CII-PWC report: Round the Clock Power Supply

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The government’s “Power for All” programme is an ambitious plan, which depends a lot on the development of capacity expansion in power supply chain, developing coal resources and logistics and increasing technological interventions. CII-PwC report titled Round-the-Clock Power Supply: A Key Milestone says that the Indian Power Sector depend upon the availability of power that on other hand depend on two factors—adequate electricity generated and development of supporting infrastructure for the supply of electricity.
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  • 1. Round-the-clock power supply: A key milestone for the Indian power sector www.pwc.in Contents Introduction p2 / Round-the-clock electricity for all p4 / Plans to achieve the programme objective p7 / Capacity expansion of the power supply chain p8 / Hydropower development in the northeast region p13 / Developments in the coal sector p16 / Technological enablement p20 / Effective programme management p22
  • 2. 2 CII - PwC Introduction Rapid economic growth in India has led to a surge in energy demand in the country. India, the fourth largest producer of electricity in the world, has witnessed a transformational change in the energy sector, with supportive policy interventions as well as sector reforms. Despite the phenomenal growth in generation capacity over the past years, India is grappling with a power deficit situation. Over 15.5 million below poverty line (BPL) households and 9,500 villages are still devoid of electricity. The per capita electricity consumption in India is much below the global average. This necessitates a review of actions by the sector stakeholders and better planning for achieving key performance indicators (KPIs). Energy is one of the key elements necessary for the socio-economic development of any country. The success of key initiatives such as ‘Make in India’, along with growing urbanisation and social upliftment of rural India, will depend on the availability of uninterrupted quality electricity supply to consumers. In June 2014, the Government of India (GoI) launched the ‘Power for All’ programme with the objective of providing electricity supply to the un- electrified population of the country, and providing uninterrupted quality power to all consumer categories and adequate electricity to agricultural consumers. Availability, affordability, reliability and quality of electricity supply are recognised as the key pillars for successfully achieving the programme objectives. One of the priorities for the success of the ‘Power for All’ programme is the availability of adequate electricity to the grid. Availability of power will depend on two factors—adequate electricity generated and development of supporting infrastructure for the supply of electricity. By 2019, more than 67,780 crore INR will be set aside for investment in the Indian electricity sector, and installed generation capacity is expected to increase to 372 gigawatts (GW). Coal- and hydro- based power generation, two major contributors to the country’s generation mix and having great potential, shall dominate the generation mix apart from renewables. Investment in the generation sector shall be followed by the development of a supporting transmission and distribution (T&D) system. India’s losses are above 20%, resulting in a significant loss of energy resources and revenue realisation. Reduction in losses will improve the power availability and financial health of distribution companies (DISCOMs). Improvement in financial health will increase the power purchasing capacity of DISCOMs, thereby encouraging higher generation. Availability of power in the rural areas will be another key area of focus for achieving round- the-clock power supply. However, the country has already achieved 92.3% of village electrification, as household electrification numbers as of May 2016 are quite low. Therefore, the effective implementation of a GoI scheme like Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS) will remain the focus of DISCOMs. The success of the ‘Power for All’ programme will depend on managing effective sector investment, continuing technological improvements and efficiently managing the sector programmes. In this context, the Confederation of Indian Industry (CII), along with PricewaterhouseCoopers Private Limited (PwC) as the knowledge partner, is bringing together policymakers, thought leaders, investors, utilities, regulators, funding agencies and private players to discuss and debate the interventions required to achieve round-the-clock power supply and propose directions for stakeholders in the Indian power and energy sectors.
  • 3. Round-the-clock power supply: A key milestone for the Indian power sector 3 Trends in power generation Growing environmental concern about fossil fuel based electricity generation has turned the tide in favour of cleaner electricity generation sources worldwide. The United Nations Climate Change Conference, COP 21 and formation of the International Solar Alliances bear testimony to this development. Despite the low price of coal, oil and gas, the percentage of fossil fuel based electricity generation in the generation mix is in constant decline. Leading coal-based power consuming countries, including China, have planned to phase out their coal-based generation fleet in order to control the increasing level of air pollution. In line with the global trend, India, a major coal-based electricity generator, has planned to increase its renewable generation capacity to 175 GW by 2022. Despite these massive planned renewable energy installations, the share of coal-based power generation in India’s generation mix is not expected to decline sharply. Electricity demand in India is growing at higher than 5%—a growth which cannot be effectively met by renewable energy installations alone, and hence coal-based power sources will continue to dominate the mix. Global outlook • According to the ‘New Energy Outlook 2016’, by 2040, zero-emission energy sources are expected to account for 60% of the global installed generation base. • Wind and solar are set to lead renewable energy installations. • Natural gas, the relatively cleaner fossil fuel, will enable the transition from fossil to zero-emission energy resources. • Despite the focus on zero-emission energy resources, the share of fossil fuel resources, particularly coal, is not expected to register a steep fall in the next 25 years. Key concerns of the Indian power sector The Indian power sector is facing key challenges in the form of lower output from generation units and higher losses. As of May 2016, the all-India average plant load factor (PLF) was 62.24%, which has significant scope for improvement. Concerns of Indian power sector • Low PLF/capacity utilisation factor (CUF) • High transmission and distribution loss level: 20.83 (estimated) • Aggregate losses (without accounting for subsidies) for all utilities increased from 64,463 crore INR in FY10 to 1,00,188 crore INR in FY14. (State Power Utilities Performance Report, PFC) • The gap between ACS and ARR (on subsidy received basis) has increased from 0.61 INR/kWh in FY10 to 0.73 INR/kWh in FY14. (State Power Utilities Performance Report, PFC) T&D and aggregate technical and commercial (AT&C) losses of the country are above 20%, resulting in huge losses, both in terms of energy and revenue realisation. The financial condition of DISCOMs in India has severely deteriorated as a result of these high loss levels. Subsidised power supply is further increasing the gap between the average cost of supply (ACS) and average revenue realised (ARR).
  • 4. 4 CII - PwC Electricity is vital for the socio-economic development of any country. India, which aims to be one of the economic superpowers of the twenty-first century, needs to invest in the sector infrastructure for sustainable development. Uninterrupted supply of power is one of the prerequisites for any advanced economy. India, on the other hand, is facing challenges in providing continuous power to its citizens. Recognising this need in June 2014, GoI launched the ‘Power for All’ programme to address this problem. The objective of this programme is to provide round-the-clock uninterrupted quality power to all consumer categories, except agricultural consumers. The objective will be achieved through joint initiatives with individual states and union territories. According to Load Generation Balance Report (LGBR) 2016-17, India is expected to have a power surplus in FY2016–17, although northern, eastern and northeastern states will continue to face a power deficit. Round-the-clock electricity for all Considerations to achieve ‘Electricity for All’ Sector infrastructure development Quality and reliability of supply Consumer’s affordability Availability of electricity Availability of adequate electricity Availability of electricity to meet requirements is the key priority of the ‘Power for All’ programme. In the last few years, India has consistently improved its power supply position. The demand-supply mismatch declined from -9.3% to -2.1% between FY 2012–13 and FY 2015–16, and it is expected to decline further. Power supply position, India -9.3 -6.7 -5.1 -2.1 1.1 -10 -8 -6 -4 -2 0 2600.0 700.0 800.0 900.0 1,000.0 1,100.0 1,200.0 1,300.0 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 D-Sgap(%) Unitsofelectricity(BUs) Demand (BUs) Supply (BUs) D-S Gap (%)
  • 5. Round-the-clock power supply: A key milestone for the Indian power sector 5 The eastern states of India, such as Odisha, Jharkhand and West Bengal, are rich in coal reserves, but are reeling under a power deficiency. Development of coal mines, improvement in coal logistics and other similar initiatives can help these states to overcome their power deficit situation. Northern and northeastern states are endowed with rich hydro resources. According to the LGBR 2016- 17 report, the projected peak deficit in the northern and northeastern region in FY 2016–17 will be 900 MW and 106 MW respectively, which can be met by developing unexploited hydro potential of these two regions. Affordability of electricity supply Affordability of electricity shall be another key priority of the programme. A large percentage of un-electrified rural households are unable to apply for an electricity connection due to the high cost. High tariff poses a further burden. Dependence on imported fuel such as coal and natural gas exposes the cost to the uncertain global market. The alternative is to develop domestic coal mines and invest in renewable energy development. This will help not only in securing sustainable tariff but also in increasing energy security. India ranks fifth in the world both in terms of proved coal reserves as well as hydro potential. -1.8 6.9 3.3 -10.3 -8.3 -12 -10 -8 -6 -4 -2 0 2 4 6 8 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 North West South East Northeast D-Sgap(%) Unitsofelectricity(MUs) Demand (MUs) Supply (MUs) Surplus/deficit (%) Region-wise projected power supply position, India, FY 2016-17 Source: Load Generation Balance Report 2016-17, CEA Segment Expected investment till FY19 (in thousand crore INR) Generation 338.7 Transmission 146.3 Distribution 192.9 Generation source Proved reserves/ potential in India India’s rank in the world Coal 125.91 BTs 5th Hydro 148 GW 5th Source: GSI Adequate infrastructure Infrastructure bottlenecks such as an inadequate transmission and distribution network have been a key constraint limiting the power evacuation capacity. Increase in generation capacity requires proportionate growth in the T&D network capacity for the optimum use of resources and the power system. Source: User Guide for India’s 2047 Energy Calculator, large hydro sector, CEA Hydro potential (MW) at 60% LF 30155 5788 517 2418 915 21949 30425 0 5000 10000 15000 20000 25000 30000 North Northeast Assessed Developed Under development Balance
  • 6. 6 CII - PwC According to MoP, the per capita electricity consumption in India during FY 2015–16 was 1,075 kWh (provisional). In the last five years, the per capita electricity consumption in India has witnessed growth at a CAGR of 5.02%. 23.97% 23.65% 23.04% 21.46% 20.83% 26.35% 26.63% 25.38% 22.70% 15.00% 17.00% 19.00% 21.00% 23.00% 25.00% 27.00% 29.00% FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 T&D and AT&C loss level trend T&D loss AT&C loss 22.7% 15.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% FY 2013-14 FY 2018-19 (Target) AT&C loss reduction target Source: CEA, ‘Power for All’ documents, Ministry of Power (MoP) 883.6 914.4 957.0 1,010.0 1,075.0 1,500.0 600.0 1,000.0 1,400.0 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16 FY 2018-19 (Target) Source: CEA, 'Power for All' documents, MoP Per capita consumption (kWh) Quality and reliability of supply Adequate infrastructure development, along with the latest technological interventions in the sector, will result in improved efficiency and the supply of quality power. To improve the efficiency and output of generation stations, PLF and CUF should be improved. The all-India average PLF as of May 2016 was 62.24%, which is significantly low. The AT&C loss levels of India are quite high in comparison to those of advanced economies. In FY 2013–14, the AT&C loss levels of the country were 22.7% (provisional). Though both T&D and AT&C loss levels have declined in the last five years, the present loss levels are still much higher than the targeted loss level for FY 2018–19.
  • 7. Round-the-clock power supply: A key milestone for the Indian power sector 7 Providing uninterrupted quality power supply to a large country such as India will require focus on some key areas such as: Plans to achieve the programme objective Capacity expansion of the power supply chain Development of coal resources and improvement of coal logistics Effective programme implementation Development of hydro energy resources Adoption of technological intervention
  • 8. 8 CII - PwC Generation With growing concern over the environmental impacts of using conventional sources of electricity generation, which mostly comprise fossil fuels, sector stakeholders are compelled to take informed decisions to chart a way forward for the energy sector which involves cleaner, affordable, sustainable and reliable means of energy sourcing. GoI, in collaboration with the state governments, has committed to developing non-conventional sources such as solar, wind, biomass, cogeneration bagasse, and small hydro sources, in addition to policy-level interventions in operational performance, technology implementation and governance. Well-managed expansion of energy supply, if achieved, can considerably improve the quality of life of India’s 1.3 billion people, particularly the estimated 240 million that still lack any access to electricity. Policymakers are looking to remove obstacles to investment in energy supply while also focussing on energy efficiency and pricing reform. By far, coal is the most critical fuel in the energy mix, but India’s recent climate pledge underlined the country’s commitment to a growing role for greener, low-carbon sources of energy, led by solar and wind power. Capacity expansion of the power supply chain Source: CEA–Executive Summary,16 April 25.19% 33.45% 41.36% 0% 20% 40% 60% 80% 100% Contribution Central State Private Hydro 14.13% Coal 61.42% Gas 8.09% Diesel 0.30% Renewable 14.15% Nuclear 1.91% Thermal 69.81% Hydro Coal Gas Diesel Renewable Nuclear Sector-wise contribution to installed generation capacity, FY 2016 Generation mix of India, FY-2016
  • 9. Round-the-clock power supply: A key milestone for the Indian power sector 9 Generation capacity addition of 36.6 GW of thermal, 33 GW of renewable, 9.9 GW of hydro and 9.1 GW of nuclear are envisaged to be added to the grid. Introduction of the renewable energy generation obligation (RGO) and removal of a cross-subsidy for power procured from renewable sources, on account of the proposed amendments to the Electricity Act, 2003, are some of the major headways providing a huge spur to the expansion of the Indian renewable energy space. Renewable-based generation: As per the MoP policies set for ensuring 24x7 power to all states by FY 2019, there is a planned investment in the generation segment of 338,664.1 crore INR, including an investment of 156,644 crore INR in renewable capacity addition. The maximum share of investment is planned for the northern region, which has huge potential for hydro- based generation. The north-eastern region, which has an equally large potential of hydropower, can be considered for tapping energy to facilitate the mission of expanding the green energy base. More emphasis should be laid on the renewable capacity augmentation, particularly solar and wind, as they have short gestation cycles. The alteration of the generation mix as envisaged for the next three years is shown below. 36,560 33,000 9,900 9,100 Thermal Renewable Hydro Nuclear Source: Strategy for Providing 24X7 Power Supply, FOR Generation capacity addition target from FY 2016-17 to FY 2018-19 (MW) 136,939 97,484 71,541 22,166 10,534 - 50,000 100,000 150,000 North West South East Northeast Source: PFA Documents, MoP Region-wise investment planned in generation segment till FY 2019 (crore INR) Source: Strategy for Providing 24X7 power supply, Forum of Regulatory (FOR) Generation mix -2019 Thermal 61.18% Nuclear 4.64% Hydro 14.70% Renewable 19.48% Thermal Renewable Hydro Nuclear Thermal Renewable Hydro Nuclear Generation mix -2016 Thermal 69.81% Nuclear 1.91% Hydro 14.13% Renewable 14.15%
  • 10. 10 CII - PwC Key enabler in the area of renewable energy sources to achieve 24X7 power supply A planned capacity addition of 15GW for 2016–17 to augment the renewable installed capacity of 39.5 GW in 2015. The subsequent capacity additions envisaged as per FOR are 9,000MW each year for FY 2017–18 and FY 2018–19. The introduction of the mechanism for renewable energy certificates has led to the mandate of renewable purchase obligations (RPO), resulting in an increase in the market for renewable energy. Implementation of renewable energy in the off-grid and distributed generation mode has emerged as a solution to provide green energy to power deficit rural areas. The Proposed Electricity Amendment Bill, 2014, has provisions for segregation of carriage and content to renewable energy and open access to tariff rationalisation along with removal of cross-subsidy if procured from renewable sources. Transmission The surge in demand for power necessitates the development of a robust and non-collapsible transmission infrastructure. With an ambitious target set for achieving a generation capacity addition of over 85 GW by the end of FY 2018–19, corresponding strengthening of transmission capacity is required to ascertain the availability of power to the load centre. The presence of a single interconnected transmission network, which was achieved with the linking of the southern region with the rest of the grid in December 2013, has not been fully successful in ensuring reliable power to the nation mainly because of corridor bottlenecks and congestion issues. Some of the issues faced during the two phases of implementation of transmission projects which need immediate attention are as follows: 34,102 25,716 53,891 23,158 9,395 - 20,000 40,000 60,000 North West South East Northeast Source: PFA Documents, MoP Region-wise investment planned in the transmission segment till FY 2019 (crore INR) Implementation phases Issues Planning and award • Micromanagement of specifications in the tender leave the developer with no room to innovate • Participation of inexperienced players in the bidding process and further submission of unviable and aggressive bids due to lack of due diligence at the bidding stage • Lengthy concept-to-commissioning time with suboptimal planning process Execution and commissioning • Delay in execution of major transmission projects pertaining to resistance from landowners on account of inadequate compensations, resulting in cost escalations and right of way (ROW) acquisition • Less focus on technology and innovation
  • 11. Round-the-clock power supply: A key milestone for the Indian power sector 11 The life cycle of the transmission project demands proper attention for ensuri
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