Central institutions like NTPC and the State Electricity Boards (SEBs) continue to

dominate the power sector in India. India has adopted a blend of thermal, hydel and
nuclear sources with a view to increasing the availability of electricity. Thermal
plants at account for about 60% of the total power generation capacity in India,
followed by hydro-electricity (15% share). The rest comes from nuclear and other
renewable energy sources (RES).

Average transmission and distribution losses (T&D) exceed 25% of total power
generation compared. India's T&D losses are almost 2.5 times the world average.
The T&D losses are due to variety of reasons viz., substantial energy sold at low
voltage, sparsely distributed loads over large rural areas, inadequate investment in
distribution system, improper billing and high pilferage.

Lack of coal supply was a major hurdle in the power sector till some time back.
Majority of power generation takes place through thermal power plants which uses
coal as its raw material. However, with e-coal auctions coming in the picture, this
problem seems to have been resolved considerably. Major players in the generation
space were sitting on sufficient inventories of coal as at the end of the previous
fiscal year. Further, big bang efforts are underway to shift to renewable source of
energy in order to reduce the carbon emission. The government has laid down an
ambitious plan to generate 100 GW of solar power capacity by 2022 from the
3.3GW at present. This will be a mammoth task to achieve given that land
acquisition remains cumbersome.

Presently, major concern for the power generators is the off-take of electricity.
Power generators sell power to SEBs or DISCOMs. SEBs are facing financial crisis
and are minting losses to the extent of Rs 700 billion annually. The SEBs do not
have enough resources to purchase power from the generators. Hence a situation
has risen wherein there is excess of power but no takers for the same.

The government recently introduced 'Ujwal Discom Assurance Yojana' (UDAY)

scheme to rescue SEBs. Beneath the scheme, 75% of the loans on the SEBs books
will be transferred in the books of their respective state governments. Transferring
such huge quantum of loans will provide some relief to the SEBs in terms of finance
costs. However, SEBs situation will improve substantially only if there are regular
tariff hikes. Most political parties intend to gain vote bank from farmers by offering
them free of cost power. The fear of losing vote bank makes the state government

reluctant to increase the power tariffs. This perception needs to be changed in order
to revive the sector.

Key Points
Supply
The addition to total installed capacity during FY15 was 26 gigawatt (GW), a growth
of 10.8% over the previous years installed capacity. The capacity addition during the
first three years of 12th plan stood at 61 GW which has not only exceeded the
capacity addition of the entire 11th plan, but also constitutes 68.9% of the total
12th plan target of 89 GW. Hence, sufficient capacity is being built to meet the
demand requirements.

Demand
The long-term average demand growth rate is expected to remain in the higher
single digit growth levels given the much lower per capita power consumption in
India as compared to the global average.

Barriers to entry
Barriers to entry are high, especially in the transmission and distribution segments,
which are largely state monopolies. Also, entering the power generation business
requires heavy investment initially. The other barriers are fuel linkages, payment
guarantees from state governments that buy power and retail distribution license.

Bargaining power of suppliers

Not very high since the tariff structure is mainly regulated.

Bargaining power of customers

Bargaining power of customers is low, as power is in short supply. However, the
government is a big buyer and payments from it can be erratic, as has been seen in
the past.

Competition
Getting intense, but despite there being enough room for many players, shortage of
inputs such as and natural gas and regulatory hurdles has dissuaded new entrants.