$250b power push on the cards

The power revolution could be on the way. The government, which has promised to provide electricity to 1.25 billion people by 2019, expects a $250 billion investment in the power sector in the next 4-5 years, including $100 billion in renewables by scaling up the solar power target five fold to one lakh mw.

“I visualise an investment of nearly $250 billion in the (power) sector in the next four or five years…The government is targeting $100 billion of investment in renewables and $50 billion in transmission and distribution to create a national grid where power can flow seamlessly,” power minister Piyush Goyal said at a global industry meet on Thursday.

India now has a total power generation capacity of 2,50,000 mw including renewables and with this investment, the government expects to virtually double generation to over 4,50,000 mw. About 53 million homes in the country are yet to get electricity and many industries depend on diesel generation sets to meet their requirements due to power shortage.

India today generates a mere 3,000 mw of solar power, originally scheduled to be scaled up to 20,000 mw by 2022. With this addition, generation would go up to one lakh mw. Wind power, which has 22,000 mw capacity, will go up to 40,000 mw.

The government seeks to avoid a repeat of 2012 when one of the world’s biggest blackouts hit large parts of northern India, Goyal said, adding nuclear power too offered the potential to help resolve India’s energy shortages.

But at the same time government wanted to ensure that it is not saddled with a nuclear technology that is discarded by the west, he added.

The power minister announced that the government would also double coal production to one billion tonnes by 2019 to meet its energy requirements.

The goals set by Goyal are welcome, but Grant Thornton India LLP partner, HV Harish, said there are several unresolved issues in the power sector, which need to be addressed. For starters, what is required a desirable mix of nuclear, thermal, hydel and other sources.

Each of these has its own peculiar issues, which need to be addressed. “We also need to tackle the challenges of environmental issues that arise from power projects,” he said, adding, “We need to be creative in involving the private sector and work on creating the power revolution just like the telecom revolution.”

Goyal said that India’s total power consumption would double to 2 trillion units by 2019 and the majority of investments would come from the private sector, although the government would also invest more. As many as 400 million Indians are still not connected to the grid, while the average Indian household uses about a third of the power consumed by a family in China.

In thermal power, the ultra mega power projects (UMPP) in the pipeline are the 4,000 mw Bedabahal project in Odisha and 4,000 mw Cheyyur in Tamil Nadu. The two together would involve an investment of $10 billion. From the solar stable, the major projects include Sambhar Solar project in Rajasthan, a 4,000-mw project with an estimated investment of Rs 30,000 crore and the ultra mega solar project in Gujarat with a capacity of 4,000 mw and Rs 30,000 crore as investment. With the resolution of coal allocation issue recently, investments close to Rs 3 lakh crore are expected in this segment from private players, including JSPL, Essar, Tata Power and Adani over the next three to four years. NTPC is expected to invest more than Rs 50,000 crore till 2017 to add about 10,000 mw of capacity.

In wind power, an investment to the tune of Rs 90,000 crore is expected for putting up a new capacity of about 15,000 mw. Close to 3,000 mw of nuclear capacity is expected to come up over the next four years with an investment of about Rs 20,000 crore. Two mega solar power projects of 4,000 mw each in Gujarat and Rajasthan have already been conceived with an investment of Rs 60,000 crore. The government, which plans to invest $1 trillion in infrastructure including power, had no major funding issues in the past though there was some struggle to attract foreign investment into the power sector because of low tariffs.

Some funding constraints are emerging with huge NPAs of banks to the tune of Rs five lakh crore, mainly due to stalled projects in the power sector. The government will now have to look at massive funding from abroad as well as alternative source of long-term funds like corporate bonds, insurance and pension funds.

“The most important thing for infrastructure-related investments is how to make the project bankable,” Masakazu Sakakida, MD of the Indian arm of Japan’s Mitsubishi Corp, said earlier this week. “In a coal based power plant, the price of electricity is almost fixed, it’s not related to the price of the coal.”

Hanwha Group’s MD, Dong-Kwan Kim, said if the government could provide a stable regulatory environment, “investors are ready to flock to India.” Kim raised the issue of air quality and questioned coal’s role as a sustainable energy option. “As India doubles capacity in power generation I think [air pollution] is going to become a more political issue.’’

Gangadhar Rao, COO manufacturing, at Lanco Solar, said the investment plan of $100 billion on solar power is doable and would cater to the aggressive target of 100,000 mw of solar power capacity. Globally the annual capacity is around 50 gw, which is expected to go up to 80 gw by 2017-18. By then India would contribute around 20 per cent of the world capacity.

All states have individually announced around 500 mw of solar capacity every year in addition to the JNNSM plan of the central government. The government also plans to set up the solar mega parks, which would be of minimum 500 mw capacity and would require huge investments. The investment would come handy in development of the sector. From next year itself, India would start to produce around 4 gw to 5 gw of solar power. Sudershan Gupta, executive vice president strategy and IPP at Jakson Power, said the very fact the government revised its target to 100 gw by 2022, requires aggressive funding and the $100 billion announcement for solar power is just the back up for the target set.

“If the hype generated by the government for India is backed by deeds we can expect foreign funds to flow into the country for any project of this nature. Though we will have to protect the domestic manufacturers with adjusted quota, they will have to scale and ramp up drastically if they will have to match the imports especially of modules,” said Gupta.

The article appeared in the Financial Chronicle. The article can be found here.