Power sector update
Let’s take a look at how certain power sector segments have fared since last year and what impact these developments will have in the years to come, says R Srinivasan.
The power sector limelight in the last couple of years has largely been dominated by solar energy. So, for a change comes this heart-warming piece of news that India by the early 2020s will replace Russia as the world’s third largest refiner. In terms of conventional sources of energy, the government has set a target of generating 1,229.4 billion units in 2017-18 from thermal, hydro and nuclear sources, as per Central Electricity Authority (CEA) data. The CEA though has warned that about 46,000 MW (30,000 MW from thermal and 16,000 MW from gas) of power capacity is stranded due to poor last mile connectivity. Also, as per reports, about half of the country’s thermal power plants are over 25 years old, and a large number of them are approaching 40. Analysts say that the generation capabilities of thermal plants reduce by about 40% after the operational age of 25 years. Keeping in mind the environment ministry’s norms for coal-based power stations to cut down emissions and improve the ambient air quality around power plants, Power Minister Piyush Goyal recently said that companies should now focus on replacement of old plants with energy efficient technologies. He said that as much as 39,710 MW capacity based on supercritical technology has already been added and 48,060 MW of super-critical power generation is in the pipeline.
Conventional generation: Queried about the conventional generation scenario, Rudranil Roy Sharma, General Manager and Head (Energy Practice), Feedback Business Consulting Services Pvt Ltd, said, “In the last one year i.e. between March 2016 and February 2017, installed power generation capacity of the country has been increased by 26,762 MW. It is heartening to see that renewables account for 42% share of this installed capacity. When it comes to conventional power, in the time period between March 2016 and February 2017, approximately 13,855 MW of thermal generation capacity has been added in the system 13,190 MW of coal and 820 MW of gas-based power while 155 MW of diesel based power has been retired from the system during this period. Growth in hydropower installed capacity has remained subdued at 1,710 MW and there was no installed capacity addition for nuclear power.
During the year, the govt has decided that it will phase out the old non-efficient coal based power plants and these plants will be replaced by supercritical technology thermal power plants which is a move in the right direction. However, during the year, the plant load factor of thermal power plants has significantly gone down to hovering between 50 – 55%. These are base-load plants and there are risks of significant equipment damage if operated on partial loads/fluctuated loads for longer duration. The govt needs to see how it can restore electricity demand in the country and revive the PLF of these coal based power plants.
On the other hand, the gas sector is plagued with many challenges with almost 8 GW capacity stranded and the remaining is operated with a very low PLF. The govt needs to come out with innovative business models to bring this sector to life at the earliest as many stakeholders are affected due to non-performance of this sector. The fraternity was expecting a concrete policy related to the hydropower sector this year however, it is yet to see that. The govt is considering giving renewable energy status to large hydropower plants. Overall, like many previous years, Coal has been the growth engine for the conventional power sector and is likely to remain the same for the next few years.”
Renewable energy: Based on data from the power ministry and ministry of new and renewable energy (MNRE), a report by Elara Capital, said that capacity addition from renewable energy sources surpassed conventional sources for the first time in financial year 2017 as India added 12.5 gigawatt (GW) of renewable energy capacity as compared to 10.2 GW from conventional sources of fuel. Of the 10.2 GW of capacity addition from conventional energy, 74% came from thermal, while the rest came from hydro and nuclear power projects.
Also Power Minister Piyush Goyal tweeted that the solar power generation capacity has crossed 10,000 megawatt (MW), a more than three-time jump in less than three years. As per ministry estimates, another 8.8 GW capacity may be added in 2017, including about 1.1 GW of rooftop solar installations.
In terms of a wind energy development, the tariff recently dropped to a record low of Rs 3.46 per unit in an auction of 1,000 MW capacity conducted by Solar Energy Corporation of India (SECI). Although SECI did not provide any benchmark tariff, the average figure for wind power is around Rs 5. Globally, India is at fourth position after China, the US and Germany, in terms of wind capacity installation.
Responding to a query about renewable energy, Rudranil Roy Sharma, said, “The renewable energy sector has been a star performer in the last few years. Renewable energy installed capacity in the country has increased to 51,361 MW by end of February 2017. Approximately 5,415 MW of
renewable energy capacity has been added between April 2016 and February 2017 – 2,374 MW of wind power, 2,804 MW of solar power, 73 MW of small hydro, 157 MW of biopower and 7.5 MW of waste-to-power. Clearly, solar and wind have been key growth drivers for the sector. While wind was driving this sector for the last many years, solar has now joined hands and is likely to surpass wind very soon.
This year saw solar tariffs falling to a record low of Rs 2.97 per unit. This happened following completion of the bid for three 250 MW units of Madhya Pradesh’s Rewa Solar UMPP, continuing the steady downward trend in prices. Mahindra Renewables won Unit 1 at a price of Rs 2.979 per unit, ACME won Unit 2 at Rs 2.970 per unit and Solenberg Power won Unit 3 at Rs 2.974 per unit. Experts believe that this may disrupt the industry as a whole since projects will start becoming unviable at such low tariffs. However, the Rewa project should be considered as a separate case where risk factors were considerably low and as a result, developers could quote such a low price. The govt has now decided to follow the Rewa model and we expect to see some changes in the upcoming bids.
In the recently concluded budget, the Finance Minister announced that the central government would take up the second phase of their development for an additional capacity of 20,000 MW. This was reiterated after Power Minister Piyush Goyal said the Ministry of New and Renewable Energy (MNRE) would begin auction for another 20 GW of solar parks.
This year also saw wind power moving from Feed-in-tariff regime to competitive bidding regime. Power Minister earlier this year announced that wind power will also go through reverse auction process in order to discover the right price. As a result, after a sharp drop in solar tariff to Rs 2.97 per unit, wind power tariff also dropped to a record low of Rs 3.46 per unit in a recently concluded auction of 1,000 MW capacity conducted by Solar Energy Corporation of India (SECI). Mytrah Energy, Green Infra Wind Energy, Inox Wind Infrastructure Services, Ostro Kutch Wind and Adani Green Energy have emerged as the lowest bidders. All these five firms have quoted Rs 3.46 per unit rate for the 1,000 MW capacities on block. Developers are frantic as this sector used to get decent margins under the feed-in tariff regime. Besides, a few states like J&K have been pushing for SHP and will be seeing lots of projects in the future.”
Equipment/T&D: In terms of equipment, as per reports, China is close to capturing at least 60% of the global lithium ion-based batteries market by 2020, overtaking Japan and South Korea and analysts warned that China may swamp India’s lithium ion large storage battery market if the government does not usher in the necessary research and policies. This is significant since storage is an important part of rooftop solar and electric vehicles (EVs). With energy storage costs in India becoming affordable in the coming years, there may be a surge in their use, which will also be in line with the government’s plan for six million electric and hybrid vehicles on Indian roads by 2020. Any such shift to EVs will also be in keeping with our COP 21 commitment and is significant in view of India’s energy import bill of around $150 billion, which is expected to reach $300 billion by 2030. To put the potential of EVs in perspective, Tata Power Delhi Distribution Ltd (TPDDL) recently said that it is planning to install 1,000 electric vehicle charging stations in the next four to five years in Delhi. Also many companies are eyeing the EV segment in different categories.
In terms of distribution company (discom) issues, a Mercom report said that payment delays by discoms continue to pose a challenge for the growing renewable energy sector in India as it tries to achieve 175 GW of renewable installations by 2022. Tariffs have come down by 73 per cent since 2010 and the recent REWA auction recorded the lowest solar tariff in the country - Rs.3.30 (~$0.494)/ kWh (levelised tariff over 25 years). Raj Prabhu, CEO and co-Founder of Mercom Capital Group said, “At the end of the day states cannot pay developers if they don’t raise power tariffs and bring in revenues. A lot depends on the success of UDAY and everything is coming to a head at a crucial time when Indian solar installations are on a path to more than double from 4 GW installed last year. As installations double, power purchase bills will also jump. If states cannot upgrade their financial situation quickly and improve their ability to make payments to developers and take care of other bottlenecks, installations will stall and so will the goal of reaching 100 GW by 2022.”
EPC: In one of the most dynamic solar markets in the world, engineering, procurement and construction (EPC) contractors face an issue since some international and domestic investors and developers are bidding aggressively, leading to a fall in unit prices to as low as Rs 2.97/kWh as in the case of the recently concluded Rewa solar park reverse bidding auctions in Madhya Pradesh. As per reports, this is marginalising some EPC players and creating a situation where only big players with MW scale businesses may sustain themselves in the long run. Here the govt could take note of certain
concerns faced by EPC contractors and create a sustainable environment for them.
Energy efficiency: The Power Minister said that the government’s promotion of light emitting diodes (LED) will help reduce carbon dioxide emissions by 80 million tonnes per annum and save around Rs 40,000 crore in power bills annually. In this context, Energy Efficient Service Ltd (EESL) had set a target of selling 77 crore LED bulbs by 2018 under its Unnat Jyoti by Affordable Lamps for All (UJALA) scheme.
About energy efficiency (UJALA, etc) in terms of carbon footprint, Rudranil Roy Sharma said, “Energy efficiency has been one of the key pillars of the present government since 2014. EESL has been highly proactive in this space. The flagship programme of LED lamp distribution has touched multiple millions of the Indian population. EESL has more than doubled their numbers in this field. As of date, they have distributed more than 225 million LED lamps, which stood at a little over 100 million at the same time last year. Since the LED lamp business has found a strong footing in the Indian market, EESL is now spreading its reach into different markets like tube lights and ceiling fans. As of date, 1.6 million tube lights and more than 600,000 energy efficient fans have found takers by EESL. And, thanks to the path breaking concepts and implementation, progress in this field is largely transparent through the UJALA platform at www.ujala.gov.in and through mobile apps for handheld devices. The organisation would soon also be entering the AC market through the same route and same strategy. Highly energy efficient ACs working on inverter technology would be the products on focus. These highly efficient inverter ACs work at EERs starting at 5.2, and would replace conventional 5-star ACs which would only have an EER between 3.5 and 3.7. This exchange scheme of the organisation would be made available only to institutions and organisations, which would open up a new facet for EESL of selling fast moving equipment from a B2B angle.”
Make in India initiatives: Eight out of the top 10 solar module suppliers in the Indian market are now from China as against four last year, as per consulting firm Bridge to India. Also in 2015, 80 per cent of the approximately 161 million imported solar panels were from China. To achieve its renewable energy (RE) target, India must add 130.76 GW of RE over the next six years, an average of 21.7 GW per year or three times the capacity it added in 2016. It is felt that the govt should encourage indigenous manufacturing of solar panels, as per the Make in India campaign, so as to reduce dependence on imports by extending special concessions to domestic manufacturers so that they can overcome constraints such as limited manufacturing capacities and high cost of financing. Here low-cost finance options can go a long way in promoting the solar panel industry.
Similarly, since an estimated 28% of energy generated in India is lost during transmission or stolen and frequent power outages last for hours in many regions of the country, companies should view this challenge as an opportunity and come up with innovative indigenous sustainable technologies, especially for off-grid areas which are expected to drive future growth of the market. This brings to mind a report where as per IBM’s research, UrJar, a back-up power device reuses batteries from discarded computers, which could be used to aid millions of people in India who lack access to reliable electricity supply. This solution can simultaneously address the twin issues of battery e-waste as well as energy access and the magnitude of the solution can be understood in the backdrop of the fact that the country, according to IBM, generates eight million tons of e-waste per year. So innovations like these for rural households are the need of the hour. Also it is said that efforts towards rural electrification led to a fall in poverty in India from 21% in 2012 to 12.4% in 2015.
Internet of things (IoT) The technology has great potential, especially in creating efficiencies and reducing operational costs. According to technology consulting firm Gartner, 6.4 billion ‘things’ will be in use worldwide in 2016 and the firm expects this number to grow to 21 billion by 2020. That’s a massive amount of data and devices to manage and integrate into the cloud. As the IoT market expands and IoT data usage increases with the passage of time, organisations will increasingly be vulnerable to security challenges and hackers may access the Cloud to sabotage data or launch cyber-attacks. A case in point is the September 2016 attack wherein 152,000 hacked IoT devices, including potentially smart refrigerators were used to launch the record-breaking attack. By incorporating certain security measures into the cloud infrastructure, businesses can reduce the risk of such attacks.
To summarise, in the years to come, there is clearly plenty of growth to come from India and we hope to see our country becoming the focus of attention and to take its much-deserved place at the centre-stage of global energy.