Is 2018 the turnaround year for Indian power gen sector?

Like any emerging country, India too cannot overlook the essential role of the power sector in fuelling its overall development. After a sluggish 2017, the Indian power sector looks forward to potential revival in 2018.

The country’s power sector has been going through a massive transformation. The government has undertaken various programmes such as the Integrated Power Development Scheme and the Deendayal Upadhyaya Gram Jyoti Yojana, and changes are already evident.

India is expected to attract a substantial investment of Rs11,55,652 crore in power generation sector by 2022 in setting up projects across thermal, hydro, nuclear and renewables segment. A total capacity addition of 58,384 MW from conventional sources has been foreseen consisting of 47,855 MW of coal-based power stations, 406 MW of gas-based power stations, 6,823 MW of hydropower stations and 3,300 MW of nuclear stations.

In addition, the government is also targeting ramping up the country’s renewable energy capacity to 1,75,000 MW by 2022. Of this, 1,17,756 MW is expected to be set up during the period through 2022. The National Electricity Plan (NEP) report says that no additional fund will be required for gas-based generation capacity as the construction of these plants has been completed and could not be commissioned so far due to non-availability of domestic gas.

The overall fund requisite includes Rs8,52,804 crore investment in projects likely to be commissioned during this period and Rs3,02,848 crore expenditure needed with respect to advance action for projects likely to be commissioned in the next five year period (2022-27). Of the Rs8,52,804 crore to be spent through 2022, Rs1,42,566 crore would be needed for central sector projects, Rs92,889 crore for state sector projects and Rs 6,17,349 crore for private sector projects. In this assessment, it is assumed that all the renewable projects will be implemented by private developer.

The government also estimates that an investment of around Rs9,56,214 crore will go into setting up the targeted 1,65,220 Mw generation capacity between 2022 and 2027. This consists of 46,420 MW of thermal projects, 12,000 MW of hydro projects, 6,800 MW of nuclear projects and 1,00,000 MW of renewable energy projects. This estimate does not consist of investment related to advance action for projects expected to be commissioned in the next five-year period (2027-32).

The need for a flexible, resilient and intelligent grid is becoming a priority for policymakers. With the future power system being requisite to deal with new challenges such as a greater incursion of renewable energy, growth in electric vehicles (EVs), new forms of generation sources, and a considerable addition of new households to the grid, the government is putting in place solutions and strategies for holistic smart grid development.
Present state of the sector

India’s power system is the third largest power system in the world, and is complex and challenging. There is close to 335 GW of installed capacity and 275 million customers in its network. The per capita consumption compared to world standards is very low at around 1,122 kWh. Consumption patterns are also quite diverse across different categories. In rural areas, consumption is low, while in the irrigation segment, consumption is high. Consumption in the commercial and industrial categories is varied and distributed. There are a million circuit kilometres of grid network and an equal transformation capacity. The network includes grid lines across multiple voltages – 400 kV, 765 kV, high voltage DC lines, and now the industry is working on a 1,200 kV AC line.

Syed Sajjadh Ali, Managing Director – India, Electrical Sector, Eaton says, “In 2017, India produced 1,160 billion units of electricity, which amounted to around 4.7 per cent growth over the previous year. If we consider the historical growth rate of around 7 percent, then 2017 was not such a great year. While 2018 does not appear to be much different but we can expect renewable sources, especially solar, to grow much faster.”

The potential for turnaround in 2018 exists in three areas. First, the finalisation of Power Purchase Agreements (PPA), which will indeed be essential. Today, the biggest stress in the industry is on the low plant load factor, which has put many private sector companies at debt default risk. We expect the supply of coal to be steady in 2018; therefore, if the PPA issue is resolved, we can expect a strong turnaround in the industry, he says.

Secondly, we will have to accelerate solar power generation so as to fulfil our Paris Climate Agreement goal of installing 175 GW of renewable energy capacity by 2022. In 2017, Rs56,700 crores initially allocated for renewable sector was diverted to subsidise GST losses. If the funds earmarked for renewable energy are fully utilised in 2018, we will see a strong development towards our clean energy goals. From a technology viewpoint, we are seeing rapid advancements in battery storage. Affordable battery storage technologies will improve the feasibility of solar power and lead to extensive adoption, he further adds.

Ali comments that, “Finally, government of India’s Saubhagya scheme is likely to add 40 million new consumers. At the same time, industrial growth is also expected to get stronger. If the PPA issue is resolved, we can expect the industry to show a healthy growth in 2018.”

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