IDFC sees pvt sector adding 50,000 MW capacity in 3 years

The private sector is expected to lead the way in adding power generating capacity in the next three years. It is expected to bring on stream almost double of what it has been able to put up in the two decades since the sector was thrown open to private investment."We are expecting that about 50,000 MW of private generating capacity will come on stream within the next 36 months. That will represent a 40-odd per cent increase in capacity,” says Dr Rajiv Lall, Managing Director and Chief Executive Officer, Infrastructure Development Finance Co Ltd. On top of that there will be public sector capacity that will come on stream. “In the next three years, we will see close to a 50-60 per cent growth in generating capacity.”
According to him, more than a third of the total generating capacity at the end of the next three years will come from the private sector.The capacity that will go on stream in the next three years will still not eliminate shortages, but it will be a markedly better performance than in the last decade or two.Such a large contribution by the private sector reflected its ability to win projects, to raise financing and to execute these projects. Also, the ecosystem, comprising financial service intermediaries, financiers, advisors, lawyers and contractors has become much more sophisticated that it is able to service the “not insignificant demand of this kind of investment activity.”

4 ultra mega projects

The four ultra-mega power projects that had been awarded would contribute only 7,000-8,000 MW of capacity in the next three years. A bulk of the addition will come from projects in the range of 500-1,000 MW in size. “There are at least 10-12 private groups that will have on an average 6,000 MW to 7,000 MW of pipeline capacity already being developed.” A bulk of the fresh private sector capacity would come from power purchase agreement based projects and the balance from merchant power plants.He felt the single most important reason for the private sector's increased contribution to generating capacity was the unbundling of power utilities. More States were inviting bids for generating capacity, which the private sector was able to participate in.

As of February 28, the private sector accounted for 28,330 MW of the total installed capacity of 1,57,230 MW, or 13.5 per cent of the total. In 2009-10, the private sector added 4,287 MW of the total 9,585 MW added during the year.

Investment

To a question, Dr Lall felt that investment was going into creating transmission infrastructure, although it could be done at a faster pace and in a more pro-active manner, anticipating the growth in generating capacity. Power Grid Corporation, the central agency that is responsible for the national grid, did not invest in evacuation infrastructure anticipating the growth in generating capacity. But even the transmission sector was open to the private sector. With the huge capacity addition taking place, there will be greater pressure to fix transmission infrastructure.“It should ideally happen simultaneously, but we keep forgetting where we were three to five years ago. The point is that momentum has built up significantly. You imagine water filling up on this side of the dam and the field to be irrigated is on the other side. It is a matter of time before the dam bursts. And that is what is beginning to happen (as far as transmission infrastructure is concerned),” said Dr Lall.

Coal

Most of the fresh generating capacity, especially by the private sector, will be coal-fired plants. He anticipated that a bulk of this coal will be imported given the problem in coal mining in the country. Most of the coal assets are in forest areas or tribal belts, where a great deal of sensitivity will be required.Importing the coal required for the power plants will impact the returns for the investors in power projects. “It will not be fatal. They will still make decent returns but not very high returns,” added Dr Lall.

He pointed to a trend that was emerging: large private sector players in power generation were investing in owning coal mines abroad to ensure their fuel security, and a number of them were also investing in ports.

With the Government owned ports not having enough capacity to handle the increased coal capacity, these private ports would turn out to be lucrative assets for their owners.