India

American Superconductor Corporation, a leading energy technologies company, has announced that its wholly owned AMSC Windtec subsidiary has licensed its proprietary 2 megawatt (MW) doubly-fed induction wind turbine design to Inox Wind Limited, part of India’s Inox Group of Companies (Inox). The license provides Inox with the right to manufacture and sell the wind turbines globally. Inox plans to begin series production of the 2 MW wind turbines in 2010.

GE Hitachi Nuclear Energy will collaborate with two Indian nuclear companies on building multiple nuclear reactors.

Billionaire Lakshmi Mittal and Farallon Capital Management LLC invested a combined $399 million in a power unit of Indiabulls Real Estate Ltd., India's fourth- biggest developer by market value, seeking a share of an industry poised to accelerate in Asia's third-biggest economy.

Indonesia may be known as ‘The land below the wind', but for foreign players in the power market, conditions are about to get a whole lot stormier. Tata Power may well be headed directly into the storm if Indonesia's energy minister, Purnomo Yusgiantoro, carries through on his plans to renegotiate coal contracts with its overseas buyers, which could lead to higher royalty payments. Indonesia is the world's largest producer of thermal coal, and thermal coal is used to produce almost 70% of the total electricity output in India. Like many other Indian and Chinese power companies, Tata has acquired significant stakes in a number of mining interests in Indonesia: last year, it bought 30% stake in PT Kaltim Prima Coal and PT Arutmin Indonesia for $1.3 billion. And as demand for power intensifies back home, in the face of rapidly advancing coal prices, they are keen to increase extraction.  

Last issue we examined the inefficiencies in the electricity sector in India and concluded that there could be a potential to save a staggering USD 26 Billion every year. That money can be channeled into investments to generate growth which can easily add a few percentage points to the GDP. We also observed that most of those inefficiencies are in the distribution end of the electricity value chain. This month we would examine the specific problems that afflict the Distribution Sector. Over the past five odd decades the technical and commercial losses have continuously crept up. Soon, most electricity utilities in the country could not recover enough money from end user to even fully pay for the electricity that their customers required. That hit payments to generators and finally the fuel suppliers. Tarriffs were raised and state Governments chipped in with large subsidies. That in turn strained the Government's exchequer. Investments into building adequate generation, transmission and distribution infrastructure slowed down. New investors putting up generation capacities asked for and got sovereign guarantees for electricity sales to the electricity distributors. With such intensive Government involvement it was but natural for the sector to get highly politicized.

India is thirsty, and its not for a cold glass of water, which is a necessary companion for a serving of rogan josh. If India is to quench its insatiable thirst for power, India's Independent Power Producers (IPPs) must come to the fore and take some responsibility from the government. But, who can do the impossible and satisfy India's escalating power demands? Most Indian's believe that solving the country's power debacle is the government's responsibility. A deeper look into the issue, we can see that it is the IPPs that should be doing more, such as Reliance Energy which just happens to be owned by India's richest man, Anil Ambani. "Private players need to come forward, including companies such as Reliance. There is a consortium of all these private players in the market who can contribute, identify and meet these power challenges," said Vishwas Sachedra, Deputy COO of Hallex. Why are IPPs backing off? If India is serious about meeting the power needs of one sixth of the world's population, IPPs such as Reliance Energy need to start making their presence felt at key meets like this years Power-Gen India & Central Asia 2008. If Anil Ambani's spectacular no-show is anything to go by, the IPPs seem to be backing away from the kaleidoscope of challenges facing India's power sector. Ambani decided not to grace us with his presence at Power-Gen this year after he pulled out of his scheduled speech on the the morning of the inauguration ceremony. The Minister of Power, the CMD's of NTPC, NHPC and BHEL and industry delegates alike must have been asking each other where Ambani was. Well he was definately not at Power-Gen, which is considered by most to be the premier event in India's power sector. This begs the question, is Ambani serious about India's power sector or is he just content to sit back and relax in his plush high-rise while India goes it alone? But, the government should take some of the blame for IPPs backing away from meeting India's power challenge. IPPs are being restricted at every turn it seems, thanks to India's rampany bureaucracy and conservative reform policies. India has been on its path to power reform since 1991, when India's Ministry of Power published a series of notifications, promoting the inclusion of IPPs into India's electricity sector. The revolutionary policy gave IPPs the right to establish, operate and maintain power generation plants. Despite the government propaganda and much excitement, India's reform policy turned out to be a dud. Against its target of 40,000mw between 1992-1997, India fell short significantly by adding 17,000mw. India is starting to realise if it is a little to late, that the problem lies with the states. The problem is that without radical reform in the bureaucracy, the likelihood of IPPs coming to the rescue of India's power sector remains a distant dream. Hallex Deputy COO, Vishwas Sachedra was just one of many companies at Power-Gen that felt IPPs such as Reliance Energy needs to be contributing more to India's power sector. But, there are steps the government could take to help IPPs come forward and help India meet this demand. The government must promote the rationalisation of tariffs through independent regulatory commissions. It must adopt transparent policies and propose a country-wide agricultural tariff at the minimum of 50% of the cost of supply. India must introduce 100 % metering and energy audits, reduce T&D losses, strengthen both sub-transmission and distribution systems. Finally, the government must sponsor the privatisation of distribution in major medium sized urban areas and decentralise distribution management in India's rural areas. Despite the plethora of conferences such as Power-Gen which hosting a large contingent of big-wigs and bureaucrats, the resolutions passed at meetings such as these remain a low priority on India's list for power sector reform, thus significantly deterring the impact of IPPs. Meeting the demand So what kind of problems do IPPs face in help India's power sector? India has plans to install more than 78,000mw from 2008 to 2012 in order to meet the demand of its booming power sector, which is predicted to surge to 210,000mw in 2012. India has a blueprint for the installation of a 600,000mw base in 2025. "The government is very progressive, they are making a lot of positive steps forward, that's good for both the industry and the economy," said Pawan Mehndiratta, Sales Manager of GE. India's power sector is peaking due to swelling power demands and the depletion of India's electrical supply. The massive power expansion programme that India is undertaking at the the moment is a positive sign for the country, but it still needs to address its decline in resources for raw materials. It is high time for big players such as Anil Ambani and Ravi Kumar, CMD of India's state-owned utility BHEL to work together to solve India's power problems. BHEL is in a unique position as it supplies electricity to three out of four homes in India, thus meeting 80-90% of the country's power needs. BHEL it seems is doing its bit to satisfy India's power demand by developing a series of power plants, through key partnerships with Alstom for boilers, Siemens for turbines and generators and GE for gas turbines. Siemens, Cummins and Hallex are also leading by example. Siemens must think it is a good time to be in India with its steam turbine factories, gas turbines and automation systems popping up left, right and centre. Cummins says it too is playing a key role in meeting India's significant shortfall in both demand and capacity. "We play a very crucial role in terms of not only backup but distribution generator solutions to many parts of the country," said Cummins, CMD, Anant Talaulicar. Hallex, on the other hand has roughly 15% of the power sector's market share is planning to supply at least 13 to 15% of India's power supply. With India's power sector needing to grow by as much as 9-10% by 2012, the balance between supply and demand seems lopsided. But, not all hope is lost. India's power sector is finally catching up to the rest of the world thanks to the government's radical policy shift towards the acceptance of IPPs and its planned liberalisation of the power sector. "It is a sunrise sector in India, people have been talking about the power sector moving, but this is the time that maximum impetus has been given to the sector and there is a thrust from all corners, both the power sector and the government," said Ranjith Nair, Manager of Marketing and Sales at Siemens. "There was a time that there was a big gap between what is happening in the rest of the world and here, but now that is not the case, we are on par with the rest of the world," added Nair.  

India is home to almost one sixth of the world's population. Over the past decade and a half the country has shrugged off its socialist stance and has veered right of centre, simultaneously opening up to the outside world. The service sector was first off the block offering to the world hitherto little known Indian service skills at unbeatable costs. Manufacturing and agriculture took a little more time to get going since that's a direct result of investments which takes its own time to implement. Finally the financial sector started attracting international interest partly because of the attractive investment potentials and partly because sweeping policy and legislative reforms ushered in transparency and stability. Living in the 90's In the early ‘90s when India started to change there was much consternation in abandoning the protective, inward-looking mould while the rest of the world was rapidly making borders fuzzy and integrating into one big global community. Fortunately a majority of the policy makers believed in what George Bernard Shaw had so eloquently articulated "The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man." Fifteen years on, a country of a billion people is clocking a GDP growth of more than 8.5% and has finally broken into the league of top ten economies with USD 950 Billion recorded in the last fiscal year. A key pre-condition of that economic activity is adequate availability of electricity. A flawed electricity sector It is becoming increasingly clear that inadequacies in the electricity sector could become the major stumbling block of this fabulous growth story. This four part article will attempt to explore what is wrong and what needs to be done to align the electricity sector with vibrant efficiency being seen elsewhere. Lets have a quick look at electricity generation statistics. Installed capacity is 135 GW delivering 689,570 GWH of energy per year at an average load factor of 58%. The estimated gap between peak demand and availability is 20 GW and the energy shortfall is 48,270 GWH. Most of that gap is being met through highly inefficient and expensive liquid fired captive generation which falls under the unorganized sector. Correct data is not available about captive generation being used all over the country. The only reasonably accurate estimate is derived by working backwards from the projected shortfall and the assumption that most of the demand is actually being met through captive generation. It would be reasonable to assume that it costs US 25 Cents to generate a kWH of electricity by using diesel in small DG sets. Compare that with US 6 Cents per kWH for generating electricity from large coal-based or hydro plants. India therefore has the potential to save an amazing USD 9 Billion per year if only efficient generating capacities keep pace with growing demand. That's the first area of inefficiency. In India the T&D losses are reported at 35%. Meaning that out of the 689,570 GWH of energy being sent out by the generating plant, utilities manage to bill their customers for only 448,220 GWH. Technical losses should be 10% at the most. Many countries regularly achieve less than that. This means 25% of the energy is being used without anybody paying for it. That financial loss is being compensated by those who actually pay for the electricity through higher tariff or through Government subsidy. When it comes to subsidy, it can either take the form of direct payment to the loss-making utility or through less than optimum valuation of natural resource like coal and water used for generating the electricity. At a conservative retail tariff of US 10 Cents per kWH, the 25% of avoidable T&D loss represents a staggering loss of USD 17 Billion every year to the country's economy. This is the second area of inefficiency. Taken together, an estimated USD 26 Billion of expenditure can be curtailed for diversion into productive investment every year. It is generally accepted that investments into the service sector yields annual outputs of at least ten times and in the manufacturing sector the annual output would at least be the same as that of the initial investment. Assuming a very reasonable factor of two, the savings potential of USD 26 Billion per annum can yield a GDP of USD 52 Billion thereby setting the stage for an additional growth of 5%. Mind you, we are not talking here of finding new money for new investments. Rather by making the domestic electricity sector as efficient as it is elsewhere in the world, we would be able to automatically convert avoided expenditure into investible resource. So, what is Indian doing about it? India's power solution The most obvious solution is massive expansion of generating capacity. That's a fairly simple and straight forward activity but it comes with three pre-conditions. Sorting out infrastructural issues like land, road and rail linkages can prove to be daunting. Nationally-owned resources like coal, oil, gas and water have to be made available at benchmarked costs. The investors must be assured of payments against the supplied electricity. Of late considerable pragmatism has been demonstrated by the Government to sort out the first two problems. But the last issue is tricky. The accepted solution is a Power Purchase Agreement (PPA) between supplier and a buyer with a P&L Account healthy enough for commercial banks to guarantee payments. In India, most of the electricity distributors have negative bottom lines. Thus they are unable to offer a commercially bankable PPA. For many of the large projects, this issue has been settled by extending sovereign guarantee for payments against the supplied electricity. So far India has managed to plan for total installed capacity of 207 GW by 2012, hoping to add 72 GW of new capacities over the next four years. Capacity is expected to be 800 GW by 2030. But it is obvious that sovereign guarantees can not be handed out indefinitely. That's why the electricity distribution sector has to be quickly reformed to make it efficient. Next month we will examine what is happening on distribution reforms in India.  

Last issue we examined the inefficiencies in the electricity sector in India and concluded that there could be a potential to save a staggering USD 26 Billion every year. That money can be channeled into investments to generate growth which can easily add a few percentage points to the GDP. We also observed that most of those inefficiencies are in the distribution end of the electricity value chain. This month we would examine the specific problems that afflict the Distribution Sector. Over the past five odd decades the technical and commercial losses have continuously crept up. Soon, most electricity utilities in the country could not recover enough money from end user to even fully pay for the electricity that their customers required. That hit payments to generators and finally the fuel suppliers. Tarriffs were raised and state Governments chipped in with large subsidies. That in turn strained the Government's exchequer. Investments into building adequate generation, transmission and distribution infrastructure slowed down. New investors putting up generation capacities asked for and got sovereign guarantees for electricity sales to the electricity distributors. With such intensive Government involvement it was but natural for the sector to get highly politicized.

Last month we examined what ails the distribution segment of the electricity business in India and the challenges facing the Distribution Companies (Discoms, in common parlance). Over the past two decades India has been struggling to reform the distribution sector managed by more than a hundred utilities in 35 States and Territories. Electricity is a concurrent subject in India which means although there are federal laws, States are empowered to enact their own amendments to the basic laws. Thus several States passed their own legislation and tried out different models for privatising and restructuring. Some models yielded less than desired results and some others were spectacular failures driving the sector into even deeper crisis.