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Power
1

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Key conclusions
Key reforms introduced to address issues in fuel availability, improve health of
discoms and tackle stressed PPAs, however, progress remains slow
Fuel constraints, weak discom financials, aggressive bidding have adversely
impacted returns of many operational projects
Moreover demand is expected to slowdown to 5.3% CAGR over next 5 years due to
weak economic growth
Slower demand, issues in clearances, and stretched financials of developers to
moderate pace of capacity additions to 55 GW over 2013-18 vis--vis 64 GW in past 5
years
Overall PLFs of coal based plants to remain subdued at 73% in FY18
- Aggressive bidding and slow demand growth to restrict PLF of new plants to 67% by
FY18 which is currently at ~50%
7 GW domestic coal based projects bid below Rs 3.1 / unit, which is required for
equity IRR of 16%, are likely to see severe pressure on their profitability as per
existing PPAs
SEB financials to improve led by FRP implementation, tariff hikes; revenue gap to be
eliminated by FY18

2

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Source: CEA
Source: MoC, MoPNG, Industry sources, CRISIL Research
3
Capacity additions have accelerated but PLFs declined
Source: CEA
Source: PFC
203
134
9
11
20
20
8.7
0
50
100
150
200
250
FY'09 FY'10 FY'11 FY'12 FY'13 9M FY'14 Dec'13
Sharp growth in
capacity additions
(GW)
-2%
0%
2%
4%
6%
8%
10%
12%
F
Y
'
0
9

F
Y
'
1
0

F
Y
'
1
1

F
Y
'
1
2

F
Y
'
1
3

Coal supply growth
CAGR: 4.5%
-40%
-20%
0%
20%
40%
60%
F
Y
'
0
9

F
Y
'
1
0

F
Y
'
1
1

F
Y
'
1
2

F
Y
'
1
3

Gas supply growth
CAGR: 2.3%

78 78
75
74
70
65
58
67
66
60
40
25
20
30
40
50
60
70
80
FY'09 FY'10 FY'11 FY'12 FY'13 9M'14
Coal based PLFs Gas based PLFs
(%)
2.93
3.40
3.55
3.97
4.39
4.71
2.70
3.07
3.15
3.33
3.69
4.19
2.5
2.8
3.1
3.4
3.7
4.0
4.3
4.6
4.9
FY'08 FY'09 FY'10 FY'11 FY'12 FY'13E
ACS ARR
(Rs./kwh)
However, growth in fuel supply lagged capacity additions Sharp growth in installed capacity
Additionally, financial health of SEBs has worsened Consequently, PLFs have declined

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Reforms initiated, implementation remains poor
4
Compensatory tariff
In April 2013, CERC ruled that Adani Power and Tata
Power be allowed to charge compensatory tariffs
Committee under Deepak Parekh has submitted
recommendations state approval awaited
PUN, HAR have declined compensatory tariff, MAH has
given conditional approval
Litigations could delay final decision & hurt cash flows
Power
Sector
Reforms
FSAs with CIL
CIL mandated to sign FSAs with 78 GW of capacities
including cases with tapering linkage
As of 6th Sep-13, CIL had signed ~140 FSAs
Tapering linkage for 9 plants extended by 3 years
Adani Power, Essar Power, Sterlite Energy to benefit
Positive move, however, lower ACQ levels would
restrict PLFs
FRP
Under the FRP, 50% of ST liabilities will be taken over by
state and balance restructured with banks for 3 years
As at December 2013, TN, RAJ, UP and HAR have
implemented the FRP. Bihar, Jharkhand and AP to
implement scheme by Mar13
ACS-ARR gap to be eliminated by 2017-18; annual
tariff hikes of 5-6% critical to ensure cost recovery
Imported coal cost pass through
In Jun13, allowed domestic coal linkage based plants
to pass on the costs of coal imports to end consumers
CERC to suggest modalities for implementation of the
higher fuel cost pass through to distribution companies
Delays/Litigations expected; well-structured
mechanism is critical
New SBD for UMPPs
Fuel cost is a pass through; bidding based on fixed
charge for 1
st
year of operations
Onus of land acquisition and clearances lies with
developer
Loss on fixed costs due to low PAFs to be shared in
70:30 ratio by developers and SEBs
New UMPP guidelines de-risk developers but limit
returns

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State Demand
(BU)
Supply
(BU)
Deficit
(%)
Gujarat 67.4 67.4 0
Madhya Pradesh 36.4 36.4 0
Rajasthan 42.1 42 0.3
Haryana 34.6 34.4 0.6
Maharashtra 93.7 92 1.9
Tamil Nadu 70 65.5 6.5
Andhra Pradesh 69.9 64.9 7.1
Uttar Pradesh 72.3 61.7 14.7
All India 753.7 720.1 4.5
Few large states witness decline in deficit Demand growth over FY08-13


5
Demand slowdown to add to power sector woes;
further impact offtake
Demand growth over FY14-18
Source: CEA, CRISIL Research
Weak discom financials & capacity constraints restricted power demand growth to 6.2 per cent over FY08-13
Power demand growth to slowdown to 5-5.5% CAGR over FY13-18 despite anticipated capacity additions and
improvement in financials of state discoms
Weak GDP growth to restrict power demand growth from industrial and commercial segments,
Power deficit at near zero levels in Madhya Pradesh, Gujarat, Rajasthan and Haryana due to slowing demand growth
Southern states to drive demand on higher availability led by capacity additions and inter-regional connectivity
Demand slowdown to put pressure on PLFs and merchant realisations; also lead to delay in capacity additions
777
831
862
937
998
691
747
788
858
911
600
700
800
900
1000
1100
1200
1300
1400
FY'09 FY'10 FY'11 FY'12 FY'13
(BU)
Deficit:
11.1%
Requirement

Availability

Source: CEA, Note: Data for April-Dec13
1009
1048
1116
1190
1290
968
1021
1095
1178
1284
FY'14P FY'15P FY'16P FY'17P FY'18P
Deficit:
0.5%

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6
Slowing demand, fuel issues & stretched player financials
to impact capacity additions
Source: CRISIL Research
CRISIL Research expects capacity additions of 55 GW over 2014-18 vis--vis 64 GW over the past 5 years
Pace of capacity additions to decline with slowdown in demand, delays in clearances, stretched financial position of developers
Pipeline of projects under construction on a decline as no new projects have been announced in the past 12-18 months
Coal based capacities to dominate as coal remains the cheapest and most widely available fuel source
Hydro capacities to account for 9% share; R&R issues and clearance delays to hamper capacity additions
Private sector to dominate capacity additions at 54 per cent on the back of large expansion plans
Large conglonmerates such as Adani Power, Reliance Power, Sterlite Energy and Essar Power to lead capacity additions
Central sector player NTPC to add ~ 9.5 GW of capacities; state sector to lag due to poor financial health
Project Developer MW
Nabhinagar NTPC 1000
Tilaiya UMPP Reliance Power 3960
Tori TPP Essar Power 1200
Vidharba TPP Lanco Infratech 1320
Bara TPP JVPL 1980
Bhavanupadu PTC 1320
Tamnar - II Jindal Power 1200
Source: CRISIL Research
103 103
106
97
94
92
88
0
20
40
60
80
100
120
J
u
n
-
1
2

S
e
p
-
1
2

D
e
c
-
1
2

M
a
r
-
1
3

J
u
n
-
1
3

S
e
p
-
1
3

D
e
c
-
1
3

(GW)
Source: CEA, CRISIL Research
21
15
12
9
10
9
0.0
5.0
10.0
15.0
20.0
25.0
F
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F
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P

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F
Y
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P

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Y
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P

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P

(GW)
Total Capacity addition (GW) Trend in projects under construction Projects unlikely to commission by FY18

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7
Slowing power demand and limited coal availability to
restrict PLFs
Coal PLFs to remain subdued over FY14-FY18
Slow power demand growth and limited domestic
coal availability to restrict PLFs
CIL production to grow at 5.5% CAGR over FY13-
FY17 against linkage based capacity growth of ~7%
CIL to supply only 65% of ACQ as per new FSAs
Additionally, aggressive bidding to limit increase in
PLFs of post 2009 plants to only 67%

Share of coal imports to decline over the long term
Slowdown in capacity additions
Increase in captive mine production by ~65 mn tonne
to relieve some pressure
Imported coal prices to remain range bound at $80-
$85 over 2013 and 2014
Source: CEA, CRISIL Research
Note: Imported coal - 5000 Kcal/kg, Domestic coal - 3500 Kcal/kg
Source: Ministry of Coal, CRISIL Research
11%
14%
16%
17%
18%
17%
16%
0%
5%
10%
15%
20%
-
200
400
600
800
FY'12 FY'13E FY'14P FY'15P FY'16P FY'17P FY'18P
Domestic Supply Imports Imports to consumption ratio
(MT
75%
70%
66%
67%
69%
70%
73%
51%
54%
57%
61%
64%
67%
40%
50%
60%
70%
80%
FY'11 FY'12 FY'13 FY'14 P FY'15 P FY'16 P FY'17 P
All coal based
(%)
Domestic supply and imports of non-coking coal for power
Average annual PLF of coal based power plants

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8
Source: SERCs, CRISIL Research
(22.3 GW)

Projects at risk
4,690
10,544
2,000
4,891
0
2,000
4,000
6,000
8,000
10,000
12,000
3.1 and above 2.9-3.1 2.6-2.9 Below 2.6
(MW)
7 GW of competitively bid domestic coal projects bid
below Rs. 2.9/unit will see pressure on returns
CCEA has approved pass through of higher cost of
imported coal for domestic linkage based plants
Well structured mechanism for tariff determination
required to avoid delays/litigations
GMR Infra has put its 600 MW coal based power plant
on block; Adani Power has petitioned for
compensatory tariff for its Tiroda plant aggressive
bidding has led to operational losses in these projects
Tariffs of ~Rs. 3.1 per unit to provide equity
IRRs of 16% for domestic coal based plants
In the event of pass-through of imported
coal costs; levelised tariff required would be
lower at Rs. 2.9 per unit
Plant size of 600 MW;
Capital cost of Rs 52 mn/MW
Domestic coal @ Rs. 1,460/tonne
Annual cost escalation at ~4%
PLFs: 58% in Yr 1 ramping up to 70%
in Yr 5; 70-75% for balance years
Imported coal blending at 15% in
Year 1 declining to 5% in year 5;
5% blending thereafter
Debt equity ratio of 70:30
Source: CRISIL Research
IRRs sensitive to tariffs a 10 paise change in tariffs will improve IRRs by 150-200 bps
Domestic coal based plants require tariff of Rs. 3.1/unit to earn healthy
returns; ~7 GW of capacities at risk due to aggressive bidding
Competitively bid domestic linkage based projects Domestic Coal - Key Assumptions

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Weak discoms cater to ~30% of countrys consumption
9
Note: ACS ARR Gap is on subsidy booked basis; data as at Mar2012
Source: CRISIL Research
ACS-ARR Gap
(Rs./kwh)
AT&C loss
(%)
Accumulated
losses (Rs. Bn)
Weak states
Tamil Nadu (2.06) 19.9 (277.9)
Punjab (0.11) 20.6 (19.4)
Rajasthan (4.03) 24.2 (409.4)
Uttar Pradesh (0.76) 45.1 (301.8)
Orissa (0.17) 44.7 (54.8)
Moderate states
Haryana (0.95) 27.6 (101.4)
Andhra P 0.0 15.3 1.5
Madhya P (0.71) 38.3 (144.1)
Chhattisgarh (0.66) 29.6 (21.9)
Strong states
Karnataka (0.02) 24.5 (14.0)
Maharashtra 0.0 21.6 (46.5)
Gujarat 0.04 19.3 4.1
Delhi 0.19 18.6 16.7
West Bengal 0.03 32.9 (2.1)
All India (0.70) 27.0 (1,798.7)
Risk classification on the basis of discom health
(financial & operational) as well as state
governments ability and willingness to support
Weakest states account for 30% of total power
consumption & ~60% of accumulated losses
Rajasthan has the highest state government
support through equity infusions and subsidy
State government support in Odisha limited due to
privatisation of discoms
Moderate risk states account for 20% of power
consumption & 15% of accumulated losses
MP and Haryanas relatively weak discom scores
countered by stronger state support;
AP enjoys significant subsidy support, however,
delays in subsidy payments impact risk profile
Despite strong financials, state willingness to
support low in Chhattisgarh
Strong states account for 37% of power
consumption & <2% of accumulated losses
Karnataka discoms moderate risk profile
strengthened by healthy state support
Standalone discom scores in Delhi and Gujarat
high due to operational efficiencies
State ranking

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ACS-ARR Gap to be eliminated by 2017-18
10
8 states have so far approved implementation of FRP; these states account for around 50% of liabilities
FRP implemented in TN, RAJ, UP and Haryana; to be implemented in Andhra Pradesh Bihar and Jharkhand by
March14
Implementation of FRP in FY14 to reduce interest cost to 14p/kwh in FY15 from 34p/kwh in FY13
Cost reflective annual tariff hikes of 5-6% expected going forward to avoid further operational losses for discoms
Tariff hike of 6.5% implemented in FY14 following tariff hike of ~13% in FY13
On a subsidy booked basis, ARR to exceed ACS by 7 p/unit in 2017-18 at a pan-India level
However, few states such as Tamil Nadu, Madhya Pradesh and Uttar Pradesh to remain stretched due to high level of
regulatory assets

ACS: Average cost of supply, ARR: Average revenue realised
Source: PFC, CRISIL Research

Note: Revenue is on a subsidy booked basis
Source: PFC, State SERCs, CRISIL Research
Particulars
FY12A FY13E FY18P
Revenue 3.69 4.19 5.76
Less: Expenses 4.39 4.71 5.69
Power Purchase 3.20 3.47 4.38
Interest cost 0.32 0.34 0.17
Other charges 0.87 0.90 1.14
(Gap) / Surplus (0.70) (0.52) 0.07
3.4
3.6
4.0
4.4
4.7
4.8
5.1
5.3
5.5
5.7
3.1
3.2
3.3
3.7
4.2
4.5
4.8
5.1
5.5
5.8
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
F
Y
'
0
9

F
Y
'
1
0

F
Y
'
1
1

F
Y
'
1
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E

F
Y
'
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3
E

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P

F
Y
'
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5
P

F
Y
'
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6
P

F
Y
'
1
7
P

F
Y
'
1
8
P

ACS ARR
(Rs./kwh)
Implementation
of FRP
ACS - ARR gap has widened to 70p/unit in FY12
Gap on subsidy booked basis for state utilities (Rs./kwh)

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11
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