MRP Sunil Kumar Dwivedi

8/6/2019 MRP Sunil Kumar Dwivedi

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A

MAJOR RESEARCH PROJECT

On

AN EVALUATIVE STUDY OF MARKETING POLICIES FOLLOWED BY INDIAN

POWER SECTOR WITH SPECIAL REFRENCE TO NTPC IN SINGRAULI REGION

For the partial Fulfillment of the award of

Master of Business Administration (Business Economics)

(2009-2011)

Submitted By: Guided By:

Sunil Kumar Dwivedi

MBA(B.E.) 2nd

Year IPS Academy,

Indore.

IBMR, IPS ACADEMY,

(RAJENDRA NAGAR, A.B.ROAD, INDORE-452012, M.P.)

Affiliated to: Devi Ahilya Vishwavidyalaya, Indore


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CERTIFICATE


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PREFACE

Beginning of the system project is entirely creative. This does not come all of a sudden, but itcomes by result of discussion, consultation and contemplation. Problem unsolved here can neverbe satisfactory eliminated later. It is therefore a slow process.

Moreover practical training is an important part of management courses. The theoreticalstudies are not sufficient to get into the corporate world. Only practical knowledge can help us tounderstand the complexities of large scale organizations.

To develop healthy managerial and administration skill in potential managers, it isnecessary that theoretical knowledge must be supplemented with exposure to the realenvironment. Actually, it is life for, a management itself is realized.

In my case I confronted myself to AN EVALUATIVE STUDY OF MARKETING

POLICIES FOLLOWED BY INDIAN POWER SECTOR WITH SPECIAL REFRENCETO NTPC IN SINGRAULI REGION. And the exposure that I could not have gained fromthe books. I found it very interesting and challenging. I take knowledge about this project fromnet and make this project in my own way.


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ACKNOWLEDGEMENT


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TABLE OF CONTENT

Chapter 1 Introduction: Executive summary of the project 7

Chapter 2 Marketing strategy

o Definition

o Developing a market strategy

o Types of strategy

o Strategic models

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Chapter 3 Industry Introduction & NTPC Limited

o Industry overview

o Power sector in India

o NTPC Limited: All About

oCurrent scenario

o Evaluation

o Issues and challenges

o Correlation betweenNTPC Limited and other major

player

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Chapter 4 Conclusions and Recommendations 29

Appendix 1 Reference material 37

Appendix 2 Bibliography / webliography 38


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Chapter 1Chapter 1

Introduction: Executive summary of the project:

We believe that electricity exists, because the electric company keeps sending us bills forit, but we cannot figure out how it travels inside wires.

I choose NTPC as my Organization for study as it has number one position in generation and aflagship stations ofNTPC, As a Navaratna Company During the introductory phase when Iwas being introduce my guide, the whole personals and administrations department ofNTPC/VSTPS, I came to know much about marketing strategies only through website updates ofdifferent years ofNTPC, & with help of journals, know much more under guidance of HRdeputy manager. I decided to study the marketing policies of organization as my subject. Mywork is totally concerned with collecting the facts, figures and then compiling them so as toknow what is the marketing policy of organization (NTPC, VSTPS) VindhyanagarSingrauli.

During my entire project work I came to know the importance of all the theoretical knowledgewhich we study with our academic mediums under the guidance of our respected professors.


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Chapter 2

Marketing strategy:

Definition

Marketing strategy is a process that can allow an organization to concentrate its limited resourceson the greatest opportunities to increase sales and achieve a sustainable competitive advantage.A strategy that integrates an organization's marketing goals into a cohesive whole. Ideally drawnfrom market research, it focuses on the ideal product mix to achieve maximum profit potential.The marketing strategy is set out in a marketing plan.

Developing a marketing strategy

Marketing strategies serve as the fundamental underpinning of marketing plan designed to fillmarket needs and reach marketing objectives. Plans and objectives are generally tested formeasurable results. Commonly, marketing strategies are developed as multi-year plans, with atactical plan detailing specific actions to be accomplished in the current year. Time horizonscovered by the marketing plan vary by company, by industry, and by nation, however, timehorizons are becoming shorter as the speed of change in the environment increases. Marketingstrategies are dynamic and interactive. They are partially planned and partially unplanned.See strategy dynamics. Marketing strategy involves careful scanning of the internal and externalenvironments which are summarized in a SWOT analysis. Internal environmental factors includethe marketing mix, plus performance analysis and strategic constraints. External environmentalfactors include customer analysis, competitor analysis, target mix analysis, as well as evaluation

of any elements of the technological, economic, cultural or political/legal environment likely toimpact success. A key component of marketing strategy is often to keep marketing in line with acompany's overarching mission statement. Besides SWOT analysis, portfolio analyses such asthe GE/McKinsey matrix or COPE analysis can be performed to determine the strategic focus.Once a thorough environmental scan is complete, a strategic plan can be constructed to identifybusiness alternatives, establish challenging goals, determine the optimal marketing mix to attainthese goals, and detail implementation. A final step in developing a marketing strategy is tocreate a plan to monitor progress and a set of contingencies if problems arise in theimplementation of the plan.

Types of strategies

Marketing strategies may differ depending on the unique situation of the individual business.However there are a number of ways of categorizing some generic strategies. A brief descriptionof the most common categorizing schemes is presented below:

A. Strategies based on market dominance - In this scheme, firms are classified based ontheir market share or dominance of an industry.


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A more detailed scheme uses the categories

1. Prospector2. Analyzer3. Defender

4. Reactor

Marketing warfare strategies - This scheme draws parallels between marketing strategies andmilitary strategies.

Strategic models

Marketing participants often employ strategic models and tools to analyze marketing decisions.When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding ofthe strategic environment. An anoff Matrix is also often used to convey an organization's

strategic positioning of their marketing mix. The 4Ps can then be utilized to form a marketingplan to pursue a defined strategy.There are many companies especially those in the Consumer Package Goods (CPG) market thatadopt the theory of running their business centered on Consumer, Shopper & Retailer needs.Their Marketing departments spend quality time looking for "Growth Opportunities" in theircategories by identifying relevant insights (both mindsets and behaviors) on their targetConsumers, Shoppers and retail partners. These Growth Opportunities emerge from changes inmarket trends, segment dynamics changing and also internal brand or operational businesschallenges. The Marketing team can then prioritize these Growth Opportunities and begin todevelop strategies to exploit the opportunities that could include new or adapted products,

services as well as changes to the 7Ps.


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Chapter 3

Industry Introduction & NTPC Limited:

Industry overview

Electricity is one of the most vital infrastructure inputs for economic development of a country.There is a strong demand for electricity in India and it is steadily growing with the countryseconomic growth and rising consumerism. The Indian electricity market today offers one of thehighest growth potential for private players. Government reforms, e.g. distribution network

Reforms Program, would be the key factor driving the power sector. Reforms such as TheElectricity Act and National Electricity Policy will give impetus to the Indian power sector.

According to our new research report "Indian Power Sector Analysis, there is a huge demandfor power in some Indian states due to rapid urbanization and industrialization. Besides,opportunities for private players are increasing with high energy shortage and governmentsupport in the form of incentives to set up power plants. We have found that the number of


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merchant power plants will increase in the years to come with state governments inviting privateplayers to invest in the power sector e.g. Gujarat, Maharashtra, Andhra Pradesh, etc.

Based on the study of the Indian power sector, we have discovered that the total installedcapacity will add around 45000 MW by 2013-14. However, demand is much higher than supply

with deficit is projected to be more than 12% during 2010-11. We have also found thatrenewable energy creates huge opportunities for power generators as the commitment to generateclean energy and environmental obligations have become top priority for most of the nationsaround the world. However, coal based power will remain the dominant source for energy inIndia.

The report has also revealed that un-conventional energy sources such as nuclear, wind and solarwill fulfill a large chunk of Indias energy need in coming years. Many states are formulatingexclusive policies for renewable energies in order to promote and develop these energy sources.Our report focuses on the growing power sector in India. It thoroughly investigates the currentmarket trends, evolving markets and growth prospects for the power industry. It will help clientsto analyze the driving forces and leading-edge opportunities critical to the success of the powerindustry.


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Power sector in India

y Due to rapid economic development and government's target of power for all by 2012 theIndian power sector will need to replicate what has been achieved during the last 50 yearsin the next 10 years." Government's emphasis on the transmission and distribution sectorreforms and investments are showing signs of fruition, thus creating a phenomenalgrowth opportunity for the Indian Power sector.

y Looking at the importance of transmission & distribution in the Power sector in India,UBM India is pleased to announce its niche event on Power Sector titled T&D India2011-Indias Premier Exhibition and Networking Event for the Transmission &Distribution sector co-located with India NuclearEnergy scheduled from 29 Sept 2011- 1Oct 2011 at Bombay Exhibition Centre, Mumbai.

y The event provides a timely platform for the key players in the utilities industry toexchange ideas and insights on how to take their transmission and distribution and smartgrids operations to the next level to meet the demands and challenges of future.

y T&D India 2011 will be the leading strategy-focused event assembling the Indian TSOand DSO community. This is where the community meets and finds the solutionsrequired to keep up with an accelerating technology race, and gains insight into thedemands of a changing industry committed to ensuring security of supply in a complexworld.

y In an effort to meet the demands of a developing nation, the Indian energy sector haswitnessed a rapid growth. Areas like the resource exploration and exploitation, capacityadditions, and energy sector reforms have been revolutionized.


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NTPC Limited

VisionTo be the worlds largest and best power producer, powering Indias growth.

Mission

Develop and provide reliable power, related products and services at competitive prices,integrating multiple energy sources with innovative and eco-friendly technologies and contributeto society.

Core Values BCOMIT

y Business Ethics

yCustomer Focus

y Organizational & Professional Pride

y Mutual Respect & Trust

y Innovation & Speed

y Total Quality forExcellence

Overview

Indias largest power company,NTPC was set up in 1975 to accelerate power development in India.NTPC is emerging as a diversified power major with presence in the entire value chain of the powergeneration business. Apart from power generation, which is the mainstay of the company, NTPC hasalready ventured into consultancy, power trading, ash utilization and coal mining. NTPC ranked 341st inthe 2010, Forbes Global 2000 ranking of the Worlds biggest companies.NTPC became a Maharatnacompany in May, 2010.


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The total installed capacity of the company is 34,854 MW (including JVs) with 15 coal based and 7 gasbased stations, located across the country. In addition under JVs, 5 stations are coal based & anotherstation uses naptha/LNG as fuel. The company has set a target to have an installed power generating

capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources(RES) including hydro. By2032, non fossil fuel based generation capacity shall make up nearly 28% ofNTPCs portfolio.NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of thetotal national capacity, it contributes 27.40% of total power generation due to its focus on highefficiency.

Board of Directors

Chairperson & MD Shri Arup Roy Choudhury

DIRECTORS:

A K Rastogi, A K Sanwalka, A K Singhal, Adesh C Jain, Adesh Jain, Arun Kumar

Sanwalka, Arup Roy Choudhury, B P Singh, Chandan Roy, D K Jain, G S Sarna, I C P

Keshari, I C P Kothari, I J Kapoor, K Dharmarajan, Kanwal Nath, M Govinda Rao, M N

Buch, N N Mishra, P K Sengupta, R C Shrivastav, R K Jain, R S Sharma, Rakesh Jain, S P

Singh, Santosh Nautiyal, Shanti Narain, V P Joy.


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Growth

As per new corporate plan, NTPC plans to become a 75 GW company by the year 2017 and

envisages to have an installed capacity of 128 GW by the year 2032 with a well diversified fuel

mix comprising 56% coal, 16% gas, 11% nuclear energy, 9% renewable energy and 8% hydro

power based capacity.

As such, by the year 2032, 28% ofNTPCs installed generating capacity will be based on carbon

free energy sources. Further, the coal based capacity will increasingly be based on high-efficient-

low-emission technologies such as Super-critical and Ultra-Super-critical. Along with this

growth, NTPC will utilize a strategic mix of options to ensure fuel security for its fleet of power

stations.

Looking at the opportunities coming its way, due to changes in the business environment, NTPC

made changes in its strategy and diversified in the business adjacencies along the energy value

chain. In its pursuit of diversification NTPC has developed strategic alliances and joint ventures

with leading national and international companies. NTPC has also made long strides in

developing its Ash Utilization business.

Hydro Power: In order to give impetus to hydro power growth in the country and to

have a balanced portfolio of power generation, NTPC entered hydro power business with

the 800 MW Koldam hydro project in Himachal Pradesh. Two more projects have also

been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting

up hydro projects of capacities up to 250 MW.

Renewable Energy: In order to broad base its fuel mixNTPC has plan of capacity

addition of about 1,000 MW through renewable resources by 2017.

Nuclear Power: A Joint Venture Company "Anushakti Vidhyut Nigam Ltd." has been

formed (with 51% stake ofNPCIL and 49% stake ofNTPC) for development of nuclearpower projects in the country.

Coal Mining: In a major backward integration move to create fuel security, NTPC has

ventured into coal mining business with an aim to meet about 20% of its coal requirement

from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks

to NTPC, including 2 blocks to be developed through joint venture route.

Power Trading: 'NTPC Vidyut VyaparNigam Ltd.' (NVVN), a wholly owned

subsidiary was created for trading power leading to optimal utilization ofNTPCs assets.

It is the second largest power trading company in the country. In order to facilitate power

trading in the country, National PowerExchange Ltd., a JV ofNTPC, NHPC, PFC and

TCS has been formed for operating a PowerExchange.

Ash Business:NTPC has focused on the utilization of ash generated by its power stations

to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw

material input by cement companies and brick manufacturers. NVVN is engaged in the

business of Fly Ash export and sale to domestic customers. Joint ventures with cement

companies are being planned to set up cement grinding units in the vicinity ofNTPC

stations.


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Power Distribution: NTPC Electric Supply Company Ltd. (NESCL), a wholly owned

subsidiary ofNTPC, was set up for distribution of power. NESCL is actively engaged in

Rajiv Gandhi Gramin Vidyutikaran Yojana programme for rural electrification.

Equipment Manufacturing:Enormous growth in power sector necessitates

augmentation of power equipment manufacturing capacity.NTPC has formed JVs with

BHEL and Bharat Forge Ltd. for power plant equipment manufacturing.NTPC has also

acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for manufacturing

and repair of transformers.

Subsidiaries

NTPC Electric Supply Company Ltd. (NESCL)

The company was formed on August 21, 2002. It is a wholly owned subsidiary company ofNTPC with

the objective of making a foray into the business of distribution and supply of electrical energy, as asequel to reforms initiated in the power sector.

NTPC Vidyut VyaparNigam Ltd. (NVVN)

The company was formed onNovember 1, 2002, as a wholly owned subsidiary company ofNTPC. Thecompanys objective is to undertake sale and purchase of electric power, to effectively utilise installedcapacity and thus enable reduction in the cost of power. NVVN

NTPC Hydro Ltd. (NHL)

The company was formed on December 12, 2002, as a wholly owned subsidiary company ofNTPCwith an objective to develop small and medium hydroelectric power projects of up to 250 MW. More>>

Pipavav PowerDevelopment Co. Ltd. (PPDCL)

A memorandum of understanding was signed between NTPC, Gujarat Power Corporation Limited(GPCL) and Gujarat Electricity Board (GEB) in 2004 for development of a 1000 MW thermal powerproject at Pipavav in Gujarat by forming a new joint venture company between NTPC and GPCL with50:50 equity participation. Pursuant to the decision of Gujarat Government, NTPC Ltd. has dissociateditself from this company. PPDCL is under winding up.

Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali Power Generating CompanyLimited)

To take over Muzaffarpur Thermal PowerStation (2*110MW), a subsidiary company named VaishaliPower Generating Company Limited was incorporated on September 6, 2006 with NTPC contributing51% of equity and balance equity was contributed by BiharState Electricity Board. This company wasformed to renovate the existing unit and run the plant. The second unit has been successfully re-synchronized on October 17, 2007 after 4 years of being idle.


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Bharatiya Rail Bijlee Company Limited (BRBCL)

A subsidiary ofNTPC under the name of Bharatiya Rail Bijlee Company Limited was incorporated onNovember 22, 2007 with 74:26 equity contribution from NTPC and Ministry of Railways, Govt. oIndia respectively for setting up of four units of 250 MW each of coal based power plant at Nabinagar,

Bihar. Investment approval of the project was accorded in January, 2008.

Current Scenario

y The latest figures released by the Central Electricity Authority (CEA) indicate a 5.5%

growth in electricity generation in India during the financial year 2010-11. Powergeneration recorded a CAGR of 5.17% during the period 2001-02 to 2010-11.

y Highlights of power sector developments in 2010-11.

y The total thermal generation has achieved a growth rate of 3.81%. Coal-based generation

recorded a growth rate of 3.99%.Growth of thermal generation was mainly restricted due

to coal shortages, receipt of poor quality/ wet coal, delay in commissioning of power

plants.

y The average PLF of thermal power projects (coal/lignite) achieved during the year was

75.10%, as compared to 77.68% in the previous year.

y As on March 31, 2011, 29 power stations had critical coal stock position (of less than 14

days) and 13 power stations with super critical stock meaning stock for less than 4 days.

y Gas-based power generation witnessed a setback due to lower fuel availability from the

Reliance Industries owned KG-D6 basin.


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y Revival of good monsoon after two successive years of deficient/scanty rain fall resulted

in a 10% growth in hydro power generation.

y The nuclear generation achieved a remarkable growth rate of 41.04% due to improved

availability of nuclear fuel to the nuclear plants, and additional generation from the newly

commissioned nuclear unit at Kaiga in January11 & re-commissioning of some of the

units after repairs & maintenance works.

y Indias power sector attracted $2.1 billion in private equity (PE) funds last year, making

up 46 percent of total PE infrastructure investments and 28 percent of all PE investments

in India.

y The largest PE deal in power to date was also inked in 2010. Asian Genco received a

$425 million investment from an unusually large consortium of global investors led

by Morgan Stanley Infrastructure Partners and including General

Atlantic, Goldman Sachs, Norwest Venture Partners and Everstone Capital.

Evaluative study as per current scenario

Growth of Power Sector infrastructure in India since its Independence has been noteworthymaking India the third largest producer of electricity in Asia. Generating capacity has grownmanifold from 1,362 MW in 1947 to 113,506 MW (as on 30.09.2004). The over all generation inIndia has increased from 301 Billion Units (BUs) during 1992- 93 to 558.1 BUs in 2003- 04.In its quest for increasing availability of electricity, India has adopted a blend of thermal, hydeland nuclear sources. Out of these, coal based thermal power plants and in some regions, hydropower plants have been the mainstay of electricity generation. Oil, natural gas and nuclear poweraccounts for a smaller proportion..


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y Power forms a vital part of infrastructure development. In India, recently, the sector has

been riddled with poor order inflows. But the growth in power generation has been

encouraging. Renewable forms of power generation also have shown strong growth over

the past few months. There have been large orders for wind projects and nuclear power

generation and hydro generation have crossed the targets set by the Central Electricity

Authority (CEA) for April 2011.

y According to a research report by IDFC Securities on the status of infrastructure

development, Order inflows (in infrastructure) in April 2011 fell sharply by 49% year-

on-year, due to very few orders in the power generation segment, which has been the

mainstay of order inflows.

y Power generation has grown by 7.6% over the previous year for April 2011. In 2010-11,

the power generation sector contributed 45% to the total order inflows of the

infrastructure sector. Power transmission and distribution (T&D) was the second highest

contributor with 16.9%.

y However, orders for the power generation sector fell in April 2011 to Rs8 billion, which

is the lowest in two years. Consequently, the order inflows for infrastructure overall

during the month fell by half to Rs76 billion from the corresponding period a year ago.


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Issues and challenges

1. Demand-Supply Gap:

1. India has always been a power-deficient country. The demand for power is huge in India.As seen in the above graph, the supply of power in India has not been able to meet itsdemand. Under the Governments Power for all by 2012 plan, it has targeted per capitaconsumption of 1000 kWh by the end of the 11th Five Year Plan (2007-2012) ascompared to levels of 734 kWh in 2008-09. In order to provide per capita availability ofover 1000 kWh of electricity by year 2012, it is estimated that capacity addition of morethan 1,00,000 MW would be required. This shows that huge capacity additions arerequired at good efficiency rates, indicating that the opportunities available in this sectorare huge and if they are in right direction, they will lead india to the development.

2) Government: -

The role of the Government in the development of Indian power industry has been very crucial.Governments policies aim at protecting consumer interests and making the sector commerciallyviable. Government regulates this industry in various ways (Tariff control, Subsidies,environment norms, etc.) due to its linkages to various industries and to the growth of theeconomy.- Regulatory role of Government: - As far as regulation is concerned, Electricity Act, 2003 is avery important Act as it allowed private sector participation in the generation of power, thuscreating competition. It also allowed 100% FDI participation in the power generation,transmission and distribution, thus inducing investments in the power sector.

- Government Schemes: - The Government is investing in this industry through variousdevelopment schemes: -

y The Rural Electrification Program is an effort to lighten up villages which have faced

acute shortage of Power over the years.

y Power for All by 2012 plan aims at a per capita consumption of 1000kWh by the end of

the 11th Five Year Plan (2007-12).


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y The Accelerated PowerDevelopment and Reform Programme (APDRP) programme is

being implemented so that the desired level of 15 per cent AT&C (Aggregate Technical

and Commercial) loss can be achieved by the end of 11th plan (Currently it is 30%).

- Projects under pipeline: - The Government of India is planning nine Ultra Mega PowerProjects (UMPP) of 4 GW each with an estimated individual investment of US$ 4 billion (Rs.192 billion). Four of these projects are expected to be commissioned between 2011 and 2017.The UMPP is an initiative by the government to collaborate with power generation companies toset up 4,000 MW projects to ease the countrys power deficit situation.

3) Raw Materials: -

Thermal power segment, which has the largest capacity generation share in the Indian powerindustry, is dependent on inputs like coal, oil and gas for the generation of power. Coal shortagesand the low thermal quality of coal supplies cause disruptions in power generation and result in

lower plant load factors. When domestic supply of coal is insufficient, coal is imported. This isunfavorable for power companies as it leads to rise in costs.With these problems associated with thermal power, the Power Companies enter in to LongTerm Agreements (LTA) with coal suppliers or acquire coal mines to ensure regular supply ofcoal. Besides, currently coal players in India are adopting aggressive strategies by acquiring Coalmines outside India. Domestically, a good number of coal mines have received environmentalclearances. Such actions will be beneficial for thermal power players.Gas-based power plant face problems because of shortages in gas supply. The discoveries in theKrishna-Godavari Basin are expected to improve gas availability in India which is a big positivefor Indias gas-based plants.

4) Transmission and Distribution:

Transmission of electricity is defined as the bulk transfer of power over a long distance at a highvoltage. Transmission and Distribution is as important as generation. The capacity additions tomeet Indias growing power demand should be supplemented by adequate transmissioninfrastructure. Globally, every dollar invested in generation has an equal amount invested intransmission and distribution. However, in India traditionally every dollar invested in generationhas a corresponding half a dollar invested in transmission and distribution. Due to this,transmission capacity in India lags behind the generation capacity. Huge investments arerequired in Transmission and Distribution if Indias power sector is to meet the rising powerdemand.


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5) FDI Equity Flows in Power Sector: -

In India, 100% FDI is allowed in the Generation, Transmission and Distribution segments of thePowerSector. The FDI inflow in the PowerSector has been on the rise in the last 5 years. Thistrend is expected to continue in the coming years considering the huge opportunities available inthe sector. FDI inflow is important for the power sector because it brings in money and Indias power sector is in huge need of investments. More importantly, FDI also brings in advancedtechnology making the sector more efficient. Hence, this proves to be a major growth driver forthe power sector.

6) Growth Drivers for Power from Nuclear, Hydro and Renewable Energy

Sources:

With the thermal power generation segment facing the issue of shortages of coal (major rawmaterial), other power generation sources like nuclear, hydro and renewable energy sources willget attention in the coming years.

Nuclear power projects account for 2.75% of Indias total installed capacity which is about 4.77GW. The Planning Commissions expert committee on an Integrated Energy Policy hassuggested in its report that there is a possibility of reaching a nuclear power capacity of 21-29GW by 2020 and 48-63 GW by 2030.

The hydro power segment offers investment opportunities as India is considered to have hydropower generation potential worth 1,50,000 MW; of which only 25% has been harnessed till dateUsing renewable sources to generate electricity has several advantages like a perennial energysource, potential for lower reliance on imported fossil fuels and lower CO2 emissions. However,at present the major hurdle facing rapid expansion of renewable power is high initial cost ascompared to the competing fuels. But taking in to consideration the environmental concerns, thissegment receives encouragement from the Government. Its share in the countrys total


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generation capacity has increased from 1.1% in 2001-02 to 10.63% as on 31st March, 2011 andis expected to increase in the future.These three non-thermal sources of power also offer good investment opportunities. Companiesare diversifying their power portfolios to take advantage of opportunities available in hydropower and renewable energy sources.

Challenges

Power Sector is a highly capital-intensive industry with long gestation periods, before thecommencement of revenue generation. Since most of projects have a long time frame (4-5 yearsof construction period and operating period of over 25 years), there are some inherent riskswhich this sector faces.

A. Availability of Coal: -

Coal is the mainstay of the power production in India and is expected to remain so in the future.India has limited coal reserves, plus, availability of domestic coal is a challenge on account ofvarious bottlenecks such as capacity expansion of Coal India Limited (the largest coal producingcompany in the world, coal blocks allocation, tribal land acquisition, environmental and forestclearances, etc.Transportation of coal is a big concern in itself. Within the country, coal is transported by IndianRailways and in case of imports; coal is to be unloaded at ports. In both cases, India currentlyfaces capacity shortage. Hence, a project developer has to account for and manage its logisticschain in a manner that ensures regular fuel supply which is a big challenge.

B. Dependence on Equipment Suppliers: -

The power sector is heavily dependent on Equipment suppliers. In fact, equipment shortageshave been a significant reason for India missing its capacity addition targets for the 10th five

year plan. While the shortage has been primarily in the core components of boilers, turbines andgenerators, there has been lack of adequate supply of Balance of Plant (BOP ) equipment as well.These include coal handling, ash-handling plants, etc. Apart from these, there is shortage ofconstruction equipment as well. Hence, inadequate supply of equipments is a cause of concernfor the power companies.

C. Aggregate Commercial and Technical Losses:

The Aggregate Technical and Commercial Loss (AT&C) is defined as the power lost due

to inefficient transmission and distribution infrastructure. Indias AT&C losses are as

high as 30% compared with 5-10% in the developed markets which means out of every100 units produced, 30 are lost during transmission and distribution. Technical losses are

due to inadequate investments over the years for system improvement works.

Commercial losses are mainly due to low metering efficiency, pilferage and theft of

power. This is a huge problem for the power sector.


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D. Other Roadblocks leading to Demand Supply Gap: -

The power sector has other concerns like shortage of skilled manpower for construction andcommissioning of projects, contractual disputes between project authorities, contractors and theirsub-vendors, delay in readiness of balance of plants by the executing agencies. Difficulties havebeen experienced by developers in land acquisition, rehabilitation, environmental and forest related issues, inter-state issues, geological surprises (particularly for Hydro projects) andcontractual issues. These issues continue to pose challenges to maintain the pace of developmentof power projects.

Correlation between NTPC and other major players

While investing, one must always invest in the stocks of a company that operates in an industrywith bright long-term prospects. Further, the companys 10 YEAR X-RAY and future prospectsshould also be Green. In the case of the power sector, though, it is poised for good growth in thefuture, it remains to be seen whether the above companies can completely take benefit of this

growth and reflect it in their performance. Because of the very nature of the power sector (capitalintensive high debt), most of these companies have had muted growth in one or more of their parameters. Hence, investors with some appetite for risk can consider investing in thesecompanies, but only at the right price. (I.e. when the market offers an attractive discount)


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Other than NTPC there are number of companies engaged in the power production business.Some of the top companies are listed below:

1) Torrent Power - Like Adani Power,it is a Gujarat based company with interest in bothtransmission and generation. Torrent has a generation capacity of 1647.5 MW and distributes

power in Ahmadabad, Gandhi agar,Surat, Bhiwandi and Agra.It is expanding in Gujarat andUttar Pradesh.

2)NHPCState owned like NTPC, this hydro power focused Power Company came out withan IPO with much fanfare. However slow implementation and lower profits have resulted in thestock prices declining a lot. However the company aims to double its electricity generation of 5GW in the next 5 years or so by focusing on hydel generation in the Northern states of India.

3)Tata Power The largest private utility in India has ambitious plans to grow like the otherprivate sector companies in India. The company has interests in electricity distribution as well.Tata Power has a presence in thermal, hydro, solar and wind areas of power generation,

transmission and retail with a capacity of nearly 3 GW. Tata Power is building numerous powerplants and transmission projects in JV.4)Reliance Power Reliance Power part of the ADAG Group came out with the biggest IPO ofits time before the Lehman crisis. The company part of the ADAG Group has the most ambitiousexpansion plans in the country. The company is raising huge amounts of capital from Chinesebanks and placed the largest power equipment order with Don Fang Electric. The company iscurrently constructing 3 4000 MW projects and has plans of building 35 GW capacity with a mixof hydel, gas and coal based plants. The company also win a solar thermal project in JNNSMbidding.

5)Adani Power Power Limited is part of Adani Group with capacity of 1980MW.Thecompany currently operates Indias only supercritical power plant in Gujarat. The company iscurrently implementing 16500 MW at different stages of construction..The company is currentlyimplementing thermal projects of 3300MW at Maharashtra and 1320MW at Rajasthan. TheAdani Group has bought coal mines outside the country and with its port and shippingcompanies forms an integrated coal to power story.

6)Damodar Valley CorporationDVC is a state owned organization with interests in floodcontrol, irrigation, generation, transmission and distribution of electricity located in the DamdoarValley in the east of the country. There are hydro-electric power stations at Tilayia, Maithon andPanchet, with total installed capacity of 144 MW.DVC operates thermal power stations at withtotal capacity of 2745 MW. DVC is expanding its thermal power capacity and with thecompletion 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 and another 18 Gw under development.Lanco through its step down Australian subsidiary, Lanco Resources Australia, has acquiredGriffin Coal Mining Company and Carpenter Mine Management.


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8)SJVNSJVN is the second largest hydel power company in India which is a JV between theIndian government and the Himachal Pradesh state. The company owns the largest hydro plant inIndia the Nathpa Jhakri Hydroelectric 1500 MW Power Project .The company is trying toexpand like NHPC but has been facing execution problems.

9)Nuclear Power Corporation of India (NPCIL) Another state owned company, NPCIL isfocused on generating Nuclear Power. The company operates around 4.5 GW of NuclearCapacity in 6 locations. The company is expected to expand hugely in the future with Indiaplanning to add around 2 GW ofNuclear Power over the next decade.

10)CLP Power - CLP India Private Ltd. is a wholly owned subsidiary of CLP Holdings, aleading investor-operator in the Asia Pacific energy sector.CLP is also the largest foreigninvestor in Wind Power in India with over 450MW of wind power projects which are spreadacross 5 states. This apart, it is also in the process of developing a 1320MW coal firedpowerplant located at Jhajjar, Haryana, which is due for commissioning in Dec 2011.It also owns a gaspower plant in Gujarat.

11)Neyveli Lignite Corporation -Neyveli Lignite Corporation is a PSU like NTPC and is alsoinvolved in lignite mining company in India. The company is mainly based out of the southernstate of Tamil Nadu and mines some 24 million ton of lignite per year with an installed capacityof 2490 MW.


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Chapter 4

Conclusions and Recommendations

Power can be generated from water (hydro), thermal (coal or naphtha), wind and nuclear. Sincethe Indian power sector has not been opened up for private sector participation in its true sense,the centre and state governments have a major role to play. It is a politically sensitive sector i.e.tariffs cannot be hiked as the vote bank could be affected.A power company can be a generator, a transmitter, a distributor or acombination of all three.Barriers to entry are high because it is capital intensive and regulated. While technology in stategovernment undertakings is poor, it will play a big role in the future, as consumers will requiregood quality and uninterrupted supply of power. Currently, in India, we have 1,07,533 MW ofgeneration capacity out of which private sector contributes 11%. Lets have a look at the revenuemodel for a power company.

Total revenues = Revenues from generation + transmission + distribution


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Generation

For a company involved in generation of power, revenues will be a function of electricitygenerated and tariffs applicable. Generation of electricity is a function of PLF (plant load factor)and the capacity installed. PLF, in simple words, is like capacity utilisation. The level of PLF

varies depending upon the kind of generation plant. Generally, a hydro power plant or a windenergy plant have low PLF (industry average 35%-50%). Thermal and nuclear power plants havehigher PLF (industry average 50%-65%), which ultimately results in higher production.Investment in capacity in the power sector depends on various factors like: demand-supplygap (in simpler words we can say deficiency), availability of funds, economicgrowth and regulatory framework. All these factors are inter-related to some extent.

Demand and supply

One critical factor when it comes to analyzing a power company is the fact that demand expandsas per supply. There is nothing like a market size per se. The level of the growth in the

industrial sector, per capita consumption of consumer durable and electronic goods wouldindicate the growth potential. For instance, the penetration level of air conditioners in India isjust 0.5%. If more people buy A/C or television or refrigerator, demand for power willincrease. Therefore, as far as demand-supply gap for a developing economy like India isconcerned, it is irrelevant. The country is power deficient.

Availability of funds

As we had mentioned before, the sector is capital intensive. It costs almost Rs 40 m to Rs 45 mto set up one megawatt (MW) of capacity. If a company is planning to increase capacity by 1,000MW, it requires Rs 40 bn. From a retail investor perspective, look at the cash balance and the

current debt to equity ratio of the company from the balance sheet. This will give an ideawhether the company really has the muscle power to expand the stated capacity in the time framementioned.Economic Growth will lead to increase the purchasing power of the people, which will raise theliving standard and in turn increase electricity demand. So, the circle starts again.

Regulatory framework

If a company is just into generation, it has to supply to a distributor for realising value for thequantity of power sold. If the distributor is a SEB (i.e. state electricity board), the chances ofdelayed payment are high, as SEBs are in poor state. Failure to receive money from SEBs could

hamper a companys capacity expansion plans.Having looked at the capacity side, consider factors involved on the tariffs front.For a generation company that supplies electricity to a SEB, the respective state governments fixtariffs. However, a power generation company can also supply to the national grid at a specificrate. The national grid say, Power Grid Corporation, in turn could take the onus of meeting SEBrequirements. While the advantage is lower risk of delayed payment and fewer losses on accountof T&D, the disadvantage is that the tariffs are lower compared to a T&D player.


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Transmission

There can be independent transmission companies as well (like backbone service providers in thetelecom sector). The revenue model is similar. A transmission company buys power from ageneration company and hands it over to SEBs or a distribution company. When it comes to

advantages, it is like less capital and technology intensive. But a transmission company faces therisks of default of payment by a distributor, high leakage losses and a cap on transmissioncharges. Approximately 30%-35% or power generated is lost in transmission currently.

Distribution

The distribution company can also generate electricity in-house, but the process remains same.Distribution Companies have pre-defined areas called circles where they can supply electricity.For a distribution company, metering plays a vital role. Metered units = In-house powergenerated (if any) + Power sourced from a generator to meet additional requirement T&Dlosses. A major concern for the Indian distribution companies is heavy T&D losses due to poor

infrastructure. Due to weak anti-theft laws, 10%-15% of power supplied is lost in distribution.

RECOMDATIONS:

The capacity addition programmed for the 9th

Plan envisaged around 17,588 MW to be added byprivate generating companies. In order to achieve the targeted private sector capacity additionduring the Ninth Plan, the following additional facilitating measures have recently beensuggested by the promoters. Most of these have been accepted while some of them are under theconsideration of the Government.

Speedy environmental clearanceThe Ministry of Environment and Forests has agreed to delegate the powers to States for

environmental clearance of:- all co-generation plants and captive plants up to 250 MW;- Coal based plants up to 500 MW using fluidized technology subject to sensitive areasrestrictions;- Power stations up to 250 MW on conventional technology.- Gas/Naphtha based stations up to 500 MW.

Viability ofSEBsThe financial health of the SEBs will be improved through rationalization of tariff, restructuringand reforms to make them economically viable and their projects bankable to generate energy oneconomic rate, to provide quality services to the consumers and to ensure a fair return to theinvestors. This can be best achieved by unbending single entity (SEBs) and corporatizing the

same for the above activities. In this context, some of the States have taken initiative byunbundling their respective SEBs into separate companies for Generation & Transmission &Distribution.

Regulatory bodiesThe Government of India has promulgated Electricity Regulatory Commission Act, 1998 forsetting up of Independent regulatory bodies both at the Central level and at the State level viz.The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory


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Commissions (SERCs) at the Central and the State Levels respectively. These regulatory bodieswould primarily look into all aspects of tariff fixation and matters incidental thereto.

Current problem of power sector

The most important cause of the problems being faced in the power sector is the irrational andunremunerative tariff structure. Although the tariff is fixed and realized by SEBs, the StateGovernments have constantly interfered in tariff setting without subsidizing SEBs for the lossesarising out ofState Governments desire to provide power at concessional rates to certain sectors,especially agriculture. Power Supply to agriculture and domestic consumers is heavilysubsidized. Only a part of this subsidy is recovered by SEBs through cross subsidization of tarifffrom commercial and industrial consumers. The SEBs, in the process, have been incurring heavylosses. If the SEBs were to continue to operate on the same lines, their internal resourcesgeneration during the next ten years will be negative, being of the order of Rs.(-) 77,000 crore.This raises serious doubts about the ability of the States to contribute their share to capacityaddition during the Ninth Plan and thereafter. This highlights the importance of initiating power

sector reforms at the earliest and the need for tariff rationalization.

Power sector reforms

The Orissa Government was the first to introduce major reforms in power sector throughenactment of Orissa Reforms Act, 1995. Under this Act, Orissa Generating Company, OrissaGrid Company and Orissa Electricity Regulatory Commission have been formed. Similarly, theHaryana Government has also initiated reform programme by unbundling the State ElectricityBoard into separate companies and Haryana Electricity Regulatory Commission has already beenconstituted.With a view to improve the functioning ofState Electricity Boards, the Government promulgatedthe State Electricity Regulatory Commission Act for establishment of Central ElectricityRegulatory Commission at the national level and State Electricity Regulatory Commission in theStates for rationalization of tariff and the matters related thereto. Subsequent to the enactment ofERC Act, 1998 more and more States are coming up with an action plan to undertake the reformprogrammed. In this respect, Governments of Uttar Pradesh, Rajasthan, Madhya Pradesh, Goa,Karnataka and Maharashtra have referred their proposals for setting up independent regulatorymechanism in theirStates.The Electricity (Amendment) Act 1998 was passed with a view to make transmission as aseparate activity for inviting greater participation in investment from public and private sectors.The participation by private sector in the area of transmission is proposed to be limited toconstruction and maintenance of transmission lines for operation under the supervision andcontrol of Central Transmission Utility (CTU)/State Transmission Utility (STU). On selection ofthe private company, the CTU/STU would recommend to the CERC/SERC for issue oftransmission license to the private company. In this regard, the Government of Karnataka is thefirst to invite private sector participation in transmission by setting up joint-venture company.OtherStates are also in the process of introducing the reforms in the transmission sector.In view of the urgent need to reduce transmission and distribution losses and to ensureavailability of reliable power supply to the consumers reforms in the distribution sectors are also been considered by establishing distribution companies in different regions of the State. The


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entry of private investors will be encouraged wherever feasible and it is proposed to carry outthese reforms in a phased manner. The Governments of Orissa and Haryana have alreadyinitiated reforms in the distribution sector by setting up distribution companies for each zonewithin theirStates.With these efforts, it is expected that the performance of power sector will improve because of

rationalisation of tariff structures of SEBs and adequate investment for transmission anddistribution sector.

Capacity addition during 9th

plan

Power supply position at the beginning of 9th

planThe total installed capacity at the beginning of 9 th Plan i.e. 1.4.97 was 85,795 MW comprising21,658 MW Hydro, 61,012 MW Thermal including gas and diesel, 2,225 MWNuclear and 900MWWind based power plants.The actual power supply position at the beginning of the 9 th Plan indicates peak shortage of11,477 MW (18%) and energy shortage of 47,590 MU (11.5%) on All India basis. To meet the

growing demand and shortages encountered, sufficient capacity would need to be added insubsequent plan periods.Ninth plan capacity addition programmeThe Working Group on Power, constituted by Planning Commission, in its report ofDecember1996 had formulated, a need based capacity addition programme of 57,735 MW for the NinthPlan which would by and large meet the power requirements projected in 15thElectric PowerSurvey Report. However, it was felt that this capacity addition of 57,735 MW is not feasible anda target for capacity addition of 40245 MW was fixed forNinth Five-year plan. The above targetwas finalized after considering the status of Sanctioned/ongoing schemes, new projects inpipeline, likely gestation period for completion of the projects and likely availability of funds.The Sector-wise/type-wise details are given below:

Sector-wise / type-wise capacity addition programme during ninth plan (Figures in MW)

Sector Hydro Thermal Nuclear Total

Central 3455.0 7574.0 880 11909

State 5814.7 4933.0 --- 10747.7

Private 550.0 17038.5 --- 17588.5

TOTAL 9819.7 29545.5 880.0 40245.2


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Environmental impact of thermal power stations

Thermal Power Stations in India, where poor quality of coal is used, add to environmentaldegradation problems through gaseous emissions, particulate matter, fly ash and bottom ash.Growth of manufacturing industries, in public sector as well as in private sector has further

aggravated the situation by deteriorating the ambient air quality. Ash content being inabundance in Indian coal, problem of fly ash and bottom ash disposal increase day by day. Thefly ash generated in thermal power station causes many hazardous diseases like Asthma,Tuberculosis etc.

Air pollutionInitially, perceptions of objectionable effects of air pollutants were limited to those easilydetected like odour, soiling of surfaces and smoke stacks. Later, it was the concern over longterm/chronic effects that led to the identification of six criteria pollutants. These six criteriapollutants are sulphur di-oxide (SO2), Carbon Mono-oxide (CO), Nitrogen oxide (NO2), Ozone(O3), suspended particulates and non-methane hydrocarbons (NMHC) now referred to as volatileorganic compounds (VOC). There is substantial evidence linking them to health effects at high

concentrations. Three of them namely O3, SO2 and NO2 are also known phytotoxicants (toxic tovegetation). In the later part Lead (Pb) was added to that list.Nitrogen Oxide (NOx)Most of the NOx is emitted as NO which is oxidised to NO2 in the atmosphere. All combustion processes are sources ofNOx at the high temperature generated in the combustion process.Formation ofNOX may be due to thermal NOxwhich is the result of oxidation of nitrogen in theair due to fuel NOx which is due to nitrogen present in the fuel. Some ofNO2 will be convertedto NO3 in the presence of 02. In general, higher the combustion temperature the higherNOx isproduced. Some ofNOx is oxidised to NO3, an essential ingredient of acid precipitation and fog.In addition, NO2absorbs visible light and in high concentrations can contribute to a brownishdiscoloration of the atmosphere.

Sulphur OxideThe combustion of sulphur containing fossil fuels, especially coal is the primary source ofSOx.About 97 to 99% ofSOxemitted from combustion sources is in the form ofSulphurDi-oxidewhich is a criteria pollutant, the remainder is mostly SO3, which in the presence of atmosphericwater is transformed into Sulphuric Acid at higher concentrations, produce deleterious effects onthe respiratory system. In addition, SO2 is phytotoxicant.Particulate matterThe terms particulate matter, particulate, particles are used interchangeably and all refer to finelydivided solids and liquids dispersed in the air.Water pollutionWater pollution refers to any change in natural waters that may impair further use of the water,

caused by the introduction of organic or inorganic substances or a change in temperature of thewater.In thermal power stations the source of water is either river, lake, pond or sea where from wateris usually taken. There is possibility of water being contaminated from the source itself. Furthercontamination or pollution could be added by the pollutants of thermal power plant waste asinorganic or organic compounds.Land degradation


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The thermal power stations are generally located on the non-forest land and do not involve muchResettlement and Rehabilitation problems. However it's effects due to stack emission etc, onflora and fauna, wild life sanctuaries and human life etc. have to be studied for any adverseeffects. One of the serious effects of thermal power stations is land requirement for ash disposaland hazardous elements percolotation to ground water through ash disposal in ash ponds. Due to

enormous quantity of ash content in India coal, approximately 1 Acre per MW of installedthermal capacity is required for ash disposal. According to the studies carried out byInternational consultants if this trend continues, by the year 2014-2015, 1000 sq. km of landshould be required for ash disposal only.Noise pollutionSome areas inside the plant will have noisy equipments such as crushers, belt conveyors, fans, pumps, milling plant, compressors, boiler, turbine etc. Various measures taken to reduce thenoise generation and exposure of workers to high noise levels in the plant area will generallyinclude:Silencers of fans, compressors, steam safety valves etc.Using noise absorbent materials

Providing noise barriers for various areasNoise proof control roomsProvision of green belt around the plant will further reduce noise levels

Technology up gradation

Clean coal technologies

Clean coal technologies offer the potential for significant reduction in the environmentalemissions when used for power generation. These technologies may be utilized in new as well asexisting plants and are therefore, an effective way of reducing emissions in the coal firedgenerating units. Several of these systems are not only very effective in reducing SOx andNOx emissions but, because of their higher efficiencies they also emit lower amount of CO2 perunit of power produced. CCT's can be used to reduce dependence on foreign oil and to make useof a wide variety of coal available.

Blending of various grades of raw coal along with beneficiation shall ensure consistency inquality of coal to the utility boilers. This approach assumes greater relevance in case of multiplegrades of coals available in different parts of the country and also coals of different qualitiesbeing imported by IPPs. Ministry ofEnvironment and Forests vide their notification dated 30thJune 1998 had stipulated the use of raw or blended or beneficiated coal with an ash content notmore than 34% on an annual average basis w. e. f. 1st June 2001.

CPCB has constituted a Steering Committee consisting representative from some SEBs, CPCB,Ministry of Coal, Ministry of Power, CEA and World Bank to carry out cost benefit analysis ofusing clean coal technologies and assess and prioritize technically feasible and economicallyviable measures to improve coal quality.


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Refurbishment of existing thermal power stations

Continuous deterioration in performance of thermal power stations had been observed duringearly 80's. Therefore, Renovation and Modernization Schemes(R&M Schemes) were drawn andexecuted for improving the performance of existing thermal power stations. Pollution control

measures in these power stations being a capital-intensive activity, it accounted for majorportion-around 40% of Rs. 12 Billion kept for R&M schemes under phase-I. During phase-I, 163units of 34 thermal power stations were covered. As a result of R&M schemes these achieved10,000 million units of additional generation per annum against the target of 7000 million units.Encouraged by the results achieved, R&M phase-II programme is presently under progress. Totalestimated cost of these works is Rs. 24 Billion. Most of the Electricity Boards or other generatingagencies are facing financial constraints to carry out R&M activities. Therefore, this area has tobe taken on priority to arrange financial assistance.

CONCLUSION

y The power sector shares an important role in the total economic development of the

country and may be declared as the backbone of all the major industrial function.

y As the production of power within the country is due to the extraction of non-renewable

sources of energy, therefore the usage must be wisely.

y The Demarketing practice must be followed so as to discourage the wastage of precious

power.

y S pecial awareness camps and campaigning must be done to create a sense ofresponsibility within the population. For example the green lartern project launched

with the states of Bihar and Jharkhand among the tribals by the NTPC.

y The production and the distribution must be well fabricated so that minimum loss is done.

for example NTPC hires PGCIL ( power grid corporation of India limited) for its high

tension power supply process.

y Local bodies should be framed so as fill the gap between government and population. For

example NTPC framed CSR ( corporate social responsibilities) at the ground level.

y Well trained and professionals manpower must be used for the best of the results.

yAppropriate training institutes should be engaged in quality training and teaching. likeNTPC does through EDC ( employee development centers).


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