Removing Roadblocks in Generation – Towards 24 Hour

Power Supply

Association of Power Producers

19 Dec 2011

Several Initiatives to Improve Access of Electricity in Rural Areas•Electricity Act 2003 and National Electricity Policy – decentralised distributed generation•Rajiv Gandhi Grameen Vidyutikaran Yojana However,•56% of rural households and 400 million people without electricity access•Per capita consumption of India @ 778 kwh as compared to 2471 kwh of China•Electrified rural areas get 6-8 hours of supply with poor quality of service

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24 hours supply appears to be a distant dream as long as basic power generation issues are not tackled

Indian power sector is passing through a very critical phase and the current

situation is the outcome of inaction on the part of the Govt and exuberance

on part of some of the private players

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The major bottlenecks are•Fuel – shortage of domestic coal and pricing of imported coal and blended power•Land Acquisition Issues•Environmental Issues•Poor Financial Health of Distribution Utilities

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Coal 62%

Coal 65%

Coal 63%

Coal 59%

Coal 54%

Coal 55%

Coal 62%

Biggest Challenge Being Faced by Developers - Fuel

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Coal has remained and is expected to remain the dominant fuel by far. With 74% of the 12th Plan additions being based on coal, coal share of the total

generation portfolio is expected to be 62% by the end of 2017

Estimated domestic coal requirement for the power sector in FY 12 is 455 MT (as per CEA) and availability is around 402 MT (including all sources). Therefore the current deficit of coal is 53 MT for power sector in FY 12 leading to a stranded capacity of ~13000 MW

Shortage of Domestic Coal

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Looking at the fact that 74% of the 12th Plan capacity

addition (of 100,000 MW) is based on coal, it is

estimated that the total coal deficit will be 292 MT by the

end of 2017

Case I linkage coal based projects – At the time of bidding, tariff quoted by developer was on the domestic linkage coal price and LOAs once issued assures the holder of ‘100% of the quantity as per the normative requirement’ as per the New Coal Distribution Policy. However, Coal India Ltd’s failure to meet its commitments under LOA has resulted in Case I developers unable to meet their obligations under PPA as there is no provision in PPA to provide for escalation in case coal is arranged through e-auction or through imports.

Case 2 linkage coal based projects – Same situation, however incase the design specifications of the boilers limit the acceptance of imported coal beyond 10-15%, the developer would not be able to meet the normative capacity availability requirement of 85%

Imported coal based projects – Shortage of coal in India and China and the resource nationalism exhibited by coal exporters such as Indonesia and Australia has led to steep increases in coal prices on a global level.

How Is This Impeding Country’s Generation Portfolio

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Stranded assets post 2009: Ratnagiri (JSW), Babandh (Lanco), Amarkantak (Lanco), Tiroda (Adani), Jhajjar (CLP), Bara (JP) etc

Projects based on Imported Coal: Mundra (Tata), Krishnapatnam (Reliance), Udupi (Lanco)Projects based on Blended Coal: Aravali (NTPC JV), Sipat (NTPC)

Capacity Contracted Under Competitive Bidding

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Type of Bidding Types of Projects PPAs signed in the year

Logistical Issues

Is Imported Coal A Viable Option

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Restrictions on export, additional

customs and duties

etc

Almost 1/3rd of current crude import bill

Distribution utilities to get

exposed to fluctuating price risks

Most plants can take up to 28% imported coal max

Suggested Measures to Increase Domestic Coal

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Land Acquisition Issues

Draft Land Acquisition and Rehabilitation & Resettlement bill

introduced for public comments by GoI in July 2011

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It is estimated that land will move up from a historical 5-8% of total project cost to as high as 30% of total project cost

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Proposal Received by Govt

SIA conducted by Appropriate Govt

Appraisal of SIA Report by Expert Group

Verification of public purpose legitimacy and 80% consent, Approval of SIA Report

Publication of Preliminary Notification

Preparation of Draft R&R Scheme

Draft Declaration and Publication of R&R Scheme

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Practically, the affected families cannot give the consent unless the details of the rehabilitation and resettlement benefits are known

Legitimacy of public purpose should be identified at an early stage to avoid wastage of effort

Public Hearing for SIA

Public Hearing

Activity Flow of the Land Acquisition Process Needs Review

In case notification is not issued within 12 months, SIA will be deemed to have lapsed

Award

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The process as chalked out today is cumbersome and creates

ambiguity. A review is needed to ensure efficient implementation

of projects

Environmental Issues

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Precarious Position of Distribution Utilities

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● AT&C losses at ~30% is amongst the highest in the world, when compared to South East Asian nations which had 5-8% losses in 2007 and Brazilian utilities which averaged 15% in 2005

● Reasons vary from combination of LT-HT lines and improper load management to unmetered supplies, faulty meters and electricity theft

Losses

At the current level the losses are likely to reach Rs 80,000 Cr by end of 2012 and Rs 116,000 Cr by end of 2015

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APDRP intended to reduce losses of utilities to 15%, improve financial viability of Discoms and improve quality of supply

Re-launched as R-APDRP in XI FYP, the program focused on actual, demonstrable performance in terms of sustained loss reduction

● In most states, tariff increase has been inadequate to cover the cost increases witnessed by the utilities.

● While the average cost of supply (all-India) level increased from Rs. 2.64 per unit to Rs. 4.81 per unit i.e. an increase of 82%, the increase in revenue has been only 56% (due to low tariffs).

● The revenue gap increased from 38 paise per unit in 2006-07 to 127 paise per unit in 2009-10 implying losses for the utilities.

Increasing Revenue Gap

0.38 0.480.75

Tariff Below Cost of Supply

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2008-09 2009-10 2008-09 2009-10 2008-09 2009-10Andhra Pradesh 4.19 4.05 2.60 2.77 -1.59 -1.28 46%Gujarat 3.34 4.32 4.09 3.97 0.75 -0.35 9%Haryana 5.43 5.72 3.14 3.29 -2.29 -2.43 74%Karnataka 3.1 4.09 3.60 3.94 0.50 -0.15 4%Madhya Pradesh 5.17 5.7 3.40 3.70 -1.77 -2.00 54%Maharashtra 4.5 4.66 4.04 4.32 -0.46 -0.34 8%Punjab 3.94 4.09 2.76 2.66 -1.18 -1.43 54%Rajasthan 6.45 7.23 3.19 3.03 -3.26 -4.20 138%Tamil Nadu 4.79 4.92 2.91 2.90 -1.88 -2.02 70%Uttar Pradesh 3.02 4.68 2.60 3.06 -0.42 -1.62 53%

Cost of Supply (Rs/kwh) Average Tariff w/o subsidies (Rs/kwh)

Gap (Rs/kwh)State

% hike vs Avg tariff

Source: Report of High Level Panel on Financial Position of Distribution Utilities, Dec 2011

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