Power generation in India

For all high-profile talk of Ultra Mega Power Plants (UMPP) and private participation in generation capcity addition, the private sector makes up less than 20% of the proposed capacity addition for the Eleventh Plan period (2007-12). In fact, NTPC alone, with a proposed capacity addition of 22,000 MW is set to add more than the entire private sector.



Interestingly, the private footprint on the power generation space is even limited, at less than 15% of the total capcity. Of this too, nearly half is in the renewable energy space, where private investments have been incentivized by heavy government subsidies. But this space is dominated by fragmented investments in small projects.



For sometime now, as seen by the focus on private participation in infrastructure through Public Private Partnerships (PPPs) etc, policy makers and sector specialists have been spreading the belief that private sector can play the critical role in many sectors like telecommunications, power, ports, airports and roads. Power generation had been thought of as providing attractive investment opportunities for private players, and accordingly Planning Commission have been tailoring policies to accomodate a prominent role for them. However, even recent track record and projects in the pipeline would appear to indicate that this hope may be misplaced, and their role will remain marginal for the foreseeable future.

Even including public sector, the general performance in capacity addition in generation has been dismal and continues to be so. A mere 21,180 MW of capacity was added over the Tenth Plan (2002-2007), and it is now clear that the Eleventh Plan achievement too appears certain to fall short by 50-60%. In the first 20 months of the Eleventh Plan, only 11,936 MW or 44% of planned target for this period.

As Businessline reports, challenges in implementation range from operational issues such as equipment delays, fuel delays owing to non-availability of escrow accounts, and funding delays.

The planned capacity in the present Plan would require a total outlay of Rs 4.1 lakh crore for power generation alone, and at a 70:30 debt-equity ratio, Rs 1,23,000 crore of equity needs to be raised. These are not easy to raise given the weak equity markets and declining profits and other internal accruals. For the debt portion, the liquidity crunch has closed some of the avenues available, particularly the ECB route. For projects based on power purchase agreements, the two-part tariff will help pass through the higher interest cost to the consumers. But fixed tariff projects, such as the UMPPs, may face pressures arising from higher financing costs.