Sustaining Growth-Future of Indian Power Sector

Sustaining Growth –
Future of Indian
Power Sector
A CII — A.T. Kearney Report
OCTOBER 2009
Future of Indian
Power Sector
Future of Indian
Power Sector
October 2009
Confederation of Indian Industry
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iv Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Contents
Foreword vii
Message from Chairman of CII's National Committee on Power ix
About the Report xi
Executive Summary xiii
Part A: Indian Power Sector: The Road Ahead 1
Theme 1: Changing Outlook for the Sector 3
Theme 2: Winning in the Future Power Markets 13
Part B: Sector Outlook 21
Thermal Power: Coal Based 23
Thermal Power: Gas Based 31
Hydro Energy 37
Nuclear Energy 43
Renewable Energy 49
Contents v
vi Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
Foreword
Power sector in India is at a crucial juncture today, with several large investments being undertaken by public and private sector
players, and developments promising a significant transformation of the sector. The sector is witnessing a fundamental shift
that is opening up new business opportunities for the industry. At the same time, the competition for scarce resources is
expected to intensify and support enablers in terms of logistics, T&D, equipment supply will be stretched to the fullest.
The emerging dynamics of the Indian power market would require industry players to realign their strategies and operating
models to the changing sectoral trends. The focus would need to be both on project execution as well as efficient operations,
in line with the “growth” characteristics of the sector.
With this background, CII had requested A.T. Kearney to probe two key themes that concern the Indian power sector –
a) Changing Outlook for the Indian Power Sector and b) Winning in the Future Power Markets in India
The conclusions of the study, which are quite insightful, reconfirm the continued attractiveness of the sector for fresh
investments and growth. However, the business environment will increasingly become competitive as we evolve to a new era
of “Power on Power” competition. Access to reliable & high quality fuel, especially coal, will present one of the biggest
challenge to the sector. For example, as per the current trajectory, India may face shortage of upto 250 MT of domestic coal
per annum by 2014-15. Similarly, the downstream distribution infrastructure, characterized by high AT&C losses and inefficient
grid quality is another area of concern. All these issues require immediate intervention from the government through fast
tracked reforms & execution. Similarly, industry players also need to take a fresh look at their competitive strategy as they
prepare to participate in the future of the sector.
I would also like to highlight the increasing importance of renewables in the Indian Power Sector. Buoyed by incentives &
support from the government as well as advancements in the technology, renewable energy (solar, wind, bio-mass) is all set
to play a critical role in defining the future of the industry and ensuring “sustainability” of the Indian energy sector.
Many people contributed to this effort. Several CII members (both Indian companies and MNCs), industry experts and
government officials spent time with the A.T. Kearney team, sharing experiences and debating ideas.
Senior A.T. Kearney partners and principals, including Kaustav Mukherjee, Vikas Kaushal, Abhishek Poddar, Anshuman Maheshwary
provided overall direction. Amit Bhargava, Shelly Kapur, Vipul Jain and Rohan Rijwani led the study on a day-to-day basis.
I would like to extend my appreciation to everyone who helped us in this effort.
Sudhir M Trehan
Chairman - CII India Energy Conclave and
Managing Director
Crompton Greaves Ltd.
Foreword vii
viii Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
Message from Chairman of
CII’s National Committee on Power
A robust and thriving Power sector is central to India’s sustained economic growth. India’s power sector has evolved
substantially over the last few decades and is now witnessing unprecedented interest and investments across the value chain.
The industry has responded strongly to the reform measures undertaken by the government with a wide spread participation
across Public and Private sector, Indian and multinational companies. Despite these improvements, the sector faces some
tough challenges across fuel, infrastructure and finances, which if not addressed immediately, can impede the potential growth
of the industry.
In this context, the CII-A.T. Kearney study on the future of power sector in India identifies the key trends impacting the industry
as it evolves to the next level of maturity. It also highlights some of the critical concerns & issues facing the power sector and
defines key imperatives and action steps for all stakeholders concerned. The study also deals with changing dynamics across
various fuel types and identifies implications of the same on the overall power sector.
The CII National Committee on Power is committed to working with all stakeholders concerned towards implementing the
recommendations from this report.
R S Sharma
Chairman - CII’s National Committee on Power and
Chairman and Managing Director
NTPC Ltd
Message from Chairman of CII’s National Committee on Power ix

x Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
About the Report
Indian power sector has been a mainstay of national growth. As the Indian economy prepares for sustained growth of 8-9%,
the importance of the power sector will continue to increase. The power sector itself is going through major changes with
unprecedented investments across the value chain.
It is therefore an opportune time, for industry leaders and the government to deliberate upon the path forward and identify
action steps that enable sustained growth of the sector. Many ideas and thoughts have often been propagated by industry
forums and government functionaries to the above cause. This report takes a rigorous view of the emerging trends in the sector
and prioritises the imperatives for industry leaders.
The report is structured in two parts – the first section presents insights on changing outlook for the power sector and clearly
highlights the key success factors for the future. In doing so, the report addresses some critical questions confronting the
industry:
How is the opportunity landscape changing in the Indian Power market?

With significant investments being undertaken in the generation sector, what are the future demand-supply expectations?
What role do we see for regulations in sustaining industry growth?
How are the industry enablers shaping up for the future – fuel, transmission, distribution, tariffs, equipment supply, financing
and manpower?
And in light of the above, what are the clear imperatives for different stakeholders?
– Industry players
– Government
The second section presents perspectives across all major fuel types viz. thermal (coal & gas), hydro, nuclear and renewables.
This section highlights the changes in market dynamics in terms of demand-supply, regulations and operational challenges as
well as key imperatives for the stakeholders, across each of these segments.
About the Report xi

xii Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
Executive Summary
The Indian power market is evolving rapidly from a “nascent/ Equipment manufacturers can leverage derived demand
opening” market phase to a “developing” phase. The power from the overall growth in the power sector to drive capacity
demand in the base case is expected to grow at a steady expansions. Technology changes (increased role of super-
7.5%-8% CAGR till 2017. Further, the low “power penetration” critical plants in thermal stations; large sized reactors for
levels indicate large latent/unmet demand. The power nuclear plants, etc) present opportunities to introduce and
markets will have to achieve consistent high growth rates to absorb newer technologies and develop market niches.
bring our per capita consumption to comparable levels of Similarly, T&D equipment suppliers will gain from the ongoing
some of the other countries. We believe that rate of transmission network strengthening program (~50 GW by
infrastructure development and government led reforms 2015 with increased use of 765kv and HVDC lines). Other
would have a significant bearing on how far these associated industries (mining, financing, training & education
developmental aspirations are achieved. etc) also stand to gain significantly as they facilitate and
benefit by the growth in the power sector.
Future power markets will present new set of
opportunities and challenges Renewables will strengthen its role in the sector: Wind
A new era of “Power on Power” competition will emerge. energy will continue to grow at 15-20% pa with new
Atleast 80-85 GW of new capacity (90% of them thermal units opportunities in offshore capacities and large capacity
targeting high PLF of 80-95%) will be commissioned by 2014. turbines (> 3MW). Solar energy will drive next wave growth in
This will reduce the base load deficit, in the current scenario, to renewables space. Technology improvements are expected
a low of 1-2%. Accordingly, we expect pricing pressures in the to lead to grid parity costs by 2020-25. Government
generation space, with long term prices at-best maintaining incentives will open up opportunities for solar
their current levels in nominal terms. The average short farms/distributed generation as well as PV manufacturing.
term/merchant prices may decline by 40-50% by 2014-15.
Constrained fuel supplies present a major threat to sector
The generation landscape will also change significantly. growth: As per current trajectory, India, inspite of substantial
Private sector will account for over 25% of the installed reserves, is expected to confront a supply deficit of ~25%
capacity over next 5-6 years. Over forty to fifty players, (250 MTPA) of domestic coal by 2014. Similarly, India will
many of whom with interests in smaller capacities and/or in require 2000-2,500 tpa of Uranium to meet its nuclear energy
1-2 projects are expected to emerge in the industry. With aspirations by 2020, against a current supply/mining capacity
increasing pricing pressures & fragmented industry structure, of ~300 tpa.
we may witness some consolidation after 2015.
Distribution and financing concerns will also intensify:
New business opportunities will arise across the value High AT&C losses and slow rate of discom reforms will hurt
chain. New fuel opportunities are expected to emerge in the the industry in the last mile. Financing may also present a
generation space, in addition to coal. Improved domestic gas challenge to industry growth. About $ 200-250 Bn
supply & strenghtening of commensurate pipeline investments will need to be undertaken in the power sector in
infrastructure will facilitate increased gas based the next 8-9 years to fuel the planned growth. Sectoral and
generation. Government’s thrust on Hydro projects (50,000 group caps of the financial institutions may be a potential
MW initiative) will provide attractive opportunities, especially constraints in securing such large amount of funds.
for peaking power. Nuclear energy will also witness strong
growth at the back of Indo-US agreement (target 20 GW by Several critical imperatives exist for the industry
2020). The industry needs to significantly strengthen its project
Executive Summary xiii

management and execution capabilities. A comprehensive government. The government should also promote Public
and robust project plan developed at conceptualization Private Partnership (PPP) for new coal block development
stage, would help in identifying potential hurdles up front. and set up an independent regulator for the coal sector.
Adequate diligence should be undertaken for selection of the Stringent monitoring should be adopted for timely
project site, EPC (Indian vs foreign), financing sources, development of allotted captive coal blocks. Ensuring
technology, quality control and execution timelines etc. priority access to gas for the power sector (especially for
Creation of a strong project management center and set up peaking power) at reasonable price-points and
of robust business processes & control mechanisms are strengthening the gas transmission infrastructure are
critical for efficient project execution. other key imperatives for the government.
Securing fuel supplies will be another critical success factor. 2. Enhance downstream efficiencies (transmission &
Adequate diligence should be awarded to defining fuel sourcing distribution): A few immediate interventions are
plan, especially coal (linkage, captive, imported) and its required on transmission side including streamlining
associated costs. Fuel logistics planning and implementation is private participation, aggressively extending national
critical and should be a focus for project leadership. Gas grid reach & improving quality of the same and building
availability may improve but adequate planning will be required flexibilities in BPTA tenures. The government should
to identify the right locations for the plants. also define a time-bound implementation plan for the
pending discom reforms and accelerate implementation
The generators also need to realign their market & of open access to distribution networks. Finally, the
customer strategy. Striking the right balance between long power subsidy mechanisms for the agriculture sector
term PPAs and merchant trading will become increasingly also needs to be reformed.
important in the future. Reforms will also give rise to customer
mix options (SEBs, traders, bulk buyers, etc), which will open 3. Aggressively promote clean source of energy
up different possibilities. Alternate market facing models like (renewables and nuclear): Special focus should be
power tolling, distributed generation, peaking power supplies provided to renewables by identifying high intensity
can also be evaluated. renewable “zones” and establishing all enablers (land,
transmission, site approvals etc) therein. The government
Capital and Operational excellence will be key to future should ensure effective implementation of the National
competitive advantage. CapEx and Operational excellence Solar Mission, including clear policy on Feed-In Tariffs.
begins from selection of right technology and suppliers/ Distributed generation for rural areas (to benefit from solar
manufacturers for the units. The asset availability and & bio-mass applications) should be encouraged through
utilisation should be maximized through O&M best practices. special incentives and fast track clearances.
Finally, robust organizational enablers need to be For nuclear energy promotion, the government should
established for the future. Over 150,000 additional skilled develop a comprehensive nuclear fuel plan for enhancing
and semi skilled personnel would be required by the sector Uranium and Thorium mining & availability for the country.
over the next 5-7 years. Some organisations will also have to Special incentives should also be provided to encourage
manage concurrent “projects” and “operations” stages. participation across the nuclear value chain.
Accordingly, a flexible organisation structure needs to be
designed and implemented. Strong HR processes for 4. Facilitate efficient market side development: The
attracting and retaining employees should be established. government should accelerate the pace of reforms in
Effective training programs should be designed and rolled power exchanges and deregulate the trading segment.
out by the industry. Efficient knowledge management Initiatives also need to be rolled out to smoothen peak
mechanisms would also need to be established demand curve and promote peaking power supply.
Introduction of flexibilities in PPA tenure and promotion of
The government also needs to play a significant real time market mechanisms, through time of day
role in driving and facilitating the sectoral growth metering & pricing could be undertaken to enable
A prioritized “six by six” agenda has been drawn out for the efficient market development
government.
5. Strengthen execution and monitoring mechanisms: A
1. Address fuel supplies issues (coal & gas): Coal sector comprehensive “next generation” reform agenda with
deregulation should be a high priority agenda for the well defined implementation timelines should be
xiv Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
developed by the government. There is also a need to encouraged for emerging technologies in the generation
establish an “execution group” for following up on policy space. Investments should be promoted in renewable
implementations. Creation of an empowered “single components & supplies through special incentives. The
window” co-ordination and clearance body and defining government should also address the financing issues in
clear time-lines for approvals across ministries & terms of sectoral caps of financial institutions and explore
agencies will streamline the regulatory process. opportunities for loan re-financing by multi-lateral
agencies / foreign institutions. Finally, strengthening of
6. Streamline industry enablers (equipment, financing & Industrial technical institutes is required to enable
manpower): New equipment capacities should be adequate skilled manpower availability for the sector.

Sustained growth of the power sector is critical for enabling the high economic growth targets of India. All stakeholders need
to put in a concerted effort to attain the above objective and address potential challenges and constraints confronting the
industry. If successful, the Power Sector will directly improve the socio-economic wellbeing of more than a billion people and
also create some world class “energy eco-system” in the country.
Executive Summary xv
xvi Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
PART A
INDIAN POWER SECTOR:

THE ROAD AHEAD
2 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
Theme 1
Changing Outlook for
the Indian Power Sector
Indian power sector is undergoing a significant change that is There are four attributes that characterize the above
redefining the industry outlook. Sustained economic growth evolution, over last few years:
continues to drive power demand in India. Government’s focus
on attaining “Power For All” has accelerated capacity addition 1. Steady demand growth and supply deficits: The power
in the country. At the same time, the competitive intensity is demand in India has grown at a CAGR of 8% over the last
increasing on both market side as well as supply side (fuel, five years (Fig 1.2). At the same time, the supply (CAGR
logistics, finances and manpower). of 6.8%) has not been able to keep pace with the
demand. Accordingly, the deficits have increased steadily
The Indian power sector is evolving from a “nascent/ from ~5% in 2003 to ~11% in 20091.
opening” market phase to a “developing” phase (Fig 1.1). The past few years have seen an increase in the per
Figure 1.1
Industry Maturity1 Curve
1 Source – Ministry of Power
Changing Outlook for the Indian Power Sector 3

capita consumption from ~ 410 kwh in 2002 to ~600 Kwh last 8-9 years. Inadequacy in transmission capacity to
in 2008. Despite the growth, the power consumption is meet peak demand, low grid discipline, difficulties in
much lower than other BRIC countries like China (2150 implementing unscheduled interchanges and
Kwh), Brazil (2100 Kwh) and Russia (6000 Kwh)2, predominance of low voltage profile of 220 kv are some of
suggesting a large unmet/latent demand in the country. the challenges confronted by the National grid. On the
distribution side, cross subsidization of consumer
2. Improved sector attractiveness supported by categories along with the high grid losses are areas of
regulatory reforms: The reforms which were initiated in serious concern.
the 90’s, got strengthened with the enactment of
Electricity Act 2003, followed by open access regulations, Future Outlook: New opportunities within an
national electricity policy and national tariff & integrated increasingly challenging environment
energy policy. Accordingly, the sector which historically We believe five key trends will characterize the future of
had only a few central & state utilities, is now witnessing the Indian Power sector, supported by select industry
interests from over 75-100 new players looking at enablers (Fig 1.3).
investments across the value chain.
Figure 1.2
Historical Supply and Demand Trend (BU)
3. Increased rate of capacity additions: The generation At the foremost, significant capacity is expected to come online
capacity3 has grown from around 63 GW in 1990 to 149 resulting in Power on Power competition in the generation
GW in 2009, more than double over last two decades. space. Secondly, the industry landscape will change
Infact, over the last few years, India has added an average significantly with emergence of the private sector alongwith
of 6-7 GW of generation capacity per annum, highest in continued importance of central utilities. Third would be the
the history of the Indian power sector. This growth rate is onset of “next generation reforms” throwing open newer
expected to further increase in coming years. opportunities across the value chain. Constrained fuel
supplies is the fourth dimension that would impact the
4. Inadequacies in support enablers (equipments, evolution of the sector. Finally, “renewables” will set the stage
transmission and distribution): Limited domestic for long term “sustainable” growth of the industry.
capacity of generation equipment supplies including
boiler, turbine, generator and balance of plant have been The above changes will be also be impacted by four critical
one of the key reasons for delays in power projects. industry enablers viz. transmission, distribution, equipment
Similarly, transmission and distribution segment still has supply, financing. The ability of the sector to gear up on these
high AT&C4 losses of ~ 30%, despite the reduction over enablers will determine future growth of the sector.
2 Source: EIA and United Nations

3 Only grid based capacity in terms of GW (1GW=1000MW) ; Source: Ministry of Power
4 Aggregated technical and commercial losses; Source: Crisil

Figure 1.3
there is a potential upside from the “latent demand” which
Emerging Sector Trends has not been addressed currently due to supply constraints
and infrastructure inadequacies (including distribution
access, grid reliability, etc.). The potential is immense as
reflected in the significantly lower per capita power
penetration in India, when compared to other developing
countries like China and Brazil. The demand in 2017 would
need to grow at a significant higher CAGR of ~ 17%, if India
were to even achieve the per capita consumption, similar to
the current levels in these countries.
At base case demand scenario, India’s per capita

consumption would be ~ 1100 kwh in 2017, much lower
than even the current consumption level of developing
economies like China (2150 kwh), clearly indicating a
latent/unmet demand, which can be tapped by the industry.
Large scale capacity additions and efficiency improvements

India is also poised for significant supply addition over the
next few years (Fig 1.5). The incumbents and new entrants
have announced large capacity augmentation plans in the
sector. The announced grid based projects already sum up to
a staggering figure of ~ 300 GW (most of them are of much
larger unit sizes than historical additions). However, as per the
First: A new era of “Power on Power” competition
current trajectory5, 80-85 GW of capacity is most likely to be
Steady demand growth with potential upsides commissioned in the period of 2009-2014 (with another 5-10
As per the CEA estimates, power demand in India will grow at GW “probable” capacity on the top, depending on the rate of
~ 7.5% CAGR during 2009-17, to increase from ~775 BU progress attained). This in turn will be the highest capacity
currently to ~1400 BU by 2017 (Fig 1.4). Sustained augmentation in any block of five/ ten years in India. The rate
economic growth coupled with initiatives of providing of capacity addition will increase further in the subsequent
electricity for all including rural electrification, will be the key years as India matures in its capabilities for executing such
demand enablers. In addition to the above project growth, large scale projects.
Figure 1.4 Figure 1.5

Expected Demand Scenario, 2009 – 2017 Capacity Addition scenario
(BU) (GW)
5 A.T. Kearney analysis based on CEA status, project progress and project execution stage including ordering of BTG (for coal based
projects), under-construction for other fuel types

Additionally, the generation and transmission efficiencies is by 2015.
also expected to improve in the future. Most of the new
thermal plants (accounting for ~90% of incremental capacity The peak deficit will however continue to exist in the future.
addition) are basing their production at high PLF (80-90%). Peaking stations (hydro, gas, solar, etc) would therefore have
Accordingly, the average PLF of the generation capacity will a large role in addressing this deficit. Demand management
increase from ~56% currently to ~61-63% by 2014-15. would also be an essential imperative for the generators as
Similarly, the adoption of higher voltage lines & strengthening well as SEBs.
of the grids will help reduce the T&D losses in the system. All
these will improve the power supplies to customers. The implications for the sector from the above trend are
significant. On one hand, it would be essential for the sector
Narrowing supply-demand gap, resulting in Power on to realize the latent demand, on the other hand, the players
Power competition would need to clearly chart out their business strategies to
The planned capacity expansion along with efficiency align with the emerging market scenario. Some of the critical
improvements will substantially reduce the supply-demand imperatives for the industry have been covered in detail in the
gap in the future. The supply deficit, for the base load could next chapter.
potentially reduce to 1-2% over the next 5-6 years in the base
case (Fig 1.6). Even in an optimistic scenario (increased Second: Changing generation sector landscape
realization of latent demand), the deficit could be around 4%-
5%. Increased role of the private sector
Private sector is expected to play a much larger role in future
Figure 1.6
supply additions, as compared to the past. Over 40% of the
Projected electricity supply deficit capacity addition, over the next five years will be undertaken by
(% of demand)
the private sector. Consequently, the private sector capacity
share will increase from ~16% today to ~26% by 2014,
primarily at the cost of state utilities (Fig 1.7). Central utilities
will continue to maintain their relative position as they too are
participating aggressively in the capacity expansion programs6.
Figure 1.7
Category-wise capacity addition,
2009 – 2014 (GW)
The above scenario will usher in a new era of “power on

power” competition, early signs of which are already visible in
the market. The advent of bid based power purchase by states
will further increase the competitive intensity in the market, For
example, the number of participants (qualified RFP stage) in
the recent Case I bid by Madhya Pradesh, was around 25,
unheard of in the past. There have been similar experiences at
other bids like Gujarat and Haryana as well. This trend is likely
to continue, and potentially intensify, in future.
A clear implication of the above will be on price realizations.

It is expected that the long term PPA prices will continue to Emergence of two distinct player groups
be at current levels (or even decline) in nominal terms over Two different player groups are expected to emerge in the
the next few years. The average trading prices are expected industry: The first category will comprise large companies/
to peak over next two years and thereafter decline by 40-50% groups taking significant positions in the sector – likes of NTPC
6 Source: A.T. Kearney analysis

(the incumbent), Reliance Power, Sterlite Energy, Jindals, Tata captive blocks. By bringing in market forces, we would
Power, Adani, Lanco and others will fall in this category. expect significant improvements in coal block
productivities. Setting up of an independent coal regulator
Over next few years, as the industry evolves, these top few will also drive efficiencies & transparency in this sector.
players are expected to account for 40-50% of new capacities
coming on-stream. These players are building their presence Reforms impacting sales to bulk customers
through a portfolio of generating assets with varied fuel mix, A key reform, on the horizon is effective implementation of
spanning across different geographic locations in India and open access to distribution networks across states. The
some of them are taking positions in other parts of the value generators would accordingly have the opportunity to
chain. They are also at the forefront of newer technologies (eg target bulk consumers as part of the consumer mix, at
super-critical plants) and larger unit sized projects – which in market determined prices. This will significantly improve
turn will improve generation efficiencies. the customer options for generators.
The other category of players would be made up of small to Reforms on merchant power trading
mid sized generators with interest in only a few projects. Several new products are being introduced in the power
There are more than 40-50 players that fall in this category exchanges, which will strengthen its role as the overall
(excluding the state utilities). In line with a typical industry market clearing mechanism. Recently, in addition to day
evolution, presence of such large number of small to mid ahead – spot, week ahead, day ahead contingency
sized operators will accentuate the competitive intensity in the products have been approved. Other longer tenure
sector. Many of these players are banking on high price short products would also be introduced in exchanges in near
term market. As the deficit reduces in the sector on account future. The other initiative that can enhance the
of increased supply, we would expect pricing pressures to effectiveness of the trading market could be to remove the
emerge in the sector both in long term PPAs (a trend already cap of 4 paise per unit remuneration to the traders. This
visible in latest Case I bids) as well as short term merchant would incentivize the ~40 number of registered traders to
power. As the margins come under pressure, we may actively participate (currently less than 15 traders are
witness some consolidation in this space, after 2015. active) and provide greater options to the generators.
Setting up of ‘settlement pools’ for accurate and
Adoption of innovative business models transparent reconciliations (energy and monetary)
Emerging opportunities in the sector along with increasing between participants of trading transactions will also
presence of the private sector would also drive adoption of enhance market efficiencies.
newer business/operating models. On one hand, large
players may move towards integrated presence in the value Incentives and reforms for “clean energy” (nuclear
chain; at the same time many new entrants are expected to and renewables)
establish niche presence in the market. Power tolling, direct The recent Indo-US nuclear deal and ratification by the
supply to bulk customers, peak demand based capacities etc Nuclear Suppliers Group (NSG) is opening up new
could emerge in a big way in the future. opportunities for investments in this sector. Government
has set a target of achieving 20 GW generation capacity
Given the increasing competitive intensity, it will be by 2020. This in turn, presents new opportunities across
imperative for the incumbents and the new entrants to the value chain (equipment supply, generation, EPC etc).
identify “levers of strengths” for themselves and base their Similarly, government is aggressively incentivizing
business model on the same. investments in the renewables space through feed in
tarrifs, issue of renewable energy certificates etc. These
Third: Next generation reforms creating newer along with continuous technology advancements will
opportunities provide opportunities across solar, wind and bio-mass
segments.
Several next generation reforms are on the anvil, which if
realized will change the dynamics of the power sector. Reforms of the state discoms
Distribution continues to be one of the weakest links in
Reforms in the coal sector the power sector value chain in India. Unbundling of the
Coal sector reforms will probably have the biggest impact state utilities have improved efficiencies across many
on the power industry. The government is contemplating states. However concerns continue on the high AT&C
opening up of the sector to private participation, beyond losses and poor financial health of several state discoms.

The success of discom privatization in Delhi and other SECL are over committed to the extent of 20%- 40% of their
states have not been rolled out aggressively to other 2010 production plans. To align the demand supply
regions, though there is an increasing realization for the mismatch, CIL has been entering into substantially low
same. Discom privatization will usher in new opportunities ‘supply commitment’ agreements. For all new FSA/LOAs
in the sector and significantly improve last mile with the private sector, CIL has been signing undertakings
efficiencies. to provide only upto 50% of annual contracted quantity
(ACQ). Accordingly, securing fuel supplies will be a critical
Overall, the next generation of reforms would open up new success factor for generators (especially coal based plants).
opportunities for the sector in terms of better availability of
fuel, ability to reach directly to the bulk consumers and Secured access to fuel, a critical success factor
greater role of merchant trading. The government needs to As the new capacities will compete for the limited available
ensure timely roll out of these reforms to provide impetus to resources, establishing secured access for fuel will be critical
the sector. for the players. At government’s end, significant reforms are
required in the coal sector to improve productivity and
Fourth: Constrained fuel supplies enhance coal access to players. The industry players need to
identify mechanisms to secure fuel, including captive coal
Widening coal demand - supply gap: about one-fourth of block and imported coal. Adoption of efficient technologies
the thermal plant capacities may face constraints and practicies that reduce specific consumption of the
Coal based power plants will account for over 80% of new resources should also be encouraged.
capacities to be commissioned over the next five years.
Accordingly, the share of thermal power plants (including Fifth: Strengthened role of Renewables in the sector
gas) is expected to increase from 63% currently to more than
70% by 2014. This along with sustained growth in the cement Renewables currently comprise only ~8% of total generation
and metal industry is expected to increase coal demand by capacity8 in India. Several significant efforts are however
over 75% by 2014 (Fig 1.8). The domestic coal production7 being undertaken by the government for promoting
however is expected to grow slower, resulting in a widening renewable based energy, including:
deficit (as high as 250 MTPA) by 2014-15.
Fiscal incentives, tax holidays, depreciation allowance &
Increasing demand with relatively constrained production remunerative returns for grid capacity
growth has resulted in significant over-commitments by Budgetary support for research, development and
Coal India (CIL) subsidiaries (Fig 1.9). ECL, MCL and demonstration of technologies
Figure 1.8
Domestic Coal Consumption in India – Demand – Supply Scenario for Coal
Projections (mt) (mt)
7 CIL, A.T. Kearney analysis

8 Includes captive capacity

Figure 1.9
already comparable to other low cost destinations in Asia
CIL subsidiary coal commitment vs. and is further expected to be boosted by continued
production (mt, 2010) strong government support. Industry players can
leverage these opportunities to establish world class
manufacturing centers in India
As a whole, renewables will become an important part of the

total energy space in India. If all plans for renewables are
realised, this segment will account for 10-15% of the total
installed capacity over next decade. To realise the sector
potential, it is imperative for the government to ensure
speedy and effective implementation of policies and
incentives. Similarly, the industry players can also look at
renewables as either a potential fuel diversification or a
“focused play” strategy.
Key enablers impacting the sector outlook

Facilitating institutional financing While the power sector is poised for a rapid growth, there are
Creation of a comprehensive National Solar Mission four critical enablers that need to fall in place to support the
(NSM), which outlines demand as well as supply-side future of the industry.
incentives for the solar energy
1. Transmission network, improving steadily
In addition to government incentives, there have been Establishment of a strong transmission capability is critical to
significant improvement in the supply side technologies, that achieving the ambitious growth in the power sector. Over the
favourably impact the sector. The solar PV costs have been past few years, this has gained momentum and the National
coming down steadily and is expected to reduce by 20-25% grid is expected to significantly augment capacity. The
over the next 3-4 years. Infact, solar power is expected to capacity10 is expected to increase to ~50 GW, by 2015, from
reach grid parity, in India, in terms of costs by 2020-25.9 The the current level of ~20 GW (Fig 1.10). New links are being
wind power technology has stabilised and found wide-spread established to evacuate power from Eastern regions to deficit
applications around the world. Additionally, India has an regions of West and North.
estimated potential of 16-20 GW of bio-mass power, which is
an ideal fuel for distributed generation. Multiple measures are also being undertaken to improve
transmission quality, including
These changes are throwing up several opportunities across
the value chain: Increasing voltage profile of the network (765kv and
HVDC lines)
Demand/generation side opportunities: Development of Installation of high quality energy meters and capacitors
solar farms as well as distributed solar power are Improve frequency management and outage prevention
becoming attractive propositions. The Gujarat government
recently approved 34 solar power projects at an investment These steps would strengthen the transmission network in
of Rs.12,000 Cr to add 716 MW to the state electricity grid. India and enable the national grid to evacuate the additional
Similarly, Wind energy players are exploring new wind power effectively. Timely achievement of these goals is critical
potential sites including off-shore wind power projects to to support the growth in the power sector.
expand the available technical potential.
2. Distribution presents potential challenges
Supply side opportunities: On the supply side, there is While the transmission is witnessing steady improvements,
a clear trend of shifting of global centers of manufacturing concerns continue on the distribution front:
locations, especially for solar PV, from Germany, Japan &
USA to South Asia including India. India’s costs are Limited reach of distribution: Only 44%11 of rural
9 Source: A.T. Kearney analysis

10 Source: PGCIL, A.T. Kearney analysis
11 Source: Ministry of Power

Figure 1.10
Inter-regional Capacity Additions (2009-2015, GW)
Source: CEA, CRISIL, A.T. Kearney
households in India are connected to the grid, pan India. continue to financially bleed the SEB segment and also
Similarly, various industrial and new urban pockets result in high the cost of power at the customer’s end12
continue to rely on expensive local generation due to
inadequacies in distribution network. The growth in key Achieving improvements in the distribution end of the power
elements of distribution network has barely kept pace with value chain would be critical to the growth of the sector.
the increase in generation, which needs to change in the
future. 3. Generation Power equipment availability
expected to increase
Losses in distribution: India has high AT&C losses at The pace of generation capacity addition in India has picked
~30% of supply. About 10%-12% of this loss is up, thus increasing the requirement of the power equipment.
attributable to technical reasons while remaining Responding to these needs, domestic capacity of generation
18%-20% is due to commercial reasons. Such losses will equipment is expected to increase in the next few years.
12 Source: Ministry of Power (Segregation between technical and commercial losses inferred from 2006 statistics)

Currently, domestic capacity for BTG is 8-10 GW per annum would need to be worked out for ensuring the availability of
which is primarily owned by BHEL. This capacity is expected financing for various projects. This would be critical for
to increase to 30 GW by 2015 with expansion of BHEL’s achieving the planned growth ambitions.
capacity and entry of private players like L&T/MHI,
Toshiba/JSW, Alstom and Bharat Forge.
Realization of these expansion plans and enhanced domestic Conclusion

capability of catering to the super critical technology would In summary, the Indian power sector is at a stage that
be important for the future of Indian power sector. provides significant opportunities for growth and investment.
However the environment is increasingly becoming
4. Financing constraints may arise challenging. While the government will need to ensure
The planned expansion projects in India, on a broad estimate timely and effective implementation of next generation
entail a cumulative investment of ~ Rs 1100,000 cr13. in the reforms, the industry will need to re-orient their business
next 8-9 years. The debt component in turn will be around Rs strategies to align with changing market dynamics. The next
770,000 - 850,000 cr. However, sectoral and group caps by chapter highlights a few success factors for “winning in the
financial institutes may be a potential constraint in securing future power markets” and lays out imperatives for all key
the required funds, at the overall sector level. Timely solutions stakeholders.
13 Based on A.T. Kearney analysis and Industry standards for capital expenditure; Source: Planning Commission, A.T. Kearney analysis

Theme 2
Winning in the Future Power Markets
Based on the emerging trends, a comprehensive set of action deliveries. Over the last two 5 year plans, India has added
imperatives have been identified for the industry and the less than 60%14 of the total planned capacities in the sector.
government. It is important that individual players customise As of April 2009, about 64% of the ongoing projects were
the approach based on their respective business strategies. delayed (Fig 2.2).
Similarly, the government needs to institutionalize a
mechanism for effective roll out & implementation of the Power projects have been delayed due to number of issues.
defined action steps. The four key factors that are causing delays for over 40% of
the ongoing projects include EPC and BOP issues,
A “five pronged” approach for the industry regulatory (environmental and state government) issues,
There are five critical imperatives for the industry players to fuel issues (discussed in detail later in the report) and
“win in the future” in the Indian power industry (Fig 2.1). financial closure issues.
1. Strengthen project management & execution Inability to secure EPC and BOP, in a timely manner is
capabilities amongst the most significant challenge resulting in delay of
At a sector level, India has fared poorly in terms of project nearly 25% of the projects. Historically, domestic EPC
Figure 2.1
Imperatives for the Industry
14 Source: CEA, Analyst reports
Winning in the Future Power Markets 13

Figure 2.2
Power Plant Capacity Development Status
(April – 2009, MW)
companies were confronted with capacity constraints and In the above context, there are clear action items for the
could not meet the sudden surge in demand from the industry:
generation sector. Recent capacity expansions by domestic
suppliers and increasing presence of international EPC i. Develop a comprehensive project plan addressing
companies is improving the situation. major potential hurdles: Adequate diligence should be
undertaken for selection of the project site, EPC (Indian vs
Delays in environmental clearances and other approvals is foreign), financing sources, technology, quality control
also a key area of concern. Power being on the concurrent list and execution timelines. Planning for project and
results in coordination inefficiencies between the State and operational logistics should be done right upfront to avoid
Central authorities. Similarly, with the involvement of multiple implemantation delays. Initiate regulatory approval steps
ministries at Central level (power, coal, environment), many early in the process and assign responsibilities internally.
projects confront delays in obtaining requisite approvals. It is
critical for the government to address this issue urgently ii. Establish a strong project management center for
(discussed later) and for the industry players to plan for coordination and monitoring: Establish an empowered
contingencies incorporating the above. team of technical and business executives for project
management. Develop a detailed activity schedule and
Financial constraints are expected to emerge as a monitor the same centrally. Identify potential risk factors
significant challenge in future. India would need ~ Rs early in the cycle and adopt suitable risk mitigation
1100,000 cr.15 of investment in the next 8-9 years in the Power strategies.
Sector. The high magnitude of investments may confront
issues in terms of sectoral and group caps of large funding iii. Develop robust business processes & control
houses. SBI for instance has a sectoral cap for funding in mechanism: Detail out the processes & systems for
Infrastructure (including sectors like Power, Telecom) of Rs project management & execution. Define clear approval
55,000 cr16. & authorization mechanisms for capital investments &
plan change. Clearly define delegation of authority &
Finally, the unprecedented scale & number of projects in the internal decision making to expedite decision making.
sector may cause execution issues due to limited experience
in India. iv. Define a right operating model for projects: Assess
15 Based on A.T. Kearney analysis and Industry standards for capital expenditure; Source: Planning Commission, A.T. Kearney analysis
16 Source: Company website

and define the right mix between in-house vs recent Indo-US deal. The targeted generation will require ~
outsourced activities (for project execution early. 2000-2500 tpa17 of uranium (to sustain the first phase of
Structure the roles & responsibilities between the nuclear growth from PHWRs). India has estimated reserves of
company and service providers clearly with defined co- ~64,00018 tons, the commercial & technical mining, however
ordination mechansims. viability of the same needs to be assessedcomprehensively.
The current mining capacity in India is only ~300 tpa19 of
2. Secure fuel supplies uranium. Increase in uranium requirement by nearly seven
Different fuels are experiencing varying levels of growth and folds would urgently need enhancement in mining capabilities
related issues. While coal presents a cost-competitive fuel in India coupled with seamless sourcing from international
option, concerns exist about reliable supplies. Gas and markets.
nuclear fuel availability on the other hand is expected to
improve in the future. The industry therefore needs to define The industry can take a few steps in response to the
a well thought out strategy for its fuel portfolio. emerging fuel scenario:
Coal – significant challenges exist: As per the current i. Develop a comprehensive fuel portfolio strategy:
trajectory, there may be a shortfall of ~25% in terms of Clearly evaluate and select fuel type for generation based
domestic coal availability over the next 5-6 years. Captive coal on availability, costs & reliability. Gas may present a viable
mines have also not ramped up production as desired, on opportunity near transmission pipelines. Nuclear is
account of various issues including delays in approvals & emerging as an interesting opportunity as well (clear
limited initiatives from many mine owners to expedite the policy needs to be defined by the government) A multi-
production. plant generator can look at fuel diversification as a means
to controlling risks. Renewables may also present a good
Coal logistics is also a critical challenge confronting the opportunity for diversification beyond conventional fuel.
industry. Issues exist across two dimensions:
ii. Invest in infrastructure development for logistics/
a. First Mile issues: Unavailability of rapid loading systems, transportation: As part of project design, fuel logistics
few railway sidings and transport contractor/ union issues should be given special consideration. For coal, end to end
are amongst the factors that limit the quantum of coal that handling including first mile evacuation, rail/road based
can be produced and evacuated. movement to plant site and in-plant movement should be
designed efficiently. The port infrastructure also needs to
b. Transportation issues: Low availability of rakes, high be expanded. Similarly for gas, adequate transmission and
turnaround time (5-7 days), limited share of mechanized last mile connectivity needs to be put in place and secured.
discharge wagons, low wagon payload etc present long
distance transportation issues iii. Specifically for coal, clearly define the sourcing plan:
Gas – improving availability: Significant increase in Source domestic coal wherever possible, which will
domestic production is expected through new gas finds, be the main and cheapest source of fuel for coal
development of CBM fields & expansion of LNG capacities. power plants
As per A.T. Kearney estimates, the gas availability in India - Enhance access to imported coal, especially for port
both from domestic sources and LNG, will increase to 70-80 based/near port plants – define procurement plan
bcm by 2015, up from 37 bcm in 2008 (CAGR of 10-11%). through long term contracts or own mines globally
Over 11,000 km of new transmission infrastructure is also Aggressively source & develop captive coal blocks as
expected to be commissioned by 2015 to enable pan India available
supply. This would facilitate increased gas availability for Invest in technologies that reduces fuel requirement
power generation.
3. Realign market/customer strategy
Nuclear – fuel constraint presents a big challenge: Future power markets would be much more dynamic than the
Government has set a target of achieving 20 GW generation existing ones in terms of customer options. The trading
capacity by 2020 (up from ~4 GW currently), buoyed by the market will evolve with strengthened role of power exchanges
17 Based on current industry benchmarks

18 Source: Department of Atomic Energy, GoI
19 Source: Uranium.info

Figure 2.3 Trading market expected to increase multifold
Trading Market Projections Trading market or transactions through traders and
(BU) exchanges is expected to increase by 3-4 times in the next
5-6 years. New products (including structured derivatives)
are expected to be introduced in the exchange, which will
increase the potential options for generators.
Average merchant power prices expected to decline

The short term prices are expected to peak over the next 1-
2 years (Fig 2.4) and then decline steadily (in response to
the market supply situation). The generators accordingly
need to evaluate the profitability of their plans focused on
merchant power, and also define sales portfolio that
balances long term sales and short term trading.
In light of these market trends, generators would need to

develop suitable sales strategies
for short term transactions (Fig 2.3). Open access would be i. Balance the portfolio between long term and short
operating at different contract tenures (3 years, 15 years, 25 term allocations (depending on the size and
years, etc.). Sales to bulk customers will be made easier commissioning timelines): Long term PPAs will continue
through reforms in local grid policies. As a result, the options to be the dominant sales option for generators, with
for buying & selling power would increase both from the type secured market but controlled returns. Merchant power
of customers and nature of sales contract. provide upsides but present high variabilities
There are a few other emerging trends that will influence the ii. Define a customer mix plan: Evaluate various customer
sales strategies of generators: options viz. SEBs, traders and bulk buyers (based on
quantum of purchase, financial stability, cost of delivery
Case I/ II bidding emerging as dominant form of long etc) and define a plan accordingly.
term transaction
Case I and II bidding is becoming the dominant route for iii. Explore alternative market facing models: Evaluate
securing long term PPAs with SEBs for the private opportunities for alternative models like peaking power
players. A bid based strategy will result in high capacity, power tolling, distributed generation & supplies
competitive scenario and potential pricing pressures. as part of the overall strategy
Figure 2.4
Merchant Power Prices have increased Merchant Power Prices May Moderate
in recent past due to increasing deficit as Supply Increases
(Rs/Unit) (Rs/unit)

Figure 2.5 addition to low cost production, the transmission costs
Coal based power plants by technology should also be minimized. In the current scenario, a
and player (2009-14, MW) generator selling power to a SEB located in a different
region (through a national grid) will need to incorporate
35-40 paisa per unit for transmission costs20. PGCIL is
significantly strengthening the national grid which will
provide better access to generators and also potentially
reduce the inherent losses in the system. The generators,
at the same time, should also evaluate the option of using
public grid vs. creating a dedicated grid network from the
perspective of total transmission costs.
5. Establish robust organizational enablers

Access to and retention of right skill set will be one of the
most critical success factor for the future. A broad brush
estimate suggests that over 150,00021 additional skilled and
semi-skilled personnel would be required by the sector over
the next 5-7 years. The new entrants in the sector would also
4. Develop Operational Excellence need to plan for effective transition from projects organisation
Managing operations efficiently will be critical for all players to to operations organization as the plants come on-stream. Key
develop a sustained competitive advantage in the future enablers are therefore essential to support the future growth.
markets.
i. Develop a flexible organization structure which
There are several aspects that need to be considered & maintains the balance between technical specialists,
incorporated by the generators as part of operations management expertise and execution. Clearly define level
efficiency: of centralized vs decentralized decision making.
1. Select the right technology: Choice of technology and ii. Establish strong HR processes to attract and retain
fuel mix is critical for achieving higher efficiencies. New employees, manage their career development and
players are increasingly designing their plants based on ensure job satisfaction.
super-critical technology (Fig 2.5). This also helps in
constructing large scale plants more efficiently (requires iii. Design and roll out effective training program, which
comparatively lesser units, than sub-critical technology). provides the new recruits with the skills required at each
At the same time, super-critical technology is still evolving level. Multi-skill training may also be necessary to
in the country and the EPC & skilled manpower manage requirements across functional areas.
availability is limited. It is therefore imperative to weigh the
pros & cons of the same, before selecting the technology iv. Develop a strong performance management systems,
for generation. The plant design should also incorporate with well defined KPIs, clear linkages between rewards
cost efficiencies in terms of auxiliary energy, logistics flow and performance.
and other associated costs.
v. Define an efficient Knowledge Management
2. Maximise asset availability through maintenance best mechanism, which captures learnings’ and disseminates
practices: Efficient O&M practices need to be them across the organization & project sites.
institutionalized including condition-based monitoring of
equipments and robust maintenance practices. Traditional A “Six by Six” agenda for the government
maintenance practices need to be bolstered by reliability To facilitate sustained growth of the industry and enhance its
improvement initiatives. competitiveness, we have drawn out a prioritized agenda for
the government across six dimensions, each with 6 action
3. Minimize “total cost of delivery” to customers: In steps (Fig 2.6).
20 Source: Ministry of Power, PGCIL

21 Estimates based on expected capacity addition and industry norms

Figure 2.6
‘Six by Six’ Action Program
1. Address fuel supplies issues (coal & gas) allocations and monitor its development. The regulator can
Most of the action items for the government are in the area of oversee reform implementation as they are undertaken in
coal availability. A few interventions are required for improved the sector.
gas availability as well
iv. Adopt a stringent stance on development of allotted
i. Deregulate the coal sector, allow private investments captive coal blocks: Punitive measures, including
and move to market determined pricing: Coal sector withdrawal of blocks, should be adopted if a time based
should be opened up to investments from other public production schedule is not followed (for reasons directly
and private sector entities (including MNCs) to improve attributable to the developer).
supply. The de-regulation can be undertaken in a phased
manner with learning drawn from the Oil & Gas E&P v. Ensure priority access to gas for power sector
industry. (especially for peaking power): Provide higher priority
to the power sector for gas allocation. Encourage use of
ii. Promote Public Private Partnership (PPP) with Coal gas for power generation in geographical areas with
India: For coal blocks outside CIL’s immediate access to gas transmission pipelines.
development program, encourage PPP model with
customers. vi. Strengthen logistics for coal movement &
transmission infrastructure for gas:
iii. Set up an independent industry regulator for coal: a. For coal movement, first mile connectivity should be
An independent regulator, in lines of Telecom and strengthened through involvement of state
Power sectors, is necessary to oversee coal block authorities. Indian Railways should be mandated to

improve rail sidings, take on-board high payload 3. Aggressively promote clean source of energy
coal wagons and de-congest major coal corridors (in (nuclear and renewables)
Orissa, Chhattisgarh, Jharkhand, West Bengal and
Madhya Pradesh). Ports authorities should be Renewables
required to drive strengthening of imported coal i. Define high intensity renewable “zones” and establish
handling facilities at ports. all enablers therein. Work along with state governments
to define priority zones for renewables. Ensure land
b. Similarly for gas, the transmission pipeline availability and establish grid connectivity from the same
requirements should be adequately met to ensure
gas availability across the country ii. Ensure effective implementation of the National Solar
Mission, including clear policy on Feed-In Tarriffs.
2. Enhance downstream efficiencies (transmission & Incentivise renewables to match expensive peak load
distribution) requirements/unmet demand, so that it complements
Interventions are required on both transmission and the significant investments in base load that are already
distribution end by the government. being undertaken through conventional energy
Transmission iii. Encourage distributed generation for rural areas (to

i. Streamline private participation in transmission grid: benefit solar & bio-mass applications) through special
Enhance transparency in project award through incentives and fast track clearance. Promote adoption of
competitive tariff based bidding process. renewable energy by mandating use of rooftop PV on
Streamline approval process for exclusive government buildings, and applications to replace Diesel/
transmission lines of generators and support in obtaining Kerosene where solar power is cost competitive.
“right of way”
Nuclear energy
ii. Aggressively extend national grid reach and improve iv. Develop a comprehensive nuclear fuel plan: Detail a
quality: Establish/strengthen grid connectivity to remote plan for enhancing Uranium and Thorium mining
locations eg. North East (Hydro); interiors of western (exploration, development & production) capacities by 4-
region (Solar and wind). Continue strengthening grid 5 times. Gradually open the sector up for other players
quality through higher voltage network (including PSUs like NMDC and private players). Secure
uranium mines in the international markets.
iii. Extend flexibilities in BPTA tenures, supported by
similar reforms in PPA: Provide easy access to flexible v. Establish a detailed fuel policy to clarify modes and
“single/multi-year” BPTA contracts to fuel market procedures for fuel fabrication, spent fuel treatment
innovation at generator’s end. Support the same with and waste management by private players.
similar reforms in PPA tenure
vi. Provide special incentives (including tax & other fiscal
Distribution benefits) to encourage participation across the Nuclear
iv. Define a time-bound discom reform plan: Set out the value chain i.e.. components, construction and
plan for privatization or franchising of all poorly generation. Introduce a special status for nuclear energy
performing discoms, in a time-bound manner. for ensuring easy availability of funds.
v. Accelerate implementation of open access to 4. Facilitate efficient market side development

distribution networks across states: Provide seamless i. Accelerate the evolution of power exchanges: Provide
access to bulk & gradually non bulk customers directly independence to exchanges to introduce innovative
from generators “power products” (time based, tenure based, futures &
options) for generators, customers & traders.
vi. Reform power subsidy mechanism for the agriculture
sector: Provide for subsidies to the sector under ii. Deregulate the trading segment to enhance market
state budgets rather than loading costs to the efficiencies: Gradually increase/remove the trading
discoms. Aggressively support agricultural margins for power traders. Introduce reforms in PPA to
feeder separation across states through central provide flexibility to traders for “aggregation &
interventions. distribution” (flexibilities to supply power from multiple

sources based on market efficiencies) 6. Streamline industry enablers (equipment, financing &
manpower)
iii. Smoothen peak demand curve through introduction of
multi-year “time of day” tariff, where possible and DSM Equipment supply
initiatives i. Encourage new capacities for emerging technologies
in the generation space: Provide support to equipment
iv. Aggressively promote peaking power supply: Provide manufacturers for setting capacities in areas of super-
special support & incentives to hydro projects (launch critical technology, larger sized nuclear reactors etc
UMPP like models), renewables and ensure priority gas
supply to peaking thermal capacity ii. Promote investments in renewable components &
supplies through special incentives: Develop a plan
v. Introduce flexibilities in PPA tenure: Coordinate with (entailing fiscal & non fiscal benefits like land allocation,
ERCs and state governments to introduce shorter / multi- tax breaks, R&D breaks etc) for making India as the hub
period tenures for PPAs of component/ equipment supply for renewables (solar
& wind)
vi. Promote real time market mechanisms, through time of
day metering and pricing. Financing
iii. Address the issues confronting sectoral caps of
5. Streamline execution and monitoring mechanisms financial institutions: Work along with RBI to revisit
sectoral cap limits/redefine clubbing with other
i. Define a comprehensive “next generation” reform infrastructure projects.
agenda, with well defined implementation timelines
iv. Explore opportunities for loan re-financing by multi-
ii. Establish an “execution group” for aggressively lateral agencies/foreign institutions
following up on policy implementations: Create an
empowered group to oversee policy implementation, v. Provide special focus for financing hydro and nuclear
co-ordinate with different stakeholders, facilitate projects through priority lending: These segments have
interventions in case of delays and monitor/report progress long gestation periods and require special long term loan
facility
iii. Create a “single window” co-ordination & clearance
body: Such a body is necessary to co-ordinate activities Manpower
among various government entities including Ministry of vi. Strengthen Industrial technical institutes: Promote new
Coal, Railways, Ministry of Environment & Forest, State institutes especially in high intensity investment regions,
government agencies etc. enhance the quality of training through certification
standards and increase exposure to the industry
iv. Define clear time-lines for various approvals across
ministries & agencies and monitor adherence to the same
v. Streamline new power project execution through Conclusion

accelerated adoption of Case I bids/UMPPs/central It is critical that all stakeholders put in a concerted effort to
projects, incorporating all site related approvals and enable sustained growth of the power sector. If successful,
facilities (land, water, logistics, fuel, regulatory the power sector can enable rapid economic growth of the
clearances) country and improve the well being of more than a billion
people.
vi. Develop broad based performance metrics and
parameters for various agencies, monitor performance
against the same and address issues therein if any.

PART B
SECTOR OUTLOOK
THERMAL POWER: COAL BASED

THERMAL POWER: GAS BASED
HYDRO ENERGY
NUCLEAR ENERGY
RENEWABLE ENERGY
THERMAL POWER:
COAL BASED
Coal – Dominant Fuel for Power Plants
Coal is the most widely used fuel in the Indian power sector. Figure 3.1
Nearly 52% of the installed generation capacity currently coal Coal demand in India – Historical
based. The share of coal as part of the overall sector fuel mix (mt)
is only expected to increase over the next two plan periods.
The high relevance of coal for the power sector is also
reflected by the fact, that nearly 3/4th of the coal consumption
in India is accounted by the power sector. Coal supply has
not been able to keep pace with the demand resulting in high
deficits, a situation expected to worsen in the future. This is
despite significant domestic coal reserves to meet over 200
years of consumption at the current rate.
Such a situation calls for urgent interventions by the

Government and the Industry to address the constraints.
Accordingly, a six point agenda has been defined for the
government for immediate action.
Coal Demand-Supply Scenario
Supply gap reaching alarming levels

Figure 3.2
Coal demand in India has grown at a CAGR of ~ 6.1%,
during the last 7-8 years (Fig 3.1). Power sector is the
Domestic coal production in India –
dominant consuming sector, accounting for over 75% of the Historical (mt)
coal consumption. Steel and cement are the other major
consuming industries.
Cement sector’s coal demand has grown the fastest, owing to

the strong emphasis being laid on infrastructure
development. Demand from steel sector is relatively lower
due to increasing share of high grade imported coal.
India is the third largest producer of coal in the world, with

about 90% of the domestic production being controlled
by public sector units (CIL, SCCL and NLC)22. However, at
5.7% CAGR production growth, domestic supply has
not been able to keep pace with the growing
demand, leading to a demand-supply gap of about 50
million tons in 2008 (~9%) (Fig 3.2). The allocated captive
22 Balance coming through captive coal blocks and other sources
Coal – Dominant Fuel for Power Plants 25

Figure 3.3
Domestic Coal Consumption in India – Demand – Supply Scenario for Coal
Projections (mt) (mt)
coal blocks have also not ramped up as fast and efficiently as Major on – the – grounds challenges exist that need to be
required. addressed
There is a short supply of coal in India, despite large proven
Going forward, coal demand is expected to increase to 993 coal reserves, enough for ~200 years at current production
mt by 2014 (at a CAGR of 11.9%) driven by large scale coal levels (Fig 3.4).
based power capacities, and strong impetus from the cement
and metal expansion plans (Fig 3.3). As per CIL’s plans, There are three main issues constraining the production
domestic coal production is expected to grow only at 7.3% growth:
CAGR. This in turn will significantly widen the demand supply 1. Rehabilitation and resettlement (R&R) issues: India
gap – It is expected that by 2014, India will face a deficit of does not have unified R&R policy with each state
over 250 million tonnes of coal (25%), as per the current government, CIL, Railways and central ministry having
trajectory. separate R&R23 guidelines. Multiplicity of policies and
Figure 3.4
Domestic Coal Proven Reserves (BT, 2005)
23 Source: State Government Policy Documents, Coal Ministry

Figure 3.5
Output per man shift (MT) Production per employee per year (MT)
disputes relating to them lead to long delays in land Getting coal linkages not adequate; captive mines not
acquisition and initiation of mining activity. Employment yielding results
has to be guaranteed to all displaced people which Increasing demand with relatively constrained production
delays resolution of R&R issues. growth has resulted in significant over-commitments by CIL
subsidiaries (Fig 3.6). ECL, MCL and SECL are over
2. Productivity issues: Limited adoption of new mining committed to the extent of 20%- 50% of their 2010 production
techniques has resulted in manpower intense operations plans.
in India. This in turn restricts the coal mine productivity.
Compared to an average productivity of 57 (Australia) and To align the demand supply mismatch, CIL has been
45 (USA) MT of output per man shift, the output per man entering into substantially low ‘supply commitment’
shift in India is only 4 MT (Fig 3.5). Similarly the agreements. For all new FSA’s / LOA’s with private sector
production per employee in India is almost one-tenth operators, CIL has been signing undertakings to provide
compared to leading coal producers in the world. Some only upto 50% of annual contracted quantity (ACQ). With
of the coal mines in Indonesia and South Africa produce widening of the demand- supply gap, there is a risk of further
over 20-30 mtpa, while the maximum production in reduction in committed supply as more FSAs are issued for
India is still in 10-15 mtpa range. the planned projects. Accordingly, power projects with
3. Logistics issues: Coal evacuation and transportation Figure 3.6

is also a major factor constraining production. CIL subsidiary coal commitment vs.
production (mt, 2010)
First Mile issues: Unavailability of rapid loading systems, few
railway sidings and transport contractor/ union issues often
limits the quantum of coal that can be produced and
evacuated. Recently MCL, one of the fastest growing
subsidiaries, has an inventory of over 10 million tons of coal,
even while there was a significant unmet demand in the
market, due to evacuation issues.
a. Transportation: Coal being a bulk commodity is largely

transported by railways which suffers from various
bottlenecks like – low availability of rakes, high
turnaround time (5-7 days), low share of mechanized
discharge wagons, low wagon payload etc. All these
result in significant evacuation issues from the mines.

linkage supply need to plan for alternatives (like captives regulation can be undertaken in a phased manner with
and imports) to secure fuel. learning drawn from the Oil & Gas E&P industry.
Similarly, the captive coal mines have not ramped up 2. Promote Public Private Partnership (PPP) with CIL:
production as desired, on account of various issues: For coal blocks outside CIL’s immediate development
program, encourage PPP model with customers.
Delays in mining plan approvals, land acquisition,
environmental clearance and R&R issues 3. Create a “single window” co-ordination and execution
Shared distribution of coal mines to multiple parties (in body: Such a body is necessary to co-ordinate activities
several cases), resulting in delayed execution among various government entities including Ministry of
Limited “penal action” against players not adhering to Coal, Railways, Ministry of Environment & Forest, State
development timelines government agencies etc. A time-bound process should
be defined for clearances & approvals.
Accordingly, only 12%24 of allotted captive mines have been
operationalised till Mar, 2009. 4. Set up an independent industry regulator: An
independent regulator, in lines of telecom & Power sector,
The emerging coal scenario presents a significant risk to the is necessary to oversee coal block allocations and monitor
growth of Power sector. Accordingly, there are specific steps its development. The regulator can oversee reform
that need to be undertaken by the government and the implementation as they are undertaken in the sector.
industry to address the issue.
5. Adopt a stringent stance on development of previously
Imperatives for the stakeholders allotted captive coal blocks: Punitive measures, including
withdrawal of blocks, should be adopted if a time based
Reform agenda for the government production schedule is not followed (for reasons directly
Several steps have been undertaken by the government to attributable to the developer)
improve the supply situation. These include:
6. Develop a comprehensive logistics improvement plan
Allotment of ~40 billion tons of coal reserves for for coal movement: First mile connectivity should be
captive mining. There are steps to introduce strengthened through urgent involvement of state
competitive bidding/auction based allocation of coal authorities. Indian Railways should be mandated to
mines in the future. This will lead to a much more improve rail sidings, take on-board high payload coal
transparent and market determined distribution of coal. wagons and de-congest major coal corridors (in Orissa,
Chhattisgarh, Jharkhand, West Bengal and Madhya
Improved availability in the open market through Pradesh). Ports authorities should be required to drive
e-auction (~10% of total production). E-auction would strengthening of imported coal handling facilities at ports.
help reduce black marketing/illegal trading of coal and
also enable the government to accrue revenues as per Multi-pronged strategy required by the industry to
market prices. secure fuel
In addition to reform measures from the government, the
Acquisition of coal mines abroad (currently underway) industry also needs to undertake various initiatives to secure
by CIL who will channelize the same to customers fuel for future growth. A multi-pronged approach will need
to be adopted by the sector in the emerging demand
However, there is an immediate need for stepping up reform supply scenario.
initiatives in this sector. We suggest a Reform agenda for the
government: 1. Plan new projects taking into consideration coal
availability and its logistics: As part of feasibility
1. Deregulate the sector, allow private investments and assessment, access to coal and logistics should be
move to market determined pricing: Coal sector should considered as a high priority. New projects should seek to
be opened up to investments from other public and private reduce the risks associated with fuel availability earlier in
sector entities (including MNCs) to improve supply. The de- the project life cycle and not leave them to be resolved
24 Source: Ministry of Coal

mid-way during project execution. 5. Plan for efficient coal logistics: As part of project
design, coal logistics should be given special
2. Source domestic coal wherever possible: Domestic consideration. End to end handling including first mile
coal will continue to be the main & cheapest source of evacuation, rail/road based movement to plant site and
fuel for the power plants. As new reform measures are in-plant movement should be designed efficiently to
undertaken in the sector, the domestic production should ensure reliable & low cost logistics.
increase and ease up the pressure on the supply side.
Other sources like e-auctions and washeries will be used to
3. Enhance access to imported coal, especially for port meet short-term shortfall in coal requirements
based/near port plants: Players can increase
dependence on imported coal especially in the short to Conclusion
medium term. Various options exist for procuring Significant coal based capacity addition envisaged in the XIth
imported coal in India – spot trading, long term contracts, and XIIth plans would make domestic coal availability a
acquisition of mines etc. Acquisition of coal mines critical success factor for generators. Government support is
outside India has gained prominence in the last 2-3 required to expedite the policy reforms in the coal sector and
years. ease the supply pressure. The industry also needs to adopt a
multi-pronged approach to secure fuel for future growth.
4. Aggressively source and develop captive coal blocks: Inability of India Inc to address the coal availability issue can
Captive coal block development, through aggressive be a major deterrent to power industry growth.
liaisoning with government agencies should be a priority
activity for generators.

THERMAL POWER:
GAS BASED
Natural Gas –
Emerging fuel for the future
Natural Gas sector in India is undergoing significant game fields & expansion of LNG capacities. RIL is expected to start
changing developments. Significant volumes of gas from new producing ~80 mmscmd by the end of this year. With other
fields have recently come on-stream and lot of activity is NELP finds commencing production and more LNG re-gas
underway in the E&P side. While these are leading to new capacity, gas availability in India is expected to improve
opportunities for the power sector, there are also a new set of substantially going forward. As per A.T. Kearney estimates,
challenges that need to be addressed to tap the demand the gas availability in India will increase to 70-80 bcm by
potential in the country. 2015, up from 37 bcm in 2008 (CAGR of 10-11%).
Indian gas market – rapid changes underway 2. Changing demand landscape: India’s gas demand is
Prior to the 1980’s, associated gas produced at Mumbai High projected to grow at more than 7% CAGR over the next
was largely flared. Development of transmission pipeline 10-15 years. Power sector currently contributes to ~36%
infrastructure, esp. the HBJ line in mid-1980’s, fuelled growth of the overall gas demand and is expected to be a
and reach of gas consumption from near the source to other key contributor to this demand growth in short to
demand centers (Fig 4.1). medium term. With commissioning of the delayed
gas-based projects, conversions from alternate fuels
There are five dimensions that are shaping up the future such as Naphtha and Fuel Oil, and addition of
of gas industry in India: new capacities would increase the gas offtake from the
power generation sector. Developments in the Power
1. Improved availability through new gas supply sources: sector, allowing for increased trading will also drive
Significant increase in domestic production is expected demand for Gas as the preferred fuel for merchant-based
through new gas finds in KG Basin, development of CBM capacities (Fig 4.2).
Figure 4.1
Evolution of Natural Gas Market in India
Natural Gas – Emerging fuel for the future 33

Figure 4.2 3. Expanding pipelines/LNG terminals: To enable supply
Gas consumption – Expected Share of of gas to demand centers spread across the country, over
Power Sector (bcm) 1 11,000 km of new transmission infrastructure is expected
to be commissioned by 2015. The pipeline infrastructure
has been proposed to be developed as ‘Natural Gas
Highway’ inline with NHAI and international gas highway.
New pipelines required under the Natural Gas Highways
may be of the order of 6000 Kms, requiring ~Rs. 30,000
crore as capex in addition to Rs.50,000 crore already
committed by GAIL/RIL under the authorized projects
(Fig 4.3).
Over and above these, capacities of LNG terminals are

being expanded and new contracts for LNG imports are
being signed. PLL Dahej terminal recently doubled its
capacity to 10 mtpa while new contract for 1.5 mtpa has
been signed for Kochi terminal, due to be commissioned
Figure 4.3
Proposed Gas Transmission Infrastructure in India

Figure 4.4
Gas Demand-Supply Projection – India (bcm)
in end of 2011. These initiatives are expected to themselves. Transmission sector itself is expected to see
substantially improve gas availability near consumption investments of $ 15-20 bn in the next 5-8 years (Fig 4.5).
points, thus positively impacting the availability of gas for
the power generation sector. Imperatives for the stakeholders
4. Favorable regulatory changes: Regulatory reforms have Imperatives for the Government
continued to drive and support market development. With large investment plans announced by private players, it
Significant regulatory changes have been witnessed is critical that government continues its efforts for market
across three key dimensions: development in the sector. There is immediate focus
required across three key areas:
– Encourage Investments – Allowed 100% FDI in E&P,
Transmission and LNG 1. Expansion of infrastructure: Government needs to
ensure fulfillment of infrastructure requirements by
– Streamline Authorizations – Establishment of continued focus on expansion of gas-transmission
independent regulator for guiding operations and pipelines. This is essential to support market
tariff setting development and enable the players to gain effective
access to the gas market in India
– Increase Competition – Instituted competitive
bidding for E&P blocks through NELP and CBM. 2. Facilitating funding requirements: Regulatory policies
and incentives are needed to ensure ease of investment
Shift away from administered pricing towards market- and actualization of announced plans across the value
driven – Going forward, market mechanisms rather than chain – from E&P to distribution to utilization
government policies are expected to determine the
optimal/affordable gas price. Diversifying fuel sources, 3. Ensure access to gas for gas-deprived sectors at
specifically replacement of low-priced APM by reasonable price-points: Specifically, in the power
competitively priced NELP supply and increase in crude- sector, generators have had limited access to gas. As is
oil prices are expected to drive the increase in the evident in the recent gas utilization policy, it is imperative
average price of gas. that further regulations ensure access to gas across
different sectors.
Overall, by 2015, the Indian gas market is expected to be
70-80 bcm and $15-20 bn revenue industry (Fig 4.4). The Imperatives for the Industry
sector presents unique opportunities not only for incumbents As per the current scenario, a large part of the market
but also opens up the multiple opportunities, across the gas demand needs to be developed. Players in the sector
value chain, for new entrants to carve out a space for need to take a comprehensive view of the industry and
Natural Gas – Emerging fuel for the future 35

Figure 4.5
Risk Tariff Trade-Off for Gas Based Plants
take steps to effectively support the government for gas supply to diversify fuel mix and establish gas-based
market developments. capacities
1. Invest in infrastructure development and market Conclusion

education: As discussed earlier, gas supply is expected With a large expected increase in supply, gas-sector in India
to increase significantly in the near future. Hence, it is is at an inflexion point. Government support is required to
critical to identify key gap areas such as infrastructure continue reforms towards market development to ensure
development and market education to ensure the gas effective growth in the sector. Players need to take proactive
produced is supplied to the consumption point and is interest in the development of the market by ensuring
utilized to the benefit of the consumer investments across the value chain, specifically for the
infrastructure and gas-utilization requirements. All these
2. Invest in gas based power generation: On the other changes present opportunities for the Indian Power Sector to
end of the value chain, players can leverage the improved increasingly leverage gas as a fuel for power generation.

HYDRO ENERGY
Hydro Energy: Large Untapped Potential
Hydroelectric power currently accounts for about one-fourth about 70% of the exploitable power potential is yet to be
of the total power generation capacity in the country. With developed.
70% of the exploitable potential yet to be leveraged, there is
a huge potential for hydro power in India. This sector however From a regional perspective, over 95% of the total potential
confronts various socio-environmental issues including land in the North Eastern region is still untapped, primarily in
acquisition, R&R and environmental clearances, which have parts of the Brahmaputra river basin. The scenario is in stark
constrained sector development. The recent initiatives of the contrast to the southern and the western region where more
government like ‘50,000 MW Hydro Initiative’ and policy than 50% of the potential has been harnessed.
reforms (Hydro Power Policy, 2008) are expected to open
new opportunities in this segment. Due to the limited progress in this sector over the last few
decades, its share in country’s total installed grid capacity
Significant potential but limited realisations has redueced from about 40% in 1980 to about 25% in 2009.
India is endowed with significant hydroelectric potential Aggressive targets for the future, but challenges remain.
and ranks 4th25 in the world in terms of economically
exploitable hydroelectric potential. As per CEA, the In order to accelerate the hydro power generation capacity,
country has hydroelectric power potential of the Government launched ‘50,000 MW Hydro Initiative’,
about 148 GW. However, only ~25% of the targeting assessment of 50 GW of the 148 GW hydro
potential (36 GW in total) has been developed power potential. About 34 GW of capacity has been further
and only about 10 -15 GW is under construction. Overall, shortlisted for detailed survey and execution. As of June

Development of Hydroelectric Power Hydroelectric Power Potential in India
Potential (GW, River / Basin)
(GW, 2009)
25 CEA report on Hydro Power Development 2006
Hydro Power: Large Untapped Potential 39

Hydel power – installed capacity Hydro power potential – Global scenario
(GW) (GW)
2009, detailed project reports (DPRs) have been prepared cause adverse down-stream effects on the rivers.
for about 8 GW of the capacity and DPRs is in progress
for another 15 GW of capacity (Fig 5.1 and Fig 5.2). The 4. Financing Issues: The duration of most long term loans
steady progress on the ‘50,000 MW Hydro Initiative’ is 10-15 years which is quite short compared to the life
provides a significant opportunity for industry players to of a hydro power project (over 50 years). Most banks are
participate in this untapped segment. Over the next decade, not able to lend for a longer term due to the asset-
India can target to exploit its hydro potential to the levels liability mismatch.
of atleast 40-50% like many developed nations.
5. State/Region specific issues: Other issues like lack of
Additionally, India has an exploitable potential of ~15 GW of adequate transmission infrastructure to evacuate power
small and mini-hydro power projects which is emerging from North-eastern region, inter-state water disputes on
as a significant opportunity for rural electrification. sharing the project costs & benefits, differing allotment
criteria by states for award of hydro projects, are adding
However, there are several socio-environmental issues to the overall project delays (Fig 5.3 and Fig 5.4).
which may constrain development of this segment:
Imperatives for the Stakeholders
1. Resettlement and Rehabilitation (R&R) Issues: Land
acquisition and the problems of R&R is the single largest Aggressive execution of policies by the government
problem faced by most of the large hydro power projects. The recent steps undertaken by the government are moving
It has not only resulted in project delays but also in the right direction. However, to realize the opportunities
significant cost escalations. within defined timeframes, focus has to be on execution:
2. Regulatory delays: Involvement of several regulatory 1. Involve Project Affected Families (PAFs), Gram
agencies (Ministry of Environment & Forest, Ministry of Panchayats & local administration during land
Power, Ministry of Water, Pollution control board, State acquisition and R&R package formulation
agencies etc.) has typically resulted in approval delays.
2. Create a uniform policy for allotment of hydro power and
3. Environmental Issues: Even-though hydroelectric power sharing of benefits, across states
is a non-polluting energy source, it is usually associated
with harmful impact on the ecosystem. The large water 3. Create a single window clearance mechanism for all
reservoirs or dams associated with the hydro power projects to avoid regulatory delays.
project lead to submergence of huge forest land and can

4. Launch UMPP like models for hydro-power, bestowed funds for long term financing options and avoid issues
with special incentives and comprehensive solution (land, related to asset –liability mismatch
regulatory clearances, transmission)
3. Develop a detailed Comprehensive Catchment Area
Pro-active steps by the industry Treatment (CAT) Plan for the whole river basin, to reduce
1. Explore new business models like hydroelectric ecological impact.
merchant power plants: The inherent flexibility of
instantaneous start, stop and load variations make hydro 4. Provide for environmental cost and take pro-active
plants best suited for merchant trading/peaking power measures for resettlements
2. Tie up with multi-lateral agencies and development
Hydro Power: Large Untapped Potential 41

NUCLEAR ENERGY
Nuclear Energy –
Improving Future Prospects
Nuclear as a source of energy accounts for ~16% of total The recent Indo-US nuclear deal has opened avenues for
power generated, globally. Nearly 84% of the world’s nuclear partnership between India and Nuclear Suppliers Group
power capacity is concentrated in OECD countries including (‘NSG’) for technology, components, fuel procurement,
USA, France and Japan, However, Asia-Pacific countries project management and financing. As a follow-up to the
especially India and China are likely to be the growth deal, agreements have also been signed with Mongolia,
centers for the future. Russia, France, Kazakhstan and Namibia to increase
collaboration in the areas of civil nuclear cooperation;
Nuclear power is also cleaner, more environment friendly and especially for fuel procurement. These international treaties
less sensitive to fuel price hikes as compared to traditional have significant implications for India:
fossil fuel based plants. However, concerns about safety,
waste management and nuclear proliferation are likely to Indian players have an opportunity to import fuel and
linger in the future as well. The sector has bright prospects in technology from NSG
India in the long term. However the real impact is expected to
emerge only after 6-7 years from now. Foreign players can collaborate with Nuclear Power
Corporation of India Limited (NPCIL) to set up nuclear
Recent market developments present plants in India
new opportunities for the sector
Government has set a target of achieving 20 GW generation Global nuclear players can enter into MoUs with Indian
capacity by 2020 (up from ~4 GW currently). In the long companies to explore business opportunities across fuel
term, nuclear power generation capacity is expected to supply, technology and components (Fig 6.1).
expand to nearly 9-10 times by 2032, as per Integrated
Energy Policy projections. These positive developments have already evinced interest
from and initiatives by a number of players in the sector:
Figure 6.1
Nuclear power – installed capacity Large players like NTPC, NALCO are exploring JV
(MW) opportunities with NPCIL for setting up nuclear power
generation plants
Private players like Reliance Industries are exploring

opportunities in uranium exploration and mining in
international markets
Equipment manufacturers including BHEL and L&T

are augmenting their domestic capacities and
strengthening their technical capabilities through JVs with
global majors
In addition, global majors like Areva, General Electric,

Toshiba’s Westinghouse Electric and Russia’s atomic energy
Nuclear Energy –Improving Future Prospects 45

Figure 6.2 technologies are not accessed.
Nuclear Power – Key Challenges
3. Equipment capacity constraints: Construction of key
equipments for PWHR based plants in the unit segment
size upto ~ 500 MW has been developed indigenously
in the past (Fig 6.2). However going forward, while the
installed capacity is planned to increase 4-5 folds, the
trend is also towards larger sized reactors. Adequate
capacity therefore needs to be put in place for
right technologies.
4. Manpower: Currently, there are ~13,00030 strong skilled

nuclear workforce in the country. There needs to be a
steep jump in quality and size of the workforce, expected
to increase by atleast 3-4 times31 in number.
agency Rosatom have also expressed keen interest to 5. Financing: Indian nuclear generation segment would need
participate in the Indian market. investments of more than INR 1,500 Bn32 over the next few
years, to achieve the target of setting up 20 GW. This would
Critical challenges exist which need to be increase manifold considering the investments required to
addressed augment fuel supply and equipment capacity in India. In
Although the nuclear power market is opening up in India, absence of a well defined financing plan for nuclear
several challenges exist that need to be addressed: projects, this may become a constraint.
1. Limited fuel availability: The targeted 20 GW of It is imperative to address the above issues through a
generation capacity by 2020, will require 2,000 – 2,500 structured mechanism to realize the full potential of the
tpa26 of uranium ore (to sustain the first phase of nuclear sector.
growth from PHWRs27). While India has an estimated
reserves of ~64,000 tons, the commercial & technical Imperatives for the government
mining viability of the same needs to be assessed
completely. The current mining capacity in India is only A new reform agenda to be pursued
~300 tpa28 of uranium. Owing to strategic nature of There are key action steps that need to be undertaken by
uranium, mining rights have been restricted to Uranium government to promote this sector:
Corporation of India Limited (UCIL) which has taken limited
initiatives to expand production. Increase in uranium 1. Develop a comprehensive nuclear fuel plan: Uranium
requirement by nearly seven folds would urgently need mining (exploration, development & production) needs to
enhancement in mining capabilities in India coupled with be increased by atleast 4-5 times. UCIL needs to upgrade
seamless sourcing from international markets. its capabilities & mining technologies for the same.
Mining should also be gradually opened up for other
2. Generation technology constraints: NPCIL has players (including PSUs like NMDC and private players).
developed indigenous technology for nuclear reactors. It The government should also secure uranium mines in the
currently has 15 PHWR, 2 BWR in operation. Globally, international markets.
however there has been a rapid evolution of more efficient
generation technologies such as EPR, VVER, AHWR29 etc. 2. Establish a detailed fuel policy to clarify modes and
Sector growth and efficiencies will be impacted if these procedures for fuel fabrication, spent fuel treatment
26 Based on current industry benchmarks

27 Pressurized Heavy Water Reactor
28 Source: Uranium.info
29 EP: European Pressurized Reactor, VVER: Water-Water Energetic Reactor AHWR: Advanced Heavy Water Reactor
30 Nuclear Power Corporation of India Limited Annual Report
31 Based on expected increase in productivity by 30-40%
32 Assuming cost of PHWR ~Rs 7 Cr/MW and Thorium based reactor as ~Rs 8 Cr/Mw

and waste management by private players Industry needs to take a long term
view of the sector
3. Provide special incentives (including tax & other fiscal The changes in the nuclear power sector provide long term
benefits) to encourage participation across the Nuclear attractiveness to industry players. Some of the steps that can
value chain i.e. components, construction and generation. be undertaken by the players include the following:
4. Establish an “execution group” for aggressively 1. Evaluate nuclear power as part of the overall
following up on bilateral agreements with other generation portfolio mix: Nuclear power may present a
countries and channelizing fuel, technology & equipment viable diversification opportunity for large generators
availability in India
2. Develop a strategic plan for investments across the
5. Support manpower availability and training for nuclear value chain: Business opportunities exist in fuel supply
sector (from international markets), equipment supply,
technology sourcing, EPC, financing
6. Introduce a special status for nuclear energy for ensuring
easy availability of funds 3. Aggressively explore strategic alliance and partnerships
with global players to strengthen capabilities and establish
7. Aggressively promote NPCIL to undertake larger projects a competitive advantage in the sector
(strengthen the balance sheet if required), to drive growth
in the sector in line with NTPC (for thermal power). 4. NPCIL and new entrants should aggressively manage
Encourage JVs with other PSU and private sectors to costs and enhance operational efficiencies, to reduce
provide an impetus to the sector the cost differential vis-à-vis thermal power
Nuclear Energy –Improving Future Prospects 47

RENEWABLE ENERGY
Renewable Energy:
Sustained Source for the Future
Significant interest & investments globally Feed-in-tariffs for renewable power, with Renewable
and in India Portfolio Standards varying from 1% to 10% for 5-20 years
Renewable energy33 (non combustible sources like solar, wind, (varying by state and source of renewable energy)
geo-thermal & biomass) currently accounts for a small
proportion of the world energy market (Fig 7.1). The sector has Renewable Energy Certificates (RECs) to provide the
however witnessed significant interest and investments generator or the buyer an option of cost compensation
globally (Fig 7.2). Recent regulatory interventions like the through sale of such certificates.
renewables bill in the USA and EU’s 20/20/20 plan have put
further thrust in this area. As a result, over the last six years, renewable energy in India
has witnessed an annual growth of 25% in installed
China, India and other Asian countries ramped up spending capacity from 3.4 GW in 2002 to 11.5 GW in 2007 and
in renewables even as investment faltered slightly in Europe further to over 13.2 GW in 2008. In terms of targets, the
and the US due to the recent economic crisis. government has laid out a target of 26 GW by the end of 11th
Five-Year Plan.
Indian efforts for promoting renewable energy are in harmony
with the global move towards environmentally friendly fuels. The mix of renewable energy in the Indian context has also
The government has clearly laid out specific objectives for been gradually changing. Small hydro power has been a
promotion of renewables and is looking at supporting the traditional renewable source, while wind power has in the
same through multiple measures including: recent past experienced high growth driven by
Figure 7.1
World Total Primary Energy Supply by Source (2006, Million Tonnes of Oil Equivalent)
33 Other renewable sources include small hydro, wood, bio-fuels, waste
Renewable Energy: Sustained Source for the Future 51

Figure 7.2
potential of 2.5 trillion MWp (5000 trillion kWh/yr) but the
Global Annual Renewable Investments current installed total PV power generation capacity in India is
(Billion USD)
barely ~100 MWp. About 98% of this is in off-grid applications,
a situation very different from what is observed worldwide.
High generation cost and the lack of sufficient

government incentives have been the most significant
deterrents in adoption of solar technology in the past.
The limitation on the amount of subsidy that can be given has
diffused interest on the demand side. However, policy level
initiatives are now underfoot to tap the solar potential in India.
At the national level, a comprehensive National Solar

Mission (NSM) has been developed, which outlines
demand as well as supply-side incentives, along with a
strong government investment program (Fig 7.5).
Figure 7.4
Investments in Renewable Energy, 2008
(USD Bn)
government support (Fig 7.3 and Fig 7.4). With focus and
incentives in solar and biomass, these sectors are
expected to witness an accelerated growth going forward.
Solar energy: A “sunshine” segment

Asia is increasingly becoming the hub of new solar PV
activity. Apart from the high demand growth, it is becoming
the go-to destination for manufacturing and development of
emerging technologies. By 2030, Asia is expected to account
for ~40% capacity share of solar energy.
India has traditionally lagged in exploiting its significant

solar potential. With ~300 days of sunshine, India has a solar
Figure 7.3
Renewable sources of energy (2007)
(MW) Figure 7.5
Projected Installed Solar Capacity as
per National Solar Mission
(NSM) (MW)

The draft for National Solar mission, which is expected to be Taiwan, India, Singapore and Malaysia. India’s costs are
finalized later this year, proposes a number of incentives such already comparable to other low cost destinations in Asia
as Feed-in-Tariffs, tax holiday, timely & mandatory provision of and lower than costs in Europe & USA, due to competitive
grid connectivity, obligation of states to buy 1-3% of total energy and labor costs & taxes. India’s position is further
power from solar while compensating SERCs up to 70% of expected to be boosted by continued strong government
cost. These moves address some of the most significant support, through schemes such as Special Incentive
concerns that have been faced by private players. Package Scheme (SIPS) and NSM’s Manufacturing
Promotion Strategy.
Solar energy is also benefitting from sustained reduction in
costs, through technology improvements. It is expected that Opportunities will also increase in the auxiliary equipment
if the targets set by NSM are achieved, solar energy will attain space to support the above growth. It is however important
grid parity by 2020-25. for the players to take a structured approach to leverage the
above opportunities:
Several opportunities emerging across the value chain, a
structured approach necessary to leverage the same With short-term oversupply expected in the global solar
PV market, scale and timing of entry are critical
A number of opportunities are emerging for industry players
in the solar value chain: Choice of the right technology and a low-cost model
Demand/generation side opportunities: With technology will be important – wrong selection can tie the players into
improvements and incentives, large scale installations uncompetitive business scenario (Fig 7.6).
including solar farms are emerging as new opportunities.
Multiple announcements have already been made by Acquiring presence across the value chain through
players to install generation farms – e.g. Acme Energy and alliances/acquisitions could be a critical element in
Zebsolar plan to set up large solar thermal energy power cornering demand
plants. The Gujarat government recently approved 34
solar power projects at an investment of Rs.12,000 Cr to Wind energy: Proven model for sustained growth
add 716 MW to the state electricity grid. Solar energy can Globally, USA, China and India have emerged as the three
also be a viable opportunity for “distributed power” largest countries in terms of new capacity additions in wind
especially in rural areas. energy (Fig 7.7). However, cumulative wind energy capacity
is still highly concentrated in developed countries, with US,
Supply side opportunities: On the supply side, there is Germany & Spain accounting for 55% of the installed
a clear trend of shifting of global centers of manufacturing capacity.
locations from Germany, Japan and USA to China,
India has ~9.7 GW of installed wind energy capacity,
Figure 7.6 which accounts for ~70% of the total renewable energy in the
Sustained reductions in cost through country. Despite the significant investments, India has not
technology (USD/Wp) been a very big wind energy producer. The nature of
government support has been based on installed capacity
rather than generation, resulting in low utilization of installed
capacity. Inadequate evacuation infrastructure has also been
constraining harnessing of wind potential.
As Generation-Based Incentives (GBI) for grid connected

projects are put in place, the scenario is expected to favor
power generation players with a long-term focus and
willingness to upscale, rather than “tax-break seekers”.
Currently, the profile of wind asset owners primarily includes
large Indian corporates and high net worth individuals who avail
depreciation benefits. With more number of utility players such
as ONGC, GAIL, Tata Power and Reliance Energy including wind
in their overall power portfolio, the player profile in the sector is
now expected to align itself to the global trends (Fig 7.8).

Figure 7.7
Significant Capacity Addition in Wind Energy by USA, China and India
Capacity Addition in 2008 — Ranking and Share of Countries
With over 45 GW of wind-energy potential in India, the market wind turbines (<600 kw)
has the potential to grow at 15-20% p.a. increasing capacity
by 10-15 GW over next 5 years. For players in the sector, Lobbying to improve grid infrastructure in
exploiting further demand in the country will be unconnected high wind potential areas
dependent on a number of factors:
Biomass: Opportunity for niche play
Ability to identify high potential sites through Availability of biomass in India is estimated at ~540 mtpa, of
improved wind resource assessment which 25-30% can be made available for power generation.
This translates to an estimated potential ~16 GW power,
Improvements in technology to increase availability and with a potential upside of 5 GW, using modern techniques
generation of co-generation.
Focus on new growth avenues – Offshore wind turbines, Government has been offering fiscal incentives and
larger capacity wind turbines (>3MW), smaller capacity capital subsidy for generation projects based on biomass.
Figure 7.8
Most large players in the wind energy sector have an integrated presence across
the value chain

Figure 7.9 Sustaining growth of the renewables sector –
7.5 MW Biomass power project imperatives for the government
in Chhattisgarh Renewable energy has significant growth potential in India. It
also enhances the “sustainability” of the power industry
through “green” energy. It is however imperative for the
government to keep supporting the sector through several
interventions:
1. Ensure effective implementation of the National Solar

Mission, including clear policy on Feed-In Tariffs
2. Incentivise renewables to match expensive peak load

requirements/ unmet demand, so that it complements
the significant investments in base load that are already
Source: MNRE website
being undertaken through conventional energy
Several SERCs have also announced preferential tariff and 3. Define high intensity renewable “zones” and establish
Renewable Purchase Obligation (RPO) for biomass power all enablers therein. Work long with state governments
and bagasse cogeneration. to define priority zones for renewables. Ensure land
availability and establish grid connectivity from the same.
However, there are multiple deterrents preventing expansion
of biomass power ranging from inadequate information on 4. Encourage financial institutions (both government &
biomass availability, to unorganized biomass market, private) to lend to this sector as a priority industry.
technical limitations to transportation and storage issues
for biomass. MNRE has recently taken up Biomass 5. Encourage distributed generation for rural areas (to
power/cogeneration program, a UNDP/GEF assisted Project benefit solar & bio-mass applications) through special
on “Removal of Barriers to Biomass Power Generation in incentives and fast track clearance
India”, to accelerate the adoption of biomass technologies, and
lay foundation for large scale commercialization of biomass 6. Promote adoption of renewable energy by mandating
power through increased access to financing. MNRE plans to use of rooftop PV on official & PSU buildings, and
establish Model Investment Projects (MIPs) across applications to replace Diesel/ Kerosene where solar
technologies to demonstrate the viability of new investment power is cost competitive
and financing models (Fig 7.9).


Sustaining Growth-Future of Indian Power Sector

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Sustaining Growth –

105, Kakad Chamber

A.T. Kearney Limited

Unit No. 101/A, Future Capital House

Email: kaustav.mukherjee@atkearney.com; vikas.kaushal@atkearney.com; abhishek.poddar@atkearney.com;

iv Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Message from Chairman of CII's National Committee on Power ix

About the Report xi

Executive Summary xiii

Part A: Indian Power Sector: The Road Ahead 1

Theme 1: Changing Outlook for the Sector 3

Theme 2: Winning in the Future Power Markets 13

Part B: Sector Outlook 21

Thermal Power: Coal Based 23

Thermal Power: Gas Based 31

I would like to extend my appreciation to everyone who helped us in this effort.

Message from Chairman of CII’s National Committee on Power ix

How is the opportunity landscape changing in the Indian Power market?

About the Report xi

Executive Summary xiii

INDIAN POWER SECTOR:

1 Source – Ministry of Power

Changing Outlook for the Indian Power Sector 3

2 Source: EIA and United Nations

4 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

At base case demand scenario, India’s per capita

Large scale capacity additions and efficiency improvements

Figure 1.4 Figure 1.5

Changing Outlook for the Indian Power Sector 5

The above scenario will usher in a new era of “power on

A clear implication of the above will be on price realizations.

6 Source: A.T. Kearney analysis

6 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Changing Outlook for the Indian Power Sector 7

7 CIL, A.T. Kearney analysis

8 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

As a whole, renewables will become an important part of the

Key enablers impacting the sector outlook

9 Source: A.T. Kearney analysis

Changing Outlook for the Indian Power Sector 9

Source: CEA, CRISIL, A.T. Kearney

10 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Realization of these expansion plans and enhanced domestic Conclusion

Changing Outlook for the Indian Power Sector 11

14 Source: CEA, Analyst reports

Winning in the Future Power Markets 13

14 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

17 Based on current industry benchmarks

Winning in the Future Power Markets 15

Average merchant power prices expected to decline

In light of these market trends, generators would need to

16 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

5. Establish robust organizational enablers

20 Source: Ministry of Power, PGCIL

Winning in the Future Power Markets 17

18 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Transmission iii. Encourage distributed generation for rural areas (to

v. Accelerate implementation of open access to 4. Facilitate efficient market side development

Winning in the Future Power Markets 19

v. Streamline new power project execution through Conclusion

20 Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

THERMAL POWER: COAL BASED

Such a situation calls for urgent interventions by the