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Mr. Anil Sardana, Managing Director and CEO, Tata Power

02 Jul 2016

‘Reasonable tariff hike need of the hour’ After coming into power in May 2014, the NDA government has taken various measures to address bottlenecks impacting viability of the electricity sector and restore investors’ confidence. However, demand for electricity still remains sluggish. Power plants are operating at low PLFs, leaving a significant capacity unutilised. In an interview to Infraline Plus, Anil Sardana, Managing Director and CEO, Tata Power, shares his suggestions to make the power sector vibrant.

Demand for electricity has been sluggish in recent years. How do you see power demand growth in the medium term?

A recent assessment conducted by the Ministry of Power has concluded that India won’t need any new power plants for the next three years as it is flush with generation capacity. According to the government, the country has power plants with capacity to generate 300 GW. These are operating at 64% capacity because of poor off-take by discoms. India’s per capita power consumption of 1,000 KW hour is one third of the global average. If we have to improve power consumption, it is the distribution sector that has to ensure that it caters to consumers on a 24x7 basis. It is the distribution business which has the responsibility to make sure that industries set up upstream investments in manufacturing and create more jobs. If that doesn’t happen, the per capita power consumption increase is doubtful. It is predicted that demand for electricity is likely to pick up after 2019 as the Ujwal DISCOM Assurance Yojana (UDAY) scheme and village electrification programmes start yielding results. However, given the fact that power plants take a long time to be commissioned, it is important to keep investing in the sector so that energy is readily available when the country becomes energy hungry in 2019-2020 and beyond. India’s long-term energy demand is expected to be the highest in the world. By 2030–35, energy demand in India is projected to be the highest among all countries according to the 2014 energy outlook report by British oil giant, BP. Another study suggests that if India grows at an average rate of 8% for the next 10 years, the country’s demand for power is likely to soar to around 315 to 335 GW by 2017. Therefore, despite the fact that present generation capacity is seemingly enough to take care of our current electricity requirement, investment in the sector is key to being prepared for the future.

What are the key factors that you think will drive power demand growth in coming years?

The power needs of the country are being met adequately as per statistics available from various government authorities. However, the country’s per capita consumption still hovers around 1000kwh/per person/per year. This is one third of global average. As of FY 2015-16, India declared a peak power shortage of only 4,208 MW. Eyeing a target demand of power supply of 335 GW, India will require a generation capacity of approximately 440 GW. This implies that we need to have an annual addition of 20 to 40 GW. This is a challenge to sustain. The domestic coal shortages were addressed during the year. However there are several generating stations which have to either import or buy under e-auction to meet their requirements as they are not being allocated coal. This resulted in increasing non-utilisation of assets that are already built and would distract new capacity additions. Another major challenge in the sector is the shortage of natural gas. This shortage has stranded gas-based power projects with a combined capacity of around 18,903 MW, accounting for about 9 per cent of total generation capacity. There is a need to evolve a robust energy security policy for the country so that guidance can be given to all State Regulatory commissions to plan bulk supply procurement in line with basket of fuels that meets Indian’s energy security needs. Besides fuel, slow pace of distribution reforms is another key concern. Power distribution still remains a segment that needs immediate policy reforms and a combination of tariff increases to reflect the increasing cost of fuels & depreciating rupee, competition & open access and enforcement of the ‘obligation to service’ going forward. The distribution segment caters to 200 million consumers with a connected load of 400 GW, comprising one of the largest customer bases in the world. However, high financial losses of the discoms are hampering not just the electricity distribution but are almost becoming a question mark for generation capacity addition in India. Also, creation of Regulatory Assets in the books of a distribution company is another serious development and has dried up ability of discoms to source incremental bulk power. The Central Government has however invested tremendous efforts through UDAY scheme, and it is hoped that State Electricity Boards should be able to tide over the crisis of Discom in next few years. Another key impediment to growth of the power sector is the commitment of states to support the developers in obtaining clearances, land acquisition free of encumbrances, etc. Without state’s engagement, developers would find it difficult to bring to fruition their investments.

Do you think the government is going slow on coal sector reforms? Can the target of 1.5 billion tonne of coal production by 2019 be achieved without private participation in commercial coal mining?

Rationalisation of existing coal linkages to optimise distances for rail movement has been an issue we have been talking about. The new government also laid emphasis on focusing on enhancing coal-linkages across the country. The government, on its part, needs to take measures to develop a conducive and enabling policy framework by introducing an independent coal regulator to oversee mine planning and development, adherence to investment plans and compliance with production schedule to finally, building a road map to introduce commercial mining.

The plant load factor (PLF) of coal-fired plants has been low in recent years. How do you see it?

India has many coal fired power plants, which have been operational for decades now. The efficiency and plant load factor (PLF) has been deteriorating. It is being debated that perhaps the reason for the low PLF could be reflective of the paradigm shift in the power generation basket in India and the increased share of renewables in the energy kitty.

How easy it is to mobilize funds for power project financing at present?

Setting up power plants is capital intensive and there is usually a high gestation period associated with commissioning a plant. High domestic interest rates are a challenge for project developers. For this reason, large capacity addition by companies is known to have been financed using international financing sources like IFC and US EXIM bank. For projects with international loans, the principal and interest payments are to be made in the currency of the loan and due to weakening Indian rupee the cost of funds becomes high. In many cases, this nullifies the cost advantage project developers hoped to enjoy by opting for a lower non-Indian cost of capital. As far as projects involving the REC mechanism are concerned, both international and national banks are unwilling to lend. Of course, with renewable energy, because of the importance attributed to RE capacity addition by the government there are several schemes and programmes which provide financial assistance to project developers. Moreover, development of decentralized renewable solutions and off-grid technology is making development of RE capacity commercially viable without the need for subsidies. Given the scale of India’s peaking power requirement and the absence of any other commercial solution, it is an ideal setting to encourage decentralized renewable solutions coupled with storage.

World Bank report says investment in public-private partnership (PPP) infrastructure projects in 2015 was the lowest in last ten years. Does it reflect private sector’s waning interest in PPP model and if so, what are the main causes?

We believe PPP model is a great model for bringing in distribution reforms in the country. PPP Model in the distribution of electricity encompasses all functions and obligations relating to distribution of electricity in a license area. The concessionaire, selected through competitive bidding, would be responsible for maintenance, operation and up-gradation of the distribution network and for supply of electricity to the regulated consumers. Reduction of AT&C losses, improvement in quality of power supplied, strengthening of distribution network, improved customer satisfaction and introduction of competition through open access are some of the salient features of this model. A successful execution of Public Private Partnership can be seen through the functioning of the Tata Power Delhi Distribution Limited (TPDDL). The organization is a joint venture between the Tata Power Company and the Government of Delhi and has bought tremendous value by bringing down AT&C losses to less than 10% from 52% in record time. Further, in Gujarat, the PPP concept for providing boost to the rooftop solar programme is a successful example in order to achieve the targets and ensure capacity addition within city limits.

The government has proposed to set up faster dispute resolution mechanism including renegotiation of power purchase agreement (PPA) to boost confidence of private players. How do you see it?

Risk associated with fuel cost fluctuations is increasingly becoming problematic for parties to PPAs. Therefore it is encouraging to see that the government is considering setting up faster dispute resolution mechanism including renegotiation of PPAs. Relooking at PPAs is important when the viability of a project itself is questionable. Such a move will be in keeping with the objective of both the National Electricity Policy and the Tariff Policy which is to ensure financial viability of the sector. This means that if the circumstances demand, necessary interventions may be made by the various authorities to achieve the object of the policies.

Are you satisfied with power tariff hikes announced by discoms post UDAY?

The discoms need to stay visible after UDAY and hence reasonable tariff hike is a need of the hour.

How far away is India from the situation where electricity transfer can happen seamlessly across the country, unhindered by transmission bottlenecks and restrictions from discoms?

The power transmission sector in the country has seen robust capacity addition in 2015-16. As per the CEA, between April’15 to November’15 at an all India level 15,721 Ckms of transmission lines have been added in the +/- 500 KV HVDC, +/- 800 KV HVDC, 765 KV, 400 KV and 220 KV voltage level. As on September 30, 2015, total transmission lines added (AC and HVDC) is 3,29,158 ckms. Target for March 31, 2017 is 3,64,921 ckms. In comparison, in the complete financial year 2014-15 around 18,000 ckms of lines were added at the 220 kV and above voltage levels. The present government is committed to removing the bottlenecks in electricity generation, transmission and distribution. Issues high on the government’s agenda include turning around state power distributors, ensuring affordable supply of coal and natural gas, expanding renewable energy capacity and taking electricity to the remaining over 18,000 un-electrified villages by 1 May 2018. Given the political will to reform the sector, the time when electricity transfer can happen seamlessly is not far away.