Request you to kindly drop in all your mails/queries to support@infraline.com or call us at
+91-120-6799125 (D); +91-120-6799100 (B)

infra-search

User Name

Password

Forgot Password?


Set as Default

Published:Monday, December 03, 2018 11:36 PM

21st India Power Forum - Revitalizing the Indian Power Sector

India Power

Background

In a bid to provide quality, secure and reliable power within the country, the government had taken various policy and institutional initiatives to revolutionize power sector towards right path. There still exists a scope to sustain the momentum of reforms to revitalize the sector. For this, few contemporary issues like Stressed power assets, sluggish hydro power generation and poor financial health distribution sector are identified that should be examined to achieve a comprehensive turnaround.

Stressed Assets in Indian Power Sector

The Indian Economy was booming between the years 2000-2008 and this was the phase when public sector banks (PSBs) started lending aggressively to big corporate houses due to relaxed lending norms adopted by the banks. But soon after the financial crisis in 2008-09, corporate profits came down which serious affected mostly the public sector banks whose lenders belonged to power, steel, telecom, infrastructure and textile sectors. Out of these sectors, Power sector contributed about 35%[1] of overall NPAs of banking industry. Today, the Indian Power Sector is in the middle of crisis as 34 projects have been recognized as stressed assets having outstanding debt of Rs 1.74 lakh crores.

Reasons for high Non-performing assets in Power Sector

Till now range of reasons have been acknowledged on mounting stressed assets of power sector in India. The contemporary issues like ambitious capacity expansion targets, dependence on thermal projects together with unsigned PPAs, fuel shortages, absence of fuel linkages, lack of working capital, disparity in PPAs between Public & Private sector, delayed payments by DISCOMs are considered as prime reasons that added woes to the sector. A report by Centre for Financial Accountability (CFA) indicated lack of due diligence exercised by the banks and their weak lending practices are the root cause of the problems. CFA smashed the reasons listed by Parliamentary Standing Committee on Energy report (March 2018) for high NPAs in power sector and opined that many aspects have been overlooked by the committee. The reasons listed by standing committee were cancellation of allotted coal blocks in 2014, setting up projects without fuel linkage, delay in project implementations leading to cost overrun and aggressive bidding by developers in PPA

Steps taken by Government to resolve stressed assets till date

  • Pass through of costs of meeting environmental norms
  • Pilot scheme for procurement of 2500 MW power
  • Rationalization of Coal Escalation Index
  • Directions for timely implementation of change in law
  • DISCOMs reforms
  • A payment monitoring app PRAAPTI to facilitate transparency in payment system by DISCOMs         

Stress assets resolution scenario till date

As the existing schemes fail to solve the purpose, Reserve Bank of India (RBI) the apex regulator strives hard to resolve NPA problem of banks with an objective of revival of economic growth of country. Earlier many frameworks were enacted by

RBI to curtail growing NPAs. They are highlighted below:

In a move for NPA resolution, RBI issued circular on 12th Feb 2018 as a new framework for managing stressed assets in power sector and withdrew the existing schemes like SDR and S4A. According to circular, lenders must implement resolution plan within 180 days i.e. from 1st March 2018. Failing to implement the resolution plan, the lenders should file insolvency application under IBC 2016 within 15 days from expiry of timeline. If lender fails to meet the prescribed timeline at his part, he will be subjected to stringent supervisory actions by RBI. The RBI also warned the banks to be penalized for failure in meeting the timelines.  Mr. Ashok Haldia, Former MD & CEO, PTC  India Financial Services supports ongoing measures being undertaken by apex regulator “IBC would reinforce discipline in stakeholders”

Interventions needed for reducing stress in power sector

To improve financial viability and operational efficiency of stressed assets, the government of India constituted the high-level empowered committee (HLEC) that made 14 recommendations. The following table highlights about the recommendations.

 

Recommendations by HLEC

ACQ (Annual Contracted Capacity) to be determined based on efficiency

 

 

 

 

 

 

Recommendations for Coal allocation/supply

Non-accrual of short supplies of coal

Linkage to be provided at notied prices without bidding

5Increase in quantity of coal for special forward e-auction for power sector

PSU to act as an aggregator of power

Procurement of bulk power by a nodal agency against pre-declared linkages

Coal Supply in case of termination of PPAs due to Payment default by DISCOMs

Coal Linkage for short term PPA

Retirement of old and inefficient plants

Recommendations to facilitate sale of power of stressed power plants

Mandatory payment of Late Payment Surcharge (LPS)

 

Recommendations on Regulatory & DISCOM payment issues

Payment Security mechanism for IPPs

Prevent cancellation of PPA/FSA/ LTOA post NCLT scenario

 

 

 

Other Recommendations

Avoid Cancellation of PPA for non-compliance of COD

Low utilization of Gas plant capacity due to paucity of natural gas

Areas where requisite attention is required to curb the rising stress in Power sector are:

Reallocation of Coal to more efficient power plants: Coal allocation to modern and newer thermal power plants must be taken on the priority list. Reallocation of coal to plants that have surpassed their payback period must be prevented.  As a matter of fact the generation capacity of a thermal power plant reduces to 40% after its 25 years of operational age, heavy investment to modernize them is required. By practicing reallocation of coal only to newer & efficient thermal plants will increase coal availability and help reduce emissions. Mr. A.K. Gupta, Director (Comm), NTPC strengthens this approach by quoting that closure of plants should not be with its age, but with its performance. Inefficient plants should be shutdown. There is a need to optimize thermal power plants.

Mr. S.N. Roy, Director, L&T and CEO & MD, L&T Power undermines the idea on revival of stressed assets as there is no success in stressed assets. He expressed concerns over the industrial growth that is stopped since last 5-6 years. The sector needs to be dependent on industrial growth rather than rushing towards revival of stalled power plants. He rightly quoted “Don’t look on financial aspects, but adopt a balanced approach”.

Hydro Power Generation

The immense hydro-power potential of 252 GW positions India to 5th in rank globally in terms of exploitable hydro-power capacity. With current installed capacity of 45.48 GW, the actual energy generation during FY18 from hydro projects was 10.5 % of total energy generated in that period. Prime rivers of the country include Indus, Ganga and Brahmaputra constitutes about 70 % of hydro-power potential. Most of the hydro-projects in India are established on storage and run-of-the-river types. The sector also consists hydro potential in small, mini & micro schemes of 6.8 GW and 63 pumped storage with exploitable capacity of 96.5 GW. As per the report by committee on optimal energy mix in power generation, the installed hydro-power capacity will reach 51.3 GW in FY22 and 63.3 GW in 2022-2027.

Need for Hydro Power

Water is elixir of peak power of in Indian Power Sector. Hydro-power plants have the ability to provide grid stabilizing services or ancillary services. The quick ramp-up/down capability along with the capability to run at a zero load qualifies it as unique source from other power generating sources. It also helps to maintain frequency of the grid within the prescribed margin through continuous modulation of active power. Water conservation is another key aspect that encourages development of hydro-power projects in India.

Key Challenges in Hydro Power Development

The share of capacity addition is reducing since last 5 years due to number of reasons. Mr. Jayant Kawale, MD, Rattan India Ltd. highlighted clearances issues like land acquisition, environment clearances, socio-economic issues to be the roadblocks in development of hydro power projects. Moreover, high capital cost and long gestation period have been considered as everlasting problems in development of projects.

Way Forward

For accelerated growth of hydro-power sector some collaborative approaches are necessary:

  • Focus on power evacuation infrastructure similar to green energy corridor is required especially in remote North-eastern regions of India.
  • An improved mechanism for project licencing and award should be implemented in the same way as tariff based competitive bidding is done in renewable sector.

In a recent conference organized by India Energy Forum in New Delhi, the consensus of the discussion amongst prominent dignitaries on hydro power projects was that India should have a vision on water security & hydro projects problems.

Distribution Sector

Distribution segment is the crucial link in entire value chain of power sector which generates the revenue has undergone significant structural reforms in recent years.  From unbundling the state electricity boards (SEBs) to allowing private sector participation and various flagship programmes that gave random relief to DISCOMS from time to time, distribution sector still has a long way to go as AT&C losses are still high. Considering the issues, the govt. is should craft remedial measures for sustainability of distribution segment in India.

Key challenges

The inefficiencies in the operational parameters of DISCOMs had led to huge financial losses. The status of few crucial parameters for the assessment of DISCOMs are:

  • ACS-ARR gap: Currently it has reduced to Rs 0.27 / unit. However, the reduction in gap is result of tariff rationalization, savings in power purchase cost and establishment cost, it needs to be brought down to more substantial levels for recovery of financially stressed utilities.
  • AT&C losses: With current levels of 21.84%, it is well above the target of achieving less than 15%. As per recent assessment, those states already performing well have continued to enhance more while less efficient states have witnessed deterioration. A reduction of 1% is attained by UDAY (Ujjawal Discom Assurance Yojna) states in AT&C losses in FY18

Way Forward

With an aim to provide 24*7 power for all, the overall demand will rise in future and that will be uncertain.  There is a need to review the institutional structure for radical improvement in distribution segment by unbundling distribution companies into small DISCOMs/franchisees. For example, FEDCO (Feedback Energy Distribution Company Ltd.) operating in Orissa managed to curtail AT&C losses by 23% since FY13,  Torrent Power managed to reduce losses to 17.28% for FY18 in Bhiwandi and 20.89% for FY18 in Agra. The success impact of distribution service operator (DSO) model practiced in Europe can be implemented. This franchisee model would restrict number of connected consumers that will facilitate focused actions and will also improve billing and collection efficiency.

 

add comments

Name*

Email*

Your Comments

Recent Posts