Rather a debatable topic, considering India´s move towards green energy and climate change promise, the country´s energy mix will always be led by coal-based thermal power projects, of course, with the help of other supporting energy resources.
Following the last 10 years of central planning, India has reached about 276 GW of total power generation, through institutions such as state power corporations, NTPC, NHPC, and large independent power producers (IPPs), which have contributed significantly towards this figure.
The current generation capacity mix has a 62 per cent contribution from the thermal power sector, followed by a distant second hydro, which is at 15 per cent and lastly 9 per cent from gas-based projects. The remaining 14 per cent share is from the renewable and nuclear sectors combined.
Geographically, if we look at the energy resource map of India, major coal reserves with the potential of generating 1.50 lakh MW of thermal power, are located in eastern and central Indian states such as Chhattisgarh, Jharkhand and Odisha. Although, the resource has been confined to only a few regions, the load centres are not in line with India´s resources map and is scattered all over the country.
Meanwhile, the Himalayan terrain has huge potential for hydro electricity and the coastal belts have possibilities for development of imported coal-based thermal plants. Additionally, India´s ´sunshine´ states of Rajasthan, Gujarat, Andhra Pradesh, Telangana and Madhya Pradesh, provide opportunity for solar generation.
The resource map mismatch
Now, if we carefully analyse the above situation, there is a clear mismatch between India´s resource map and its load centres. Hence, India´s energy mix is totally dependent on transparent mapping of load and resource centres.
Since power is a concurrent subject, coordination of local and regional authorities with national policy-makers is important. But, our view is that that strategic energy mix need not have anything to do with what is the current situation, but should instead be driven by resource-base and demand patterns. POWER TODAY, in consent with industry players, tries to suggest a suitable energy mix for the country. Firstly, for base load, a substantial capacity of coal-fired thermal power can take on the lion´s share of 60 per cent of the demand. The rest can come from hydro and gas to the extent of 20-25 per cent for the seasonal and transient variation. We all know, that India has vast deposits of coal with high ash content which is suitable for thermal power generation. In an emerging country like ours, growth phase must place a higher priority to reducing cost of generation and availability of power rather than on climate change and CO2 emission. Explaining why coal-based thermal power generation should take the lead in India´s entire energy mix, Rathin Basu, Chairman, Alstom India Ltd says, ´Although, hydro power was a major hope in India´s energy mix, it has unfortunately, due to environmental clearances, lost the grip on a major source of energy.´
He goes on to add,´... and we have a humongous generation target of 176 GW via renewable by 2022. But has anyone ever thought that what kind of pressure this massive addition going to put on the existing grid network of India?´ That said, in this context, K Rajagopal, CEO, Lanco Power Ltd, raised a question of what shall be the criteria for ideal generation mix? He suggested that it is the cost of power generation, reliability and availability of fuel, and lastly, environment, should determine the idle energy mix of India. And, in that case, he says, ´predominantly thermal-based generation will play a major contribution in India´s energy mix which has huge potential, and has cost on its side.´
Since the country is talking about adding 176 GW of RE power, this is something which has not gone down well with most experts in India.
For them it is indeed a cause for concern and will create a havoc, given the current transmission infrastructure. They feel the current RE development has placed a huge burden on the transmission network in order to fulfill last mile connectivity to these generation plants.
This is mainly because, India does not have a dedicated renewable or green transmission corridor to take care of such a massive renewable capacity addition. This seems to be a cause of concern for many experts in India, as, if connected to the grid, renewables will account for 35 per cent of India´s energy mix, followed by coal-based thermal generation.
That said, Dr Rajib K Mishra, Director, Power Trade Corporation, explains ´Since power generated from RE projects are highly unpredictable in nature and not pure, it automatically puts pressure on the grid infrastructure.´
To this, Deepesh Nanda, Head-Power, GE South Asia, India adds, ´With so many varied additions in the offing, the grid operator will have tough task managing and balancing the grid.´
In this context, it is worth noting that the Chairman of a leading international mining and commodity trading company was recently quoted as saying, ´People had to recognise it was simply not possible to remove coal from countries such as India. Even with the best will in the world, solar is not an answer to broadscale industrialisation.´
What he perhaps meant is that solar power is too intermittent to guarantee steady and reliable power supply for the heavy industry. Renewables will of course also play a role, but considering the Indian conditions, it should realistically range within 10-15 per cent of the capacity share of our energy mix.
The PL factor
Meanwhile, the government has claimed several records in the power sector in its first year in office, including the highest annual capacity addition ever and the best generation growth in two decades, with output touching the trillion unit mark. However, what the government hasn´t pointed out is that 2014-15 also recorded the lowest plant load factor (PLF) in over 15 years with the country´s power capacities operating at a mere 65 per cent. The question arises, shall we hold this government responsible for it? Experts suggest no.
So how do we arrest the falling PLF? Most experts we spoken to suggested that India should strictly consider meritorious dispatch. The scheme should also extend to private thermal power stations, which achieve improvement in performance during the peak period, as compared to previous years, and to avoid pumping of unwanted generation into the grid during off peak periods, and avoid wastage of energy to that extent.
On the other hand, if state regulators issue statutory advice or regulations that it is mandatory for state discoms to supply power for minimum, say 20 hours, across various customer segments in the year, unmet demand in the grid will get unlocked and it´s a win-win situation for IPPs as well as the general public. Besides, more attention needs to be paid towards augmenting the transmission and sub-transmission infrastructure in the country.
At the end, the government should have an economic approach towards the various sources of energy available to us, and how these sources can be judicially juggled to obtain the lowest cost of energy for the common man.
POWER TODAY suggestions
- SEBs shall mandatorily provide 20 hours of electricity to increase the PLF.
- Government be required to adopt structural reforms to upgrade old power plants and set up new power plants along with the supply chain service.
- Need to have a long term approach for the 13th Plan period (2017-22).
- The government should create free market structures on either side´fuel and distribution segments.
- Invest in laying new tracks and purchase of new wagons should be taken as a priority.
- ´Own your Wagon´scheme from railways should be made more attractive.
- Priority would be to make resources available for long stranded projects.
Trends in Generation
Generation grew by an impressive 10.8 per cent in the first eight months of FY15 as against a modest expectation of 6.5 per cent, driven by strong growth from coal-based power stations, particularly privately owned plants (33 per cent growth). The growth in private sector based coal generation was led by improved coal output from captive coal blocks (Sasan Ultra Mega Power Project), improved coal supplies from Coal India Limited (CIL) and increased usage of imported coal following decline in prices. All these factors also led to improved PLFs from June 2014.
The increase in both PLF and generation is a healthy sign of on-ground improvements taking place in the sector, as a mere generation increase, with decline in PLF would have been a cause of worry. The higher generation at 10.8 per cent Y-o-Y during 8MFY15 along with healthy demand growth at 8.9 per cent has led to a lower energy deficit of 4 per cent.
The overall power generation in the country could increase by 8.6 per cent in FY15 and 7.6 per cent in FY16, given the expected improvements in coal supplies to the power sector. Further electricity demand could grow at 8 per cent in FY16, which would result in energy deficits being maintained near 4 per cent.
At the same time, a lower increase in growth rates in FY16 could lead to the deficit figure decreasing quite substantially. A muted demand growth of 3 per cent with generation growth of 7.6 per cent would result in an energy surplus, at which point power plants would have to back down generation and report lower PLFs. Hence, higher coal availability without demand increase could actually prove to be counter-productive for generating assets.
Domestic coal output in FY16 will be higher, driven by better performance by CIL and a fast-tracked e-auction of the cancelled captive coal blocks. CIL since FY10 has production growth rates below 5 per cent. However, it could achieve production growth of 7.5 per cent to 497 million metric tonnes (mt) during FY15 compared with the target of 507 mt.
The higher production growth rate is possible post the receipt of environmental nods for additional mining activities in some existing mines. The government also has increased coal production target to 1 bnt for CIL by FY20, which is an implied CAGR of 14.9 per cent over FY15-FY20. This looks quite difficult given coal production CAGR over FY05-FY14 was mere 4 per cent.
However, a directed effort from GoI by avoiding delays in environmental and forestry clearances, fast-tracking land acquisitions and rehabilitation and resettlement issues, improving the law and order situation, besides technology improvement in mining and related infrastructure could support healthy production volume growth. At the end of December 2014, CIL had 27 non-producing mines, with estimated coal reserves of 1.2 bnt, which if fast-tracked for development, could provide incremental volumes. There is a possibility of 5-6 per cent production growth from CIL and similar growth in dispatches. The expectation is based on various measures being initiated, including rationalisation of coal linkages to improve efficiency, linkage of power plants to the nearest coal mine and purchase of 250 additional rakes by CIL for Rs 50 billion, to supply a large quantity of coal primarily to the power sector.
The growth in supplies to the power sector is likely to be higher than the overall growth in coal output, given GoI´s impetus on ensuring suppliers to the sector on priority. Moreover, GoI has also directed CIL to lower its e-auction volumes to 25-30 mt for FY15 from 58 mt in FY14.
The volumes so freed up, though not substantial, are likely to meet the demands of the power sector and goes on to demonstrate GoI´s willingness to support the sector. Supplies to the power sector are thus likely to reach 79 per cent of the total volume off-take in FY16 (FY14: 75 per cent, FY10: 72 per cent). Though domestic coal output will increase, the overall financial performance of coal-based power plants could take a longer time to reflect the improved situation. This is because the fixed cost recovery of power plants is based on the normative availability of 85 per cent, and CIL is likely to supply only 65-72 per cent of the annual contracted quantity (ACQ), which would lead to a lower declared availability.
Additionally, there exists a deficit in regards to the total ACQ contracted and the actual supplies by CIL. This would further lead to sub-optimal capacity utilisation and thus an under-recovery of fixed costs, if plants do not arrange for alternate fuel sources. However, the possibility of generation using imported coal has increased, given falling international coal prices.
Captive Coal Blocks
The share of captive coal blocks in the overall coal output could increase in FY15 and FY16, post the introduction of reforms in the coal sector, by way of the Coal Mines (Special Provisions) Ordinance 2014. The ordinance is for the management and reallocation of all cancelled blocks through a transparent process in October 2014. The FY15 increase would be led by operationalisation of captive mines associated with Sasan UMPP.
However, the output from captive blocks is likely to improve in FY16 due to the award of the cancelled coal blocks. Major contribution from these mines is likely to be seen from FY17-18. GoI´s action in framing the ordinance and the auction indicates its intent to resolve coal issues for the power sector. The e-auction has seen strong investor interest and has enhanced transparency regarding long-term fuel linkage.
Authored by Salil Garg, Director - Corporates, India Ratings & Research