THERMAL POWER

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SUMMARY
  • Global proven crude oil reserves are estimated at 1697 bn barrels, proven natural gas at 193 tn cubic meters, and proven coal at 1,035 bn tonnes.1
  • Total Coal reserves in India is estimated to be 319.02 bn tonnes, out of which 148.79 bn tonnes are proven reserves. Proven natural gas reserve measures up to 1339.57 bn cubic meter (BCM), as reported in March 2018.2
  • India is the third largest producer of electricity and consumer of energy.3
REASONS TO INVEST
  • The Government has set an electricity generation target of conventional sources, for 2018-19, at 1265 bn units (BU). This is comprised of:
    • 1091.5 BU thermal
    • 130 BU hydro
    • 38.5 BU nuclear
    • 5 BU import from Bhutan4
  • The revised Tariff Policy 2016 ensures an adequate return on investment to companies engaged in power generation, transmission and distribution. It also ensures the financial viability of the industry to attract investments by companies.
  • Government of India, through the Ministry of Power, launched the initiative of Ultra Mega Power Projects (UMPPs) in 2005. It comprises of 4,000 MW super thermal power projects (both pit head and imported coal-based) with the objective to develop large capacity power projects in India. Power Finance Corporation Ltd (PFC) was appointed as the nodal agency to facilitate the development of these projects. Various inputs for the UMPPs are tied up by the Special Purpose Vehicle (SPV) with the assistance of the Ministry of Power and Central Electricity Authority (CEA). CEA is involved in the selection of sites for these UMPPs.
  • The Ministry of Power has brought the guidelines for determination of tariff through a transparent process of bidding for procurement of power from UMPPs based on allocated domestic captive coal blocks and to be set up on Build, Own and Operate (BOO) basis.
  • UMPPs projects in the pipeline:5
    • Husainabad in Deoghar district in Jharkhand
    • Bijoypatna in Chandbali Tehsil of Bhadrak District, Narla & Kasinga sub-division of Kalahandi District in Odisha
    • Kakwara in Banka Distt in Bihar
    • Niddodi village in Karnataka
    • Sites in Tamil Nadu and Gujarat for their second UMPPs and a site in Uttar Pradesh are being examined
STATISTICS
  • With a production of 1497 Tera Watt-hour (TWh), India is the world’s third largest producer of electricity.6 India is also the third largest consumer of energy.7
  • The Power industry accounts for almost a quarter of the projected investments amongst all the infrastructure industries between 2012-17.
  • FDI in the Power industry between April 2000 to March 2019 stood at $14.32 Bn.8 Electricity generation installed capacity increased by 39.2% from 248.5 GW on March 2014 to 346 GW on October 2018.9
  • Total thermal installed capacity accounted for 222.92 GW, which is 63.7% of total installed capacity till February 2019.10
GROWTH DRIVERS
  • Expansion in industrial activity to boost demand for electricity.
  • A growing urban and rural population is likely to boost demand for energy.
  • Increasing market penetration and per-capita usage are expected to provide further impetus to the energy industry.
  • Ambitious projects and increasing investments across the value chain in various sectors with high electricity demand.
FDI POLICY
  • Under the automatic route, 100% Foreign Direct Investment (FDI) is allowed in the Power industry for generation from all sources (except atomic energy), transmission and distribution of electric energy and power trading, subject to all the applicable regulations and laws.
  • FDI in power exchanges up to 49% registered under Central Electricity Regulatory Commission (Power industry) Regulations, 2010 under the automatic route, subject to the following conditions, as laid down in the Policy:
    • Foreign Institutional Investors (FII)/ Foreign Portfolio Investors (FPI) purchases shall be restricted to secondary market only
    • No non-resident investor/entity, including persons acting in concert, will hold more than 5% of the equity in these companies
    • The foreign investment will have to comply with the Securities & Exchange Board of India (SEBI) regulations and the applicable laws/regulations, security and other conditions
SECTOR POLICY

ELECTRICITY ACT, 2003

  • Elimination of licensing for electricity generation projects
  • Increased competition through international competitive bidding
  • Demarcation of transmission as a separate activity

NATIONAL TARIFF POLICY, 2006

Revised Tariff Policy, 2016:

  • Ensure the availability of electricity to consumers at reasonable and competitive rates
  • Ensure financial viability of the sector and attract investments Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimize perceptions of regulatory risks
  • Promote competition, efficiency in operations and improvement in the quality of supply
  • Promote the generation of electricity from renewable sources 
  • Promote hydroelectric power generation including Pumped Storage Projects (PSP) to provide adequate peaking reserves, reliable grid operation and integration of variable renewable energy sources
  • Evolve a dynamic and robust electricity infrastructure for better consumer services
  • Facilitate the supply of adequate and uninterrupted power to all categories of consumers
  • Ensure creation of adequate capacity including reserves in the generation, transmission and distribution in advance, for the reliability of supply of electricity to consumers. 

ULTRA MEGA POWER PROJECTS (UMPPS)

  • Govt. of India undertook the initiative for setting up of Ultra Mega Power Projects of 4 GW capacity each, to reap the benefits of economies of scale, and provide fast capacity addition. The Ministry of Power identified Power Finance Corporation (PFC) as the nodal agency for the UMPPs. To enhance investors' confidence, reduce risk perception and get a good response to competitive bidding, PFC incorporated Special Purpose Vehicles (SPVs) for each UMPP. The SPVs take up the bidding process on behalf of the power procuring (beneficiary) states. The purpose of the SPVs is to carry out the bid process management and obtain various clearances/consents for the projects. Thus, the same is transferred to the successful bidder along with the SPV, who are selected through the tariff based International Competitive Bidding (ICB). The logistic support provided by the SPV, prior to award of the project, is considered necessary - to enhance the investor’s confidence, reduce risk perception and get a good response to the competitive bidding process. Based on the above initiative of Government of India and its implementation process, four UMPPs -Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand - were awarded to the successful bidders. Mundra UMPP and Sasan UMPP are fully commissioned and are generating electricity.

RENOVATION & MODERNIZATION OF DISTRIBUTION SYSTEM

Government of India launched two schemes, namely, Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS) in December 2014. It provides capital subsidy to the States for strengthening of sub-transmission and distribution networks in rural areas and urban areas. Under DDUGJY scheme, a capital subsidy is being provided for feeder separation, electrification of unelectrified villages and households, metering and system strengthening & augmentation of the distribution system in rural areas. The erstwhile scheme of RGGVY was subsumed in DDUGJY as a separate component for rural electrification in the country. Under the IPDS Scheme, a capital subsidy is provided for strengthening and augmentation of the distribution system. A capital subsidy is also provided for metering of distribution transformers/feeders/consumers, and IT enablement in the distribution sector in the urban areas. The erstwhile Restructured Accelerated Power Development and Reform Programme (R-APDRP) scheme was subsumed in the IPDS as a separate component for IT enablement and system strengthening.

DOMESTIC AND STREET LED LIGHTING PROGRAM

The Ministry of Power has launched UJALA (Unnat Jyoti by Affordable LED for All) scheme for replacement of 770 mn incandescent domestic bulbs with energy efficient LED bulbs in the country. In addition, 35 mn street lightings are also being replaced with energy efficient LED street lights in the country.

FUEL SUPPLY AGREEMENT

  • The Fuel Supply Agreement with Coal India Ltd. will ensure the availability of coal for power companies over the long term.

PUBLIC-PRIVATE PARTNERSHIP(PPP)

  • To reduce dependency on imported coal, a PPP policy framework is planned to be devised with Coal India Ltd. to increase coal production.

NATIONAL ELECTRICITY POLICY

The Government of India is planning to revise the National Electricity Policy to bring out far-reaching changes in the Power industry. This includes ensuring a cleaner atmosphere by increasing renewable generation including rooftop solar PV generation, increasing electric vehicles in cities and towns, improved power supply reliability to consumers through the smart grid. This policy would also encourage efficient utilization of resources including land and water.

UJWAL DISCOM ASSURANCE YOJANA (UDAY)

The Scheme "UDAY" (Ujwal DISCOM Assurance Yojana) was formulated and launched by the Government in November 2015, for the financial and operational turnaround of State-owned DISCOMs (Electricity Distribution Companies). The scheme UDAY envisages reform measures in all sectors – generation, transmission, distribution, coal, and energy efficiency. The scheme aims to reduce interest burden, reduce the cost of power, reduce power losses in distribution and improve the operational efficiency of DISCOMs. The scheme also incentivizes the States by

  • Exempting State takeover of DISCOM debts from Fiscal Responsibility & Budget Management (FRBM) limits for two years
  • Increased supply of domestic coal
  • Coal linkage rationalization
  • Liberally allowing coal swaps from inefficient to efficient plants
  • Allocation of coal linkages to States at notified prices and additional/priority funding in schemes of the Ministry of Power and the Ministry of New & Renewable Energy, if they meet the operational milestones in the scheme.

The scheme also envisages that the States accepting UDAY and performing as per operational milestones will be given additional/priority funding through DDUGJY, IPDS and Power System Development Fund (PSDF) or other such schemes of Ministry of Power and Ministry of New and Renewable Energy. These States shall also be supported with additional coal at notified prices and, in case of availability through higher capacity utilization. The States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.

FINANCIAL SUPPORT

BUDGET INCENTIVES

  • Extension of sunset date under section 80 IA (4) (iv) of the Income Tax Act, for the power sector (generation, distribution and transmission) to 31 March 2017, for claiming a deduction of 100% of profits and gains for 10 consecutive assessment years.
  • Adequate quantity of coal will be provided to power plants which are already commissioned or are to be commissioned by March 2015.
  • Allocation of $15.38 Mn for preparatory work for a new scheme creating ultra-modern supercritical coal-based thermal power technology aimed at providing cleaner and efficient thermal power. Deen Dayal Upadhyaya Gram Jyoti Yojana was allocated $581 Mn to in 2019-20 Interim Budget.11
  • Full exemption from central excise duty is provided to liquefied propane mixture, liquefied propane, liquefied butane and liquefied petroleum gases for supply to non-domestic exempted category customers retrospectively from February 2013 onwards. The companies that executed this exemption are Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL) or Bharat Petroleum Corporation Limited (BPCL).
  • The duty structure on non-agglomerated coal of various types is rationalized at 2.5% Basic Customs Duty (BCD) and 2% Countervailing Duty (CVD). The BCD on anthracite coal and other coal is reduced from 5% to 2.5%.
  • The CVD on anthracite coal, coking coal and other coal is reduced from 6% to 2%.
  • Imports of liquefied propane mixture, liquefied propane, liquefied butane and liquefied petroleum gases for supply to non-domestic exempted category customers by the IOCL, HPCL or BPCL retrospectively from February 2013.

TAX INCENTIVES R&D INCENTIVES

  • Industries and infrastructure sectors including the power/energy efficiency sectors with in-house R&D centers get a write-off in revenues and capital expenditure incurred on R&D.
  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act to industry/private sponsored research programmes.
  • A weighted deduction of 200% is granted to assesses for any sums paid to a national laboratory, university or institute of technology, or specified people with a specific direction. The said sum will be used for scientific research within a programme approved by the prescribed authority.

STATE INCENTIVES

  • India offers additional incentives for industrial projects in certain states.
  • Incentives are in areas such as rebates in land cost, the relaxation of stamp duty exemption on the sale and lease of land, power tariff incentives, a concessional rate of interest on loans, investment subsidies, tax incentives, backward area subsidies and special incentive packages for mega projects.

AREA BASED INCENTIVES

  • Incentives are available for the setting up of projects in special areas like the North-east, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand.
INVESTMENT OPPORTUNITIES

Thermal Power Projects

Hydro Electric Projects

DEENDAYAL UPADHAYA GRAM JYOTI YOJANA (DDUGJY)

  • Components
  1. Separation of agriculture and non-agriculture feeders
  2. Strengthening and augmentation of sub-transmission and distribution systems including metering
  3. Rural electrification including off-grid solutions
  • Objectives
  1. Electrification of 18452 un-electrified villages by 01 May 2018
  2. Providing electricity access to 50 mn households
  • Investment Opportunities

Total Outlay: $11.67 Bn

1. System Strengthening: 

Power Transformers: 14,491 nos

Distribution Transformers: 317,068 nos 

Conductors: 869,521 km 

Energy Meters: 11 mn nos

2. Metering the un-metered

Feeder/Boundary/ DTs: 1.19 mn nos

Energy Meters: 9.99 mn nos

INTEGRATED POWER DEVELOPMENT SCHEME

Total outlay: $11.78 Bn with gross budgetary support of $7.39 Bn from Government of India (including erstwhile R-APDRP)

  • Components
  1. Strengthening of sub-transmission and distribution networks in the urban areas
  2. Metering of distribution transformers/feeders/ consumers in the urban areas.
  3. IT enablement of the distribution sector and strengthening of distribution network under R-APDRP.
  • Investment opportunities

1. Metering: $317.07 Mn; Sub Stations (New + Augmentation): $592.61 Mn; HT / LT Lines (New + Augmentation): $1.27 Bn; DTs (New + Augmentation): $495.23 Mn; UG Cabling (HT & LT): $339.87 Mn; Rooftop Solar / net metering: $36.30 Mn; Misc. (ABC cable, R&M, Capacitor etc): $696.76 Mn.

FOREIGN INVESTORS
  • CLP Holdings (Hong Kong)
  • GE Energy (USA)
  • AES (USA)
  • Kosep (South Korea)
  • Abellon Clean Energy (Canada)
  • GDF SUEZ (France)
AGENCIES
SOURCES
  1. “BP Statistical Review of World Energy- June 2018,” British Petroleum (BP) Website, https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf, accessed on 09 June 2019
  2. “Coal Reserves,” Ministry of Coal Website, https://coal.nic.in/content/coal-reserves, accessed on 09 June 2019
  3. “Energy is the key driver of Socio-Economic growth’,” PIB Website: PMO, http://pib.nic.in/PressReleseDetail.aspx?PRID=1563758, accessed on 09 June 2019
  4. “Power Sector at a Glance - ALL INDIA,” Ministry of Power Website, https://powermin.nic.in/en/content/power-sector-glance-all-india, accessed on 09 June 2019
  5. “ULTRA MEGA POWER PROJECTS,” Ministry of Power Website, https://powermin.nic.in/sites/default/files/uploads/ultra_mega_power_project.pdf, accessed on 09 June 2019
  6. “BP Statistical Review of World Energy- June 2018,” British Petroleum (BP) Website, https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf, accessed on 09 June 2019
  7. “Energy is the key driver of Socio-Economic growth’,” PIB Website: PMO, http://pib.nic.in/PressReleseDetail.aspx?PRID=1563758, accessed on 09 June 2019
  8. “Fact Sheet On Foreign Direct Investment (FDI) From April 2000 To March 2019,” DPIIT website, https://dipp.gov.in/sites/default/files/FDI_Factsheet_27May2019.pdf, accessed on 07 June 2019
  9. “Year End Review 2018 – Ministry of Power,” PIB Website, http://www.pib.nic.in/Pressreleaseshare.aspx?PRID=1555605, accessed on 09 June 2019
  10. “Power Sector at a Glance - ALL INDIA,” Ministry of Power Website, https://powermin.nic.in/en/content/power-sector-glance-all-india, accessed on 09 June 2019
  11. “Outlay on major Schemes,” Union Budget Website, https://www.indiabudget.gov.in/ub2019-20/bag/bag7.pdf, accessed on 09 June 2019
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