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Presentation Presentation on on

Indian Power Indian Power SectorSector

Government of India April, 2006Government of India April, 2006

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Power Infrastructure in India (Mar., 2006) Generating Capacity Hydro 32,335 MW (26%) Thermal 82,507 MW (66%)

Coal 68,643 MWGas 12,663 MW

Nuclear 3,310 MW (3%) Renewables 6,158 MW (5%)

TOTAL 1,24,310 MW Central

Sector 32%

State Sector 57%

Private Sector 11%

(70,982 MW)

(39,908 MW)(13,420 MW)

In addition captive generation capacity of appx. 41,000 MW.

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Census Results 1990-91 2000-01 2004-05

PLF (%) 57.1 69.0 74.8

Energy Shortage (%) 7.9 7.8 7.3

Peaking Shortage (%) 16.7 12.3 11.7

Households Access to Electricity (%)

42.0 56.0 -

Rural Households Coverage (%)

31.0 43.8* -

Growth of Power Sector

To Electrify these Rural Households ( 7.8 crore) in next five years, Rajiv Gandhi Gramin Vidyutikaran yojana has been launched.

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Dec-47

Dec-55

Mar-61

Mar-66

Mar-74

Mar-80

Mar-85

Mar-90

Mar-95

Mar-02

Mar-03

Mar-05

Mar-06Year

HydroNuclearThermal

Growth of Installed Generating Capacity (MW)

1362 2695 4653 9027 16

604 28

448 42

585

7947

0

1048

51

1079

73 1243

10

6329

0

1184

20

5

15.6 34.883.5

130.5

238

408

606592

1950 1960 1970 1980 1990 2001 2004 2005

Per Capita Consumption of Electricity in India (kWh/year)

In 1950 Electricity consumption per capita was 15 kwh In 1950 Electricity consumption per capita was 15 kwh In 2012 it is projected at 1000 kwh. In 2012 it is projected at 1000 kwh.

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Brazil : 2070

China : 1200

Thailand : 2000

Malaysia : 3000

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The Act creates a liberal and transparent framework for Power Development.

It facilitates investment by creating competitive environment and reforming distribution segment of power industry. Entry Barriers removed/reduced

•Delicensed generation.•freedom to captive generation including group captive. •recognizing trading as an independent activity.•open access in transmission already in place.

Electricity Act 2003

Open access to consumers above 1 MW within five years commencing from 27th Jan 2004 (date of enforcement of amendment to Electricity Act).

Multiple licenses in distribution.

Regulatory Commissions- to develop market to fix tariff.

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Implementation of the Electricity Act• Most of the Rules (required to be framed by Central

Govt.) notified.

• National Electricity Policy announced.

• Electricity Appellate Tribunal : Operational.

• Guidelines for determining tariff through competitive bidding notified.

• Regional Power Committees for all the 5 regions established.

• Tariff policy notified .

• CERC has notified open access in transmission.

• Several SERCs have initiated action on open access in Distribution.

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Total Village Electrification by 2010.

By year 2012 :

Per capita availability 1000 units.

Installed capacity over 200,000 MW.

Spinning reserves 5% .

Minimum lifeline consumption of one unit per household per day.

Inter-regional transmission capacity 37,000 MW.

Energy efficiency/ conservation savings about 15%.

Quality and reliable power supply.

National Electricity Policy

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Tariff Policy Tariff of all Generation and Transmission Projects in Private

Sector through Competitive route- Public sector to complete transition in five years.

Reduction of cross subsidy to (+)(-) 20% in next five years.

Emphasis on facilitating Open Access in Distribution; clear formulation on cross subsidy surcharge.

Transmission Tariff framework sensitive to distance and direction.

Strict Implementation of Performance Standards.

Agriculture Tariff to leverage sustainable use of Ground Water Resources.

Time bound introduction of MYT.

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Peak demand by end of XI and XII plan is projected as

1,57,107 and 2,12,759 MW respectively.

Full Development of Hydro potential .

• All Hydro is Renewable irrespective of size.

• 50,000 MW Hydro Initiative launched.

• 73 projects with capacity of 33,000 MW taken up for

DPR preparation.

Meeting the Demand

Contd..

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Thermal power generation capacity is required to be

enhanced to meet the growing demand.

• 100,000 MW Thermal Initiative launched.

• Under the Initiative, shelf of Feasibility Reports (FRs) for

setting up thermal power projects is to be prepared at

feasible sites with all clearances in place.

• Projects totaling 60,000 MW have been identified.

Meeting the Demand

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India emerging as one of the largest potential source of

CRs.

Designated National Authority fully functional.

Focus areas in Energy sector :

• R&M of old plants.

• Conversion of LT to HT lines.

• Supercritical Thermal Power Projects.

• Hydro Projects.

CDM Projects

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Intra – Regional expansion of transmission capacity is

linked to generation projects.

Inter- Regional connectivity has been planned with

hybrid systems, consisting of HVDC, Ultra- High Voltage

AC (765 kV) & Extra High Voltage AC (400 kV) lines.

Present Inter- Regional transfer capacity is 9,500 MW,

being enhanced to 17,000 MW by 2007.

37,000 MW by 2012.

Augmentation of National Grid

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Capacity Addition Programme During XI Plan (MW)

Fuel- Mix Central Sector

State Sector

Private Sector

Total

Thermal 21,000 11,000 12,000 44,000Hydro 10,000 5,000 - 15,000Nuclear 3,000 - - 3,000Total 34,000 16,000 12,000 62,000

May be revised to 67,000 MW, depending on the availability of Gas/ LNG in required quantities and right prices.

In addition, 5000 MW through Non- Conventional Energy Sources.

Captive capacity not included.

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Investment Requirements During XI Plan

USD 50 Billion for Generation.

Another USD 50 Billion for transmission, distribution

and Rural Electrification.

Total USD 100 Billion.

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Improving Investment Climate

At present 40,000 MW generation capacity is already under

execution. Investment of USD 43 Billion committed.

Public sector investments have been stepped up ; will need

to be supplemented through private investments.

100 % FDI in all segments of Power Sector has been

allowed.

Recently Power trading also covered.

The law does not distinguish between domestic and

International Investors.

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Encouraging response of investors

Financial closure of 4400 MW projects– investment of

about USD 3.6 Billion.

Financial closures for 2200 MW is at advanced stage of

finalisation.

Additional about 10,000 MW appraised. Fuel supply

availability critical for financial closure.

Private Participation- Generation

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Ultra Mega Power Projects – A Major Investment Initiative

Section 63 of the EA, 2003, envisages procurement of power by

distribution licensees through competitive bidding.

Tariff so arrived is to be accepted by Regulatory Commission.

National Electricity Policy provides for “ Competition aimed at

consumer benefits” – Competition to determine the price as

apposed to cost plus exercise.

Electricity Tariff Policy stipulates competitive procurement of

future power requirements by Distribution Licensees.

Contd..

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Ultra Mega Power Projects contd.. Will facilitate setting up of large sized projects of 4000 MW each reaping

economies of scale and quick capacity addition leading to cheaper power.

Utilization of latest highly efficient super critical technology.

IPP experience highlights critical importance for Government intervention to

• secure reliable fuel supply,

• obtain environmental clearances

• co-ordination with states & bulk power purchasers, for achieving financial

closure.

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Criteria For Site Selection

Pit head location with domestic coal,

Coastal location with imported coal,

Coastal location with domestic/blended coal,

Through a preliminary scrutiny by CEA of a number of potential sites available in the

country, - 5 suitable locations have been identified.

• Two pithead locations with indigenous coal.

• Three Coastal locations with imported coal.

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The Shell Company Concept (SPV) Shell company to work independently to reach a stage where major tie-ups, statutory clearances

and linkages are in place.

PFC nominated as the nodal agency for setting up five shell companies.

Each company headed by a Chief Executive.

Selection of developer through a Tariff based ICB.

Shell companies will be then transferred to the successful bidders for execution.

With a number of concerns addressed by Shell company, risk factors minimised.

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Formation of SPVs Shell companies (SPVs) for each project have been registered.

A core group consisting of officials form PFC, CEA and NTPC is facilitating the

operationalisation of the SPVs.

Chief Executives for these SPVs have been put in place.

SPVs have already commenced activities on a time bound action plan in

consultation with the state Govts. and other agencies.

Contd.

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Formation Of SPVs. Contd…

Initial expenditure on establishment and operationalisation of

SPVs being funded by PFC.

Initial expenditure for above activities reimbursable to PFC

with interest at the stage of transfer of the ownership of the

SPV to the successful bidder.

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Role of Shell Company SPVs to take actions for

Preparation of project report.

Land acquisition.

Allocation of fuel linkages/coal blocks.

Allocation of water by the state Govt.

Appointment of consultants for EIA & Project Report.

Appointment of consultants for International Competitive Bidding

(ICB) document preparation & evaluation.

Contd.

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Role of Shell Company contd..

Various approvals and statutory clearances.

Off-take/sale of power – section 63 of EA2003 provision.

Power Evacuation/ (Transmission) System.

Rating of Projects (suggested by FI’s in the meeting on

06.01.06)

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Role of Ministry of Power To be a facilitator.

Co-ordination with concerned Ministry/ Agencies for ensuring:

• Coal Block Allotment/ Coal Linkage

• Environment/ Forest clearances

• Required support from State Govt. Agencies

• Financial Institutions towards financial closure.

• To facilitate PPA and proper payment security mechanism - with State Govt./ State utilities

• Monitoring the progress of shell companies w.r.t. predetermined timelines.

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Present Status Proposed names for the SPVs are:

1. Sasan Power Limited (M.P.)

2. Akaltara Power Limited (C.G.)

3. Coastal Gujarat Power Limited (Mundra Port)

4. Coastal Karnataka Power Limited (Karvar)

5. Coastal Maharashtra Power Limited (Ratnagiri)

Additional pit head site in Orissa and costal site in A.P. are being explored.

Contd.

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Present Status contd..

Chief Executive of each Company has started functioning.

Inter action with State Govts. by MoP for necessary support.

Ministry of Coal has agreed In-Principle to allot coal Blocks.

EOI advertised for projects at Sasan and Mundra on 31st Jan/ 2nd Feb. 2006.

Pre- Bid Conference held on 21.02.2006.

Federation of Indian Chamber of Commerce and industry (FICCI) selected Industry Partner.

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Payment Security Mechanism

As condition in PPA

Letter of credit (LC) by distribution licensee.

Escrow Account claims of receivables of distribution utility.

Finally in the unlikely event of default direct supply to HT

consumers as per provision of the Electricity Act 2003.

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Important Milestones For Selection Process

1 EOI by SPV for enlisting qualified bidder

Jan’06 (2 sites) / Feb’ 06(3 sites)

2 Selection of Qualified bidder Mar’06/ Apr’06

3 Issue of bid document Apr’06/ May’06

4 Closing date of receipt of bids Sept’06/ Oct’06

5 Selection of Successful Bidder Dec’06/ Jan’07

6 Transfer of projects of shell company to the successful bidder

Dec’06/ Jan’07

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The Act provides:• Dedicated transmission line can be set up by generating

company or captive plant owner without any license• Transmission license for inter – State or intra- State

lines for grant of which recommendation of CTU/STU is envisaged. It is not binding on the Regulatory Commission.

Policy frame work developed for facilitating Private Participation through Empowered Committee.

Advance Project formulation to speed up projects through this route.

Guidelines for competitive tariff determination being finalised.

Private Participation in Transmission

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Private Participation – Transmission contd..

Perspective Plan for three five year plan periods will be prepared by Central Electricity

Authority(CEA).

Short Term Plan corresponding with one five year plan period will be prepared by CEA.

Both these plans form part of the National Electricity Plan.

Network Plan will be prepared by the Central Transmission Utility based upon the

National Electricity Plan.

The Network Plan, Short Term Plan and the Perspective Plan will be hosted on the

websites of the respective organizations

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Empowered Committee

To be constituted by the Ministry of Power.

Chaired by a Member of the Central Electricity

Regulatory Commission.

Two Members from the Central Electricity Authority.

Committee to have representatives from the Ministry of

Power, the Planning Commission, the Central

Transmission Utility and two experts.

Contd.

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Empowered Committee contd..

FUNCTIONS

To identify projects to be developed under this Scheme.

To facilitate preparation of bid documents and invitation

of bid through a suitable agency.

To facilitate evaluation of bids.

To facilitate finalization and signing of Transmission

Service Agreement (TSA) between the developer and the

concerned utilities.

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Identification of Projects and Selection

Identification of projects under this Scheme will be done in

such a way that it results in a balanced mix of both difficult

and less difficult projects.

The nature of the terrain and issues relating to right of way,

land area to be acquired and issues involved in environment

and forest clearances would be material factors in relation to

difficult or less difficult projects.

The selection of developer for identified projects would be

through tariff based bidding for transmission services.

Contd.

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Identification of Projects and Selection contd..

Under section 63 of the Electricity Act, 2003 this tariff will

be adopted by the Regulatory Commission.

CTU/STUs and Joint Venture Companies will also be

eligible to bid, so that there is sufficient competition among

the bidders.

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Payment Process The Transmission Service Provider( TSP ) will enter into a Transmission

Service Agreement (TSA) with the concerned utilities.

TSA will address:

• Risk allocation between parties;

• Inter - utility allocation of transmission charges;

• Force majure clauses as per industry standards;

• Default conditions and cure thereof, and penalties;

Adequate payment security shall be made available to the TSP by the user of transmission services through:

• Letter of Credit (LC)

• LC backed by credible escrow mechanism.

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Old licensees working satisfactorily in Kolkata, Mumbai, Ahmedabad and Surat.

Orissa privatised in 1999. • Turn around after initial difficulties. AT&C loss reduction of over 4%

in 2004-05. 11 to 14% loss reduction in 3 years. AT&C losses still high.• Estimated financial gain to Orissa USD 330 million between 1996-2003.• No tariff increase since Feb. 2001.• Slight reduction in higher slab for domestic consumers in 2005-06.

Delhi privatised in 2002.• AT&C loss reduction as per target by all companies.

Private Participation- Distribution

Contd..

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AT&C loss reduction:• 48.1% to 40.6% (Zone-1)• 57.2% to 50.7% (Zone-2)• 48.1% to 33.8% (Zone-3)

Financial gain to Delhi : Annual cash outgo of USD 260

million down to USD 35 million during 2005-06.

Quality of supply better. Transformer failure rate reduced to

1% from 15%.

Load shedding has gone down from 2.32% of input to 0.85%

of input MUs.

Private Participation- Distribution

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Payment of Dues by State Utilities to CPSUs

Since 2003-04, the realisation of dues by CPSUs improved to about 100% of current

billing. • 2001-02 76%• 2002-03 95%• 2003-04 Almost 100%• 2004-05 Almost 100%

Agreement on Securitisation of dues of CPSUs were finalised in 2002-03. States

have issued bonds.

No NPA to PFC.

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Commercial Losses of State Utilities as % of Turnover (Without Subsidy)

28.32

14.69

17.60

33.00

41.29

37.17

05

101520

253035

4045

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Years

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1.47

0.86

0.97

1.611.55

1.30

00.2

0.40.60.8

11.21.4

1.61.8

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Years

Revenue Gap (Cents/ kWh)Difference between Average Cost of Supply (ACS) and

Average Revenue Realised (ARR)

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4.57

4.45

4.11

3.83.9

4.04.14.2

4.34.44.5

4.64.7

2001-02 2002-03 2003-04

Years

Tariff Rationalisation and Improved Collection Efficiency

Average Revenue Realised (ARR) (Cents/ kWh)

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Rural electricity infrastructure to cater to the requirements of :

• Household needs• Agriculture and irrigation pump sets • Cold Chain • Small and medium industries• Social Services – Health, Education

Targeted to electrify - Access to all households in 5 years.

Rural Electrification

Decentralized distributed generation for such villages where grid connectivity is either not feasible or not cost effective .

Decentralised management by Franchises, Co-operatives, Panchayats etc.

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Electrify all villages and habitations.

Provide access to electricity to all households.

Give Electricity Connection to Below Poverty Line

(BPL) families free of charge.

Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY)

In five years …

Contd…

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The scheme covers the entire country.

Provides 90% capital subsidy and 10% loan.

Funds would be released on the basis of sanction of the

projects.

USD 3.6 Billion would be required for the entire scheme.

During the 10th Five Year Plan, USD 1.1 Billion has been

provided as Capital Subsidy.

RGGVY contd…

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Distributed Generation – Investment Opportunities

Electricity Act 2003 provisions:

• No requirement of license for generation and even for distribution in notified rural areas.

• Very large private investment opportunity in unserved and poorly served rural areas.

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Energy Conservation – one of the central issues in the National Agenda to mitigate the problem of shortage.

Potential of reduction of about 23,000 MW of electricity consumption.

Bureau of Energy Efficiency (BEE) has formulated detailed action plans covering Industry, Buildings, Agriculture.

Work started on Standards and Labeling of appliances, developing Building Codes etc. a National awareness Campaign Launched.

Energy Conservation

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Captive Coal Mining – Investment Opportunities

27 coal mines allotted for captive development.

Estimated coal reserves for captive coal mining- 3 billion tonnes.

Strategic Joint Venture partnership opportunities for foreign developers.

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