement Schemes and Infrastructure Debt Fund etc.

Foreign Investment in Power Sector

The present installed power generation capacity in the country as on October 31, 2011 was 182689.62 MW. Thermal power projects of 78545 MW and hydro power projects of 15707 MW are under construction in the country for likely commissioning during 11th and 12th Plan. In

order to attract foreign investments in the power sector, Foreign Direct Investment (FDI) up to 100 per cent is permitted under automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading. Major contributing countries to the FDI equity inflows during this period are France, Mauritius, Singapore, UAE, United Kingdom, USA and Morocco. The Cabinet Committee on Economic Affairs (CCEA) has approved foreign direct investment (FDI) proposals worth US$ 1322.4 million of two power sector entities. The CCEA, which met under the leadership of Prime Minister Manmohan Singh on Tuesday, gave the green signal to Grid Equipment for bringing in FDI to the tune of US$ 915.5 million. It also approved Energy Grid Automation Transformers and Switchgears India's proposal for a US$ 406.9 million FDI. These proposals are for downstream investments and transfer of the entire equity shares of Grid Equipment and Energy Grid from Areva T&D India and other resident shareholders. Equity shares of the two entities - Grid Equipment and Energy Grid - would be transferred to Alstom Grid Finance and other foreign collaborators and their nominees. Alstom in India is mainly into power generation equipment while Areva T&D India is a leading transmission and distribution player. Meanwhile, Japanese power equipment companies and lenders are keen to work with Indian companies. "This engagement will only get stronger as some of the Japanese companies are keen to work in the entire chain of power right from equipment supplies, maintenance, and also refurbishing old plants and upgrading them," as per Tsuneyuki "Hiro" Ito, Deputy Director in Ministry of Economy, Trade and Industry, Japan.

Investment Policy Updates

The Government has initiated several policies to promote and garner investments in the power sector. To accelerate capacity addition, several policy initiatives have been undertaken by the Ministry of Power. The National Electricity Policy (NEP) in fact, stipulates power for all and annual per capita consumption of electricity to rise to 1,000 units by 2012. Some of the prominent policies which have boosted the private player's confidence in the sector are:

National Electricity Policy Ultra Mega Power Project Policy Mega Power Policy CERC Policy Tariff Policy

conclusion