Power Summit - The Energy Handbook 2011

Power Summit - The Energy Handbook 2011

Country Profile India

20

21

Power Summit - The Energy Handbook 2011

Country Profile: India

India in Focus
The Indian power sector presents one of the largest business opportunities in the world at present. India, the worlds second most populous state, combines rapidly growing demand with a crippling 12 percent power deficit.

Since the reforms of 2003 Indian privatesector investors have become extremely active in generation, but the major foreign players are notable by their absence. When the sector was initially opened to investment there was an abundance of investors. But the experience was not pleasant for some of them, which explains the current reticence on the part of international investors to re-enter the market, says the manager of the power sectors largest debt portfolio, B.K. Batra, Executive Director & Group Head of Corporate Banking at IDBI Bank. Batra argues: This is the time for major players to reconsider India and perceive it as an attractive area for investment. ROI is at an impressive level of 15.5 percent, which strengthens the business case for investing in the power sector. For the power equipment manufacturer or service provider, India presents the perfect combination of demand and supply. The Indian power manufacturing sector is still dominated by large state-controlled companies, both producers and clients, and is not perfectly liberal. The market is open to new entrants, however, and international companies are rushing to secure joint ventures with local partners as they enter the country.

however, there is clearly space for growth. The Government has set out plans for capacity to more than double by 2017. Generation has traditionally been the exclusive domain of central and state-owned companies, in some regions integrated with transmission and distribution operations to form utilities. Today the largest generation company remains the central-Governmentcontrolled National Thermal Power Corporation (NTPC), with 30,600 MW of capacity generating some 27 percent of the nations power output in 2009. Fellow public sector undertakings National Hydro Power Corporation (NHPC) and Nuclear Power Corporation of India Ltd (NPCIL) run 5,300 MW and 4,500 MW of capacity and generate 2.2 percent and 2.4 percent of the nations output respectively. The private sector controls only 13.5 percent of Indian generation capacity, stateowned generators own 52 percent, and central Government is responsible for the remaining 34 percent. Government policy since the Electricity Act of 2003 has been that private capital should fund the majority of capacity addition. The market has been opened to private investment in three ways. First, the Government has floated the public-sector undertakings, raising capital through a series of initial public offerings that have seen up to 33 percent of equity sold to investors. Although the public-sector undertakings remain very much in the control of the Government and there are limits on who may own shares, the fresh capital has allowed the under-funded generators to invest in new projects and they are increasingly acting as joint venture partners. The Act also permitted any company or group of companies to develop captive power plants. This ruling has had a substantial effect on the wider sector. Industrial users are charged higher rates for power and are far more likely to pay their bills than their fellow consumers in the retail market. Allowing industrial consumers to generate their own power has forced distribution companies to strengthen collection efforts and freed industrial consumers from paying crosssubsidies.

Article by: Oliver Cushing and Jolanta Ksiezniak Section Cover (previous page): CLPs Wind Power Project, Photo courtesy of CLP Power India Private Limited Above: A crowd gathers in front of the Mysore Palace, lit up for the Dasara festival

he power sector needs to expand rapidly if the country is to continue on its path of economic development. Indias current installed capacity is about 150 GW and this needs to go up to nearly 800 GW in the next fifteen years, says Baba Kalyani, owner of Bharat Forge and one of Indias most celebrated industrialists. The power market is the biggest opportunity in the Indian manufacturing sector today. According to some estimates there are as many as 400m people without access to electricity in India, the Government having failed to meet the 2005 RGGVY plans target of connecting all villages to the grid by 2010. Dr. J.M. Phatak, Chairman and Managing Director of the Rural Electrification Corporation and the man tasked by the Government with funding rural electrification, notes:

22

Income per capita is growing at a faster rate in rural areas that in urban areas Therefore it is expected that demand for electricity will grow at a faster rate in the countryside. Development of Indias power sector will require not just investment in new generation capacity and upgrades to the existing transmission and distribution (T&D) infrastructure, but also a new greenfield T&D infrastructure capable of supplying a population larger than that of the USA. India has changed dramatically in the space of a decade. This was the power market where Enron first started to unravel publicly, and issues surrounding Enrons Dabhol plant have deterred international investors from the generation sector for many years. After the plant finally shut in 2001 the country embarked on a second phase of power market liberalisation culminating in the Electricity Act 2003.

Power is a concurrent subject in India, meaning that it falls under the jurisdiction of both the central and state Governments. This division of authority has led to a wide variation in investor activity across the country, with the more liberalised and creditworthy states enjoying the most development. The prime central Government law regulating the power sector is the Electricity Act 2003, which revised earlier attempts at liberalisation and has resulted in a solid and stable legal framework for private-sector involvement in the Indian power market.

Generation
India has a total installed capacity of 162 GW and generated some 803 TWh in 2007. India is now the worlds fifth-largest producer of electricity, representing 4.1 percent of total world output in 2007 according to the International Energy Agency. Given that Indians represent over 17.3 percent of the worlds population,

23

Power Summit - The Energy Handbook 2011

Country Profile: India

Many of todays independent power producers (IPPs) started out as captive power divisions of their parent companies: Indias ever-dominant industrial conglomerates. As Dr. R.P. Singh, Executive Vice-Chairman of Jindal Power, explains: We first entered the power sector when we constructed a captive plant for a steel mill. Once we had successfully executed the first project for Jindal Steel & Power Ltd. we decided that we should become a major power player in our own right. By 2009 we had commissioned Indias first private-sector mega power plant. The 2003 Act reworked legislation designed to create IPPs. Indias industrial conglomerates have seized the opportunity to enter the sector and power generation has become a core business line for many of the nations largest companies. NTPC may still be the largest power generation company in India but the likes of Tata and Reliance ADA are fast catching up. Reliance was not even in the power business a decade ago, but as Ashwani Kumar, Head of Business Development at Reliance Power, explains: We are currently in the process of substantially expanding our generation portfolio from about 1 GW to approximately 35 GW We are diversified geographically, in terms of fuel type and in terms of our customers. Reliance Power aims to be the leading power generation company in India. The Tata Group built and operated Indias first large-scale hydro plant in 1915 and has been in the industry ever since. While central and state Governments came to dominate the sector after independence, Tata maintained its foothold in the power game and today it is Indias largest privatesector generator, with 3 GW of installed capacity. Tata Power is almost 100 years old, explains Banmali Agrawala, Tata Powers Executive Director of Strategy and Business Development. We started off by building hydro projects, with a vision of providing cheap, clean

and reliable power to the city of Mumbai. Since deregulation in 2003 Tata Power has become the only private-sector company to be present in the generation, transmission and distribution sectors. Tata Power is also set on exponential growth: the firm currently has 6 GW of capacity slated for completion by 2015 and Agrawala says it is aiming for 25 GW by 2017.

Energy Ltd. The location of mines makes them difficult to develop. Despite the rail linkages provided by the Government, the efficiency of coal supply is poor. Nevertheless, we are fully committed to ply the domestic linkages for our plants. But to safeguard the sustainability of our plants we decided to install them next to ports, facilitating the use of imported coal. Indias continuing reliance on coal has attracted international concern on environmental grounds; not only is consumption high and growing fast, but Indias coal is of a low grade, with high sulphur and ash content. Those within the industry note however that India badly needs coal-fired capacity if the country is to continue to reduce poverty. Today the USA generates thrice as much electricity from coal as India does, notes Reliance Powers Kumar. Natural gas or renewable sources of power alone cannot

Coal and Gas Power

Currently 53 percent of Indias generation capacity is coal-fired, and this dominance is set to continue in the medium term; India, poor in oil and gas, is coal-rich. Gas, both from new fields and imported, will play an increasingly important role in power generation in the coming years. India, already host to the worlds fifthlargest fleet of wind turbines, has placed major emphasis on renewable energy as part of its 12th five-year development plan (due to commence in 2012). Nuclear power forms the fourth pillar of Indias generation matrix, but new reactors are likely to only play a small role in the next decade. India is the third-largest producer of coal in the world and the third-largest importer. With 85 GW of capacity to feed, and considerable new development under way, king coal looks set to dominate the sector for the medium term. One of the Governments key strategies to encourage investment in the power sector has been the creation of special-purpose vehicles to fast-track 14 ultra mega power plants (UMPPs) each of 4 GW plus, to create 60+ GW of new privatelyowned coal-fired capacity by 2017 with low risks for investors. The Ministry of Power acquires the land and (where applicable) coal rights, and undertakes all the clearances and permitting needed to develop a project. Companies then bid for the tender on an operating cost basis. So far four UMPPs have been awarded. Despite Indias vast reserves of coal, most new plants under development are on the coast due to weaknesses in the transport infrastructure. The supply of coal in India is becoming a challenge, even for some of the existing plants, says L.K. Gupta, Joint Managing Director and CEO of JSW

provide the 150 GW of capacity that the country is looking for in the next seven to ten years. Once we decided on having coal-based power in our portfolio, we observed that the best way to do it was to control the entire value chain to mitigate the risks. With Indian emissions of greenhouse gases per capita a fraction of those in the west (Indias CO2 emissions per capita are less than a third of the global average) there is an international consensus that the countrys emissions will inevitably have to rise. Those within the industry are keen to see coal developed in a responsible manner, and tend to view coal as one part of a wider portfolio development strategy which will include sources which emit less CO2. We recognise the threat of climate change there is no doubt that managing carbon is a business risk, says Rajiv Mishra, Managing Director of CLP.

Rajiv Mishra Managing Director of CLP

24

We recognise the threat of climate change there is no doubt that managing carbon is a business risk.

25

Power Summit - The Energy Handbook 2011

Country Profile: India

However, we did not want to marginalise ourselves as a pure renewables player; we want to be part of the mainstream solution. There is a requirement for conventional energy within our region. In India flue-gas desulphurisers are not required and we are the only company to have made a bid on the basis that we will implement an FGD. We recognise that renewables must also be an integral part of the solution, and we are now the largest developer of wind farms in India. Indias lack of domestic gas reserves, and its inability to build a pipeline from Central Asia or Iran through neighbouring Pakistan, has prevented the development of significant gas-fired generation capacity. Joint Secretary at the Ministry of Petroleum and Natural Gas Sunil Jain explains: Worldwide, gas represents some 30 percent of the energy basket; in India it is only 9 percent. India has a huge appetite for natural gas, and demand is only constrained by supply and the supply network itself.

Gas from the Krishna Godavari basin is set to increase Indias production dramatically, and exploration work is underway across the country. A long-running court case involving Krishna Godavari gas supplied by Reliance Industries to Reliance ADA has recently been resolved and the pricing mechanism and allocation system has been clarified as a result. The Government is keen to encourage further exploration, and Jain notes: India has a very friendly regime when it comes to oil and gas, I think one of the best in the world. Last year, during the global economic crisis, our latest round of block licensing was fully subscribed. Gas-fired capacity is set to grow substantially in the coming years (Reliance Power alone intends to build 8 GW of capacity) though the combination of ever-increasing load and competition from alternative uses for gas will ensure that it does not become a dominant source of power in the medium term.

Renewables
Renewable energy is a hot topic in India, as in many other countries. Indias objectives are threefold when it comes to renewables: build a large-scale industry which will generate jobs and export revenue, demonstrate a commitment to reducing emissions relative to economic development, and go some way to achieving energy independence. Renewable sources of power have the potential to play a significant role in the electrification of rural India. As a means of addressing Indias energy deficit crisis, renewable sources have a dual role to play: aside from the obvious capacity addition they are also an ideal source of distributed energy. As Rabindra K. Satpathy, the man in charge of solar at Indias largest corporation, Reliance Industries, observes: We believe that distributed power will play a crucial role in the development of India, instantly cutting the 37 percent transmission and distribution losses. With an installed capacity of over 12 GW as of mid-2010, and a substantial home-grown turbine manufacturing industry, India has already achieved a strong position in the wind sector. Under the 11th Five Year Plan (due to conclude in 2012) the Government envisaged 10,500 MW of new capacity, of which more than 5 GW had been installed by mid-2010. The Ministry of New and Renewable Energy appears confident that the remaining capacity will be added by the end of the plan. Across the world most government targets for wind energy have been missed, yet India (which met the target for its 10th Five Year Plan in 2006) seems to have implemented a strategy that works. Co-founder and Director of wind farm developer Veer Energy and Infrastructure Ltd Dhimant J. Shah says: The Government has made it a regulation that every energy service provider has to provide up to 7 percent of their energy sourcing from renewable energy. We are happy with the way that we have progressed. The model works here in India but it may take some time for manufacturers, developers and investors to get used to it.

In hydro power India has phenomenal potential. The Government distinguishes between large- and small-scale hydro, with only schemes of up to 25 MW qualifying for full-scale renewables support. Sameer S. Shetty, Managing Director of Indias largest producer of small hydro turbines, BFL (a Fouress Group company), says: The market has huge potential, but the the disconnect between potential and realisation is quite big. There is 22 GW of viable identified capacity for small hydro but India is building 600700 MW annually at best. Power is a state subject and even though the Central Government and the Central Ministry determine a framework, they have no means to ensure that the state fulfils its requirements. Nevertheless, a substantial number of small hydro schemes are under development and among the great variation between states, some have a supportive and pragmatic attitude to small hydro. The private sector, with a handful of exceptions, has proven reticent to take up the challenging of developing Indias numerous large-scale hydro opportunities. Nimish Patel, Director of Indias largest dam and hydro tunnelling company, Patel Engineering, says: Thermal plants have predictable time lines and you can commission a plant in three to four years. Hydro however requires long investigation periods and the schemes can take a very long time to get approved. Research reports are not always up to standard and thus the private sector has been very wary of these risks. Things are beginning to change and some extremely successful hydro schemes have been developed by private-sector investors. Bhilwara Energy developed its first hydro scheme in 1995, and unlike early privatesector thermal plants it has proven to be a commercial success. Riju Jhunjhunwala of Bhilwara Energy explains: We recently commissioned a new 200 MW plant in India and are looking into developing a much larger plant in Nepal. The land is already acquired, infrastructure is being developed, and the tender documents are being prepared. All the electricity generated there will be sold to India. By 2015 the company intends to have 3 GW of installed capacity under operation.

Interview with Jayant Deo Managing Director and CEO, Indian Energy Exchange
Q Please could we start with a brief overview of IEX and how it came to be established? A In 2006 the CERC realised that it was important for India to have a live trading platform for power and initiated a programme to establish one. In 2007 a consortium lead by Financial Technologies and key private players in the energy sector got approval to start developing an Indian power exchange and agreed a deal with the Scandinavian power exchange, Nordpool.On 22nd June 2008 we went live with the Indian Power Exchange. We sell power here on an hourly basis. The bidding is done blindly so as to ensure a fair playing field, it is a futures market, but a short term futures market. In a very short period of 24 months we have come to have more than 400 traders on the Exchange. This is an impressive uptake by any measure, but given the economic problems of 2008/9 it is superb. 26 Q The IEX is the only power exchange operating in a market in which there is a deficit, how does this affect the dynamic of the Exchange? A India is a vast and varied country, daily peak demand in the east will not fall at the same time as in the south, and peak supply during the rainy season in the north (where many hydro facilities are located) does not match peak demand there. While net demand is higher than net supply in India, we have found that the market did not ensure that all power being generated was consumed, the IEX helps address this issue. Q How easy is it for you to sell the concept of merchant trading to a generator? A A companys decision to go merchant or not will of course be informed by their appetitive for risk and their debt profile. For most generators, entering a fixed term contract for 50 or 60% of their output makes a project viable as it satisfies lenders that there is a secure income stream to pay debt, they may chose to sell the remainder on the IEX as it gives them exposure to the upside that the Indian energy growth curve presents.

27

Power Summit - The Energy Handbook 2011

Country Profile: India

A small dam to be constructed at the valley of Mahabaleshwar Hill Station in India for local consumption, one of the several around the country

With such a vast potential and a commitment to managing its emissions of greenhouse gases, India needs to encourage substantial private-sector investment in large-scale hydro schemes. One solution might be to reconsider the rules distinguishing large-scale hydro schemes from their smaller siblings, as Patel argues: We need to consider all hydropower as renewable, which will allow developers to sell their output for more profit, therefore making the sector more attractive and increasing investment. India was an early pioneer in the use of biomass as an energy resource, with efforts initially focused on farm waste gasification. Attention is now being given by both the Government and the private sector to generating electricity from biomass. With the worlds largest rural population and multiple large metropolises that have yet to come to grips with the disposal of urban waste, there exists a window of opportunity to integrate energy generation into the waste management system. One early mover in biomass is power transmission engineering and waste management group A2Z. This company aims to become an engineering expert in the field as well as an independent power producer in its own right. We are now setting up three new biomass

power plants, each of 15 MW capacity, integrated with the sugar industry, says Rakesh Aggarwal, Chairman and Managing Director of A2Z Powercom. Our strategy with setting up these plants is to be able to integrate with any industry that has agri-waste or municipal waste. A very important factor for the smaller renewable energy plants is that they are exempt from environmental clearance. Construction time is less than a year, which is a much better proposition compared to other kinds of power plants. Much of India is blessed with high and consistent levels of solar radiation. The central Government and a number of states, which are competing to become Indias solar manufacturing hub, have introduced attractive subsidies to foster development of solar power. Central, state and city governments are providing householders and businesspeople with support to install photovoltaic (PV) panels and thermal water heaters at the distributed level. One pioneer in this field is Delhi. Delhi has had the reputation of being power cut city, explains Rakesh Mehta, Chief Secretary at the Government of the National Capital Territory of Delhi. Mega-cities like Delhi, which depend almost exclusively on power to meet their economic needs, will have to find new and innovative solutions to meet their requirements. As part of a wider

campaign to reduce pollution and improve the electricity supply Delhi has adopted a large-scale programme to promote solar water heaters, giving subsidies of up to 6,000 rupees ($130) for 100-litre systems in the domestic sector and up to 60,000 rupees ($1,300) for commercial buildings. The Jawaharlal Nehru National Solar Mission is a nationwide scheme to promote PV usage. Dr. Farooq Abdullah, Union Minister for New and Renewable Energy, says that the Mission has twin objectives: To contribute to Indias long-term energy security as well as its ecological security. The rapid development and deployment of renewable energy is imperative in this context, and in view of high solar radiation over the country, solar energy provides a long-term sustainable solution. The Solar Mission recommends implementation in three stages, leading up to an installed capacity of 20 GW by the end of the 13th Plan in 2022. What we do in the next three to four years will be critical. Therefore, the Cabinet has approved the setting up of 1,100 MW of grid solar power and 200 MW of off-grid solar applications utilising both solar thermal and PV technologies in the first phase of the Mission. In addition, the Mission will also focus on R&D and human resources to develop and strengthen Indian skills and enhance indigenous content to make the Mission sustainable. The private sector has reacted favourably to the Mission, though Reliance Industry Groups Rabindra K. Satpathy notes: We still have to confront a lot of assumptions regarding reliability and expense. Currently solar costs 12.5 rupees per unit, against about 3 rupees for coal and gas. But if you add other costs, such as transmission loss, that is pushing the price up to 4 or 5 rupees. Reliance Solar wants to bring the cost of PV cells down to $2/MW of capacity, Satpathy says. We want to speed up the pace of installation as this will give PV a major advantage over other generation types. Solar projects are not controversial and can be built quickly. Also, they are not subject to trade embargoes: no one can stop the sun! We have seen that people want a high quality of power, which PV can provide. We

want to make solar power affordable to the masses. India has refused to signed the Nuclear Non-Proliferation Treaty and for three decades it was blocked from trading with the Nuclear Suppliers Group. In 2008 an American-brokered deal saw India re-enter the world of international civilian nuclear trade and the country has set out a route map to increase its nuclear fleet more than thirteen-fold, to 63 GW, by 2032.

Transmission, Distribution and Trading

Indias transmission and distribution (T&D) sector has been the silent sister of generation since 2003, but over the coming decade this is set to change dramatically. As the private sector has rushed to spend billions of dollars on new generation capacity, only a handful of distribution concessions in Delhi and Mumbai have been privatised. Instead, new transmission lines have invariably been built by the Government-controlled PowerGrid Corp., sometimes in joint ventures with private-sector partners. Amul Gabrani, Chairman and Managing Director of transmission engineering company Hythro Power, explains the situation in T&D: The public-private partnerships in the power sector started in the generation side. Originally, transmission lines were being delivered by a single body, PowerGrid Corp. Now the market is starting to liberalise and there are more public-private partnerships (PPPs) in the transmission sector. Since there is a time lag between transmission and generation, you will find increased interest in transmission in the next two years. Gabrani is confident that the private sector can help cut Indias terrible T&D losses, which account for 37 percent of all power generated. One of the impediments in India has been the losses because of the quality of equipment, he says, but this will change and the private sector will look at more efficient systems. Technical losses will go down and a lot of groups are concentrating on this. Once technical losses go down, the profitability of the power sector will increase; this will happen only with the support of the private sector.

28

29

Power Summit - The Energy Handbook 2011

In Focus: Delhi Transco Limited

Green Power for Green Delhi

Be it plantation, no-industry zones or 100% Commercial Vehicles on CNG, Delhis obsession with Green is quite evident. No wonder, Delhi has also engineered one of the greenest power generation and transmission systems. Clean and green production processes of Pragati Power Corporation Ltd. (PPCL) and minimum loss transmission systems of Delhi Transco Ltd. are at the heart of Delhis Green Power Vision.
Power Foundation:
Pragati Power Corporation Ltd. (PPCL) was started with a mission to play a pivotal role in the development of NCT and uplifting of the living standards of the citizens. The company is committed to provide clean & green energy with special emphasis on sustainable development by adopting energy efficient technology for power generation. The existing and forth-coming projects are the mirrors of self imposed corporate standards for clean & energy efficient technology products & services. Delhi Transco Ltd was formed in 2002 following the unbundling of the erstwhile Delhi Vidyut Board under the Delhi Electricity Reforms Act 2000. DTL has been responsible for establishing, upgrading, operating and maintaining the EHV (Extra High Voltage) network in and around Delhi.

DTL is also in the process of laying 220 KV cables by employing cable link techniques and would be the largest network of its kind going to be established in India. Out of all the projects initiated by DTL, the work of two 220 KV GIS sub-stations has been completed and will be synchronized by the end of September 2010 after testing. The work for 2 sub-stations of 400 KV and 5 sub-stations of 220 KV is in full swing.

New Projects of Pragati Power Corporation Limited (PPCL) Name of Project Pragati Phase 3,Bawana, Delhi (Gas based) Pragati Phase 2, Bamnauli, Delhi (Gas Based) Source: Delhi Transco Limited registered in the preceding year. The company also paid a dividend of Rs. 90.8 million to the Government for 2008-09. It has been accredited rating A+ Company by top two rating agencies of the country i.e. CRISIL and Fitch Rating India Ltd. This is the highest amongst all state utilities in the country. Energy Audit: BEE accredited energy auditors M/s Petroleum Conservation Research Association (PCRA) has conducted energy audit of the IPGCL Plans. All efforts have been made to run various systems as per the designed parameters to conserve energy. 1.Overhauling of the unit was carried out as per the manufactures direction to run the machine optimally. 2.2. 220 KV CVTs were installed in each phase of all the three generators to improve the accuracy of metering system for the sale of energy. 3.The Auxiliary consumption of the Pragati Power Station- 1 in the year 2009-10 was 2.85% and achieved the Aux. consumption target 3%. Generation Capacity 1500 MW (1st unit commissioned in Oct 2010) 750 MW (Proposed)

Powered by IT:
Following the e-Governance initiatives of GNCTD and to enhance its efficiency and productivity, DTL has initiated several IT based projects. For constant access to realtime data of the entire network, the utility has implemented Supervisory Control and Data Acquisition (SCADA) systems. DTL has also carried out system studies, adopting state-of-the-art-software. Enterprise Resource Planning Software, is being implemented which will offer an integrated software solution to all the functions of the organization. With ERP software DTL will standardize business processes and facilitate best practices by creating more efficient systems and concentrating its efforts towards maximizing profits.

Delhi Transco Limited:

A noteworthy achievement of DTL has been the companys transmission loss reduction. Transmission loss level has been reduced from 3.84 per cent in 2002-03 to 1.38 per cent in 2009-10, which is the lowest transmission loss level in the country. For improvement of operational efficiency, regular monitoring and maintenance of equipment is carried out through patrolling of transmission lines and hotline washing of insulator strings. Further the work of replacing the existing 400 KV insulators with polymer insulators is being carried out. To ensure adequate and efficient power supply for the citizens of Delhi, DTL has been continuously upgrading its transmission capacity and adding transmission line to its system. The modern technologies are being implemented in DTL by way of constructing GIS substations at Ridge Valley, Indira Gandhi International Airport (DIAL) as well as other places.

Sheila Dikshit Chief Minister, Delhi

Power Finance:
DTL has achieved a commendable financial turnaround after a three-year financial engineering process. It has posted profits in each of the past 4 years. In 2008-09 DTL profits, after tax stood at Rs. 634.9 million, an impressive 22.84% increase over the Rs. 516.9 million

30

31

Power Summit - The Energy Handbook 2011

Country Profile: India

Interview with Mr. Rakesh Mehta, Chief Secretary, Government of N.C.T. Of Delhi, CMD of Delhi Transco and Chairman of Pragati Power Corporation
Q Please could you start by giving us a personal professional background and an overview of the power sector in Delhi? A I belong to the civil services and have had a long relationship with the power sector, having been the power commissioner in Goa and having managed the electricity sector in the local body. Later on I became the CMD of Delhi Transco and Chairman of Genco. In 2001 the power sector in Delhi was restructured and the Delhi Electricity Board was broken up into seven companies: three distributions, two generation, one holding transmission and a holding company. Q You were a panelist at the Copenhagen World Summit on Climate Changes forum of the worlds largest cities, what efforts is Delhi making to limit its impact on the environment? A To promote energy conservation and to conduct energy audits of all majors buildings in the city. The Energy Efficiency and Renewable Energy Management Centre was established. We have started investing in renewable energy sources, it has been made mandatory for large buildings to implement energy efficiency measures, distribution companies have been successful in promoting CFL lamps, on solar water heaters subsidy is given from 6,000 rupees ($130) to 60,000 rupees ($1,300). We are also developing waste- to- gas plants and have one operating in the canteen in my building, which serves 5,000 people and have two plants under development, One scheme will come into operation in 2011 and will consume 1,500mt/ day providing 16mw of capacity. We have created an air ambience fund which is essentially a very small tax on diesel. This creates about 700m rupees ($15m) which we use to subsidies by one third the price of electric vehicles. 32 Q The population of Delhi is projected to grow substantially in the next decade, how is the N.C.P. Government going to ensure that the capitals energy needs are met? A Two years ago we adopted a policy of load growth generation keeping in mind that Delhi, a city of 17 million people, is projected to grow to 24 million. We decided that 40- 50% of Delhis supply should be generated within 40km of the city. The power generation companies of N.C.T Delhi have set up a 1,500mw plant 40km near Delhi border in a joint venture with the Government of Haryana and NTPC. The plant can be upgraded by a further 1,000mw. Delhi will receive 50% of the power. In Delhi we are establishing a 1,500mw gas plant and a 750mw gas plant, we are closing all three of our coal fired Delhi plants which will have a huge impact on the air quality of the capital. Q Delhi Transco has really lead the way in India in terms of cutting transmission losses, how has the company achieved this? A Transco has substantially cut transmission losses, prior to privatisation they were 6% and now they are below 1%. Delhi Transco has completed 400kv ring around Delhi having a capacity of 4000MW Load. The new master plan 2021 has recently been approved and it is projected that 700 sqkm of territory on the outskirts of Delhi will be urbanised over the next fifteen years. We are conducting a major review to establish which areas are likely to be developed in the next few years to identify where to set up new substation infrastructure. Delhi has had the reputation of being power cut city, my vision is to make Delhi an inverter free city. Q What would your message be to our international readership about the Indian power sector and investing here? A The Indian economy is growing at about 9% a year. Mega cities like Delhi, which depend almost exclusively on power to meet their economic needs, will have to find new and innovative solutions to meet their requirements. There is a great opportunity for people across the world to become partners with us.

The Indian transmission network was originally split into several regions. In recent years PowerGrid Corp. has made significant headway in interconnecting the regions but there is still much work to be done. India is a vast and varied country. Daily peak demand in the east will not fall at the same time as in the south, and peak supply during the rainy season in the north, where many hydro facilities are located, does not match peak demand there, says Jayant Deo, MD and CEO of IEX, Indias new and fast-developing power exchange. As the energy market was structured on a regional basis, supply has traditionally been built to meet local demands and thus there was often a mismatch between demand and supply. India is developing a network of ultrahigh-voltage transmission lines to improve regional interconnection and to transmit power efficiently from the countrys new mega and ultra-mega generation plants. Indian transmission engineering firms are rushing to meet demand in the sector. One challenge, common throughout many sectors of Indian industry, is security of supply for parts and equipment. With this in mind, many of the larger transmission engineering firms have invested in their own fabrication plants. Technical T&D losses have been kept high by lack of investment and a system that has held back the adoption of new technologies. As the private sector becomes more involved in T&D the hope is that losses will fall further. Power transmission is a big area for improvement, as the distribution losses are very high well above 30 percent in India compared to 1115 percent globally. We are developing high-tech solutions in order to cut the energy losses, says Rajesh Agarwal, Managing Director of BS TransComm. Looking to the future, PPPs will increasingly be the chosen method of development. The Government has already budgeted $14bn via partnerships with private companies, through the Build-Operate-Transfer model. The private players are just starting to enter the sector. Within the next five to seven years there will be a shift in this sphere.

Manufacturing
Like many of Asias other success stories, Indias manufacturing industry is dominated by three classes of company. Large state-controlled enterprises, the hangover of a three-decade dalliance with socialism, have continued to prosper in Indias increasingly free market. The private sector is characterised by conglomerates set on integration and diversification, while young and aggressive firms are chasing niche positions. India is a great incubator of entrepreneurship Bharat Forges Baba Kalyani notes: Indias growth is largely dependent on the entrepreneurial skills of our people and there is space in the power market for smaller players. However, this expanding market is likely to be dominated by a handful of major Indian and foreign corporations (often working in partnership) with the smaller companies operating at the lower end of the value chain. As Kalyani observes: Energy, like any other big market, is regulated. The Government gets involved somewhere. Therefore, knowing the system, knowing how it works and having the network always helps.

Manufacturing unit; Photo courtesy of Bharat Forge.

33

Power Summit - The Energy Handbook 2011

Country Profile: India

The Indian parliament recently adopted overtly protectionist measures, including the reintroduction of an a tax on imported power equipment. State-owned generators, including Indias largest generator NTPC, are obliged to favour domestically manufactured equipment if the price is within 15 percent of the closest foreign-made product. These measures threaten to undermine the countrys generation capacity growth objectives as well as damaging the development of a domestic industry. For many years Indias power sector was virtually a closed shop with privileged status given to Bharat Heavy Electricals Ltd. (BHEL), the Government-controlled manufacturer of everything from turbines to capacitors. Some 70 percent of turbines in Indian power plants were built by BHEL. Today, however, BHEL has emerged from its protected position to compete successfully in the open market, and indeed has prospered in recent years. Over the last five to six years we have grown at a rate of 2025 percent annually, our top line has tripled and the bottom line quadrupled in a matter of four years, explains B.P. Rao, BHELs Chairman and Managing Director. In 2006 we had 6 GW/y capacity, in 2007 this was upped to 10 GW and in March 2010 we went to 15 GW. It is a sign of quite how fast the market is growing and how well the old monopolist has thrived in the free market that 15 GW/y is still not enough for BHEL; by 2012 Rao is aiming for an annual production of turbines and generators totalling 20 GW. BHEL has placed great emphasis on technological development, both as a partner to foreign firms and more recently through in-house R&D. While we started out as a manufacturing organisation, we have now become an innovation-driven company, says Rao. Last year we spent almost 2.5 percent of our turnover on R&D

and filed patents at the rate of nearly one a day. The company followed the process of acquiring technology through tie-ups with many of the leading companies. Today we have technology partnerships with about 70 companies. Exports and international collaboration have played a major part in the development of many Indian companies. Looking to the future, CEOs see that participating in the world market will not only widen their markets but also help them create world-class products. At the end of the 1990s things were really slow in India and the markets were not doing very well, but we wanted to grow the company and start exporting our products, says Aditya Knanna, Director of the switchgear and busbar manufacture C&S. That was a significant point in the company, and when we started getting orders, we had to up our game in terms of quality, delivery, logistics and aesthetics. By the time the market opened in the early 2000s we were already there, which is why C&S is an anomaly today: we are a small company competing against multi-billion-dollar companies and have managed to establish a strong market position in India.

company, says Khurshed Daruvala, Managing Director of engineering and contracting company Sterling and Wilson. Daruvala notes that most African countries take a pragmatic attitude to the importation of labour and goods when it comes to executing projects: Most African countries allow Indian labour to come and work, and also accept material coming from India. 75 percent of the cost of a project comes from India, which is a real advantage for us. Mohan Energy Corporation is an Indian engineering firm established over 30 years ago specifically to target the African market. Director Amitabh Agrawal explains the Indian experience of Africa: In the African marketplace it is hard to distinguish between an Indian company and a European company. African clients are very clear about what they want and if you are able to give them this then they are happy to work with you. Africa is not as price-sensitive as India; in India people are entering pricing wars, which are not sustainable and have to compromise the quality of the product. In Africa, people understand that there is a minimum price and they demand a higher standard. Most of the time, the consultants and supervising engineers come from western countries and projects have to be executed to the highest international standards. It is an indication of the international standards that Indian firms achieve that they tend to focus on privately or internationally funded projects rather than on large, government-to-government deals. Tata Consulting Engineers has successfully carried out several assignments overseas in south-east Asia, the Middle East, Africa, Europe, Asia Pacific, Australia and the Americas, notes Vice President U.K. Hambarde. Some of our projects were sponsored by the World Bank, Asian Development Bank, UNDP and other international agencies. Our focus at the moment is the African region, as it is a growing economy and we have a lot of experience there. There are many opportunities, especially in the T&D sector. Indian firms have sometimes struggled to overcome a perception that they do not deliver to international quality and time standards. Essar Projects,

one of Indias big three construction companies, is working across the world in a vast array of technical areas. Essar is a national champion in the construction and engineering sectors and one of the largest and best-equipped construction companies in Asia. CEO Alwyn Bowden explains: There are a lot of misconceptions around, and in the past Indian construction companies have not always been highly regarded overseas. Most of the labour for the international sites has come from India and the skilled work base is originating from here. The Indian market has been very chaotic in the past, but the management of the various groups realise that and are recruiting trained people to make sure that they catch up with existing management standards elsewhere. It is clear, however, that India can produce world-class companies. We are currently running two sites with 25,000-person workforces and that is quite rare anywhere in the world, Bowden says.

B.P. Rao Chairman & Managing Director of BHEL

34

While we started out as a manufacturing organisation, we have now become an innovation-driven company. Last year we spent almost 2.5 percent of our turnover on R&D and filed patents at the rate of nearly one a day.

Conclusion
Indias generation and transmission sectors are now open to private investment and the nations leading companies have rushed to fulfil the countrys burgeoning demand for electricity. The country has taken some time to develop a model of private sector participation that works and is respected by national and state governments. The Indian experience for international companies in the 1990s and early 2000s has resulted in a muted foreign response to the opportunities that exist in the modern market. The reforms of 2003 have gone a long way to fixing early problems and foreign private firms should look anew at India. The country still has some way to go before it can hope to attract investment in the regions of the country where it is most needed; it is not uncommon for Indian power executives to define the Indian market as just four states, ignoring the 22 which are deemed uncreditworthy. Many states still need to fully implement open access legislation and ensure that state-owned distribution companies pay generators according to the terms of their agreements.

India on the World Stage

For many years Indian power service and equipment manufacturing companies had little option other than to look overseas if they wished to grow. With a complex and often corrupt tendering process and only a few state-owned clients, the domestic market was often stagnant and impenetrable. Today the domestic market is far more active and transparent, yet many manufacturers still wish to increase revenues and margins through exports. Africa and the Middle East are the key markets for most Indian export-oriented companies, with neighbouring South Asian countries such as Bhutan attracting the attention of Indian generation companies. Africa is the new frontier for many Indian companies who see that they have a number of comparative advantages in that continent. I believe that Africa will be the most exciting area for this

35

Power Summit - The Energy Handbook 2011

Focus: Nuclear Power

Interview with Baba N Kalyani, Chairman and Managing Director, Bharat Forge Ltd.
Q Please could you start by giving us an overview of Bharat Forge and how the company has evolved since you became CMD? A In the 1990s, I converted our company to a global business and I believe that we are now the leading company in our segment. We have diversified from being purely a supplier to the automotive industry into other industrial sectors as well. Our strategy for this decade is to build our non-automotive businesses -- primarily our capital goods interests -- substantially, so that they contribute to 70- 75% of our revenue. Five years ago it was only about 5 or 10%. Within the capital goods segment, power is one of the key verticals. We are a technology-driven company and within the power sector we are going to be present in the renewable energy as well as thermal and nuclear energy sectors. Our focus is to build equipment for these sectors. We are currently building wind turbines which we manufacture and sell in India and Europe. We are now setting up a plant to build steam turbines and generators using super critical technology. We are partnering with Alstom in this. We are also setting up a plant to build turbines and generators for thermal power plants in the range of 300 to 800MW sub critical, super critical and ultra super critical. Bharat Forge also has a relationship with Areva of France to manufacture and supply components for the nuclear power sector. We currently supply specialised forgings to the Indian nuclear industry and by the nature of our upcoming businesses we will become a very large player in the power sector. Q You have built a dominant position in your core business of components, why then enter an industry (power equipment) that has been under the control of a handful of state-owned companies for many years? A For many years there has only been one player in the Indian power equipment sector and 36 that is BHEL. Production capacity was about 5,000MW to 6,000MW, which they are currently doubling. Indias current installed capacity is about 150,000MW and this needs to go up to nearly 800,000MW in the next fifteen years. This growth cannot be met by one company alone. The power market is the biggest opportunity in the Indian manufacturing sector today. Power equipment by its nature requires a lot of forging - which is our core business. We are world leaders in our field and experts at manufacturing. Q How do you see the Nuclear Liabilities Act impacting on your aspirations in the sector? A I think that there is a lot of media hype surrounding the issue. My own personal view is that between the government of India and the people who plan to build the nuclear plants, there will be a very clear understanding of liabilities. If you have a one-sided view of liability then no one is going to build the plants. The market has its own way of finding its balance. I dont think there will be any delay caused by this. If you have any liability you can go to an insurance company and they can give you cover for a certain price. This price will be the same for anyone. If it is uninsurable then no one will build the plants. Q What would be your message to our readers around the globe about the Indian Power Sector, and Bharat Forge specifically? A Bharat Forge aims to grow by three times within the next five years - and will be a $4bn company. Power equipment sales will play a substantial role in this growth. The power industry in India; whether it be the manufacturing of equipment, energy generation, transmission or distribution; is going to be one of the largest drivers of growth over the next two decades. In order to reach at least moderate levels of electricity consumption in India, the sector will require major investment. India is without a doubt one of the most exciting places in the world when it comes to doing business in the power sector. Bharat Forge is committed to play a significant role in manufacturing equipment and energy production. India will emerge as one of the most competitive places for manufacturing high technology products within the next twenty years. Brand India is already improving, but there is still a long way to go.

Nuclear Power
Nuclear power has never been so widely, and extensively, employed as it is today. More and more of the world is embracing nuclear generation on an unprecedented scale due to its near zero emission of greenhouse gas and relative insulation from commodity price fluctuations and supply chain disruption.

n many countries, nuclear is the only large-scale alternative to fossil fuels that is readily available to meet growing demand for baseload power. Here we look at the opportunities and challenges associated with nuclear power and explore the major avenues of research and development within the field. The perfect answer for the reduction of CO2 emissions, on a large scale, is nuclear power plants, believes Bob Prantil, North Region Executive at GE Energy. But despite its emission credentials, nuclear generation promotes an ideological discussion perhaps more than any other energy issue. Duncan Hawthorne, President and CEO of Bruce Power, a privately owned company that operates a nuclear facility in Canada, believes that this is due to the necessity of the reliable

power that nuclear power provides: Ive always said: We are nuclear. No one likes us. We dont care. The market place is very obvious. The world cannot survive without our contribution. In 2009, 1314 percent of the worlds electricity was generated from nuclear power. According to the European Nuclear Society, in October 2010 there were 441 nuclear plants in operation, in 30 countries, with a combined capacity of around 375 GW. The World Energy Council reports that this capacity is expected to rise to between 600 and 1,340 GW by 2030. Over 30 countries are currently planning or delivering nuclear energy programmes. Across the world, 52 reactors are under construction, a further 140 are on order or planned, and an additional 344 are at the proposal stage.

Article by: Tom Willatt

37

Power Summit - The Energy Handbook 2011

Focus: Nuclear Power

Developing World Demand

Nuclear technology was born in the laboratories of North America, western Europe and the Soviet empire, and these regions were the first to feed nuclear power into their grids in the 1950s and 1960s. In the 1970s and 1980s, however, the western world was shaken by the Three Mile Island and Chernobyl events. The resulting regulatory changes led to enormous project cost over-runs and cancellations, and a 30-year lull in nuclear power investment in this region. Yet the nuclear industry did not stagnate. The focus for development of nuclear plants shifted to new adopters, keen to diversify their power generation options. Over the past 30 years the number of countries employing nuclear power has grown steadily. Currently, nowhere is this more true than in China. According to the World Nuclear Association, China has the worlds fastest-growing nuclear programme, with a target for 2020 of 70 GW in operation and a further 30 GW under construction. In other countries, however Iran being currently the most notorious example the spread of nuclear power is constrained by political concerns about the proliferation of nuclear weapons.

Finlands Olkiluoto 3 development, for example, has been plagued by delays, over-runs and safety concerns. Nuclear is ideal for the baseload, because once it is up and running the operating cost is very low, says Tony Masella, Partner and MD for the Resources Practice at consultancy Accenture. However, there is a lot of debate about whether the cost of a new build or refurbishment is a good use of public funds. The length of time since the last Western nuclear plants were constructed means that the necessary experience may be lacking. The issue that we face in North America is that we havent built one in thirty years, which causes great uncertainty in terms of cost, says Pierre Gauthier, President, Alstom Canada and USA. It is hard to evaluate today what will be the end cost of a nuclear power plant in North America. Decision-making is made more difficult by the fact that the cost of natural gas, although often volatile, is currently low and looks to stay that way. While shale gas is being found everywhere in huge pockets and being traded at around $5 a ton the value proposition of nuclear becomes an even greater challenge, says Tony Masella of Accenture. Compared to nuclear, gas-fired power plants are also quick to build.

increasingly globalised. Jean-Franois Bland, Executive Vice President at Areva Canada, says: Its a global industry now; national players no longer exist. Areva is no longer a French player. We have employees around the world. It is that paradigm shift that Canadian companies are going through now. It is a worldwide market and it is focused on what is the most reliable and economically viable technology for the taxpayer. Given that carbon neutrality is one of nuclear powers greatest strengths, the introduction of a globally acknowledged carbon price would greatly add to the ability of nuclear energy to compete with fossil-fuel generation. The lack of regulatory certainty regarding carbon pricing is constraining large capital investment, explains Keith Triginer, Country Executive, GE Energy Canada. Unfortunately, large nuclear plants fall into that bracket. If and when carbon pricing gets established, I think that will accelerate large capital investment in nuclear around the world.

This strategy reduces construction risk significantly, not least by allowing utility companies to replace a single large facility with a number of smaller modules. We hope to have sales in the US within the next decade, says Michael Lees. Given the increased risk associated with being an early adopter of new technology, some people think that the renaissance will only really gain speed once the next generation of reactors is already up and running. I see an increasing role for nuclear its a necessity, not a choice, because of its reliability, believes Kurt Strobele, Chairman and CEO of Hatch, a global engineering firm that is active across the power industry. But it will be a small start. There is a lot of inertia, and the new projects and new technologies have not been as successful as hoped. Once we get past that first hurdle I think there will be a very fast climb in nuclear build.

Next-generation Technology
Nuclear power is generally considered in terms of four generations of technology over its five decades. The first generation, developed in the 1960s and 1970s, is now rarely operated. Second-generation reactors were mostly developed in North America and Europe, and remain in operation across the world. The third and fourth generations, now under development, should make nuclear power more efficient, safer and easier to construct. Though current reactor sizes are typically around 1 GW, there is a movement towards smaller, modular reactors to replace small coal-powered plants. Michael Lees, President, Babcock & Wilcox (B&W) Canada Ltd., explains: We are developing the B&W mPower advanced light water nuclear reactor that can range in the 150300 MW size. The cost saving from a large nuclear plant is quite dramatic, as you move construction and manufacturing into a shop environment to create complete, road transportable, units.

Questions to be Answered
Nuclear energy is clearly going to play an increasingly important role in global electricity generation. The world is driving towards a lower-carbon economy and nations are looking for reliable baseload energy to complement renewable sources. The nuclear industry needs not only to convince the public of its green credentials but also to show decision-makers that the economics of nuclear energy can compete with the other baseload options available. To allay the fears of policy-makers, nuclear technology companies will need to show that they can build the next generation of reactors repeatably, efficiently and costeffectively. If this can be accomplished, the long-heralded nuclear renaissance seems likelier that ever.

Kurt Strobele Chairman and CEO of Hatch

Western Renaissance
Since 2001, industry observers have been increasingly discussing the potential for a nuclear renaissance across the developed world. Bans on nuclear development have been repealed in Sweden and Italy, and nuclear fleets are being refurbished or expanded in South Africa, Japan, Ukraine, the Czech Republic and the USA. The trend is not universal Germany and Spain are uncertain about their nuclear future and are continuing to phase out nuclear but overall the industry is certainly gaining momentum. One of the big concerns for policy-makers is the lingering risk of large cost over-runs on nuclear construction projects, with billions of dollars at risk.

International cooperation
Whether or not nuclear power does see a western renaissance, the established nuclear suppliers in these countries see the global spread of nuclear power as a great opportunity. The extension of nuclear power to new countries is underpinned by international cooperation. Companies from nations with expertise are working with aspirants to provide the technical assistance they need to take their nuclear programmes forward. Nuclear power was traditionally a very nationalistic industry, but todays nuclear companies are now becoming

38

39

I see an increasing role for nuclear its a necessity, not a choice, because of its reliability.