Fture Power Sector

Sustaining Growth
Future of Indian
Power Sector
A CII A.T. Kearney Report
OCTOBER 2009
Sustaining Growth
Future of Indian
Power Sector
Sustaining Growth
Future of Indian
Power Sector
October 2009
Confederation of Indian Industry

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iv
Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
Contents
Foreword
vii
Message from Chairman of CII's National Committee on Power
ix
About the Report
xi
Executive Summary
xiii
Part A: Indian Power Sector: The Road Ahead
Theme 1: Changing Outlook for the Sector
Theme 2: Winning in the Future Power Markets
13
Part B: Sector Outlook
21
Thermal Power: Coal Based
23
Thermal Power: Gas Based
31
Hydro Energy
37
Nuclear Energy
43
Renewable Energy
49
Contents
vi
Foreword
Power sector in India is at a crucial juncture today, with several large investments being undertaken by public and private sector
players, and developments promising a significant transformation of the sector. The sector is witnessing a fundamental shift
that is opening up new business opportunities for the industry. At the same time, the competition for scarce resources is
expected to intensify and support enablers in terms of logistics, T&D, equipment supply will be stretched to the fullest.
The emerging dynamics of the Indian power market would require industry players to realign their strategies and operating
models to the changing sectoral trends. The focus would need to be both on project execution as well as efficient operations,
in line with the growth characteristics of the sector.
With this background, CII had requested A.T. Kearney to probe two key themes that concern the Indian power sector
a) Changing Outlook for the Indian Power Sector and b) Winning in the Future Power Markets in India
The conclusions of the study, which are quite insightful, reconfirm the continued attractiveness of the sector for fresh
investments and growth. However, the business environment will increasingly become competitive as we evolve to a new era
of Power on Power competition. Access to reliable & high quality fuel, especially coal, will present one of the biggest
challenge to the sector. For example, as per the current trajectory, India may face shortage of upto 250 MT of domestic coal
per annum by 2014-15. Similarly, the downstream distribution infrastructure, characterized by high AT&C losses and inefficient
grid quality is another area of concern. All these issues require immediate intervention from the government through fast
tracked reforms & execution. Similarly, industry players also need to take a fresh look at their competitive strategy as they
prepare to participate in the future of the sector.
I would also like to highlight the increasing importance of renewables in the Indian Power Sector. Buoyed by incentives &
support from the government as well as advancements in the technology, renewable energy (solar, wind, bio-mass) is all set
to play a critical role in defining the future of the industry and ensuring sustainability of the Indian energy sector.
Many people contributed to this effort. Several CII members (both Indian companies and MNCs), industry experts and
government officials spent time with the A.T. Kearney team, sharing experiences and debating ideas.
Senior A.T. Kearney partners and principals, including Kaustav Mukherjee, Vikas Kaushal, Abhishek Poddar, Anshuman Maheshwary
provided overall direction. Amit Bhargava, Shelly Kapur, Vipul Jain and Rohan Rijwani led the study on a day-to-day basis.
I would like to extend my appreciation to everyone who helped us in this effort.
Sudhir M Trehan
Chairman - CII India Energy Conclave and
Managing Director
Crompton Greaves Ltd.
Foreword
vii
viii Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
Message from Chairman of

CIIs National Committee on Power
A robust and thriving Power sector is central to Indias sustained economic growth. Indias power sector has evolved
substantially over the last few decades and is now witnessing unprecedented interest and investments across the value chain.
The industry has responded strongly to the reform measures undertaken by the government with a wide spread participation
across Public and Private sector, Indian and multinational companies. Despite these improvements, the sector faces some
tough challenges across fuel, infrastructure and finances, which if not addressed immediately, can impede the potential growth
of the industry.
In this context, the CII-A.T. Kearney study on the future of power sector in India identifies the key trends impacting the industry
as it evolves to the next level of maturity. It also highlights some of the critical concerns & issues facing the power sector and
defines key imperatives and action steps for all stakeholders concerned. The study also deals with changing dynamics across
various fuel types and identifies implications of the same on the overall power sector.
The CII National Committee on Power is committed to working with all stakeholders concerned towards implementing the
recommendations from this report.
R S Sharma
Chairman - CIIs National Committee on Power and
Chairman and Managing Director
NTPC Ltd
Message from Chairman of CIIs National Committee on Power
ix
About the Report
Indian power sector has been a mainstay of national growth. As the Indian economy prepares for sustained growth of 8-9%,
the importance of the power sector will continue to increase. The power sector itself is going through major changes with
unprecedented investments across the value chain.
It is therefore an opportune time, for industry leaders and the government to deliberate upon the path forward and identify
action steps that enable sustained growth of the sector. Many ideas and thoughts have often been propagated by industry
forums and government functionaries to the above cause. This report takes a rigorous view of the emerging trends in the sector
and prioritises the imperatives for industry leaders.
The report is structured in two parts the first section presents insights on changing outlook for the power sector and clearly
highlights the key success factors for the future. In doing so, the report addresses some critical questions confronting the
industry:

How is the opportunity landscape changing in the Indian Power market?

With significant investments being undertaken in the generation sector, what are the future demand-supply expectations?
What role do we see for regulations in sustaining industry growth?
How are the industry enablers shaping up for the future fuel, transmission, distribution, tariffs, equipment supply, financing
and manpower?
And in light of the above, what are the clear imperatives for different stakeholders?
Industry players
Government
The second section presents perspectives across all major fuel types viz. thermal (coal & gas), hydro, nuclear and renewables.
This section highlights the changes in market dynamics in terms of demand-supply, regulations and operational challenges as
well as key imperatives for the stakeholders, across each of these segments.
About the Report
xi
xii
Executive Summary
The Indian power market is evolving rapidly from a nascent/
opening market phase to a developing phase. The power
demand in the base case is expected to grow at a steady
7.5%-8% CAGR till 2017. Further, the low power penetration
levels indicate large latent/unmet demand. The power
markets will have to achieve consistent high growth rates to
bring our per capita consumption to comparable levels of
some of the other countries. We believe that rate of
infrastructure development and government led reforms
would have a significant bearing on how far these
developmental aspirations are achieved.
Future power markets will present new set of

opportunities and challenges
A new era of Power on Power competition will emerge.
Atleast 80-85 GW of new capacity (90% of them thermal units
targeting high PLF of 80-95%) will be commissioned by 2014.
This will reduce the base load deficit, in the current scenario, to
a low of 1-2%. Accordingly, we expect pricing pressures in the
generation space, with long term prices at-best maintaining
their current levels in nominal terms. The average short
term/merchant prices may decline by 40-50% by 2014-15.
The generation landscape will also change significantly.
Private sector will account for over 25% of the installed
capacity over next 5-6 years. Over forty to fifty players,
many of whom with interests in smaller capacities and/or in
1-2 projects are expected to emerge in the industry. With
increasing pricing pressures & fragmented industry structure,
we may witness some consolidation after 2015.
New business opportunities will arise across the value
chain. New fuel opportunities are expected to emerge in the
generation space, in addition to coal. Improved domestic gas
supply & strenghtening of commensurate pipeline
infrastructure will facilitate increased gas based
generation. Governments thrust on Hydro projects (50,000
MW initiative) will provide attractive opportunities, especially
for peaking power. Nuclear energy will also witness strong
growth at the back of Indo-US agreement (target 20 GW by
2020).
Equipment manufacturers can leverage derived demand

from the overall growth in the power sector to drive capacity
expansions. Technology changes (increased role of supercritical plants in thermal stations; large sized reactors for
nuclear plants, etc) present opportunities to introduce and
absorb newer technologies and develop market niches.
Similarly, T&D equipment suppliers will gain from the ongoing
transmission network strengthening program (~50 GW by
2015 with increased use of 765kv and HVDC lines). Other
associated industries (mining, financing, training & education
etc) also stand to gain significantly as they facilitate and
benefit by the growth in the power sector.
Renewables will strengthen its role in the sector: Wind
energy will continue to grow at 15-20% pa with new
opportunities in offshore capacities and large capacity
turbines (> 3MW). Solar energy will drive next wave growth in
renewables space. Technology improvements are expected
to lead to grid parity costs by 2020-25. Government
incentives will open up opportunities for solar
farms/distributed generation as well as PV manufacturing.
Constrained fuel supplies present a major threat to sector
growth: As per current trajectory, India, inspite of substantial
reserves, is expected to confront a supply deficit of ~25%
(250 MTPA) of domestic coal by 2014. Similarly, India will
require 2000-2,500 tpa of Uranium to meet its nuclear energy
aspirations by 2020, against a current supply/mining capacity
of ~300 tpa.
Distribution and financing concerns will also intensify:
High AT&C losses and slow rate of discom reforms will hurt
the industry in the last mile. Financing may also present a
challenge to industry growth. About $ 200-250 Bn
investments will need to be undertaken in the power sector in
the next 8-9 years to fuel the planned growth. Sectoral and
group caps of the financial institutions may be a potential
constraints in securing such large amount of funds.
Several critical imperatives exist for the industry

The industry needs to significantly strengthen its project
Executive Summary xiii
management and execution capabilities. A comprehensive

and robust project plan developed at conceptualization
stage, would help in identifying potential hurdles up front.
Adequate diligence should be undertaken for selection of the
project site, EPC (Indian vs foreign), financing sources,
technology, quality control and execution timelines etc.
Creation of a strong project management center and set up
of robust business processes & control mechanisms are
critical for efficient project execution.
government. The government should also promote Public

Private Partnership (PPP) for new coal block development
and set up an independent regulator for the coal sector.
Stringent monitoring should be adopted for timely
development of allotted captive coal blocks. Ensuring
priority access to gas for the power sector (especially for
peaking power) at reasonable price-points and
strengthening the gas transmission infrastructure are
other key imperatives for the government.
Securing fuel supplies will be another critical success factor.

Adequate diligence should be awarded to defining fuel sourcing
plan, especially coal (linkage, captive, imported) and its
associated costs. Fuel logistics planning and implementation is
critical and should be a focus for project leadership. Gas
availability may improve but adequate planning will be required
to identify the right locations for the plants.
2. Enhance downstream efficiencies (transmission &

distribution): A few immediate interventions are
required on transmission side including streamlining
private participation, aggressively extending national
grid reach & improving quality of the same and building
flexibilities in BPTA tenures. The government should
also define a time-bound implementation plan for the
pending discom reforms and accelerate implementation
of open access to distribution networks. Finally, the
power subsidy mechanisms for the agriculture sector
also needs to be reformed.
The generators also need to realign their market &

customer strategy. Striking the right balance between long
term PPAs and merchant trading will become increasingly
important in the future. Reforms will also give rise to customer
mix options (SEBs, traders, bulk buyers, etc), which will open
up different possibilities. Alternate market facing models like
power tolling, distributed generation, peaking power supplies
can also be evaluated.
Capital and Operational excellence will be key to future
competitive advantage. CapEx and Operational excellence
begins from selection of right technology and suppliers/
manufacturers for the units. The asset availability and
utilisation should be maximized through O&M best practices.
Finally, robust organizational enablers need to be
established for the future. Over 150,000 additional skilled
and semi skilled personnel would be required by the sector
over the next 5-7 years. Some organisations will also have to
manage concurrent projects and operations stages.
Accordingly, a flexible organisation structure needs to be
designed and implemented. Strong HR processes for
attracting and retaining employees should be established.
Effective training programs should be designed and rolled
out by the industry. Efficient knowledge management
mechanisms would also need to be established
The government also needs to play a significant

role in driving and facilitating the sectoral growth
A prioritized six by six agenda has been drawn out for the
government.
1. Address fuel supplies issues (coal & gas): Coal sector
deregulation should be a high priority agenda for the
3. Aggressively promote clean source of energy

(renewables and nuclear): Special focus should be
provided to renewables by identifying high intensity
renewable zones and establishing all enablers (land,
transmission, site approvals etc) therein. The government
should ensure effective implementation of the National
Solar Mission, including clear policy on Feed-In Tariffs.
Distributed generation for rural areas (to benefit from solar
& bio-mass applications) should be encouraged through
special incentives and fast track clearances.
For nuclear energy promotion, the government should
develop a comprehensive nuclear fuel plan for enhancing
Uranium and Thorium mining & availability for the country.
Special incentives should also be provided to encourage
participation across the nuclear value chain.
4. Facilitate efficient market side development: The
government should accelerate the pace of reforms in
power exchanges and deregulate the trading segment.
Initiatives also need to be rolled out to smoothen peak
demand curve and promote peaking power supply.
Introduction of flexibilities in PPA tenure and promotion of
real time market mechanisms, through time of day
metering & pricing could be undertaken to enable
efficient market development
5. Strengthen execution and monitoring mechanisms: A
comprehensive next generation reform agenda with
well defined implementation timelines should be
xiv Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
encouraged for emerging technologies in the generation

space. Investments should be promoted in renewable
components & supplies through special incentives. The
government should also address the financing issues in
terms of sectoral caps of financial institutions and explore
opportunities for loan re-financing by multi-lateral
agencies / foreign institutions. Finally, strengthening of
Industrial technical institutes is required to enable
adequate skilled manpower availability for the sector.
developed by the government. There is also a need to

establish an execution group for following up on policy
implementations. Creation of an empowered single
window co-ordination and clearance body and defining
clear time-lines for approvals across ministries &
agencies will streamline the regulatory process.
6. Streamline industry enablers (equipment, financing &
manpower): New equipment capacities should be
Sustained growth of the power sector is critical for enabling the high economic growth targets of India. All stakeholders need
to put in a concerted effort to attain the above objective and address potential challenges and constraints confronting the
industry. If successful, the Power Sector will directly improve the socio-economic wellbeing of more than a billion people and
also create some world class energy eco-system in the country.
Executive Summary
xv
xvi Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report
PART A
INDIAN POWER SECTOR:

THE ROAD AHEAD
Theme 1
Changing Outlook for

the Indian Power Sector
Indian power sector is undergoing a significant change that is
redefining the industry outlook. Sustained economic growth
continues to drive power demand in India. Governments focus
on attaining Power For All has accelerated capacity addition
in the country. At the same time, the competitive intensity is
increasing on both market side as well as supply side (fuel,
logistics, finances and manpower).
The Indian power sector is evolving from a nascent/
opening market phase to a developing phase (Fig 1.1).
There are four attributes that characterize the above

evolution, over last few years:
1. Steady demand growth and supply deficits: The power
demand in India has grown at a CAGR of 8% over the last
five years (Fig 1.2). At the same time, the supply (CAGR
of 6.8%) has not been able to keep pace with the
demand. Accordingly, the deficits have increased steadily
from ~5% in 2003 to ~11% in 20091.
The past few years have seen an increase in the per
Figure 1.1
Industry Maturity1 Curve
1 Source Ministry of Power

Changing Outlook for the Indian Power Sector
capita consumption from ~ 410 kwh in 2002 to ~600 Kwh

in 2008. Despite the growth, the power consumption is
much lower than other BRIC countries like China (2150
Kwh), Brazil (2100 Kwh) and Russia (6000 Kwh)2,
suggesting a large unmet/latent demand in the country.
2. Improved sector attractiveness supported by
regulatory reforms: The reforms which were initiated in
the 90s, got strengthened with the enactment of
Electricity Act 2003, followed by open access regulations,
national electricity policy and national tariff & integrated
energy policy. Accordingly, the sector which historically
had only a few central & state utilities, is now witnessing
interests from over 75-100 new players looking at
investments across the value chain.
last 8-9 years. Inadequacy in transmission capacity to

meet peak demand, low grid discipline, difficulties in
implementing
unscheduled
interchanges
and
predominance of low voltage profile of 220 kv are some of
the challenges confronted by the National grid. On the
distribution side, cross subsidization of consumer
categories along with the high grid losses are areas of
serious concern.
Future Outlook: New opportunities within an

increasingly challenging environment
We believe five key trends will characterize the future of
the Indian Power sector, supported by select industry
enablers (Fig 1.3).
Figure 1.2
Historical Supply and Demand Trend (BU)
3. Increased rate of capacity additions: The generation

capacity3 has grown from around 63 GW in 1990 to 149
GW in 2009, more than double over last two decades.
Infact, over the last few years, India has added an average
of 6-7 GW of generation capacity per annum, highest in
the history of the Indian power sector. This growth rate is
expected to further increase in coming years.
4. Inadequacies in support enablers (equipments,
transmission and distribution): Limited domestic
capacity of generation equipment supplies including
boiler, turbine, generator and balance of plant have been
one of the key reasons for delays in power projects.
Similarly, transmission and distribution segment still has
high AT&C4 losses of ~ 30%, despite the reduction over
At the foremost, significant capacity is expected to come online

resulting in Power on Power competition in the generation
space. Secondly, the industry landscape will change
significantly with emergence of the private sector alongwith
continued importance of central utilities. Third would be the
onset of next generation reforms throwing open newer
opportunities across the value chain. Constrained fuel
supplies is the fourth dimension that would impact the
evolution of the sector. Finally, renewables will set the stage
for long term sustainable growth of the industry.
The above changes will be also be impacted by four critical
industry enablers viz. transmission, distribution, equipment
supply, financing. The ability of the sector to gear up on these
enablers will determine future growth of the sector.
2 Source: EIA and United Nations

3 Only grid based capacity in terms of GW (1GW=1000MW) ; Source: Ministry of Power
4 Aggregated technical and commercial losses; Source: Crisil
Figure 1.3
Emerging Sector Trends
there is a potential upside from the latent demand which

has not been addressed currently due to supply constraints
and infrastructure inadequacies (including distribution
access, grid reliability, etc.). The potential is immense as
reflected in the significantly lower per capita power
penetration in India, when compared to other developing
countries like China and Brazil. The demand in 2017 would
need to grow at a significant higher CAGR of ~ 17%, if India
were to even achieve the per capita consumption, similar to
the current levels in these countries.
At base case demand scenario, Indias per capita
consumption would be ~ 1100 kwh in 2017, much lower
than even the current consumption level of developing
economies like China (2150 kwh), clearly indicating a
latent/unmet demand, which can be tapped by the industry.
First: A new era of Power on Power competition

Steady demand growth with potential upsides
As per the CEA estimates, power demand in India will grow at
~ 7.5% CAGR during 2009-17, to increase from ~775 BU
currently to ~1400 BU by 2017 (Fig 1.4). Sustained
economic growth coupled with initiatives of providing
electricity for all including rural electrification, will be the key
demand enablers. In addition to the above project growth,
Large scale capacity additions and efficiency improvements

India is also poised for significant supply addition over the
next few years (Fig 1.5). The incumbents and new entrants
have announced large capacity augmentation plans in the
sector. The announced grid based projects already sum up to
a staggering figure of ~ 300 GW (most of them are of much
larger unit sizes than historical additions). However, as per the
current trajectory5, 80-85 GW of capacity is most likely to be
commissioned in the period of 2009-2014 (with another 5-10
GW probable capacity on the top, depending on the rate of
progress attained). This in turn will be the highest capacity
augmentation in any block of five/ ten years in India. The rate
of capacity addition will increase further in the subsequent
years as India matures in its capabilities for executing such
large scale projects.
Figure 1.4
Figure 1.5
Expected Demand Scenario, 2009 2017
Capacity Addition scenario
(BU)
(GW)
5 A.T. Kearney analysis based on CEA status, project progress and project execution stage including ordering of BTG (for coal based
projects), under-construction for other fuel types
Additionally, the generation and transmission efficiencies is

also expected to improve in the future. Most of the new
thermal plants (accounting for ~90% of incremental capacity
addition) are basing their production at high PLF (80-90%).
Accordingly, the average PLF of the generation capacity will
increase from ~56% currently to ~61-63% by 2014-15.
Similarly, the adoption of higher voltage lines & strengthening
of the grids will help reduce the T&D losses in the system. All
these will improve the power supplies to customers.
Narrowing supply-demand gap, resulting in Power on
Power competition
The planned capacity expansion along with efficiency
improvements will substantially reduce the supply-demand
gap in the future. The supply deficit, for the base load could
potentially reduce to 1-2% over the next 5-6 years in the base
case (Fig 1.6). Even in an optimistic scenario (increased
realization of latent demand), the deficit could be around 4%5%.
Figure 1.6
Projected electricity supply deficit

(% of demand)
by 2015.
The peak deficit will however continue to exist in the future.
Peaking stations (hydro, gas, solar, etc) would therefore have
a large role in addressing this deficit. Demand management
would also be an essential imperative for the generators as
well as SEBs.
The implications for the sector from the above trend are
significant. On one hand, it would be essential for the sector
to realize the latent demand, on the other hand, the players
would need to clearly chart out their business strategies to
align with the emerging market scenario. Some of the critical
imperatives for the industry have been covered in detail in the
next chapter.
Second: Changing generation sector landscape
Increased role of the private sector
Private sector is expected to play a much larger role in future
supply additions, as compared to the past. Over 40% of the
capacity addition, over the next five years will be undertaken by
the private sector. Consequently, the private sector capacity
share will increase from ~16% today to ~26% by 2014,
primarily at the cost of state utilities (Fig 1.7). Central utilities
will continue to maintain their relative position as they too are
participating aggressively in the capacity expansion programs6.
Figure 1.7
Category-wise capacity addition,

2009 2014 (GW)
The above scenario will usher in a new era of power on

power competition, early signs of which are already visible in
the market. The advent of bid based power purchase by states
will further increase the competitive intensity in the market, For
example, the number of participants (qualified RFP stage) in
the recent Case I bid by Madhya Pradesh, was around 25,
unheard of in the past. There have been similar experiences at
other bids like Gujarat and Haryana as well. This trend is likely
to continue, and potentially intensify, in future.
A clear implication of the above will be on price realizations.
It is expected that the long term PPA prices will continue to
be at current levels (or even decline) in nominal terms over
the next few years. The average trading prices are expected
to peak over next two years and thereafter decline by 40-50%
Emergence of two distinct player groups

Two different player groups are expected to emerge in the
industry: The first category will comprise large companies/
groups taking significant positions in the sector likes of NTPC
6 Source: A.T. Kearney analysis
captive blocks. By bringing in market forces, we would

expect significant improvements in coal block
productivities. Setting up of an independent coal regulator
will also drive efficiencies & transparency in this sector.
(the incumbent), Reliance Power, Sterlite Energy, Jindals, Tata

Power, Adani, Lanco and others will fall in this category.
Over next few years, as the industry evolves, these top few
players are expected to account for 40-50% of new capacities
coming on-stream. These players are building their presence
through a portfolio of generating assets with varied fuel mix,
spanning across different geographic locations in India and
some of them are taking positions in other parts of the value
chain. They are also at the forefront of newer technologies (eg
super-critical plants) and larger unit sized projects which in
turn will improve generation efficiencies.
The other category of players would be made up of small to
mid sized generators with interest in only a few projects.
There are more than 40-50 players that fall in this category
(excluding the state utilities). In line with a typical industry
evolution, presence of such large number of small to mid
sized operators will accentuate the competitive intensity in the
sector. Many of these players are banking on high price short
term market. As the deficit reduces in the sector on account
of increased supply, we would expect pricing pressures to
emerge in the sector both in long term PPAs (a trend already
visible in latest Case I bids) as well as short term merchant
power. As the margins come under pressure, we may
witness some consolidation in this space, after 2015.
Adoption of innovative business models
Emerging opportunities in the sector along with increasing
presence of the private sector would also drive adoption of
newer business/operating models. On one hand, large
players may move towards integrated presence in the value
chain; at the same time many new entrants are expected to
establish niche presence in the market. Power tolling, direct
supply to bulk customers, peak demand based capacities etc
could emerge in a big way in the future.
Reforms impacting sales to bulk customers

A key reform, on the horizon is effective implementation of
open access to distribution networks across states. The
generators would accordingly have the opportunity to
target bulk consumers as part of the consumer mix, at
market determined prices. This will significantly improve
the customer options for generators.
Reforms on merchant power trading

Several new products are being introduced in the power
exchanges, which will strengthen its role as the overall
market clearing mechanism. Recently, in addition to day
ahead spot, week ahead, day ahead contingency
products have been approved. Other longer tenure
products would also be introduced in exchanges in near
future. The other initiative that can enhance the
effectiveness of the trading market could be to remove the
cap of 4 paise per unit remuneration to the traders. This
would incentivize the ~40 number of registered traders to
actively participate (currently less than 15 traders are
active) and provide greater options to the generators.
Setting up of settlement pools for accurate and
transparent reconciliations (energy and monetary)
between participants of trading transactions will also
enhance market efficiencies.
Incentives and reforms for clean energy (nuclear

and renewables)
The recent Indo-US nuclear deal and ratification by the
Nuclear Suppliers Group (NSG) is opening up new
opportunities for investments in this sector. Government
has set a target of achieving 20 GW generation capacity
by 2020. This in turn, presents new opportunities across
the value chain (equipment supply, generation, EPC etc).
Similarly, government is aggressively incentivizing
investments in the renewables space through feed in
tarrifs, issue of renewable energy certificates etc. These
along with continuous technology advancements will
provide opportunities across solar, wind and bio-mass
segments.
Reforms of the state discoms

Distribution continues to be one of the weakest links in
the power sector value chain in India. Unbundling of the
state utilities have improved efficiencies across many
states. However concerns continue on the high AT&C
losses and poor financial health of several state discoms.
Given the increasing competitive intensity, it will be

imperative for the incumbents and the new entrants to
identify levers of strengths for themselves and base their
business model on the same.
Third: Next generation reforms creating newer
opportunities
Several next generation reforms are on the anvil, which if
realized will change the dynamics of the power sector.
Reforms in the coal sector

Coal sector reforms will probably have the biggest impact
on the power industry. The government is contemplating
opening up of the sector to private participation, beyond
The success of discom privatization in Delhi and other

states have not been rolled out aggressively to other
regions, though there is an increasing realization for the
same. Discom privatization will usher in new opportunities
in the sector and significantly improve last mile
efficiencies.
Overall, the next generation of reforms would open up new
opportunities for the sector in terms of better availability of
fuel, ability to reach directly to the bulk consumers and
greater role of merchant trading. The government needs to
ensure timely roll out of these reforms to provide impetus to
the sector.
Fourth: Constrained fuel supplies
Widening coal demand - supply gap: about one-fourth of
the thermal plant capacities may face constraints
Coal based power plants will account for over 80% of new
capacities to be commissioned over the next five years.
Accordingly, the share of thermal power plants (including
gas) is expected to increase from 63% currently to more than
70% by 2014. This along with sustained growth in the cement
and metal industry is expected to increase coal demand by
over 75% by 2014 (Fig 1.8). The domestic coal production7
however is expected to grow slower, resulting in a widening
deficit (as high as 250 MTPA) by 2014-15.
SECL are over committed to the extent of 20%- 40% of their

2010 production plans. To align the demand supply
mismatch, CIL has been entering into substantially low
supply commitment agreements. For all new FSA/LOAs
with the private sector, CIL has been signing undertakings
to provide only upto 50% of annual contracted quantity
(ACQ). Accordingly, securing fuel supplies will be a critical
success factor for generators (especially coal based plants).
Secured access to fuel, a critical success factor
As the new capacities will compete for the limited available
resources, establishing secured access for fuel will be critical
for the players. At governments end, significant reforms are
required in the coal sector to improve productivity and
enhance coal access to players. The industry players need to
identify mechanisms to secure fuel, including captive coal
block and imported coal. Adoption of efficient technologies
and practicies that reduce specific consumption of the
resources should also be encouraged.
Fifth: Strengthened role of Renewables in the sector
Renewables currently comprise only ~8% of total generation
capacity8 in India. Several significant efforts are however
being undertaken by the government for promoting
renewable based energy, including:
Increasing demand with relatively constrained production

growth has resulted in significant over-commitments by
Coal India (CIL) subsidiaries (Fig 1.9). ECL, MCL and
Fiscal incentives, tax holidays, depreciation allowance &

remunerative returns for grid capacity
Budgetary support for research, development and
demonstration of technologies
Figure 1.8
Domestic Coal Consumption in India

Projections (mt)
Demand Supply Scenario for Coal

(mt)
7 CIL, A.T. Kearney analysis

8 Includes captive capacity
Figure 1.9
already comparable to other low cost destinations in Asia

and is further expected to be boosted by continued
strong government support. Industry players can
leverage these opportunities to establish world class
manufacturing centers in India
CIL subsidiary coal commitment vs.

production (mt, 2010)
As a whole, renewables will become an important part of the

total energy space in India. If all plans for renewables are
realised, this segment will account for 10-15% of the total
installed capacity over next decade. To realise the sector
potential, it is imperative for the government to ensure
speedy and effective implementation of policies and
incentives. Similarly, the industry players can also look at
renewables as either a potential fuel diversification or a
focused play strategy.
Key enablers impacting the sector outlook

Facilitating institutional financing

Creation of a comprehensive National Solar Mission
(NSM), which outlines demand as well as supply-side
incentives for the solar energy
In addition to government incentives, there have been

significant improvement in the supply side technologies, that
favourably impact the sector. The solar PV costs have been
coming down steadily and is expected to reduce by 20-25%
over the next 3-4 years. Infact, solar power is expected to
reach grid parity, in India, in terms of costs by 2020-25.9 The
wind power technology has stabilised and found wide-spread
applications around the world. Additionally, India has an
estimated potential of 16-20 GW of bio-mass power, which is
an ideal fuel for distributed generation.
These changes are throwing up several opportunities across
the value chain:
Demand/generation side opportunities: Development of

solar farms as well as distributed solar power are
becoming attractive propositions. The Gujarat government
recently approved 34 solar power projects at an investment
of Rs.12,000 Cr to add 716 MW to the state electricity grid.
Similarly, Wind energy players are exploring new wind
potential sites including off-shore wind power projects to
expand the available technical potential.
Supply side opportunities: On the supply side, there is
a clear trend of shifting of global centers of manufacturing
locations, especially for solar PV, from Germany, Japan &
USA to South Asia including India. Indias costs are
While the power sector is poised for a rapid growth, there are
four critical enablers that need to fall in place to support the
future of the industry.
1. Transmission network, improving steadily
Establishment of a strong transmission capability is critical to
achieving the ambitious growth in the power sector. Over the
past few years, this has gained momentum and the National
grid is expected to significantly augment capacity. The
capacity10 is expected to increase to ~50 GW, by 2015, from
the current level of ~20 GW (Fig 1.10). New links are being
established to evacuate power from Eastern regions to deficit
regions of West and North.
Multiple measures are also being undertaken to improve
transmission quality, including

Increasing voltage profile of the network (765kv and

HVDC lines)
Installation of high quality energy meters and capacitors
Improve frequency management and outage prevention
These steps would strengthen the transmission network in

India and enable the national grid to evacuate the additional
power effectively. Timely achievement of these goals is critical
to support the growth in the power sector.
2. Distribution presents potential challenges
While the transmission is witnessing steady improvements,
concerns continue on the distribution front:
Limited reach of distribution: Only 44%11 of rural
9 Source: A.T. Kearney analysis

10 Source: PGCIL, A.T. Kearney analysis
11 Source: Ministry of Power
Figure 1.10
Inter-regional Capacity Additions (2009-2015, GW)
Source: CEA, CRISIL, A.T. Kearney
households in India are connected to the grid, pan India.

Similarly, various industrial and new urban pockets
continue to rely on expensive local generation due to
inadequacies in distribution network. The growth in key
elements of distribution network has barely kept pace with
the increase in generation, which needs to change in the
future.
Losses in distribution: India has high AT&C losses at

~30% of supply. About 10%-12% of this loss is
attributable to technical reasons while remaining
18%-20% is due to commercial reasons. Such losses will
continue to financially bleed the SEB segment and also

result in high the cost of power at the customers end12
Achieving improvements in the distribution end of the power
value chain would be critical to the growth of the sector.
3. Generation Power equipment availability
expected to increase
The pace of generation capacity addition in India has picked
up, thus increasing the requirement of the power equipment.
Responding to these needs, domestic capacity of generation
equipment is expected to increase in the next few years.
12 Source: Ministry of Power (Segregation between technical and commercial losses inferred from 2006 statistics)
10
Currently, domestic capacity for BTG is 8-10 GW per annum

which is primarily owned by BHEL. This capacity is expected
to increase to 30 GW by 2015 with expansion of BHELs
capacity and entry of private players like L&T/MHI,
Toshiba/JSW, Alstom and Bharat Forge.
would need to be worked out for ensuring the availability of

financing for various projects. This would be critical for
achieving the planned growth ambitions.
Realization of these expansion plans and enhanced domestic

capability of catering to the super critical technology would
be important for the future of Indian power sector.
Conclusion
4. Financing constraints may arise

The planned expansion projects in India, on a broad estimate
entail a cumulative investment of ~ Rs 1100,000 cr13. in the
next 8-9 years. The debt component in turn will be around Rs
770,000 - 850,000 cr. However, sectoral and group caps by
financial institutes may be a potential constraint in securing
the required funds, at the overall sector level. Timely solutions
In summary, the Indian power sector is at a stage that

provides significant opportunities for growth and investment.
However the environment is increasingly becoming
challenging. While the government will need to ensure
timely and effective implementation of next generation
reforms, the industry will need to re-orient their business
strategies to align with changing market dynamics. The next
chapter highlights a few success factors for winning in the
future power markets and lays out imperatives for all key
stakeholders.
13 Based on A.T. Kearney analysis and Industry standards for capital expenditure; Source: Planning Commission, A.T. Kearney analysis
11
12
Theme 2
Winning in the Future Power Markets

Based on the emerging trends, a comprehensive set of action
imperatives have been identified for the industry and the
government. It is important that individual players customise
the approach based on their respective business strategies.
Similarly, the government needs to institutionalize a
mechanism for effective roll out & implementation of the
defined action steps.
deliveries. Over the last two 5 year plans, India has added
less than 60%14 of the total planned capacities in the sector.
As of April 2009, about 64% of the ongoing projects were
delayed (Fig 2.2).
There are five critical imperatives for the industry players to

win in the future in the Indian power industry (Fig 2.1).
Power projects have been delayed due to number of issues.

The four key factors that are causing delays for over 40% of
the ongoing projects include EPC and BOP issues,
regulatory (environmental and state government) issues,
fuel issues (discussed in detail later in the report) and
financial closure issues.
1. Strengthen project management & execution

capabilities
At a sector level, India has fared poorly in terms of project
Inability to secure EPC and BOP, in a timely manner is

amongst the most significant challenge resulting in delay of
nearly 25% of the projects. Historically, domestic EPC
A five pronged approach for the industry
Figure 2.1
Imperatives for the Industry
14 Source: CEA, Analyst reports

13
Figure 2.2
Power Plant Capacity Development Status

(April 2009, MW)
companies were confronted with capacity constraints and

could not meet the sudden surge in demand from the
generation sector. Recent capacity expansions by domestic
suppliers and increasing presence of international EPC
companies is improving the situation.
Delays in environmental clearances and other approvals is
also a key area of concern. Power being on the concurrent list
results in coordination inefficiencies between the State and
Central authorities. Similarly, with the involvement of multiple
ministries at Central level (power, coal, environment), many
projects confront delays in obtaining requisite approvals. It is
critical for the government to address this issue urgently
(discussed later) and for the industry players to plan for
contingencies incorporating the above.
Financial constraints are expected to emerge as a
significant challenge in future. India would need ~ Rs
1100,000 cr.15 of investment in the next 8-9 years in the Power
Sector. The high magnitude of investments may confront
issues in terms of sectoral and group caps of large funding
houses. SBI for instance has a sectoral cap for funding in
Infrastructure (including sectors like Power, Telecom) of Rs
55,000 cr16.
Finally, the unprecedented scale & number of projects in the
sector may cause execution issues due to limited experience
in India.
In the above context, there are clear action items for the
industry:
i.
Develop a comprehensive project plan addressing

major potential hurdles: Adequate diligence should be
undertaken for selection of the project site, EPC (Indian vs
foreign), financing sources, technology, quality control
and execution timelines. Planning for project and
operational logistics should be done right upfront to avoid
implemantation delays. Initiate regulatory approval steps
early in the process and assign responsibilities internally.
ii. Establish a strong project management center for

coordination and monitoring: Establish an empowered
team of technical and business executives for project
management. Develop a detailed activity schedule and
monitor the same centrally. Identify potential risk factors
early in the cycle and adopt suitable risk mitigation
strategies.
iii. Develop robust business processes & control
mechanism: Detail out the processes & systems for
project management & execution. Define clear approval
& authorization mechanisms for capital investments &
plan change. Clearly define delegation of authority &
internal decision making to expedite decision making.
iv. Define a right operating model for projects: Assess
15 Based on A.T. Kearney analysis and Industry standards for capital expenditure; Source: Planning Commission, A.T. Kearney analysis
16 Source: Company website
14
and define the right mix between in-house vs

outsourced activities (for project execution early.
Structure the roles & responsibilities between the
company and service providers clearly with defined coordination mechansims.
2. Secure fuel supplies
Different fuels are experiencing varying levels of growth and
related issues. While coal presents a cost-competitive fuel
option, concerns exist about reliable supplies. Gas and
nuclear fuel availability on the other hand is expected to
improve in the future. The industry therefore needs to define
a well thought out strategy for its fuel portfolio.
Coal significant challenges exist: As per the current
trajectory, there may be a shortfall of ~25% in terms of
domestic coal availability over the next 5-6 years. Captive coal
mines have also not ramped up production as desired, on
account of various issues including delays in approvals &
limited initiatives from many mine owners to expedite the
production.
Coal logistics is also a critical challenge confronting the
industry. Issues exist across two dimensions:
a. First Mile issues: Unavailability of rapid loading systems,
few railway sidings and transport contractor/ union issues
are amongst the factors that limit the quantum of coal that
can be produced and evacuated.
b. Transportation issues: Low availability of rakes, high
turnaround time (5-7 days), limited share of mechanized
discharge wagons, low wagon payload etc present long
distance transportation issues
Gas improving availability: Significant increase in
domestic production is expected through new gas finds,
development of CBM fields & expansion of LNG capacities.
As per A.T. Kearney estimates, the gas availability in India both from domestic sources and LNG, will increase to 70-80
bcm by 2015, up from 37 bcm in 2008 (CAGR of 10-11%).
Over 11,000 km of new transmission infrastructure is also
expected to be commissioned by 2015 to enable pan India
supply. This would facilitate increased gas availability for
power generation.
Nuclear fuel constraint presents a big challenge:
Government has set a target of achieving 20 GW generation
capacity by 2020 (up from ~4 GW currently), buoyed by the
recent Indo-US deal. The targeted generation will require ~

2000-2500 tpa17 of uranium (to sustain the first phase of
nuclear growth from PHWRs). India has estimated reserves of
~64,00018 tons, the commercial & technical mining, however
viability of the same needs to be assessedcomprehensively.
The current mining capacity in India is only ~300 tpa19 of
uranium. Increase in uranium requirement by nearly seven
folds would urgently need enhancement in mining capabilities
in India coupled with seamless sourcing from international
markets.
The industry can take a few steps in response to the
emerging fuel scenario:
i.
Develop a comprehensive fuel portfolio strategy:

Clearly evaluate and select fuel type for generation based
on availability, costs & reliability. Gas may present a viable
opportunity near transmission pipelines. Nuclear is
emerging as an interesting opportunity as well (clear
policy needs to be defined by the government) A multiplant generator can look at fuel diversification as a means
to controlling risks. Renewables may also present a good
opportunity for diversification beyond conventional fuel.
ii. Invest in infrastructure development for logistics/

transportation: As part of project design, fuel logistics
should be given special consideration. For coal, end to end
handling including first mile evacuation, rail/road based
movement to plant site and in-plant movement should be
designed efficiently. The port infrastructure also needs to
be expanded. Similarly for gas, adequate transmission and
last mile connectivity needs to be put in place and secured.
iii. Specifically for coal, clearly define the sourcing plan:

Source domestic coal wherever possible, which will

be the main and cheapest source of fuel for coal
power plants
Enhance access to imported coal, especially for port
based/near port plants define procurement plan
through long term contracts or own mines globally
Aggressively source & develop captive coal blocks as
available
Invest in technologies that reduces fuel requirement
3. Realign market/customer strategy

Future power markets would be much more dynamic than the
existing ones in terms of customer options. The trading
market will evolve with strengthened role of power exchanges
17 Based on current industry benchmarks

18 Source: Department of Atomic Energy, GoI
19 Source: Uranium.info
15
Figure 2.3
Trading market expected to increase multifold

Trading market or transactions through traders and
exchanges is expected to increase by 3-4 times in the next
5-6 years. New products (including structured derivatives)
are expected to be introduced in the exchange, which will
increase the potential options for generators.
Average merchant power prices expected to decline

The short term prices are expected to peak over the next 12 years (Fig 2.4) and then decline steadily (in response to
the market supply situation). The generators accordingly
need to evaluate the profitability of their plans focused on
merchant power, and also define sales portfolio that
balances long term sales and short term trading.
Trading Market Projections

(BU)
In light of these market trends, generators would need to

develop suitable sales strategies
for short term transactions (Fig 2.3). Open access would be
operating at different contract tenures (3 years, 15 years, 25
years, etc.). Sales to bulk customers will be made easier
through reforms in local grid policies. As a result, the options
for buying & selling power would increase both from the type
of customers and nature of sales contract.
i.
There are a few other emerging trends that will influence the
sales strategies of generators:
ii. Define a customer mix plan: Evaluate various customer

options viz. SEBs, traders and bulk buyers (based on
quantum of purchase, financial stability, cost of delivery
etc) and define a plan accordingly.
Case I/ II bidding emerging as dominant form of long

term transaction
Case I and II bidding is becoming the dominant route for
securing long term PPAs with SEBs for the private
players. A bid based strategy will result in high
competitive scenario and potential pricing pressures.
Balance the portfolio between long term and short

term allocations (depending on the size and
commissioning timelines): Long term PPAs will continue
to be the dominant sales option for generators, with
secured market but controlled returns. Merchant power
provide upsides but present high variabilities
iii. Explore alternative market facing models: Evaluate

opportunities for alternative models like peaking power
capacity, power tolling, distributed generation & supplies
as part of the overall strategy
Figure 2.4
Merchant Power Prices have increased

in recent past due to increasing deficit
Merchant Power Prices May Moderate

as Supply Increases
(Rs/Unit)
(Rs/unit)
16
Figure 2.5
addition to low cost production, the transmission costs

should also be minimized. In the current scenario, a
generator selling power to a SEB located in a different
region (through a national grid) will need to incorporate
35-40 paisa per unit for transmission costs20. PGCIL is
significantly strengthening the national grid which will
provide better access to generators and also potentially
reduce the inherent losses in the system. The generators,
at the same time, should also evaluate the option of using
public grid vs. creating a dedicated grid network from the
perspective of total transmission costs.
Coal based power plants by technology

and player (2009-14, MW)
4. Develop Operational Excellence

Managing operations efficiently will be critical for all players to
develop a sustained competitive advantage in the future
markets.
5. Establish robust organizational enablers

Access to and retention of right skill set will be one of the
most critical success factor for the future. A broad brush
estimate suggests that over 150,00021 additional skilled and
semi-skilled personnel would be required by the sector over
the next 5-7 years. The new entrants in the sector would also
need to plan for effective transition from projects organisation
to operations organization as the plants come on-stream. Key
enablers are therefore essential to support the future growth.
i.
There are several aspects that need to be considered &

incorporated by the generators as part of operations
efficiency:
1. Select the right technology: Choice of technology and
fuel mix is critical for achieving higher efficiencies. New
players are increasingly designing their plants based on
super-critical technology (Fig 2.5). This also helps in
constructing large scale plants more efficiently (requires
comparatively lesser units, than sub-critical technology).
At the same time, super-critical technology is still evolving
in the country and the EPC & skilled manpower
availability is limited. It is therefore imperative to weigh the
pros & cons of the same, before selecting the technology
for generation. The plant design should also incorporate
cost efficiencies in terms of auxiliary energy, logistics flow
and other associated costs.
2. Maximise asset availability through maintenance best
practices: Efficient O&M practices need to be
institutionalized including condition-based monitoring of
equipments and robust maintenance practices. Traditional
maintenance practices need to be bolstered by reliability
improvement initiatives.
3. Minimize total cost of delivery to customers: In
Develop a flexible organization structure which

maintains the balance between technical specialists,
management expertise and execution. Clearly define level
of centralized vs decentralized decision making.
ii. Establish strong HR processes to attract and retain

employees, manage their career development and
ensure job satisfaction.
iii. Design and roll out effective training program, which
provides the new recruits with the skills required at each
level. Multi-skill training may also be necessary to
manage requirements across functional areas.
iv. Develop a strong performance management systems,
with well defined KPIs, clear linkages between rewards
and performance.
v. Define an efficient Knowledge Management
mechanism, which captures learnings and disseminates
them across the organization & project sites.
A Six by Six agenda for the government
To facilitate sustained growth of the industry and enhance its
competitiveness, we have drawn out a prioritized agenda for
the government across six dimensions, each with 6 action
steps (Fig 2.6).
20 Source: Ministry of Power, PGCIL

21 Estimates based on expected capacity addition and industry norms
17
Figure 2.6
Six by Six Action Program
1. Address fuel supplies issues (coal & gas)

Most of the action items for the government are in the area of
coal availability. A few interventions are required for improved
gas availability as well
i.
Deregulate the coal sector, allow private investments

and move to market determined pricing: Coal sector
should be opened up to investments from other public
and private sector entities (including MNCs) to improve
supply. The de-regulation can be undertaken in a phased
manner with learning drawn from the Oil & Gas E&P
industry.
ii. Promote Public Private Partnership (PPP) with Coal

India: For coal blocks outside CILs immediate
development program, encourage PPP model with
customers.
iii. Set up an independent industry regulator for coal:
An independent regulator, in lines of Telecom and
Power sectors, is necessary to oversee coal block
18
allocations and monitor its development. The regulator can

oversee reform implementation as they are undertaken in
the sector.
iv. Adopt a stringent stance on development of allotted
captive coal blocks: Punitive measures, including
withdrawal of blocks, should be adopted if a time based
production schedule is not followed (for reasons directly
attributable to the developer).
v. Ensure priority access to gas for power sector
(especially for peaking power): Provide higher priority
to the power sector for gas allocation. Encourage use of
gas for power generation in geographical areas with
access
to
gas
transmission
pipelines.
vi. Strengthen logistics for coal movement &
transmission infrastructure for gas:
a. For coal movement, first mile connectivity should be
strengthened through involvement of state
authorities. Indian Railways should be mandated to
improve rail sidings, take on-board high payload

coal wagons and de-congest major coal corridors (in
Orissa, Chhattisgarh, Jharkhand, West Bengal and
Madhya Pradesh). Ports authorities should be
required to drive strengthening of imported coal
handling facilities at ports.
b. Similarly for gas, the transmission pipeline
requirements should be adequately met to ensure
gas availability across the country
2. Enhance downstream efficiencies (transmission &
distribution)
Interventions are required on both transmission and
distribution end by the government.
Transmission
i. Streamline private participation in transmission grid:
Enhance transparency in project award through
competitive
tariff
based
bidding
process.
Streamline
approval
process
for
exclusive
transmission lines of generators and support in obtaining
right of way
3. Aggressively promote clean source of energy

(nuclear and renewables)
Renewables
i. Define high intensity renewable zones and establish
all enablers therein. Work along with state governments
to define priority zones for renewables. Ensure land
availability and establish grid connectivity from the same
ii. Ensure effective implementation of the National Solar
Mission, including clear policy on Feed-In Tarriffs.
Incentivise renewables to match expensive peak load
requirements/unmet demand, so that it complements
the significant investments in base load that are already
being undertaken through conventional energy
iii. Encourage distributed generation for rural areas (to
benefit solar & bio-mass applications) through special
incentives and fast track clearance. Promote adoption of
renewable energy by mandating use of rooftop PV on
government buildings, and applications to replace Diesel/
Kerosene where solar power is cost competitive.
ii. Aggressively extend national grid reach and improve

quality: Establish/strengthen grid connectivity to remote
locations eg. North East (Hydro); interiors of western
region (Solar and wind). Continue strengthening grid
quality through higher voltage network
Nuclear energy
iv. Develop a comprehensive nuclear fuel plan: Detail a
plan for enhancing Uranium and Thorium mining
(exploration, development & production) capacities by 45 times. Gradually open the sector up for other players
(including PSUs like NMDC and private players). Secure
uranium mines in the international markets.
iii. Extend flexibilities in BPTA tenures, supported by

similar reforms in PPA: Provide easy access to flexible
single/multi-year BPTA contracts to fuel market
innovation at generators end. Support the same with
similar reforms in PPA tenure
v. Establish a detailed fuel policy to clarify modes and

procedures for fuel fabrication, spent fuel treatment
and waste management by private players.
Distribution
iv. Define a time-bound discom reform plan: Set out the
plan for privatization or franchising of all poorly
performing discoms, in a time-bound manner.
v. Accelerate implementation of open access to
distribution networks across states: Provide seamless
access to bulk & gradually non bulk customers directly
from generators
vi. Reform power subsidy mechanism for the agriculture
sector: Provide for subsidies to the sector under
state budgets rather than loading costs to the
discoms.
Aggressively
support
agricultural
feeder separation across states through central
interventions.
vi. Provide special incentives (including tax & other fiscal

benefits) to encourage participation across the Nuclear
value chain i.e.. components, construction and
generation. Introduce a special status for nuclear energy
for ensuring easy availability of funds.
4. Facilitate efficient market side development
i. Accelerate the evolution of power exchanges: Provide
independence to exchanges to introduce innovative
power products (time based, tenure based, futures &
options) for generators, customers & traders.
ii. Deregulate the trading segment to enhance market
efficiencies: Gradually increase/remove the trading
margins for power traders. Introduce reforms in PPA to
provide flexibility to traders for aggregation &
distribution (flexibilities to supply power from multiple
19
sources based on market efficiencies)

iii. Smoothen peak demand curve through introduction of
multi-year time of day tariff, where possible and DSM
initiatives
iv. Aggressively promote peaking power supply: Provide
special support & incentives to hydro projects (launch
UMPP like models), renewables and ensure priority gas
supply to peaking thermal capacity
v. Introduce flexibilities in PPA tenure: Coordinate with
ERCs and state governments to introduce shorter / multiperiod tenures for PPAs
vi. Promote real time market mechanisms, through time of
day metering and pricing.
5. Streamline execution and monitoring mechanisms
i.
Define a comprehensive next generation reform

agenda, with well defined implementation timelines
ii. Establish an execution group for aggressively

following up on policy implementations: Create an
empowered group to oversee policy implementation,
co-ordinate with different stakeholders, facilitate
interventions in case of delays and monitor/report progress
iii. Create a single window co-ordination & clearance
body: Such a body is necessary to co-ordinate activities
among various government entities including Ministry of
Coal, Railways, Ministry of Environment & Forest, State
government agencies etc.
6. Streamline industry enablers (equipment, financing &

manpower)
Equipment supply
i. Encourage new capacities for emerging technologies
in the generation space: Provide support to equipment
manufacturers for setting capacities in areas of supercritical technology, larger sized nuclear reactors etc
ii. Promote investments in renewable components &
supplies through special incentives: Develop a plan
(entailing fiscal & non fiscal benefits like land allocation,
tax breaks, R&D breaks etc) for making India as the hub
of component/ equipment supply for renewables (solar
& wind)
Financing
iii. Address the issues confronting sectoral caps of
financial institutions: Work along with RBI to revisit
sectoral cap limits/redefine clubbing with other
infrastructure projects.
iv. Explore opportunities for loan re-financing by multilateral agencies/foreign institutions
v. Provide special focus for financing hydro and nuclear
projects through priority lending: These segments have
long gestation periods and require special long term loan
facility
Manpower
vi. Strengthen Industrial technical institutes: Promote new
institutes especially in high intensity investment regions,
enhance the quality of training through certification
standards and increase exposure to the industry
iv. Define clear time-lines for various approvals across

ministries & agencies and monitor adherence to the same
v. Streamline new power project execution through
accelerated adoption of Case I bids/UMPPs/central
projects, incorporating all site related approvals and
facilities (land, water, logistics, fuel, regulatory
clearances)
Conclusion
It is critical that all stakeholders put in a concerted effort to
enable sustained growth of the power sector. If successful,
the power sector can enable rapid economic growth of the
country and improve the well being of more than a billion
people.
vi. Develop broad based performance metrics and

parameters for various agencies, monitor performance
against the same and address issues therein if any.
20
PART B
SECTOR OUTLOOK
THERMAL POWER: COAL BASED
THERMAL POWER: GAS BASED
HYDRO ENERGY
NUCLEAR ENERGY
RENEWABLE ENERGY
22
THERMAL POWER:
COAL BASED
24
Coal Dominant Fuel for Power Plants
Coal is the most widely used fuel in the Indian power sector.
Nearly 52% of the installed generation capacity currently coal
based. The share of coal as part of the overall sector fuel mix
is only expected to increase over the next two plan periods.
The high relevance of coal for the power sector is also
reflected by the fact, that nearly 3/4th of the coal consumption
in India is accounted by the power sector. Coal supply has
not been able to keep pace with the demand resulting in high
deficits, a situation expected to worsen in the future. This is
despite significant domestic coal reserves to meet over 200
years of consumption at the current rate.
Figure 3.1
Coal demand in India Historical

(mt)
Such a situation calls for urgent interventions by the

Government and the Industry to address the constraints.
Accordingly, a six point agenda has been defined for the
government for immediate action.
Coal Demand-Supply Scenario

Supply gap reaching alarming levels
Coal demand in India has grown at a CAGR of ~ 6.1%,
during the last 7-8 years (Fig 3.1). Power sector is the
dominant consuming sector, accounting for over 75% of the
coal consumption. Steel and cement are the other major
consuming industries.
Figure 3.2
Domestic coal production in India

Historical (mt)
Cement sectors coal demand has grown the fastest, owing to

the strong emphasis being laid on infrastructure
development. Demand from steel sector is relatively lower
due to increasing share of high grade imported coal.
India is the third largest producer of coal in the world, with
about 90% of the domestic production being controlled
by public sector units (CIL, SCCL and NLC)22. However, at
5.7% CAGR production growth, domestic supply has
not been able to keep pace with the growing
demand, leading to a demand-supply gap of about 50
million tons in 2008 (~9%) (Fig 3.2). The allocated captive
22 Balance coming through captive coal blocks and other sources
25
Figure 3.3
Domestic Coal Consumption in India

Projections (mt)
coal blocks have also not ramped up as fast and efficiently as

required.
Going forward, coal demand is expected to increase to 993
mt by 2014 (at a CAGR of 11.9%) driven by large scale coal
based power capacities, and strong impetus from the cement
and metal expansion plans (Fig 3.3). As per CILs plans,
domestic coal production is expected to grow only at 7.3%
CAGR. This in turn will significantly widen the demand supply
gap It is expected that by 2014, India will face a deficit of
over 250 million tonnes of coal (25%), as per the current
trajectory.
Demand Supply Scenario for Coal

(mt)
Major on the grounds challenges exist that need to be

addressed
There is a short supply of coal in India, despite large proven
coal reserves, enough for ~200 years at current production
levels (Fig 3.4).
There are three main issues constraining the production
growth:
1. Rehabilitation and resettlement (R&R) issues: India
does not have unified R&R policy with each state
government, CIL, Railways and central ministry having
separate R&R23 guidelines. Multiplicity of policies and
Figure 3.4
Domestic Coal Proven Reserves (BT, 2005)
23 Source: State Government Policy Documents, Coal Ministry
26
Figure 3.5
Output per man shift (MT)
disputes relating to them lead to long delays in land

acquisition and initiation of mining activity. Employment
has to be guaranteed to all displaced people which
delays resolution of R&R issues.
2. Productivity issues: Limited adoption of new mining
techniques has resulted in manpower intense operations
in India. This in turn restricts the coal mine productivity.
Compared to an average productivity of 57 (Australia) and
45 (USA) MT of output per man shift, the output per man
shift in India is only 4 MT (Fig 3.5). Similarly the
production per employee in India is almost one-tenth
compared to leading coal producers in the world. Some
of the coal mines in Indonesia and South Africa produce
over 20-30 mtpa, while the maximum production in
India is still in 10-15 mtpa range.
3. Logistics issues: Coal evacuation and transportation
is also a major factor constraining production.
Production per employee per year (MT)
Getting coal linkages not adequate; captive mines not

yielding results
Increasing demand with relatively constrained production
growth has resulted in significant over-commitments by CIL
subsidiaries (Fig 3.6). ECL, MCL and SECL are over
committed to the extent of 20%- 50% of their 2010 production
plans.
To align the demand supply mismatch, CIL has been
entering into substantially low supply commitment
agreements. For all new FSAs / LOAs with private sector
operators, CIL has been signing undertakings to provide
only upto 50% of annual contracted quantity (ACQ). With
widening of the demand- supply gap, there is a risk of further
reduction in committed supply as more FSAs are issued for
the planned projects. Accordingly, power projects with
Figure 3.6
CIL subsidiary coal commitment vs.

production (mt, 2010)
First Mile issues: Unavailability of rapid loading systems, few

railway sidings and transport contractor/ union issues often
limits the quantum of coal that can be produced and
evacuated. Recently MCL, one of the fastest growing
subsidiaries, has an inventory of over 10 million tons of coal,
even while there was a significant unmet demand in the
market, due to evacuation issues.
a. Transportation: Coal being a bulk commodity is largely
transported by railways which suffers from various
bottlenecks like low availability of rakes, high
turnaround time (5-7 days), low share of mechanized
discharge wagons, low wagon payload etc. All these
result in significant evacuation issues from the mines.
27
linkage supply need to plan for alternatives (like captives

and imports) to secure fuel.
regulation can be undertaken in a phased manner with

learning drawn from the Oil & Gas E&P industry.
Similarly, the captive coal mines have not ramped up

production as desired, on account of various issues:
2. Promote Public Private Partnership (PPP) with CIL:

For coal blocks outside CILs immediate development
program, encourage PPP model with customers.

Delays in mining plan approvals, land acquisition,

environmental clearance and R&R issues
Shared distribution of coal mines to multiple parties (in
several cases), resulting in delayed execution
Limited penal action against players not adhering to
development timelines
Accordingly, only 12%24 of allotted captive mines have been

operationalised till Mar, 2009.
The emerging coal scenario presents a significant risk to the
growth of Power sector. Accordingly, there are specific steps
that need to be undertaken by the government and the
industry to address the issue.
Imperatives for the stakeholders

Reform agenda for the government
Several steps have been undertaken by the government to
improve the supply situation. These include:
Allotment of ~40 billion tons of coal reserves for

captive mining. There are steps to introduce
competitive bidding/auction based allocation of coal
mines in the future. This will lead to a much more
transparent and market determined distribution of coal.
Improved availability in the open market through

e-auction (~10% of total production). E-auction would
help reduce black marketing/illegal trading of coal and
also enable the government to accrue revenues as per
market prices.
Acquisition of coal mines abroad (currently underway)

by CIL who will channelize the same to customers
However, there is an immediate need for stepping up reform

initiatives in this sector. We suggest a Reform agenda for the
government:
1. Deregulate the sector, allow private investments and
move to market determined pricing: Coal sector should
be opened up to investments from other public and private
sector entities (including MNCs) to improve supply. The de-
3. Create a single window co-ordination and execution

body: Such a body is necessary to co-ordinate activities
among various government entities including Ministry of
Coal, Railways, Ministry of Environment & Forest, State
government agencies etc. A time-bound process should
be defined for clearances & approvals.
4. Set up an independent industry regulator: An
independent regulator, in lines of telecom & Power sector,
is necessary to oversee coal block allocations and monitor
its development. The regulator can oversee reform
implementation as they are undertaken in the sector.
5. Adopt a stringent stance on development of previously
allotted captive coal blocks: Punitive measures, including
withdrawal of blocks, should be adopted if a time based
production schedule is not followed (for reasons directly
attributable to the developer)
6. Develop a comprehensive logistics improvement plan
for coal movement: First mile connectivity should be
strengthened through urgent involvement of state
authorities. Indian Railways should be mandated to
improve rail sidings, take on-board high payload coal
wagons and de-congest major coal corridors (in Orissa,
Chhattisgarh, Jharkhand, West Bengal and Madhya
Pradesh). Ports authorities should be required to drive
strengthening of imported coal handling facilities at ports.
Multi-pronged strategy required by the industry to

secure fuel
In addition to reform measures from the government, the
industry also needs to undertake various initiatives to secure
fuel for future growth. A multi-pronged approach will need
to be adopted by the sector in the emerging demand
supply scenario.
1. Plan new projects taking into consideration coal
availability and its logistics: As part of feasibility
assessment, access to coal and logistics should be
considered as a high priority. New projects should seek to
reduce the risks associated with fuel availability earlier in
the project life cycle and not leave them to be resolved
24 Source: Ministry of Coal
28
mid-way during project execution.

2. Source domestic coal wherever possible: Domestic
coal will continue to be the main & cheapest source of
fuel for the power plants. As new reform measures are
undertaken in the sector, the domestic production should
increase and ease up the pressure on the supply side.
3. Enhance access to imported coal, especially for port
based/near port plants: Players can increase
dependence on imported coal especially in the short to
medium term. Various options exist for procuring
imported coal in India spot trading, long term contracts,
acquisition of mines etc. Acquisition of coal mines
outside India has gained prominence in the last 2-3
years.
4. Aggressively source and develop captive coal blocks:
Captive coal block development, through aggressive
liaisoning with government agencies should be a priority
activity for generators.
5. Plan for efficient coal logistics: As part of project

design, coal logistics should be given special
consideration. End to end handling including first mile
evacuation, rail/road based movement to plant site and
in-plant movement should be designed efficiently to
ensure reliable & low cost logistics.
Other sources like e-auctions and washeries will be used to
meet short-term shortfall in coal requirements
Conclusion
Significant coal based capacity addition envisaged in the XIth
and XIIth plans would make domestic coal availability a
critical success factor for generators. Government support is
required to expedite the policy reforms in the coal sector and
ease the supply pressure. The industry also needs to adopt a
multi-pronged approach to secure fuel for future growth.
Inability of India Inc to address the coal availability issue can
be a major deterrent to power industry growth.
29
30
THERMAL POWER:
GAS BASED
32
Natural Gas
Emerging fuel for the future
Natural Gas sector in India is undergoing significant game
changing developments. Significant volumes of gas from new
fields have recently come on-stream and lot of activity is
underway in the E&P side. While these are leading to new
opportunities for the power sector, there are also a new set of
challenges that need to be addressed to tap the demand
potential in the country.
Indian gas market rapid changes underway

Prior to the 1980s, associated gas produced at Mumbai High
was largely flared. Development of transmission pipeline
infrastructure, esp. the HBJ line in mid-1980s, fuelled growth
and reach of gas consumption from near the source to other
demand centers (Fig 4.1).
There are five dimensions that are shaping up the future
of gas industry in India:
1. Improved availability through new gas supply sources:
Significant increase in domestic production is expected
through new gas finds in KG Basin, development of CBM
fields & expansion of LNG capacities. RIL is expected to start

producing ~80 mmscmd by the end of this year. With other
NELP finds commencing production and more LNG re-gas
capacity, gas availability in India is expected to improve
substantially going forward. As per A.T. Kearney estimates,
the gas availability in India will increase to 70-80 bcm by
2015, up from 37 bcm in 2008 (CAGR of 10-11%).
2. Changing demand landscape: Indias gas demand is
projected to grow at more than 7% CAGR over the next
10-15 years. Power sector currently contributes to ~36%
of the overall gas demand and is expected to be a
key contributor to this demand growth in short to
medium term. With commissioning of the delayed
gas-based projects, conversions from alternate fuels
such as Naphtha and Fuel Oil, and addition of
new capacities would increase the gas offtake from the
power generation sector. Developments in the Power
sector, allowing for increased trading will also drive
demand for Gas as the preferred fuel for merchant-based
capacities (Fig 4.2).
Figure 4.1
Evolution of Natural Gas Market in India
Natural Gas Emerging fuel for the future
33
Figure 4.2
Gas consumption Expected Share of

Power Sector (bcm)
1
3. Expanding pipelines/LNG terminals: To enable supply

of gas to demand centers spread across the country, over
11,000 km of new transmission infrastructure is expected
to be commissioned by 2015. The pipeline infrastructure
has been proposed to be developed as Natural Gas
Highway inline with NHAI and international gas highway.
New pipelines required under the Natural Gas Highways
may be of the order of 6000 Kms, requiring ~Rs. 30,000
crore as capex in addition to Rs.50,000 crore already
committed by GAIL/RIL under the authorized projects
(Fig 4.3).
Over and above these, capacities of LNG terminals are
being expanded and new contracts for LNG imports are
being signed. PLL Dahej terminal recently doubled its
capacity to 10 mtpa while new contract for 1.5 mtpa has
been signed for Kochi terminal, due to be commissioned
Figure 4.3
Proposed Gas Transmission Infrastructure in India
34
Figure 4.4
Gas Demand-Supply Projection India (bcm)
in end of 2011. These initiatives are expected to

substantially improve gas availability near consumption
points, thus positively impacting the availability of gas for
the power generation sector.
4. Favorable regulatory changes: Regulatory reforms have
continued to drive and support market development.
Significant regulatory changes have been witnessed
across three key dimensions:
Encourage Investments Allowed 100% FDI in E&P,

Transmission and LNG
Streamline Authorizations Establishment of

independent regulator for guiding operations and
tariff setting
Increase Competition Instituted competitive

bidding for E&P blocks through NELP and CBM.
Shift away from administered pricing towards marketdriven Going forward, market mechanisms rather than
government policies are expected to determine the
optimal/affordable gas price. Diversifying fuel sources,
specifically replacement of low-priced APM by
competitively priced NELP supply and increase in crudeoil prices are expected to drive the increase in the
average price of gas.
Overall, by 2015, the Indian gas market is expected to be
70-80 bcm and $15-20 bn revenue industry (Fig 4.4). The
sector presents unique opportunities not only for incumbents
but also opens up the multiple opportunities, across the gas
value chain, for new entrants to carve out a space for
themselves. Transmission sector itself is expected to see

investments of $ 15-20 bn in the next 5-8 years (Fig 4.5).
Imperatives for the stakeholders

Imperatives for the Government
With large investment plans announced by private players, it
is critical that government continues its efforts for market
development in the sector. There is immediate focus
required across three key areas:
1. Expansion of infrastructure: Government needs to
ensure fulfillment of infrastructure requirements by
continued focus on expansion of gas-transmission
pipelines. This is essential to support market
development and enable the players to gain effective
access to the gas market in India
2. Facilitating funding requirements: Regulatory policies
and incentives are needed to ensure ease of investment
and actualization of announced plans across the value
chain from E&P to distribution to utilization
3. Ensure access to gas for gas-deprived sectors at
reasonable price-points: Specifically, in the power
sector, generators have had limited access to gas. As is
evident in the recent gas utilization policy, it is imperative
that further regulations ensure access to gas across
different sectors.
Imperatives for the Industry
As per the current scenario, a large part of the market
demand needs to be developed. Players in the sector
need to take a comprehensive view of the industry and
Natural Gas Emerging fuel for the future
35
Figure 4.5
Risk Tariff Trade-Off for Gas Based Plants
take steps to effectively support the government for

market developments.
1. Invest in infrastructure development and market
education: As discussed earlier, gas supply is expected
to increase significantly in the near future. Hence, it is
critical to identify key gap areas such as infrastructure
development and market education to ensure the gas
produced is supplied to the consumption point and is
utilized to the benefit of the consumer
2. Invest in gas based power generation: On the other
end of the value chain, players can leverage the improved
36
gas supply to diversify fuel mix and establish gas-based

capacities
Conclusion
With a large expected increase in supply, gas-sector in India
is at an inflexion point. Government support is required to
continue reforms towards market development to ensure
effective growth in the sector. Players need to take proactive
interest in the development of the market by ensuring
investments across the value chain, specifically for the
infrastructure and gas-utilization requirements. All these
changes present opportunities for the Indian Power Sector to
increasingly leverage gas as a fuel for power generation.
HYDRO ENERGY
38
Hydro Energy: Large Untapped Potential
Hydroelectric power currently accounts for about one-fourth

of the total power generation capacity in the country. With
70% of the exploitable potential yet to be leveraged, there is
a huge potential for hydro power in India. This sector however
confronts various socio-environmental issues including land
acquisition, R&R and environmental clearances, which have
constrained sector development. The recent initiatives of the
government like 50,000 MW Hydro Initiative and policy
reforms (Hydro Power Policy, 2008) are expected to open
new opportunities in this segment.
Significant potential but limited realisations

India is endowed with significant hydroelectric potential
and ranks 4th25 in the world in terms of economically
exploitable hydroelectric potential. As per CEA, the
country has hydroelectric power potential of
about 148 GW. However, only ~25% of the
potential (36 GW in total) has been developed
and only about 10 -15 GW is under construction. Overall,
about 70% of the exploitable power potential is yet to be

developed.
From a regional perspective, over 95% of the total potential
in the North Eastern region is still untapped, primarily in
parts of the Brahmaputra river basin. The scenario is in stark
contrast to the southern and the western region where more
than 50% of the potential has been harnessed.
Due to the limited progress in this sector over the last few
decades, its share in countrys total installed grid capacity
has redueced from about 40% in 1980 to about 25% in 2009.
Aggressive targets for the future, but challenges remain.
In order to accelerate the hydro power generation capacity,
the Government launched 50,000 MW Hydro Initiative,
targeting assessment of 50 GW of the 148 GW hydro
power potential. About 34 GW of capacity has been further
shortlisted for detailed survey and execution. As of June
Figure 5.1
Figure 5.2
Development of Hydroelectric Power

Potential
Hydroelectric Power Potential in India

(GW, River / Basin)
(GW, 2009)
25 CEA report on Hydro Power Development 2006

Hydro Power: Large Untapped Potential
39
Figure 5.3
Figure 5.4
Hydel power installed capacity
Hydro power potential Global scenario
(GW)
(GW)
2009, detailed project reports (DPRs) have been prepared

for about 8 GW of the capacity and DPRs is in progress
for another 15 GW of capacity (Fig 5.1 and Fig 5.2). The
steady progress on the 50,000 MW Hydro Initiative
provides a significant opportunity for industry players to
participate in this untapped segment. Over the next decade,
India can target to exploit its hydro potential to the levels
of atleast 40-50% like many developed nations.
Additionally, India has an exploitable potential of ~15 GW of
small and mini-hydro power projects which is emerging
as a significant opportunity for rural electrification.
However, there are several socio-environmental issues
which may constrain development of this segment:
cause adverse down-stream effects on the rivers.

4. Financing Issues: The duration of most long term loans
is 10-15 years which is quite short compared to the life
of a hydro power project (over 50 years). Most banks are
not able to lend for a longer term due to the assetliability mismatch.
5. State/Region specific issues: Other issues like lack of
adequate transmission infrastructure to evacuate power
from North-eastern region, inter-state water disputes on
sharing the project costs & benefits, differing allotment
criteria by states for award of hydro projects, are adding
to the overall project delays (Fig 5.3 and Fig 5.4).
Imperatives for the Stakeholders

1. Resettlement and Rehabilitation (R&R) Issues: Land
acquisition and the problems of R&R is the single largest
problem faced by most of the large hydro power projects.
It has not only resulted in project delays but also
significant cost escalations.
2. Regulatory delays: Involvement of several regulatory
agencies (Ministry of Environment & Forest, Ministry of
Power, Ministry of Water, Pollution control board, State
agencies etc.) has typically resulted in approval delays.
3. Environmental Issues: Even-though hydroelectric power
is a non-polluting energy source, it is usually associated
with harmful impact on the ecosystem. The large water
reservoirs or dams associated with the hydro power
project lead to submergence of huge forest land and can
40
Aggressive execution of policies by the government

The recent steps undertaken by the government are moving
in the right direction. However, to realize the opportunities
within defined timeframes, focus has to be on execution:
1. Involve Project Affected Families (PAFs), Gram
Panchayats & local administration during land
acquisition and R&R package formulation
2. Create a uniform policy for allotment of hydro power and
sharing of benefits, across states
3. Create a single window clearance mechanism for all
projects to avoid regulatory delays.
4. Launch UMPP like models for hydro-power, bestowed

with special incentives and comprehensive solution (land,
regulatory clearances, transmission)
Pro-active steps by the industry
1. Explore new business models like hydroelectric
merchant power plants: The inherent flexibility of
instantaneous start, stop and load variations make hydro
plants best suited for merchant trading/peaking power
funds for long term financing options and avoid issues

related to asset liability mismatch
3. Develop a detailed Comprehensive Catchment Area
Treatment (CAT) Plan for the whole river basin, to reduce
ecological impact.
4. Provide for environmental cost and take pro-active
measures for resettlements
2. Tie up with multi-lateral agencies and development
Hydro Power: Large Untapped Potential
41
42
NUCLEAR ENERGY
44
Nuclear Energy
Improving Future Prospects
Nuclear as a source of energy accounts for ~16% of total
power generated, globally. Nearly 84% of the worlds nuclear
power capacity is concentrated in OECD countries including
USA, France and Japan, However, Asia-Pacific countries
especially India and China are likely to be the growth
centers for the future.
Nuclear power is also cleaner, more environment friendly and
less sensitive to fuel price hikes as compared to traditional
fossil fuel based plants. However, concerns about safety,
waste management and nuclear proliferation are likely to
linger in the future as well. The sector has bright prospects in
India in the long term. However the real impact is expected to
emerge only after 6-7 years from now.
The recent Indo-US nuclear deal has opened avenues for

partnership between India and Nuclear Suppliers Group
(NSG) for technology, components, fuel procurement,
project management and financing. As a follow-up to the
deal, agreements have also been signed with Mongolia,
Russia, France, Kazakhstan and Namibia to increase
collaboration in the areas of civil nuclear cooperation;
especially for fuel procurement. These international treaties
have significant implications for India:
Indian players have an opportunity to import fuel and

technology from NSG
Foreign players can collaborate with Nuclear Power

Corporation of India Limited (NPCIL) to set up nuclear
plants in India
Global nuclear players can enter into MoUs with Indian

companies to explore business opportunities across fuel
supply, technology and components (Fig 6.1).
Recent market developments present

new opportunities for the sector
Government has set a target of achieving 20 GW generation
capacity by 2020 (up from ~4 GW currently). In the long
term, nuclear power generation capacity is expected to
expand to nearly 9-10 times by 2032, as per Integrated
Energy Policy projections.
These positive developments have already evinced interest

from and initiatives by a number of players in the sector:
Figure 6.1
Nuclear power installed capacity
Large players like NTPC, NALCO are exploring JV

opportunities with NPCIL for setting up nuclear power
generation plants
Private players like Reliance Industries are exploring

opportunities in uranium exploration and mining in
international markets
Equipment manufacturers including BHEL and L&T

are augmenting their domestic capacities and
strengthening their technical capabilities through JVs with
global majors
(MW)
In addition, global majors like Areva, General Electric,

Toshibas Westinghouse Electric and Russias atomic energy
Nuclear Energy Improving Future Prospects
45
Figure 6.2
technologies are not accessed.
Nuclear Power Key Challenges

3. Equipment capacity constraints: Construction of key
equipments for PWHR based plants in the unit segment
size upto ~ 500 MW has been developed indigenously
in the past (Fig 6.2). However going forward, while the
installed capacity is planned to increase 4-5 folds, the
trend is also towards larger sized reactors. Adequate
capacity therefore needs to be put in place for
right technologies.
4. Manpower: Currently, there are ~13,00030 strong skilled
nuclear workforce in the country. There needs to be a
steep jump in quality and size of the workforce, expected
to increase by atleast 3-4 times31 in number.
agency Rosatom have also expressed keen interest to
participate in the Indian market.
Critical challenges exist which need to be

addressed
Although the nuclear power market is opening up in India,
several challenges exist that need to be addressed:
1. Limited fuel availability: The targeted 20 GW of
generation capacity by 2020, will require 2,000 2,500
tpa26 of uranium ore (to sustain the first phase of nuclear
growth from PHWRs27). While India has an estimated
reserves of ~64,000 tons, the commercial & technical
mining viability of the same needs to be assessed
completely. The current mining capacity in India is only
~300 tpa28 of uranium. Owing to strategic nature of
uranium, mining rights have been restricted to Uranium
Corporation of India Limited (UCIL) which has taken limited
initiatives to expand production. Increase in uranium
requirement by nearly seven folds would urgently need
enhancement in mining capabilities in India coupled with
seamless sourcing from international markets.
2. Generation technology constraints: NPCIL has
developed indigenous technology for nuclear reactors. It
currently has 15 PHWR, 2 BWR in operation. Globally,
however there has been a rapid evolution of more efficient
generation technologies such as EPR, VVER, AHWR29 etc.
Sector growth and efficiencies will be impacted if these
26
27
28
29
30
31
32
5. Financing: Indian nuclear generation segment would need

investments of more than INR 1,500 Bn32 over the next few
years, to achieve the target of setting up 20 GW. This would
increase manifold considering the investments required to
augment fuel supply and equipment capacity in India. In
absence of a well defined financing plan for nuclear
projects, this may become a constraint.
It is imperative to address the above issues through a
structured mechanism to realize the full potential of the
sector.
Imperatives for the government

A new reform agenda to be pursued
There are key action steps that need to be undertaken by
government to promote this sector:
1. Develop a comprehensive nuclear fuel plan: Uranium
mining (exploration, development & production) needs to
be increased by atleast 4-5 times. UCIL needs to upgrade
its capabilities & mining technologies for the same.
Mining should also be gradually opened up for other
players (including PSUs like NMDC and private players).
The government should also secure uranium mines in the
international markets.
2. Establish a detailed fuel policy to clarify modes and
procedures for fuel fabrication, spent fuel treatment
Based on current industry benchmarks

Pressurized Heavy Water Reactor
Source: Uranium.info
EP: European Pressurized Reactor, VVER: Water-Water Energetic Reactor AHWR: Advanced Heavy Water Reactor
Nuclear Power Corporation of India Limited Annual Report
Based on expected increase in productivity by 30-40%
Assuming cost of PHWR ~Rs 7 Cr/MW and Thorium based reactor as ~Rs 8 Cr/Mw
46
and waste management by private players
Industry needs to take a long term

view of the sector
3. Provide special incentives (including tax & other fiscal

benefits) to encourage participation across the Nuclear
value chain i.e. components, construction and generation.
The changes in the nuclear power sector provide long term

attractiveness to industry players. Some of the steps that can
be undertaken by the players include the following:
4. Establish an execution group for aggressively

following up on bilateral agreements with other
countries and channelizing fuel, technology & equipment
availability in India
1. Evaluate nuclear power as part of the overall

generation portfolio mix: Nuclear power may present a
viable diversification opportunity for large generators
5. Support manpower availability and training for nuclear

sector
6. Introduce a special status for nuclear energy for ensuring
easy availability of funds
7. Aggressively promote NPCIL to undertake larger projects
(strengthen the balance sheet if required), to drive growth
in the sector in line with NTPC (for thermal power).
Encourage JVs with other PSU and private sectors to
provide an impetus to the sector
2. Develop a strategic plan for investments across the

value chain: Business opportunities exist in fuel supply
(from international markets), equipment supply,
technology sourcing, EPC, financing
3. Aggressively explore strategic alliance and partnerships
with global players to strengthen capabilities and establish
a competitive advantage in the sector
4. NPCIL and new entrants should aggressively manage
costs and enhance operational efficiencies, to reduce
the cost differential vis--vis thermal power
Nuclear Energy Improving Future Prospects
47
48
RENEWABLE ENERGY
50
Renewable Energy:
Sustained Source for the Future
Significant interest & investments globally
and in India
Renewable energy33 (non combustible sources like solar, wind,
geo-thermal & biomass) currently accounts for a small
proportion of the world energy market (Fig 7.1). The sector has
however witnessed significant interest and investments
globally (Fig 7.2). Recent regulatory interventions like the
renewables bill in the USA and EUs 20/20/20 plan have put
further thrust in this area.
China, India and other Asian countries ramped up spending
in renewables even as investment faltered slightly in Europe
and the US due to the recent economic crisis.
Indian efforts for promoting renewable energy are in harmony
with the global move towards environmentally friendly fuels.
The government has clearly laid out specific objectives for
promotion of renewables and is looking at supporting the
same through multiple measures including:
Feed-in-tariffs for renewable power, with Renewable

Portfolio Standards varying from 1% to 10% for 5-20 years
(varying by state and source of renewable energy)
Renewable Energy Certificates (RECs) to provide the

generator or the buyer an option of cost compensation
through sale of such certificates.
As a result, over the last six years, renewable energy in India

has witnessed an annual growth of 25% in installed
capacity from 3.4 GW in 2002 to 11.5 GW in 2007 and
further to over 13.2 GW in 2008. In terms of targets, the
government has laid out a target of 26 GW by the end of 11th
Five-Year Plan.
The mix of renewable energy in the Indian context has also
been gradually changing. Small hydro power has been a
traditional renewable source, while wind power has in the
recent past experienced high growth driven by
Figure 7.1
World Total Primary Energy Supply by Source (2006, Million Tonnes of Oil Equivalent)
33 Other renewable sources include small hydro, wood, bio-fuels, waste
Renewable Energy: Sustained Source for the Future
51
Figure 7.2
Global Annual Renewable Investments

(Billion USD)
potential of 2.5 trillion MWp (5000 trillion kWh/yr) but the

current installed total PV power generation capacity in India is
barely ~100 MWp. About 98% of this is in off-grid applications,
a situation very different from what is observed worldwide.
High generation cost and the lack of sufficient
government incentives have been the most significant
deterrents in adoption of solar technology in the past.
The limitation on the amount of subsidy that can be given has
diffused interest on the demand side. However, policy level
initiatives are now underfoot to tap the solar potential in India.
At the national level, a comprehensive National Solar
Mission (NSM) has been developed, which outlines
demand as well as supply-side incentives, along with a
strong government investment program (Fig 7.5).
Figure 7.4
Investments in Renewable Energy, 2008

(USD Bn)
government support (Fig 7.3 and Fig 7.4). With focus and
incentives in solar and biomass, these sectors are
expected to witness an accelerated growth going forward.
Solar energy: A sunshine segment

Asia is increasingly becoming the hub of new solar PV
activity. Apart from the high demand growth, it is becoming
the go-to destination for manufacturing and development of
emerging technologies. By 2030, Asia is expected to account
for ~40% capacity share of solar energy.
India has traditionally lagged in exploiting its significant
solar potential. With ~300 days of sunshine, India has a solar
Figure 7.3
Renewable sources of energy (2007)

(MW)
Figure 7.5
Projected Installed Solar Capacity as

per National Solar Mission
(NSM) (MW)
52
Taiwan, India, Singapore and Malaysia. Indias costs are

already comparable to other low cost destinations in Asia
and lower than costs in Europe & USA, due to competitive
energy and labor costs & taxes. Indias position is further
expected to be boosted by continued strong government
support, through schemes such as Special Incentive
Package Scheme (SIPS) and NSMs Manufacturing
Promotion Strategy.
The draft for National Solar mission, which is expected to be

finalized later this year, proposes a number of incentives such
as Feed-in-Tariffs, tax holiday, timely & mandatory provision of
grid connectivity, obligation of states to buy 1-3% of total
power from solar while compensating SERCs up to 70% of
cost. These moves address some of the most significant
concerns that have been faced by private players.
Solar energy is also benefitting from sustained reduction in
costs, through technology improvements. It is expected that
if the targets set by NSM are achieved, solar energy will attain
grid parity by 2020-25.
Several opportunities emerging across the value chain, a
structured approach necessary to leverage the same
A number of opportunities are emerging for industry players
in the solar value chain:
Demand/generation side opportunities: With technology
improvements and incentives, large scale installations
including solar farms are emerging as new opportunities.
Multiple announcements have already been made by
players to install generation farms e.g. Acme Energy and
Zebsolar plan to set up large solar thermal energy power
plants. The Gujarat government recently approved 34
solar power projects at an investment of Rs.12,000 Cr to
add 716 MW to the state electricity grid. Solar energy can
also be a viable opportunity for distributed power
especially in rural areas.
Supply side opportunities: On the supply side, there is

a clear trend of shifting of global centers of manufacturing
locations from Germany, Japan and USA to China,
Figure 7.6
Sustained reductions in cost through

technology (USD/Wp)
Opportunities will also increase in the auxiliary equipment

space to support the above growth. It is however important
for the players to take a structured approach to leverage the
above opportunities:
With short-term oversupply expected in the global solar

PV market, scale and timing of entry are critical
Choice of the right technology and a low-cost model

will be important wrong selection can tie the players into
uncompetitive business scenario (Fig 7.6).
Acquiring presence across the value chain through

alliances/acquisitions could be a critical element in
cornering demand
Wind energy: Proven model for sustained growth

Globally, USA, China and India have emerged as the three
largest countries in terms of new capacity additions in wind
energy (Fig 7.7). However, cumulative wind energy capacity
is still highly concentrated in developed countries, with US,
Germany & Spain accounting for 55% of the installed
capacity.
India has ~9.7 GW of installed wind energy capacity,
which accounts for ~70% of the total renewable energy in the
country. Despite the significant investments, India has not
been a very big wind energy producer. The nature of
government support has been based on installed capacity
rather than generation, resulting in low utilization of installed
capacity. Inadequate evacuation infrastructure has also been
constraining harnessing of wind potential.
As Generation-Based Incentives (GBI) for grid connected
projects are put in place, the scenario is expected to favor
power generation players with a long-term focus and
willingness to upscale, rather than tax-break seekers.
Currently, the profile of wind asset owners primarily includes
large Indian corporates and high net worth individuals who avail
depreciation benefits. With more number of utility players such
as ONGC, GAIL, Tata Power and Reliance Energy including wind
in their overall power portfolio, the player profile in the sector is
now expected to align itself to the global trends (Fig 7.8).
53
Figure 7.7
Significant Capacity Addition in Wind Energy by USA, China and India

Capacity Addition in 2008 Ranking and Share of Countries
With over 45 GW of wind-energy potential in India, the market

has the potential to grow at 15-20% p.a. increasing capacity
by 10-15 GW over next 5 years. For players in the sector,
exploiting further demand in the country will be
dependent on a number of factors:
wind turbines (<600 kw)

Lobbying to improve grid infrastructure

unconnected high wind potential areas
in
Biomass: Opportunity for niche play

Ability to identify high potential sites through

improved wind resource assessment
Improvements in technology to increase availability and

generation
Availability of biomass in India is estimated at ~540 mtpa, of

which 25-30% can be made available for power generation.
This translates to an estimated potential ~16 GW power,
with a potential upside of 5 GW, using modern techniques
of co-generation.
Focus on new growth avenues Offshore wind turbines,

larger capacity wind turbines (>3MW), smaller capacity
Government has been offering fiscal incentives and

capital subsidy for generation projects based on biomass.
Figure 7.8
Most large players in the wind energy sector have an integrated presence across
the value chain
54
Figure 7.9
7.5 MW Biomass power project

in Chhattisgarh
Sustaining growth of the renewables sector

imperatives for the government
Renewable energy has significant growth potential in India. It
also enhances the sustainability of the power industry
through green energy. It is however imperative for the
government to keep supporting the sector through several
interventions:
1. Ensure effective implementation of the National Solar
Mission, including clear policy on Feed-In Tariffs
Source: MNRE website
Several SERCs have also announced preferential tariff and

Renewable Purchase Obligation (RPO) for biomass power
and bagasse cogeneration.
However, there are multiple deterrents preventing expansion
of biomass power ranging from inadequate information on
biomass availability, to unorganized biomass market,
technical limitations to transportation and storage issues
for biomass. MNRE has recently taken up Biomass
power/cogeneration program, a UNDP/GEF assisted Project
on Removal of Barriers to Biomass Power Generation in
India, to accelerate the adoption of biomass technologies, and
lay foundation for large scale commercialization of biomass
power through increased access to financing. MNRE plans to
establish Model Investment Projects (MIPs) across
technologies to demonstrate the viability of new investment
and financing models (Fig 7.9).
2. Incentivise renewables to match expensive peak load

requirements/ unmet demand, so that it complements
the significant investments in base load that are already
being undertaken through conventional energy
3. Define high intensity renewable zones and establish
all enablers therein. Work long with state governments
to define priority zones for renewables. Ensure land
availability and establish grid connectivity from the same.
4. Encourage financial institutions (both government &
private) to lend to this sector as a priority industry.
5. Encourage distributed generation for rural areas (to
benefit solar & bio-mass applications) through special
incentives and fast track clearance
6. Promote adoption of renewable energy by mandating
use of rooftop PV on official & PSU buildings, and
applications to replace Diesel/ Kerosene where solar
power is cost competitive
55
56

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Sustaining Growth

Confederation of Indian Industry

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Message from Chairman of CII's National Committee on Power

About the Report

Part A: Indian Power Sector: The Road Ahead

Theme 1: Changing Outlook for the Sector

Theme 2: Winning in the Future Power Markets

Part B: Sector Outlook

Thermal Power: Coal Based

Thermal Power: Gas Based

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Message from Chairman of

Message from Chairman of CIIs National Committee on Power

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

About the Report

How is the opportunity landscape changing in the Indian Power market?

About the Report

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Future power markets will present new set of

Equipment manufacturers can leverage derived demand

Several critical imperatives exist for the industry

management and execution capabilities. A comprehensive

government. The government should also promote Public

Securing fuel supplies will be another critical success factor.

2. Enhance downstream efficiencies (transmission &

The generators also need to realign their market &

The government also needs to play a significant

3. Aggressively promote clean source of energy

encouraged for emerging technologies in the generation

developed by the government. There is also a need to

INDIAN POWER SECTOR:

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Changing Outlook for

There are four attributes that characterize the above

Industry Maturity1 Curve

1 Source Ministry of Power

capita consumption from ~ 410 kwh in 2002 to ~600 Kwh

last 8-9 years. Inadequacy in transmission capacity to

Future Outlook: New opportunities within an

Historical Supply and Demand Trend (BU)

3. Increased rate of capacity additions: The generation

At the foremost, significant capacity is expected to come online

2 Source: EIA and United Nations

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

Emerging Sector Trends

there is a potential upside from the latent demand which

First: A new era of Power on Power competition

Large scale capacity additions and efficiency improvements

Expected Demand Scenario, 2009 2017

Capacity Addition scenario

Additionally, the generation and transmission efficiencies is

Projected electricity supply deficit

Category-wise capacity addition,

The above scenario will usher in a new era of power on

Emergence of two distinct player groups

6 Source: A.T. Kearney analysis

Sustaining Growth: Future of Indian Power Sector - A CII-A.T. Kearney Report

captive blocks. By bringing in market forces, we would

(the incumbent), Reliance Power, Sterlite Energy, Jindals, Tata

Reforms impacting sales to bulk customers

Reforms on merchant power trading

Incentives and reforms for clean energy (nuclear