" This blog is a integrated approach towards tracking the Indian power sector
which is evolving, having a great potential with prosperous future."



Friday, July 29, 2011

Tata Power receives coal from KPC/Arutmin mines in Indonesia for its 4,000-MW Ultra Mega Power Project at Mundra

Tata Power said it has received coal from KPC / Arutmin mines, Indonesia, for its 4,000-MW Ultra Mega Power Project at Mundra.
The super-critical technology-based power plant requires imported coal.


The first unit of 800-MW plant is ready, ahead of its scheduled date in mid-September. However, Power Grid is in the process of commissioning the transmission lines which were delayed due to forest clearances.
Further, recent Indonesian regulations on export of coal from that country stipulate that prices need to be benchmarked to international prices or market rates. While initial reports suggested that market prices should be followed from September 23, sources said Jakarta had given six months for all mining and exploration companies to adhere to its new norms.
The shipment, by a cape size vessel owned by its Singapore subsidiary, Trust Energy Resources, anchored at the Mundra port on Wednesday. The 181,000 DWT (dead weight tonnage) cape vessel delivered by STX Shipyard, Korea, was on its maiden voyage.
Mr Anil Sardana, Managing Director, Tata Power, said, “This is a significant moment for us and is aligned to our strategy of being an integrated power player. With this objective in mind, Trust Energy was set up to securitise coal supply and shipping of coal for our thermal projects.”
Tata Power said the arrival of coal at Mundra marked a new trend in India of transporting and receiving coal in large tonnage of up to 1,80,000 tonnes for captive consumption.

Petroleum ministry rejects Modi's request regarding additional gas for Gujarat's power sector

Citing inadequate supply for the current level of demand, the petroleum ministry has turned down Gujarat Chief Minister Narendra Modi's request for further allocation of gas in the state.
  • The ministry had earlier been consulted, to up the supply of gas for upcoming power plant projects in Gujarat, which include GSPC Pipavav Power Company Limited's (GPPC) 702 MW gas based power project and a 351 MW power project under the Gujarat State Energy Generation Limited (GSEG).  The present and project availability of natural gas, renders the ministry powerless to up allocations to new power plants. The demand to meet the shortfall of existing assets in different sectors is more than the available gas. No substantial increase is expected in indigenous natural gas availability either, upto the end of 2012-13. Importantly noted by the ministry, was the fact that the power sector is already receiving 56 MMSCMD (47%) of domestic supply of gas, of which, the highest shares are being supplied to Gujarat itself (13.8 MMSCMD).
  • Secondly, the establishment prioritizes the fertilizer sector over the power sector, when reviewing gas allocations and demand in the former is already on the rise. By 2014-15, the cumulative additional requirement of gas, in the fertilizer sector, is expected to balloon up to 72.877 MMSCMD. 8While rejecting Modi's request, the ministry did however soften the blow, by asserting that necessary allocations from KG-D6 fields will be made to power projects, currently in the pipeline, as and when they are ready to commence production. At present, the Empowered Group of Ministers (EGoM) has decided to not make any gas reservations and would only allocate KG D6 gas to existing plants. 

Shunglu committee slams states for eroding electricity regulatory process

The Shunglu committee on the financial health of state power distribution companies has slammed state governments for eroding independence of electricity regulatory commissions.
In its draft report, it has recommended implementation of wide-ranging reforms to strengthen the regulatory bodies including giving them more financial autonomy.
State governments should not have a major say in filling key vacancies in the commissions so as to protect their independence.
The panel, which made a presentation on the draft report to the Planning Commission on July 25, has found that states are misusing key provisions of the Electricity Act 2003 to influence determination of tariffs, which is meant to be the regulator's call. This is despite higher courts repeatedly clarifying that the states' interpretation is contrary to the basic objective of the Act.
Not only that, states are also using budgetary support as a lever to make regulator fall in line.
The committee has studied functioning of electricity regulatory commissions in 15 states including Maharashtra, Andhra Pradesh,Uttar Pradesh, Haryana, Punjab, Gujarat and Rajasthan, which together account for 91% of assets and liabilities of state power discoms. It is expected to finalize its report by September.
The committee has also found that several states have misused the lax eligibility criteria and the loose selection procedure to fill top vacancies like chairman and members in regulatory commissions with compliant officials.
The committee feels that there is a need for wide-ranging measures like delegation of financial autonomy to ensure functional independence of regulators. It has also suggested tightening eligibility criteria and selection procedure to prevent state governments from filling key vacancies in regulatory commissions with officials of compromised integrity.
The committee has recommended that any individual who has worked with a state government, either directly or indirectly, during preceding five years should be disqualified for appointment as a regulator.
Further, chairman and member of the regulatory commissions should be barred from taking post in any government department of the same state for five years.
It has also suggested bringing on the selection panel independent authorities like sitting judge of the concerned High court, chairperson of the central electricity regulatory commission, chairman of public service commission of another state on the selection panel to improve fairness in the selection process.
To prevent further misuse of the public interest provisions of the act by states, the committee has recommended that the central government seek legal opinion on interpretation of section 108 and the same should be included in the national tariff policy. The Centre can also use the opportunity of Annual Plan discussions with state governments to review functioning of state regulatory system and states' commitment and action.

Government panel says 'Go, No-Go' concept of forest area classification legally not

A government panel has said the 'Go, No-Go' concept of forest area classification for clearances tocoal blocks is legally not tenable and should be abandoned.
The environment ministry's ban on mining in areas of thick forest cover has locked away millions of tonnes ofcoal reserves. According to the power ministry, coal shortage is likely to hold up new power projects of over 17,000 mw aggregate capacity. This has triggered debate among the ministries of coal, power and steel on the 'Go, No-Go' concept's merits.
The panel, set up by an inter-ministerial committee to consider the efficacy and legality of forest clearance procedures, has said the concept has no legal standing. The panel is headed byPlanning Commission member B K Chaturvedi and has representatives from power, coal and finance ministries.
"The above policies are mandated neither under Forest Conservation Rules, 2003 nor under any circular issued by the ministry of environment and forests. The ministry of law and the Attorney General have confirmed the position that it is not consistent with the current provisions," the committee said in its report.
In 2009, theenvironment ministry had placed the country's forested areas under two categories - Go and No-Go - and imposed a ban on mining in the 'No-Go' zones on environmental grounds.
Based on this categorisation, the ministry has barred mining in 203 coal blocks that hold 660 million tonnes reserves and 1,30,000-mw electricity generation potential, as they fall in the 'No-Go' or dense forest zone.
Shortage of coal in the current fiscal is projected at about 83 million tones, which is expected to cross 200 million tonnes by 2013-14.
The committee has also recommended amending the environment ministry's directives on banning coal exploration in certain industrial clusters and securing forest clearances before mining.
In November last year, the environment ministry had barred development in some industrial clusters because the pollution index had risen above the permitted level of 70. Coal India suffered a production loss of 19 million tonnes due to the moratorium.
The ministry's March 31 circular said coal companies could start mining in the non-forest area of a mine only after obtaining environment clearance. Earlier, securing forest clearance was necessary before mining the forest portion. Coal ministry has said this directive would impact Coal India Ltd's production by 11.5 million tonnes in the current year. The Chaturvedi committee suggested that the coal blocks should be taken up for mining unless there is a strong case for rejection on environment grounds.
The committee also suggested having a single-window approach by setting up nodal agencies with representatives from various departments of a state. Another recommendation was giving incentives to state forest departments that process cases quickly. Acquiring forest clearances takes three to six years, against the stipulated timeframe of 360 days.

Powering on

Executive chairman of Lanco Infratech Ltd L Madhusudan Rao is in the middle of a turbulent year. But the company, which marks 20 years, in sync with the India liberalisation story, is learning fast the international game as it steps abroad, say Sarika Malhotra & Subhomoy Bhattacharjee
On the dense car snarl just outside the Lanco Infratech campus in Gurgaon, the black Rolls Royce of Lagadapati Madhusudan Rao naturally stands out. Rao, the executive chairman of Lanco Infratech Ltd, is clear he wants to take on the stand-out company in the engineering space, L&T, soon. “That company now occupies number 1 to 10 rank in that category, we aim to provide competition there.”
Meanwhile, as Rao walks us down the Hussain and Souza-lined corridor to his office, he talks about how the world changes for mid-sized Indian companies when they begin to swim in the open global pool. On the same week when the Lanco Infratech campus was savouring the win of a R365-crore project in Iraq, it was hit by a R16,500-crore law suit in Australia. The suit is roughly three times the size of the company and has contributed to its share value tanking by 65% since January.
But to take the challenge to L&T closer, his company has to take these risks. In Iraq, few Indian companies have entered in the past decade. “It’s quite significant,” says Rao. “Iraq is our first engineering, procurement and construction (EPC) order outside India.” And, playing the EPC game is like a home stadium advantage for Lanco. It will construct a 250 mw, gas-fired power facility in the western province of Al-Anbar.
Yet, even before the company valuations could take off, the Australian $3.5-billion suit by Perdaman
Chemicals in Australia has mauled its scrip badly through July. In February, Lanco had bought the thermal coal division of Griffin Energy for A$750 million, but then began a long, hard look at some of its long-term supply contracts. The company said some of those “may not be financially sustainable in their present form”.
One of those is for supply of coal to Perdaman, a coal to Urea Company. A key clause in the contract says the supply would depend on Perdaman achieving financial closure of its plant, for which the deadline has been extended once.
Perdaman, owned by Vikas Rambal, an Indian, has filed the A$3.5 billion suit in the Supreme Court of Western Australia, claiming the ‘long, hard look’ upset its financial closure plans.
Lanco has obviously read its contracts well when it made the statement. A company insider said they were quite aware of the Perdaman position when the deal with Griffin was signed with its administrators.
These are new territories for the R5,872-crore company that began life as a construction business but took off big time in 1991, the year India’s liberalisation began. Madhusudan Rao is aware of the connection. “In 1991, we were at the right time at the right place. Had it been a decade later, probably there would have been other companies in this position.” It was a 90,000 tpa pig iron plant which came up as Lanco Ferro in that year. The pig iron to construction linkage worked.
The big break was, however, setting up of the 368 mw, gas-based power plant in Kondapalli near Vijaywada in Andhra Pradesh in 2000. From there to 3,287 mw and Lanco has emerged as the largest private sector power utility by 2011. Along the way, Rao says all the ventures were subsumed in 2006 under the Lanco Infratech banner. Its founder-chairman and his elder brother Rajagopal moved on as a Member of Parliament even earlier, by 2002.
The Iraq and Australian forays are follow-throughs of these forward and backward linkages. The Iraq venture builds on the concept to commissioning expertise in the EPC space, which Lanco is betting on as its USP. “EPC acts as a backbone for creating the engine strength for our other businesses. If we take this model outside India to emerging markets, our belief is that we can compete and create value,”
Rao explains. The four other he talks about are power, solar, natural resources and infrastructure.
The coal venture as part of the natural resources business is meant to provide the raw material security to its power projects in India.
Towards that end it is also building a berth at Bunburry port in Western Australia. Griffin Coal is a billion-tonne resource and is today mining about four million tonnes annually. Of this, Lanco expects about 75% will serve domestic commitments in the continent and the rest exported.
The company is learning to adapt. Just as the French government role became critical to sew up the Arcelor deal for LN Mittal and the UK government, post the Jaguar deal for Ratan Tata, Madhusudan Rao is sure the Australian government would make the right interventions. “The Australian government is willing to support us on building port infrastructure. It will be a three-four year process and we are working on that.”
Rao says Australia will be on his radar for quite some years, as “we are looking at other properties there”. It helped that Lanco took over the cost of running the government-administered mine. Because Perdaman is not the only battle that Lanco faces. There are other committed supplies like those to Bluewaters Power Station, a power producer that lights up almost 10% of Western Australia, as well as the carry through of A$1.2-billion power business of Griffin Coal to Kansai Electric Power last year, again on the talks of the new look at the coal supply deals from the now Lanco-held mines.
While there is a possibility of a retaliatory clamp down on exports of coal by the federal government, Rao is confident he will sail through. Other Indian companies eyeing the vast mineral reserves of the island continent are keenly tracking the way Lanco handles the tricky negotiations.
Rao is putting his cards on the table. “We want to focus on the (Western Australia) region and Griffin is a very important asset for us. There are some challenges with respect to Griffin. It had long-term contracts that we have to commit to. It’s a mine that we acquired through the administration process and its management cannot be taken for granted. So we want to focus on Griffin and make sure that we make a success of it.”
His CEO (business development), K Nagaprasad, says, “We are confident of the proactive role of the Australian government and the way it treats foreign investors.” This is important to retain the confidence of the investors in the company, as it has run up a debt-equity ratio of about 4 to finance its acquisitions. As interest costs mount, those could hurt.
In a way the international foray of Lanco is pretty much like Rao himself—ambitious, yet steady. Last year, the company set up its international division with headquarters at Singapore that is now scouting for coal mines in, besides Australia, Indonesia and Africa, while bidding to set up power projects in Nigeria, Ghana, South Africa, Vietnam, Bangladesh and the Philippines.
The man, who has mentored the phenomenal rise of the group over the past two decades, was, however, a late entrant in the family business. “When my brother (L Rajagopal) called me to India in 1991, it was a turning point in my life, what I call destiny,” says Rao. He was working in the US after completing his MS degree in industrial engineering from Wayne State University, Detroit, at that time. Rao joined as the joint managing director at Lanco Ferro and there has been no looking back since.
“In 1991, all of us were youngsters with no experience; Lanco was trying to take a jump from a small construction company to a sizeable manufacturing company.”
But there’s more on his mind than business. Rao prides himself on being a voracious reader, who is an ardent follower of “a lot of books on management and history”. But his first love is cars, collecting art comes next. When in college in the US, Rao was a Rolls Royce fanatic, to the extent that he spent much of his time drooling over the beauties at Rolls Royce showrooms. So it was dream fulfillment three years ago when he got his own custom-made Royce. Art, Rao believes, is an acquired taste that slowly grows on you, to the extent of intoxication. “You pick up the nuances and start understanding artwork and the artists themselves along the way,” says Rao, as he shows us one of his most prized artworks, a large Hussain painting.
Ever the optimist, Rao is not perturbed by the current political and economic environment in the country. “The past four months have been a little disturbing, but I strongly believe in the fundamentals of the country. We have seen these cycles before and this too shall pass,” adding, “I believe at 170 gigawatt today to 700 gigawatts in 20 years is a gigantic number for India, which will require an investment of $600 billion. The fundamentals are in place and it’s just about getting there.”

BHEL declares Q1 results

Bharat Heavy Electricals (BHEL) touched an intraday high of Rs 2,025 and an intraday low of Rs 1,953. At 13:23 hrs the share was quoting at Rs 1,957.65, down Rs 40.20, or 2.01%. 

The company's Q1 net profit was up 22% at Rs 815 crore versus Rs 667.7 crore, year-on-year, YoY.
It was trading with volumes of 150,438 shares. In the previous trading session, the share closed up 1.27% or Rs 25.00 at Rs 1,997.85.

NTPC Limited announces Q1 results : net profits after tax up by 12.70 percent

NTPC Limited, the largest power generator in the country, has announced Q1 results for 2011 on 25th July 2011. The power generating company has posted a growth of 12.70 percent in net profit during the quarter to Rs. 2,07,578 lakhs from Rs. 1,84,189 lakhs in the Q1 FY11. Sales of the company primarily through power generation business made a breakthrough in this April 2011. The company's installed capacity reached 34,194 MW (including 3364 MW under J/Vs) during the quarter start and more than this is awaited to be installed in coming years. Growth in revenues from power generation was up by 9.5 percent to Rs.14,13,726 lakhs year-on-year. But as per the company's statements, revenues are also affected by hike in tarrifs regulations by CERC w.e.f. april 2009. The sales figures are being net of previous years revenue generated this year. Also sales include Rs.893 lakhs related to deffere tax recoverable from customers.

On a worth watching case, other operating incomes have gone up significantly by 471 percent to Rs.35,274 lakhs from Rs.6,177 lakhs. Moreover the company seems highly profitable in the future as a latest press release of chairman shows that the limit of equity infusion in the company's joint ventures has been raised from Rs.1,000 crore to Rs.5,000 crore. Expenditures on the power generating business mainly went up by 10.39 percent to Rs.11,94,639 lakhs from Rs.10,82,159 lakhs during Q1 FY11. Increased fuel costs at increased plant capacities has been the major cause for the increase. Other expenitures of the company include loss of Rs.367 lakhs on account of foreign exchange fluctuations which was Rs.1,159 lakhs in Q1 FY11. Profits before (other income,interest and taxes ) managed to reach up by 18 percent to Rs.2,57,784 lakhs. As per the industry this profits figure is quite good for the investors. Other incomes increased by 26.19 percent to Rs.64,366 lakhs year-on-year.

Interest expenses for the year went up by 9.6 percent to Rs.37,435 lakhs from Rs.34,153 lakhs on account of exchange differences which are regarded as interest costs. In the Q1 FY11 such exchange differences were amounting to Rs.4,612 lakhs.Taxes currently paid were significantly up to Rs.81,321 lakhs from Rs.42,117 lakhs. Overall net profits after tax went up by 12.70 percent year-on-year up to Rs.2,07,578 lakhs from Rs.1,84,189 lakhs.

Wednesday, July 27, 2011

Private firms overtake government enterprises in power production, adds about 84 percent of the target

Skewed procurement policies and poor project management have forced thePlanning Commission to slash the capacity addition target of public sectorpower producers. The commission has instead raised the bar for private generation companies, an indication of its growing expectations from the sector in servicing India's future energy needs. 
Power projects run by the Central government added only half of the targeted generation capacity in 2010-11, while state government-funded projects fared even worse, meeting only 42% of the target. Projects funded by the private sector, however, added 5,122 MW of more capacity, about 84% of the target set by the commission. "Many issues have plagued the public enterprises in the power sector while the private sector has picked up," a Planning Commission official said. "This is apparent from the trends we are seeing, and therefore, targets for the next year have been fixed accordingly." The commission has cut the 2011-12 target of central projects by 25% and that of state projects by 36%. But it has raised the capacity addition target of the private sector by 25% to 7,610 MW. The commission had initially fixed the capacity addition target for the 11th Plan (2007-11) at 78,700 MW. But it later year scaled down the figure to 62,374 MW. During its mid-term appraisal last year, the commission had reduced the target for the 11th Plan even further to 34,462 MW. "The two key reasons why public sector has slipped in the planned capacity addition are issues with procurement of equipment and poor project management," said Debashish Mishra, senior director withDeloitte India. "Most of the projects are stuck due to problems of coordination within different government agencies." Sambitosh Mohapatra, executive director with PricewaterhouseCoopers, said public sector companies were suffering because of capacity constraints of equipment manufacturers likeBharat Heavy Electricals Limited. "New power capacities cannot be created if equipment manufacturers who supply to the pubic sector are facing capacity constraints. They are unable to meet the requirements of public sector power companies," Mohapatra said. As public sector companies battle issues of procurement, private sector firms have successfully established strategic partnerships with Chinese companies. "Most of the big private companies like Reliance,Adani and Lanco procure from Chinese companies who are very efficient and deliver on time, and that benefits projects. This is not the case with public projects," Mishra added. At present, Chinese companies are sitting roughly in excess of 25,000 MW of orders from private power companies in India. The private sector's contribution to the power sector in the 11th Plan has been much more than what the commission had originally anticipated. The commission had envisaged the private sector to contribute only 19% of new capacities at the beginning of the Plan. But in 2010, it revised the figure to 30%. It now expects the private sector to contribute most of the 60% of new capacities in the 12th Plan (2012- 17). 

Government expected to soon appoint a high-power committee headed by Cabinet Secretary to clear PSUs' overseas asset buys

The government is expected to soon appoint a high-power committee headed by the Cabinet Secretary for fast-track clearance of overseas asset buys by PSUs without going to Cabinet.Several public sector units (PSUs) in key infrastructure sectors like oil, coal and mines are scouting for acquisitions abroad.As these firms are up against tough competition for the acquisition of natural resources overseas, commercial decisions have to be fast-tracked."We expect the Cabinet to pass the proposal next month or so and then a month after that the panel will be set up," Department of Public Enterprises (DPE) Secretary Bhaskar Chatterjee said here at an AIMA PSU Summit.The empowered committee headed by Ajit Kumar Seth will clear the PSUs' projects for the acquisition of strategic assets abroad.
The secretaries of the administrative ministry (in charge) of the PSUs, its Chairman and Managing Director and representatives of the ministries of external affairs and finance would be in the empowered committee, he said.
The PSU's proposals for overseas asset buys can directly go to this committee without going to Cabinet, thus saving time.The idea has already found support from Prime Minister Manmohan Singh.The move is aimed at fighting competition from neighbouring China for foreign assets. It would also help provide a cushion to the PSUs to fight the competition posed by private companies in India looking at similar opportunities overseas.State-run steel major SAIL, along with NTPC, Coal India and Rashtriya Ispat Nigam Ltd, is also scouting for coal mines in Australia and other coal-rich nations through a special purpose vehicle, International Coal Ventures Ltd

NTPC may start work at its proposed 1,320 MW thermal project in Bangladesh in the next six months

NTPC would be executing this project in joint venture with the Bangladesh Power Development Board (BPDB). It would also execute another similar capacity project at Chittagong, a move aimed at mitigating the power shortages in the neighbouring nation.
The country's largest power producer NTPC would commence work on its 1,320 MW thermal project at Bangladesh in the next six months, a top company official today said.
"We might start work on the project in Khulna (Bangladesh) in the next six months," CMD NTPC Arup Roy Choudhury told reporters at an AIMA event here. NTPC would be setting up this project at Khulna in Bangladesh at an estimated investment of Rs 8,000 crore.
"Sourcing the coal is there responsibility...they will have to import it," Choudhury said. NTPC will also provide training and development to human
The coal-fired power plants are likely to be installed on a 50:50 equity basis to be run on imported coal and operated by NTPC. The project would be operational in four years from the date of commencement of construction.
resources of BPDB for productivity enhancement and efficiency of their existing power stations.
Meanwhile, NTPC's power trading arm NTPC Vidyut Vypar Nigam would export 250 MW of power to Bangladesh, from the company's 15% unallocated quota.
The transmission lines between India and Bangladesh are being set up under a pact signed between PowerGrid Corporation of India and BPDB, last year.
The interconnection between India and Bangladesh is being established through a 500-MW HVDC (high voltage direct current) link between India's eastern region and the western grid of Bangladesh.

PM's meet to resolve inter-ministerial differences relating to environment clearances for coal and power projects postponed

A meeting convened by the Prime Minister, Dr Manmohan Singh, today to resolve the inter-ministerial differences relating to environment clearances for coal and power projects has been postponed.
“The meeting which was to be chaired by the Prime Minister, Dr Manmohan Singh, on July 27 has been postponed,” sources in the Coal Ministry said.During the meeting, the Prime Minister was expected to review the performance of sectors such as coal and power and find a solution to the tussle between the Ministry of Environment and Forests and the Ministry of Coal on granting clearances for infrastructure projects, sources said.The meeting, which has been put off several times, was also likely to deliberate on a strategy for the terminal year of the Eleventh Five-Year Plan for the key infrastructure sectors.According to an estimate by the Planning Commission, the demand-supply gap for coal in the ongoing fiscal, which is also the terminal year of current Five-Year Plan, will be 142 million tonnes (mt), with domestic availability of only 554 mt against the requirement of 696 mt.According to the Coal ministry, the ‘no-go’ policy of the Environment Ministry, under which mining in 203 coal blocks is not allowed, has been the major reason for the increasing coal production shortfall.
No official reasons were given for calling off the meeting. So far, no fresh date for the meeting has been decided.

Reallocate power from central sector projects : All India power Engineers Federation

All India power Engineers Federation ( AIPEF ) has requested Union Power Minister to reallocate power from Central sector power stations in Northern Region so that no power utility is allowed to earn money regularly through surrendering of surplus power.
AIPEF in a letter to Union Power Minister has claimed that except Delhi , all power utilities of northern India are paying heavy penalty in lieu of unscheduled interchange (UI ) charges due to shortage of power in their states. Amazingly Delhi DISCOMS are earning huge money through UI by surrendering surplus power.
As per official record during the financial year Delhi DISCOMS have earned Rs.764.41 crore through UI and all other states particularly Punjab Haryana, UP, & Rajasthan have paid heavy penalty. For UI drawl during 2010-11, Haryana has paid Rs.1133.72 crore UP has paid Rs.897.62 crore , Rajasthan Rs.880.37 crore and Punjab Rs.521.03 crore. Even small state like Uttarakhand has paid Rs.176.89 crore on account of UI charges.
Last year Punjab over drew 9252 lakh units power from grid at average rate of Rs.5.63 per unit. Similarly Shaliender dubey alleged that this is because all these states are short of Power and Delhi has been allocated with surplus Power as per their requirement.
Official data shows that Delhi was surplus of 24698 Lac Units of electricity during the financial year 2010-11, while Haryana overdrew 32325 Lac Units, Rajasthan Overdrew 25682 Lac Units, UP overdrew 15283 Lac Units and Punjab overdrew 9252 Lac Units because of shortage electricity in these states. The average per unit cost for Punjab was Rs. 5.63, for Haryana Rs.3.51 and for UP it was Rs.5.87 per unit.
It is worthwhile to mention that about 5000 MW additional Power was allocated to Delhi in the name of Common Wealth Games. Even 2500 MW Power has been allocated from DVC which is far away from Delhi . A study of daily basis UI drawl of Delhi during Common Wealth Games shows Delhi was surplus with Power and DISCOMS minted money by surrendering surplus power.
In October itself DISCOMS earned Rs.55.84 crore by surrendering surplus power. Delhi was also allocated Power from Jhajjar and Dadri Plant also in the name of CWG. It is high time to review the matter and power allocations as per set formula and not give undue benefits to big private industrial houses.

Tuesday, July 26, 2011

MNRE's draft sub-group report on wind energy-I: A background

A sub group of the Ministry of New and Renewable Energy (MNRE) has, in its report on wind power, highlighted the various issues and challenges faced by the sector in the country.
  • The total capacity, as of March 2001, was 14,057 MW, and a decade later, by the end of March 2011, a total of 7,063 MW has been added during the first four years of the current 11th five year plan.
  • According to the Ministry, wind power development is focused only in 5 wind resource rich states, with around 42% of the total capacity in Tamil Nadu (5,904 MW) followed by Maharashtra (2,316 MW), Gujarat (2,176 MW, Karnataka (1,726 MW) and Rajasthan (1,525 MW).
  • As per MNRE, an estimated 15 GW may be further added in the 12th plan period, considering a conservative scenario where there is no major change in policy direction. However, in a policy induced scenario, where the government doles out subsidy or introduces tax benefits etc., the target addition comes out to be 20 GW. Finally, for an aggressive sketch which assumes a technological breakthrough in combination with policy inducements, the Ministry has calculated an addition of 25 GW.  
  • Out of a total installed capacity of about 175 GW, renewable energy accounts for approximately 9%, or 14 GW. By government estimates, the figure is expected to double over the next year or so. Wind energy, with its favorable cost economics, contributes nearly 70% of that and has exhibited exponential growth over the past few years. At present, India ranks fifth worldwide in terms of installed wind capacity, but, as of 2009-10, has the highest growth rate in terms of new installations.
  • It may be noted that Nearly 65% of India’s energy needs are met through thermal, non-renewable energy. However, at least on the surface, there appears to be a shift towards clean, renewable energy the world over, and India is no exception. The renewable energy sector is taking huge strides in the country, with policy assistance and intent of the Indian state towards ‘green energy’.

MNRE's draft sub-group report on wind energy-II: Unpredictability making it difficult for states to add capacity

The wind power sector in India is prone to several issues and challenges. Wind power, by its very making, being highly unpredictable, has made it difficult for states to add capacity without any linkages from load demand and power evacuation planning, along with a host of other issues, a few of which are elaborated below:
  • The bane of wind capacity generation, according to MNRE, is skewed incentives which has shifted the focus from power generation to capacity addition. This is because benefits are linked with the installation cost on which depreciation is derived. This has lead to a situation where producers have been reduced to a perfunctory state of capacity addition rather than focusing on the functioning of the systems, resulting in inadequate performance and grid disturbances.
  • Further the sub group has indicated that the industry lacks any long term (10 years or more) perspective, something which has resulted in high uncertainty. In addition, there is no prevalent conception of the market size and volumes which has added to the ambiguity surrounding the sector.
  • Also, the existing duty regime in the country does not support indigenized production since it is much cheaper to import the finished product and assemble it than to manufacture in the country. The distortionary regime has, therefore, so far made it impossible to nurture the growth of Indigenous technology.
  • Finally, the substantial offshore potential which the country offers, is yet to be put to good use. No systematic assessment of the same has yet commenced, even as MNRE has taken some initial steps, the process still is at the stage of firming the potential.

MNRE's draft sub-group report on wind energy-III: REC causing grid stability and uncertainty to distribution utilities

  • The sub-group has observed that the present regulatory framework, where the renewable energy certificates (REC) do not transfer electricity and the burden of usage of electricity falls on resource rich states, leads to grid instability and uncertainty to distribution utilities. This also results in loss of interest among the resource rich states, which have no incentive to increase their wind capacity through purchase obligations.
  • Finding the present wind potential estimates as `completely infructuous`, the committee has blamed this faulty estimation for slow development of wind energy in the country.  
  • Taking cognizance of the already constrained power evacuation infrastructure, the panel has drawn attention to the current strategy of the states of resorting to reducing their purchase obligation, instead of adopting plans for speedy deployment.  
  • Pertinently, there is an absence of policy framework for increasing wind power capacity of already set-up wind farms, particularly by replacing old machines by efficient ones. 

MNRE's draft sub-group report on wind energy-IV: Rs 800 Cr required during 12th Plan

Wind power is mainly private sector driven and Government budgetary support will be limited to meeting spill over liabilities of the ongoing five year plan period, particularly relating to generation based incentive (GBI) and also for developmental and research & development activities such as wind resource assessment, offshore wind, R&D activities, small wind development, studies and evaluation etc. The projected financial requirement during the 12th Five Year Plan period stands at Rs 800 crore. This is detailed as under:
  • GBI: Rs 475 crore 
  • Grant to the Centre for Wind Energy Technology (C-WET) including R&D expenditure, re-assessment of potential in 7 potential states, assessment of wind in north east and unexplored region, offshore wind power potential assessment and validation: Rs 250 crore 
  • Small wind systems: Rs 50 crore 
  • Studies, evaluations, consultancy projects, HRD, etc.: Rs 25 crore

MNRE's draft sub-group report on wind energy-V: Way forward

The sub-group, formed to support the main working group, has made a set of recommendations, post three meetings on the subject.
  • All states should take renewable purchase obligation (RPO) in all renewable power resources, including for wind. Further, each state should have a 10-15 year perspective for RPO from different resources.
  • For grid stability, spinning reserves must be created at the regional level and the central government may provide assistance for the purpose. 
  • There is an urgent need to carry out comprehensive resource assessment for wind energy. 
  • For quality control, new guidelines may be developed which, among others, provide for heavy penalty for erection of non-certified wind turbines. 
  • Regarding land issues, a policy for allocation of government for wind farming on footprint basis may be formulated.
  • A need for creating a level playing field for both indigenous and imported turbines has also been emphasized upon. 

Why open access is a non-starter

The Electricity Act 2003 was expected to introduce wide-ranging reforms in the power industry and attract much-needed private investment in a sector which had become moribund due to poor attention from policy makers. While reforms have been quite successful in generation and transmission, the distribution sector still remains an area of concern for policy makers.
For example, the Act has envisaged implementing an 'open access' regime to bring competition in electricity distribution. However, the idea has failed to take off because of resistance from distribution companies and practical problems in implementing the provisions.
Discoms are running huge losses as they are having to supply electricity below their power purchase cost due to non-revision of tariffs. Besides, discoms also supply electricity to farmers and weaker sections at subsidised tariffs. State governments are supposed to bear a part of the the subsidy burden. However, states hardly ever make full payment to discoms on account of electricity subsidy.
Discoms recover higher tariffs from industrial and commercial consumers to partly cross-subsidise electricity supply to farmers and weaker sections. If an existing industrial or commercial customer exits their network, discoms' tariff structure gets unbalanced. That is the reason they resist any move from creamy customers to seek electricity supply from any alternate source under the open access arrangement.
A case in point is Reliance Infrastructure's move to seek a revision in tariff after several high-paying customers switched to Tata Power's network in Mumbai.
The Maharashtra State Electricity Distribution Company (MSEDCL) is also facing a similar situation. About 51% of the power supplied by the state utility is unmetered. When a well-paying customer shifts to another supplier, it puts strain on the utility's tariff structure.
Practical problems relating to open access in power distribution were discussed in the 12th Regulators and Policymakers Retreat held by the Independent Power Producers Association of India (IPPAI) in Goa recently.
An open access customer is also required to sign a separate agreement for standby power supply in the event of disruption in power availability from the contracted supplier. It must pay standby charge to the local distribution company. This charge is decided by the customer and the discom through mutual negotiations and the regulator has no role to play.
These are the additional charges that a customer is required to pay if it wants to take electricity from a supplier other than the local distribution company.
These charges make open access a costlier option than taking power from the local discom. Besides, there is also the risk of the customer failing to tie up power supply under open access given that many states continue to face power shortages.
Open access has been successfully implemented in many developed countries because of separation of network ownership and power supply. While distribution network is still owned and operated by monopolies, there are multiple suppliers of electricity using the same network.
In contrast, we have a situation in India where network owner and electricity supplier happen to be the same entity

Front-loading planning

The Economic Survey 2010-11 highlights that India has some of the lowest and most uneconomic average electricity tariffs at retail levels, which are 50-80% lower than tariffs in countries better endowed with coal or gas energy (like Canada, South Africa, the US) and 135-150% lower than most European and developing countries'. The report also highlights that India has very high unmetered and unaccounted sales of around 35%, among the highest in the world.
Today the world is consuming more of every fuel. Emerging economies are increasingly producing and consuming more energy. In 2000, China accounted for just under a third of world coal use while in 2010 it accounted for around 48%. With the emerging economies expected to grow more, the pressure on fossil fuels is expected to increase.
Even as the bulk of the country’s electricity comes from thermal plants, concerns remain over output from domestic coal mines and gas reserves and availability of water. This calls for a unified and integrated approach to the power sector.
To make optimal use of the country's natural resources, for projects that require fossil fuel allocations, bankability and tariff competitiveness might also be included as selection criteria so that the risk of the power project being stranded for want of funds or marketability of power is avoided. Also, to ensure that no generating station is stranded for want of on fuel, fuel allocation should be done only to the extent of capacity that fuel production can sustain. For example, if the capacity seeking allocation is 50,000 mw, and the domestic incremental fuel supply can support only 30,000 mw, then the allocation should be restricted to 30,000 mw.
Now that it is becoming clear that fossil fuels will have to be imported for sustaining the sector's growth, a framework should be put in place to enure that adequate port, rail and pipeline capacity are added. Also, the government has to facilitate acquisition of fuel assets overseas by Indian private and public sector companies.
As there will be projects based on non-fossil fuels, estimate will have to be made on which projects in hydro, renewables, etc are doable and in what time-frame.
However, since the cost of producing electricity with imported fuel or renewables is substantially higher than electricity produced from domestic fuel, in the current set-up where distribution utilities are in huge losses, such projects may not become viable until the overall health of distribution utilities improves and retail tariffs are sustainable for the entire system. This would warrant a revamp of the retail tariffs across the country.
There could be an empowered body under the PMO, with cross-functional representations from concerned ministries — that is, power, environment and forest, coal and petroleum & natural gas, railways and shipping — along with power sector lenders and senior representatives from states on a rotation basis to carry out a more holistic planning to support capacity addition in the power sector.
Since this body will have representatives from the ministry of environment and forests as well, more informed screening of the projects, be it fossil fuel-based or hydel-based, can happen at the preliminary stage of the project itself, avoiding situations where a project can be put on hold due to environmental concerns even at an advanced stage of implementation.
After this empowered body sets allocation of fuel for shortlisted projects; decides on the infrastructure requirements; and the targets for acquisition of assets needed overseas; there should be rigorous and focused follow-up of the shortlisted projects.
As it is said, it pays to plan in advance. It was not raining when Noah built the ark!

Discoms may get to pass through rise in fuel costs

With power projects increasingly facing difficulties in meeting contractual obligations relating to electricity supply, the power ministry has begun a process to review the existing competitive tariff bidding guidelines.
The intention is to keep investor interest alive by making the guidelines attuned to ground realities. The Maharashtra Electricity Regulatory Commission has recently allowed the state distribution company to deviate from standard bidding guidelines and make provisions for passing-through of increase in fuel cost under extreme circumstances. The power ministry is likely to take cue from the Maharashtra regulator’s order while conducting a review of tariff bidding guidelines

Power ministry begins reviewing competitive tariff-bidding norms

With power projects increasingly facing difficulties in meeting their contractual obligations related to electricity supply due to bottlenecks in key areas like fuel availability, land acquisition and environmental clearance, the power ministry has begun a process to review the existing competitive tariff-bidding guidelines. The intention behind the move is to keep investor interest alive in the sector by making the guidelines attuned to the ground realities.
The Mahrashtra Electricity Regulatory Commission (MERC) has recently allowed the state discom MSEDCL to deviate from standard bidding guidelines and make provisions for passing through of increase in fuel cost under circumstances which could be beyond the control of electricity supplier. The power ministry is likely to take a cue from MERC’s landmark order while conducting review of tariff bidding guidelines. “We are conducting a review of tariff bidding guidelines. Revised guidelines will be applicable prospectively,” Union power secretary P Uma Shankar told FE.
The ministry is concerned over the increasing incidences of private developers approaching electricity regulators for review of the key contractual terms relating to power supply committed by them while bidding for projects.
According to industry sources, about half a dozen private power projects including JSW Energy’s Ratnagiri and Adani Power’s Mundra are facing the prospect of defaulting on their power supply commitments, either due to coal shortage from linked mines or because of their inability to pass on rise in fuel import prices to electricity buyers.
Imported coal prices have shot up by $25-27 a tonne following recent changes in coal pricing regulations in exporting countries like Indonesia and Australia.
Coal India has not signed any fuel supply agreement post March 2009 despite signing Letters of Assurance with power project developers. It is meeting only 50% of the coal requirements of these projects. Developers have no option but to import coal to meet shortfall in fuel supply from CIL.
Power project developers with captive coal blocks are unable to start mining work due to delay in getting environmental clearances. What is even more frustrating for developers is that regulators cannot provide any relief in such cases as they do not have the authority to review tariff in such cases.
But despite that, some developers have approached the concerned state electricity regulatory commissions (SERCs) for a review of key contractual obligations relating to power supply.
The existing norms were formulated by the ministry in 2005 when fuel availability from domestic sources was comfortable and prices in the international coal market affordable. But since then, the scenario has changed dramatically, with domestic coal demand-supply widening sharply in recent years due to tightening environmental regulations for the mining sector. Meanwhile, international coal prices have also shot up beyond expectations.
The government introduced tariff bidding for private players in January 2006. Till now, about 42,000 mw capacity has been awarded for development through this route. Of this, 35,000 mw is based on domestic fuel linkage while the balance is to be fired with imported coal
With coal mining projects facing serious difficulties in getting environmental clearance, power project developers are insisting on bringing tariff under ‘force majeure’ provisions while bidding for power projects. Power distribution companies have no option but to agree on such deviations. In a departure from the past trend, regulators are also inclined to consider favourably distribution companies' petitions seeking such deviations
For example, the Maharashtra State Electricity Distribution Company’s (MSEDCL) has recently floated tender to buy 500-600 mw electricity from a Greenfield project. It has been allocated the Bhivkund captive mine by the coal ministry to meet the fuel requirement of the project. On insistence of interested bidders, it has amended bidding guidelines and brought fuel price under ‘force majeure’ clause.
In other words, it can pass on increase in fuel cost to the MSEDCL if it has to procure additional coal from an alternate source to meet the fuel shortfall. In a landmark order passed recently, the Maharashtra Electricity Regulatory Commission has approved these deviations.
Even as the power ministry has undertaken review of its tariff bidding guidelines, it has no plan as yet to move a proposal to amend the Electricity Act to empower regulators to review existing power supply agreements. “It is for the power supplier and procurer to decide this issue between them,” the power secretary said.
The recent change in coal pricing methodology by the Indonesian government, which mandates all parties to sell coal at market prices, has given rise to doubts about the viability of many Indian power projects including ultra mega power projects at Mundra and Krishnapatnam where developers cannot pass on increase in fuel cost to buyers under the existing contracts.
In response to a letter written by the power secretary, the Indonesian government has clarified that it has indeed amended its coal pricing regulations and that even the existing contracts have to comply with that.
“The contracts that we signed have become impossible to deliver due to conditions beyond our control. A prudent person could not have foreseen such conditions at the time of signing contracts,” Ashok Khurana, director general, association of power producers (APP), said.
APP is an association of key private producers like Tata Power, Reliance Power, Adani Power and Lanco. “In view of these changes in laws and regulations in source countries, we have requested the government to devise a mechanism to assess the impact of these changes on the tariffs,” Khurana said.

New norms soon to help power units in special economic zones

Power companies looking to set up plants in Special Economic Zones (SEZ) may soon be exempted from the positive net foreign exchange (NFE) obligation applicable to regular units in such enclaves.
The proposed move is expected to help power companies such as Torrent Energy, Welspun Energy and AES that have plans to operate in SEZs.
Most power firms have not been actively considering setting up plants in SEZs due to feasibility concerns arising from the positive NFE norm (foreign exchange from exports should exceed imports).
Currently, the Revenue Department treats a power plant in the processing area just as any other export unit and not as an infrastructure facility/developer/co-developer. That means its output is considered as a ‘good' that would attract the positive NFE obligation.
The processing area in an SEZ houses export units, while the non-processing area has social infrastructure including residences, hospitals and schools.
Power companies say that unlike manufacturing/IT/ITES units, it is not possible for them to achieve a positive NFE. Though the supply of power to units within the SEZ is treated as exports and counted towards calculation of positive NFE, achieving economies of scale is difficult by just supplying to SEZ units.
The only option is to sell the surplus electricity generated to units in the domestic tariff area (area outside the SEZs where all taxes and duties apply) by paying the applicable levies.
“Power companies have no problem in paying levies. Their problem is only in the NFE condition. Even if all their supplies to the SEZ units are deemed as exports, it will still be difficult to meet the positive NFE norm due to the high capex,” a consultant to a power company said.
The Government is now in the process of framing fresh guidelines for power plants in SEZs.
Official sources told Business Line that the guidelines would allow power firms – that want to operate from the processing area of SEZs – to apply as developer/co-developer.
Being a co-developer/developer would mean that the positive NFE obligation will not be applicable to the power firms. It will also give the power companies the status of an infrastructure company, thus entitling them to fiscal benefits.
Acting on representations from the sector, the Commerce Ministry has obtained the opinion of the Law Ministry, which is understood to have said that power firms in processing area can also be allowed to apply as developer/co-developer.
Commerce Ministry officials point out that since the country is power-starved, power firms should be encouraged to set up operations anywhere – be it in processing or non-processing area in SEZs.
The Commerce Ministry will now hold a new round of talks with the Revenue Department to finalise the guidelines.
Mr Tapan Sangal, Partner at consultancy firm BDO, said, “Such a policy change will not only boost the power sector, but also the SEZ segment which is currently facing challenges such as imposition of Minimum Alternate Tax and the proposal in the Direct Taxes Code to do away with profit-linked incentives.”