Millions of Indians are yet to see the light of the day, without electricity connection. Pace of demand growth is far behind that of supply. The fossil fuels are being relegated and renewable sources are inducted in a big way. Given these circumstances, a team of experts from Feedback Infra discusses how the power sector is expected to pan out in the next decade or so.
With climate change adversely impacting the entire world and every country setting targets to control emission norms, the climate disruption caused by thermal power plants (TPPs) has come under scanner. This led to India setting most ambitious goals to generate power through renewable sources to meet its power demand. These initiatives will surely bring down the quantum of power generation from fossil fuels, but will that be sufficient to meet the future power demand to maintain sustained economic growth is the question to answer.
Currently, the country's total installed capacity is 330 GW against its peak demand of 156 GW (44 per cent of installed capacity contributed by IPPs). As per CEA, average PLF of thermal power plant today varies between 50-60 per cent against 75 per cent in 2014. Unfortunately, the demand remained much below the estimates which shows that future will depend on how economic growth, especially manufacturing sector, of the country picks up in next 2-3 years. Part of the incremental demand can be catered through renewable power such as Wind and Solar, which have achieved grid parity in tariff if we account for incentives and other benefits being given for RE power and some sort of disincentives are there for coal with an imposition of Cess of `400/mt. Given the current scenario, the industry is in a state of dilemma and are flooded with plethora of questions - Let's discuss these queries in detail now.
Are we power surplus?
CEA report says all India power deficit is easing out and the shortfall is down to 0.7 per cent is 2016-17. However, the report needs to be taken with a pinch of salt. The deficit is estimated based on 'connected' consumers. Till today there are millions of rural and urban consumers have no electricity connection. To understand the actual deficit situation one needs to understand the unmet demand which is captured in per capita electricity consumption. At present, the country's per capita consumption is ~1100 kWh which is the lowest among BRICS nations and is just 1/3rd the world average. The recently launched 'Saubhagya Yojana' (free of cost power connection to un-electrified households based on Socio Economic and Caste Census (SECC)) will significantly help in meeting the actual power demand. However, without the reduction of T&D losses, such power supply may add further woes to the power distribution companies (Discoms) in terms of financial loss and inadequate tariff.
Discoms are the prime suppliers of electricity to the 'connected' consumers. Their ability to provide power depends on the quantum of power they can procure from Central, State and Private sector generating companies. Unfortunately, Discoms in India are perpetually loss-making as they provide power to consumers at a much subsidised rate than the actual cost being incurred. This has created a vicious cycle of low purchasing power and limited supply to 'connected' consumers. Financial restructuring scheme for Discoms called Ujwal DISCOM Assurance Yojana (UDAY) was launched in 2014-15, the success of this program is expected to positively impact the power sector thus improving the dispatchable capacity of these stranded power plants.
Currently the Government of India has indicated to impose penalty on Discoms if their AT&C loss is more than 15 per cent and Discoms may not be able to cross-subsidise the subsidised consumers beyond a benchmark. This adds to competitiveness in Indian Industry and led to reduction in power tariff for HT consumer categories, thus increasing demand of power through a cascading effect. Network and Retail function separation may also lead to efficiency improvement of Discoms through competitive pressure, leading to reduction in cost of power supply to subsidising consumers which can positively impact the power demand.
While the Prime Minister's energy access drive deserves full credit for providing energy access, now the narrative should change from 'Access' to 'Reliability'. Consumers not only need access but reliable accessibility which can impact their livelihood and improve the socio-economic status. The game is on supplying power to consumers when they need and not when they don't need.
What is going to drive our future demand?
Empirically, all India electricity consumption has high correlation with economic growth. But now the nature of power demand is also impacted by technological innovation especially introduction of electric vehicles, rail electrification and adoption of energy efficient equipment.
As per Berkley Lab report, India's electric car sales would reach 10 million a year in 2030, if all new sales in that year were EVs, adding 6 per cent of the projected peak load in 2030. Although it might not have a major impact in terms of quantum requirement but may be a major revenue earner for the power utilities if appropriate tariff and loss reduction are in place. They found that added electric demand from EVs could bring India's financially strapped power utilities $11 billion a year (Rs.70,000 crore) in revenue, enough to cut the sector's financial deficit by at least half.
Since 2007, Bureau of Energy Efficiency (BEE) has launched three key energy saving programmes - Standards and Labelling (S&L), Perform Achieve and Trade Scheme (PAT) Scheme and Energy Conservation Building Code (ECBC). Through these interventions, substantial amount of energy consumption has been avoided during last ten years which is accounted for energy savings.
Based on this understanding, draft NEP has projected the per-capita consumption to grow from prevailing level of 1,075 kWh to 2,634 kWh by 2029-30 with an average CAGR of 7.5 per cent.
What is the future of currently stranded 30 GW of TPPs?
Power is currently under a glut like situation. Around 300 GW is running at a PLF of 55-65 per cent, 30-GW plants are stranded due to lack of PPAs and another 50 GW is under various stages of construction. Given the future demand scenario, no new addition is expected and according to the Government's report, the existing and under constructed power plants may be enough to meet the country's base load. By 2040, these thermal plants may be able to achieve a PLF of 80 per cent, which today are running at 50-65 per cent.
Power generating companies have major share in today's bank stressed asset market. It approximately amounts to Rs.4 lakh crore (March 2017) leaving the banks, financial institutions and developers clueless to find a solution for the created assets. However, recently, the Government has taken the initiative of addressing the NPA woes but the scar seems to be quite deep and expected to take time to heal.
Also, more than 10 GW of Gas-based TPPs are not being operated currently due to non-availability of gas or higher cost of gas leading to higher variable costs. The PLF of these plants are likely to increase subject to availability of cheaper gas and other incentives and policy measures.
Are we going to be coal surplus?
Due to demand of power not increasing and with energy efficiency initiatives, RE penetration, the coal power demand is muted. Such conditions have provided a favourable domestic Coal Supply Scenario. However, not only the coal supply scenario but also the rail connectivity and rail logistics including rail rakes availability during the peak demand season shall be the key too.
The shift in energy mix is also felt in the availability of coal. CIL, which used to struggle to meet the FSA requirements, is in a much better situation and might go surplus. According to various reports, CIL has gone slow in developing new mines because of the want of coal demand.
When the power demand shall start rising, only then 'Adequate or Surplus Coal Scenario' is expected to be tested. Under all circumstances India will keep importing coal to the extent of 75-125 million tonnes (MT) and this might raise when the power demand increases leading to coal requirement especially in coastal states and in plants located in locations far from coal belt. The domestic and imported coal demand may further increase in case imported Pet coke ban is implemented throughout India.
Currently, NGT has banned its usage in Delhi, Haryana and Punjab because of the environmental issues. This Pet coke ban may increase the both domestic and imported coal demand to the extent of more than 20-25 MT.
Will Discoms be able to come out of their financially stress?
UDAY scheme depends on financial and operational turnaround whereby responsibility has been segregated between the Central Government, state governments and distribution licensee.
Effective implementation of the 'UDAY' scheme is based on the 4 pillars of a) Reduction in cost of power, b) Improving operational efficiency to reduce AT&C losses, c) Reducing interest cost of Discoms and, d) Enforcing financial discipline through alignment with states.
Point A has been address by the Central and state governments by improving quality and logistic of coal through various schemes such as flexible utilisation of coal, SHAKTI Scheme, Coal Mitra Portal, DEEP Portal for procurement of power through competitive bidding, Coal Linkage Rationalisation etc. This has resulted into reduction in power purchase cost in many States such as Goa, A.P., Telangana, Haryana etc.
Point C has been address by taking over the overall bonds of Rs.2.69 lakh crore, by State of which Rs.2.32 lakhs crore has already been converted into bonds and the balance Rs.0.39 lakhs crore is yet to be converted. This has reduced the interest burden by Rs.9000 crore on an yearly basis along with principal repayment in addition to it. The overall benefit to Discoms is ~ Rs.22,000 crore for FY 2016-17. However, this can't be the only solution on a sustained basis.
The continued effort in reducing AT&C losses and adequate tariff increase as specified in Point B) and D) is a must for sustainable improvement. Though the Average Cost of Supply (ACS) and Average Revenue Realised (ARR) gaps have come down by almost 14 paise per unit and the AT&C losses have reduced by almost 1 per cent in fiscal 2017, the continuous monitoring will ensure the successful of the UDAY Scheme.
So far 27 States/ UTs have signed the UDAY agreement (some have signed for the sake of operational improvement rather than financial re-engineering). The scheme has various action plans, but very few states are in action mode. If Discoms fail to improve performance by end of agreement period (2019/2020), the burden will be on state governments.
However, real reforms on the ground are still a challenge considering the aspect related to tariff increases or RPO compliance. Unless the same is not reviewed strictly, the story of accumulated loss along with unsustainable debt is likely to repeat. Jharkhand has already been the first state to have defaulted in loan repayment post implementation of UDAY.
Can solar power be taken as matured power sourcing option to meet country's incremental requirement?
Competitive tariff, financial institutions committing to green energy and regulatory measures like RPO compliance has been pushing renewable rich states to procure power from Renewables, leading to increase in share of renewable power generation.
But, draft NEP projects a peak demand of 235 MW for 2021-22, which is very unlikely to be met only through renewables, considering the target of 100 GW Solar and 60 MW of wind power targets by 2022. This indicates, there is a definite need to procure power from TPPs to meet the demand as per the projects. However, demand is highly dependent on economic growth and the effectiveness with which Demand Side Management plan is being implemented.
Thermal power generation is likely to increase to accommodate the base load required to ensure grid stability. However, if storage technology picks up and renewable energy along with storage reaches grid parity, this shall meet the base load requirement and will delay the power requirement from thermal plants through the new capacity addition.
Hence, as on date, Solar power cannot be taken as matured power sourcing option, but once the storage technology becomes viable (push for reduction in battery costs comes from power sector as well as automobile sector), it shall take over thermal power as base load to certain extent and provide the much needed stability to country's transmission grid.
Is our transmission and distribution network ready enough to schedule and balance infirm source of energy?
India's increasing renewable energy generation makes it imperative for it to work out a way forward for facilitating large scale integration of such variable Renewable Energy Sources (RES), keeping in view the security of the grid.
As per a study conducted in 2013, Denmark, Germany and Spain had a generation share of renewable electricity of 56 per cent, 25 per cent and 42 per cent respectively, with at least half of power generation capacities being renewable-based.
The examples of Denmark, Germany and Spain show that up to about 20 per cent to 25 per cent variable renewable energy (VRE), specifically solar PV and wind, in total annual electricity supply do not pose a major challenge and can be easily accommodated in most power systems. However, higher share of renewable power is posing technical issues of grid imbalance and scheduling from which India has taken cues.
PGCIL has already been implementing India's first green energy corridor. Also, PGCIL is in the process of formulating a transmission scheme for identification and construction of transmission lines for 20 GW of solar parks.
Given that Forecasting and Scheduling tools and regulations are in place for renewable energy generation in most of the states, the load dispatch centres shall plan demand supply effectively. This would assist the Government in planning transmission capacity effectively.
With the policymakers and stakeholders already taking the technical issues of large scale grid integration into consideration and studying the impact of large scale grid integration of renewables, the country is likely to be ready when the renewable energy requires a much robust and efficient grid. However, typical to Indian Power sector, there would be certain states that would perform well and some other states would be laggards.
Energy sector is undergoing a major transformation and disruption. Factors such as digitalisation, artificial intelligence, data science, machine learning, Block-Chain technology, e-mobility, continuous reduction in the RE cost, improvement in the storage technology, growing consensus on using clean fuel are going to immensely impact the entire energy sector.
With the prospect of electricity demand picking up with the new infrastructure being developed in the country, it is essential to focus on sustainable power generation. But to keep the power deficit minimum, thermal power plants are essential.
The Government should focus on increasing the share of renewables, but policy framework to ensure availability and price control of fossil fuels need to be developed and revive the currently stranded infrastructure relying on them.
Thermal power generation companies need to do research on how to comply with emission norms and renewable power generation companies need to focus on developing forecast and scheduling tools which helps in grid stability.
Power transmission and distribution companies need to focus on evacuation of renewable power and ways to sustain the increasing infirm power generation. The entire power sector is hinging on effective implementation of UDAY and the revival of Discoms from where the consumers are connected.
Going forward, Discoms have to be reformed as status quoist approach is not an option left. The entire value chain needs to take assistance of rapidly progressing technologies to improve their operational performance.
Authors: Rakesh Kumar Jain, Associate Director, Energy Consulting Services Sushmita Ajwani, Energy Division R. Srinivas Ramanand, Analyst, Feedback Infra Private Limited
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