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THEME: “NEW CHALLENGES FOR THE POWER SECTOR”17th November | 18th India Power Forum | New Delhi

REGAINING INVESTOR CONFIDENCE IN POWER

SECTOR & ADDRESSING STRESSED

ASSETS

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STRESSED CAPACITIES IN POWER SECTOR

According to CMIE, as on Mar 31st, 2015, 33 power sector projects were stressed, representing over Rs.1 Lakh Crore

According to CRISIL capacity of 46,000 MW, with tied up loans amounting to Rs. 2.1 Lakh Crores, are facing viability issues. o Rs. 35,000 Crores out of these had a cushion of strong parent company and Rs. 1

Lakh Crores out of these could become viable with debt restructuringo Remaining Rs. 75,000 Crores of loans were at risko PLF of capacities commissioned after 2009 remain sub-optimal at 45%

The situation could worsen if the discoms remain financially fragile: o Around 3 Lakh Crores of debt is laden on SEBso Annual tariff hikes of 10% over next 3 years and reduction in AT&C losses by 2%

(from current levels of 25.4%) are necessary for discoms to break even in medium term, according to CRISIL

The situation has affected not just the private sector, but even the Govt. supported projects like UMPPs, Bulk tender projects, etc.

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MAJOR CAUSES FOR STRESSED CAPACITIES

Delays in land acquisition and environmental clearances and unavailability of fuel leading to increased project cost

Under-recovery of tariff led to poor off-take from discoms, hampering the viability of the projects

Low PLF of projects led to their poor valuation by financing agencies - Financing facilities could be availed at higher rates only

Mismatch in Generation, transmission, distribution and other key constituents of the value chain – number of generating plants ready but not able to produce due to evacuation constraints

Uncertainty of demand projection due to: o the current low PLF/ poor off-take o Mix of Conventional and Renewable power in future

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INDIAN POWER SECTOR SCENARIO

289, 93%22,

7%

Population with access to electricity Rural Urban

Total Indian Population (Mn.) Population without access to electricity (Mn.)

Over One-Fifth population still without access to Electricity

Source: World Bank 2013; FICCI

Reach of Electrification

Energy Deficit Peak Deficit

4.24.5

3.6

4.7

2.12.6

Power Deficits in the Na-tion2013-14 2014-15 2015-16 (*)

Source: Load Generation Balance Report of CEA, 2014-15(*) - Projected

Power Deficit of only around 2% projected in short run, with many states being power surplus

• 2/3rd of non-electrified population is among the poorest 40% of the Indian population

• Per capita consumption in India 1/3rd of world average

Showcases the inability to account for Latent demand

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POWER SECTOR ORDERING TREND

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 (Till Date)

28.425.2

8.5 11.66.2

9.56.9

CONVENTIONAL POWER SECTOR ORDERING (IN GW)

• Impact of Electricity Act 2003

• Entry of Private Developers into the sector

• Domestic JVs announced for manufacturing power plant equipment in India with technology transfer

• Impact of Global recession on Indian Economy

• Issues related to supply of fuel and provision of clearances and Land acquisition

• Poor off-take of Power from Discoms due to tariff under-recovery: impacting the balance sheets of the private developers

• Issues related to financing for Private developers – Ordering from pvt. sector dries up

• Various scams hit the sector while issue of ‘policy paralysis’ continues to plague the sector

• Green offshoots seen in the sector with new govt. initiatives for the provision of fuel, land and clearances

• Attempts made to revive the stressed capacity

• Schemes launched for improving the financial condition of the discoms, which can have a positive impact on the sector as a whole

• Ordering in the sector picks up (though led by Govt. sector only)

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IMPACT OF STRESSED PROJECTS

In some projects, there have been long delays between tendering and award of contracts to EPC/ BTG Contractors by the developers; In some others, despite award of contracts, the actual zero dates haven’t started

High risk perception by Banks and FIs – further making the funding difficult

Low utilization of capacities of key players – deterrent for further investment

May result in under capacity once the constraints are addressed and demand increases

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EQUIPMENT MANUFACTUR

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IMPACT ON THE SECTOR: MANUFACTURER’S PERSPECTIVE

Build up of Inventory even at sub vendor level

Project Costs spiralled upwards

Supply Chain is disturbed

Impact on quality of product installed at the site

Power plants are long cycle projects, requiring Advanced Planning for deployment of resources at works and site

Impact on other projects Underutilized Capacity

Working Capital Isuues

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INITIATIVES UNDERTAKEN FOR DE-STRESSING THE SECTOR

INITIATIVES FOR DE-STRESSING THE SECTOR

POWER SECTOR

DEMAND

Power for All and Make in India

Smart Cities and AMRUT

Medium term surge in Demand expected with:

FUEL

Coal Block Auctions & Allocations

E-Auction of R-LNG for Gas Projects

Diminishing Fuel Uncertainties by:

CLEARANCE

• Parallel processing of Environment & Forest Clearance

PRAGATI : High-level periodic & integrated project reviews

Simplifying the Clearance process with:

FINANCING

Ujjwal Discom Assistance Yojana (UDAY)

5/25 Scheme for debt restructuring of Stressed Assets

Ease the strain on Discoms/ Developers by:

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REVIEW OF DEMAND PROJECTIONS

SUGGESTIONS FOR DE-STRESSING THE SECTOR

IMPROVING THE FINANCIAL HEALTH OF DISCOMS/ TARIFF RATIONALIZATIONFINANCIAL RESTRUCTURING OF PROJECTS

FASTER CLEARANCES FOR NEW PROJECTS: Can Help in Utilization of Already Built-up Inventories

ENCOURAGING THE DOMESTIC MANUFACTURING Introduction of Scheme to incentivize domestic manufacturers for higher value addition

through promotion of technology depth in 'high-tech' areas/ In-house R&D – to improve project viability

STRANDED CENTRAL/ STATE GOVT. PROJECTS (INCL. THOSE OF BULK TENDERS) TO BE ADJUSTED WITHIN ANY NEW UPCOMING PROJECT OF CENTRAL UTILITIES

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THANK YOU

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NEGATIVES FOR THERMAL DUE TO SHIFT TO R.E.

NECESSITY OF THERMAL POWER

Thermal to remain as base load/ balancing power – RE can supplement but not substitute Thermal power:

•Energy storage requirements necessary due to mismatch between demand profile and RE Generation profile – will require substantial additional cost

•RE requires large scale funding

•Grid stability concerns due to need for high speed switching between RE and conventional power systems

•Environmental impact of thermal power on a downward trend due to improved efficiencies/ shift to USC and AUSC

•RE Power off-take may be constrained without govt. support/ subsidy

•High water and land requirement

•Focus on minimizing environmental impact due to power generation

•International pressure for reducing carbon footprint (Paris Summit and INDC)

•Increased govt. focus on solar and wind power : govt. plan to increase Solar capacity to 250 GW and Wind based capacity to 100 GW by 2030

•Decreasing gap between RE and Thermal power cost (NTPC Andhra Pradesh Solar Bid for Rs. 4.63/Unit)

•Various govt. utilities have already announced major RE capacity addition plans (NTPC, MP, Rajasthan, Gujarat, etc.)

THERMAL POWER TO REMAIN MAINSTAY DESPITE SHIFT TOWARDS RE