NTPC Limited: Redefines its strategy to focus on efficiency and clean energy

Redefines its strategy to focus on efficiency and clean energy

NTPC Limited, the country’s largest and leading power generation company, is realigning its strategies with the changing business environment. India’s focus on clean energy along with the climate commitments to reduce carbon emissions (following the ratification of the Paris climate deal) has led to this transformation. In order to remain relevant and maintain its leadership position, NTPC is working on a “5R” strategy – renewable, reduce, reuse, retrofit and rebuild.

According to Gurdeep Singh, chairman and managing director, NTPC, “The biggest challenge is producing power most efficiently and at affordable rates, moving towards a greener generation era and preparing for life with large-scale renewables, which could lead to lower plant load factors (PLFs) and cyclic operations.”

NTPC is undertaking various initiatives in line with its new strategy. The company is committed to adding 10 GW of its own solar capacity by 2022, selecting developers for another 15 GW under the National Solar Mission (NSM), and bundling solar power with coal-based power from its older plants to reduce the cost of renewable power. It also plans to add 1 GW of wind power capacity. NTPC has devised separate strategies to reduce fuel costs through coal freight rationalisation, lower the per unit consumption of generation through efficiency improvements and reduce imports. In view of the new stringent environment norms, NTPC proposes to reduce emissions from its thermal plants through methods such as retrofitting. It also plans to reuse water to the maximum possible extent to ensure that water consumption reaches the zero liquid discharge (ZLD) state. Another plan relates to the full utilisation of land and other infrastructure available at its old power stations either through expansion or reconstruction with more efficient units.

Existing installed base

NTPC’s installed capacity stood at 48,028 MW, including 6,966 MW through group companies, as of December 31, 2016. Of the total capacity, coal-based stations accounted for the majority 85 per cent share, followed by gas-based plants with 13 per cent share. Hydro and solar capacities accounted for the rest. In fact, the company diversified into hydro and renewables during the past year, with the commissioning of its first hydro-power project, the 800 MW Koldam plant in Himachal Pradesh, and the first mega solar project, the 250 MW NP Kunta ultra mega solar project in Ananthapuram, Andhra Pradesh. The latter has increased NTPC’s solar capacity to 360 MW.

In terms of the technology make-up of NTPC’s own coal-based capacity of 35,885 MW, 4,760 MW or 13 per cent comprises the more efficient supercritical units (660 MW and 800 MW rating). The majority of NTPC’s coal-based capacity comprises subcritical 500 MW units (21,500 MW), followed by 210 MW and 200 MW units (7,210 MW). Its portfolio also includes thirteen 110 MW and 60 MW rating units, aggregating 1,185 MW, which the company plans to phase out and build new efficient units.

Recently, NTPC’s board approved a plan to replace its over 25-year-old plants, aggregating 11 GW of capacity, with more efficient ones over the next five years at an investment of Rs 500 billion. This is in line with the company’s plans to focus on brownfield expansion or rebuilding capacity at its existing sites or at sites acquired inorganically, given the long gestation period involved in greenfield projects. In fact, NTPC’s installed base includes the 325 MW Patratu thermal project, which it acquired from the Jharkhand government in April 2016 with a plan to build three new 800 MW units in the first phase and two 800 MW units in the second phase after dismantling the existing units. It also signed an MoU recently to acquire the Chhabra thermal power plant from Rajasthan Rajya Vidyut Utpadan Nigam Limited.

Improving operational performance

During 2015-16, NTPC’s generation from its own plants remained almost flat at 241.98 billion units (BUs), which was only marginally higher than the 241.26 BUs in 2014-15. Coal-based stations operated at an average PLF of 78.6 per cent during 2015-16,  which was much higher than the all-India PLF of 62.3 per cent. NTPC’s availability factor was 91.9 per cent.

The company’s gas-based generation stood at 8.87 BUs at a PLF of 25.1 per cent during 2015-16 as compared to 11.59 BUs in 2014-15. This was mainly due to less scheduling of these plants, generation schedule accounting for an opportunity loss of 25.53 BUs.

The total coal received by NTPC was 161.1 million tonnes (mt), which was 3.3 per cent lower than the previous year. Given that the generation levels remained almost constant, there was an overall improvement in the consumption per unit of generation. Coal imports came down to 9.7 mt as compared to 16.4 mt in the previous year, while domestic coal supply increased to 152.3 mt from 151.1 mt in 2014-15. As a result, there was a significant fall in generation loss due to coal shortage, from 8.9 BUs in 2014-15 to 0.18 BUs in 2015-16.

NTPC’s efforts for fuel cost reduction are showing results. During 2015-16, the total fuel bill reduced by Rs 50 billion to Rs 437.9 billion, while generation remained at the same level. The average cost of coal-based generation was Rs 3.07 per unit, comprising variable charges of Rs 1.89 per unit and fixed charges of Rs 1.18 per unit. The comparable figures for the previous two years were Rs 3.11 per unit and Rs 3.13 per unit respectively. The fact that several NTPC plants are close to the pithead ensures a competitive variable cost of generation. NTPC’s overall tariff (including coal, gas and solar generation) was also quite competitive at Rs 3.18 per unit.

The company is engaged in power trading through its subsidiary, NTPV Vidyut Vyapar Nigam Limited, which traded 12.7 BUs in 2015-16 as compared to 10.4 BUs in 2014-15.

Planned additions

NTPC is set to cross a significant milestone to become the country’s only power producer to breach the 50 GW mark this fiscal. Its long-term objective is to achieve an installed capacity of 128 GW by 2032, which is about 2.7 times the current capacity.

For 2016-17, NTPC has a capacity addition target of 5,648 MW, including 768 MW of renewable capacity. During the first 9 months of the year, 1,375 MW was commissioned. Most of the capacity scheduled for this year will be commissioned in the last quarter, ending March 2017. If all goes as planned, NTPC is expected to add over 15 GW of capacity during the Twelfth Plan period (April 2012-March 2017), which is higher than the 12 GW target.

NTPC’s future project pipeline includes 23 under-construction projects with an aggregate capacity of 23.2 GW, including 4.3 GW from four group company projects. Fuel-wise, it comprises 17 coal-based projects (21,880 MW), four hydro projects (819 MW) and two solar projects (510 MW).

There is greater emphasis on efficiency improvement. Almost all coal-based capacity under construction (except 2,000 MW) is based on supercritical (16,960 MW) or ultra supercritical technologies (2,920 MW). The two ultra supercritical projects under construction are the 1,320 MW Khargone and the 1,600 MW Telangana I projects in Madhya Pradesh and Telangana respectively.

Besides the under-construction capacity, NTPC has invited bids from vendors for projects aggregating 8,768 MW of capacity. The company has approved feasibility reports for about 21,630 MW, while feasibility reports for another 15,155 MW are under preparation. Overall, NTPC has 68,762 MW of capacity at various stages of development. This includes two overseas coal-based projects in Sri Lanka (500 MW) and Bangladesh (1,320 MW).

Focus on ultra supercritical technology

NTPC is deploying advanced technologies for all future projects to not only enhance their efficiency and generation capacity, but also ensure lower emissions, and optimise land and water usage. By 2022, the company plans to reduce the share of its subcritical capacity from the current 76 per cent to 39 per cent of its total installed capacity and increase the share of supercritical units to 43 per cent from 8 per cent.

The steam parameters for the under-construction ultra supercritical units have been improved to 270 kg per cm2, 600°C/600°C, which will result in an efficiency improvement of 8 per cent over that of a subcritical 500 MW unit and 3 per cent over that of a supercritical unit using similar coal.

NTPC is participating in the development of advanced ultra supercritical technology with Bharat Heavy Electricals Limited and the Indira Gandhi Centre for Atomic Research. The proposed 800 MW unit (with steam parameters of 310 kg per cm2, 710°C/720°C) is expected to have an enhanced efficiency of 46 per cent and 18 per cent less CO2 emissions per unit of generation as compared to 500 MW units.

Focus on renewables

Based on its expansion plans, the share of renewables in NTPC’s installed capacity is set to increase from less than 1 per cent at present to over 12 per cent by 2022.

During the remaining part of 2016-17, NTPC plans to commission 510 MW of capacity – 250 MW at Mandsaur in Madhya Pradesh and 260 MW at Bhadla in Rajasthan – besides the 8 MW Singrauli mini-hydro project in Uttar Pradesh. Another 768 MW of solar capacity is under tendering – 750 MW at Ananthapuram, Andhra Pradesh and 18 MW at Chidiya Tapu, Andaman & Nicobar Islands. Tenders have also been issued for 100 MW of wind projects in Gujarat. Further, tenders are expected to be issued for 1,732 MW of solar capacity shortly. This includes the 1,000 MW Pavagada project in Karnataka, the 700 MW Banaskantha project in Gujarat and 32 MW of capacity in the Andaman & Nicobar Islands. Under NSM Phase II, NTPC has completed the reverse e-auction for 2,750 MW of the 3,000 MW Tranche I. Further, power purchase agreements (PPAs) have been signed for 2,650 MW of capacity.

Fuel security

In order to secure fuel for its coal-based capacities, NTPC has entered into long-term coal supply agreements (CSAs) with Coal India Limited (CIL) and Singareni Collieries Company Limited for 32,605 MW. NTPC has entered into an MoU with CIL for supplying coal to the 1,320 MW Barh station at notified prices. Further, CSAs have been finalised for 910 MW of the yet-to-be commissioned projects, while bridge linkage for 12,200 MW of upcoming capacity is in place.

Government policies allowing liberal coal swaps from inefficient to efficient plants, coal price rationalisation based on the gross calorific value, and supply of washed and crushed coal will contribute significantly to fuel cost reduction. To ensure coal quality, NTPC has entered into an agreement with the Council of Scientific and Industrial Research-Central Institute of Mining and Fuel Research for third-party sampling of coal at unloading points. Sampling has been under way since October 1, 2016, as per the Central Electricity Regulatory Commission’s (CERC) regulations.

Meanwhile, NTPC is developing 10 coal blocks with total reserves of 7.3 billion tonnes allotted to it. These blocks together have a production potential of about 107 mt per annum, which is sufficient to meet the 20 GW capacity requirement. It has invested Rs 35.11 billion cumulatively on the development of coal mining till September 2016.

NTPC commenced mining operations at Pakri Barwadih, the first of these blocks, in May 2016 and expects to produce 1 mt of coal during 2016-17. For the three other blocks, Talaipalli, Dulanga and Chatti Bariatu, NTPC is in the process of appointing mine developer-cum-operators (MDO), for which bids are under evaluation. NTPC plans to issue a tender for MDO selection for the Kerandari block shortly. The Central Mine Planning and Design Institute has undertaken detailed exploration in the Banai and Bhalumuda coal blocks, while it is in the process of carrying out exploration at the Mandakini B block.

For gas-based capacity, a long-term gas supply agreement has been secured with Gas Authority of India Limited under the administered pricing mechanism.

Meeting new environment norms

The Ministry of Environment, Forest and Climate Change (MoEFCC) stipulated new emission norms in December 2015 that go beyond the previous rules, which specified limits only for suspended particulate matter (SPM) aside from a minimum stack height for controlling gaseous pollutants in ambient air. The new norms specify emission limits for oxides of nitrogen (NOx), oxides of sulphur (SOx) and mercury as well, which will be stringently applied to plants to be commissioned after January 1, 2017. NTPC has made modifications in the plant design of new projects to comply with these norms. For implementation in the existing units, which are required to comply with the norms by December 2017, additional pollution control systems need to be deployed. NTPC, along with other power producers, has taken up the issue with the MoEFCC, and is lobbying for relaxation of the norms for older plants and seeking a realistic time frame of at least five years instead of two years.

On its part, NTPC is undertaking massive renovation and modernisation to upgrade its air pollution equipment for reducing emissions to below the current statutory limits. Around 12-15 per cent of the project cost is spent on environment protection equipment such as electrostatic precipitators, liquid waste treatment plants, ash water recirculation systems, dry ash extraction systems, ambient air quality monitoring systems, flue gas conditioning systems and desulphurisation systems. NOx control is achieved through the adoption of best combustion practices.

NTPC has set itself a target of 20 per cent reduction in CO2 emissions per unit of generation, from 0.939 tonnes of CO2 (tCO2) per MWh in 2015 to 0.751 tCO2 per MWh by 2022.

The MoEFCC also notified water consumption norms for power plants for the first time in December 2015. For plants installed after January 1, 2017, water consumption has to be limited to 2.5 m3 per MWh and the ZLD state has to be achieved, while for others it is specified at 3.5 m3 per MWh, to be achieved within two years of the notification.  Currently, ZLD is being implemented at NTPC’s six power stations.

Financials and capex

NTPC is a profitable company. During the first half of 2016-17, its total income grew by 9.2 per cent to Rs 388 billion from Rs 356 billion in the corresponding period of 2014-15. The profit after tax (PAT) grew by 10 per cent to Rs 47 billion. During 2015-16, NTPC’s total income of Rs 717 billion was 4.8 per cent lower than that in the previous year, while the PAT also declined marginally by 0.5 per cent to Rs 102.4 billion. However, NTPC’s networth increased by 8.7 per cent to Rs 887.8 billion. Its returns on net worth and capital employed were 18.71 per cent and 14.18 per cent respectively.

There has been a consistent increase in NTPC’s capex in the past four years. It crossed the Rs 250 billion mark to reach Rs 257.4 billion in 2015-16. During the first four and a half years of the Twelfth Plan period, NTPC invested over Rs 1 trillion, the highest in any of the previous plan periods.

Recently, NTPC issued green masala bonds worth Rs 20 billion, the first such issue by an Indian corporate. These bonds, raised at a coupon rate of 7.38 per cent, are part of the company’s $4 billion medium-term note programme to finance solar and wind projects. These bonds are listed on the London and Singapore stock exchanges.

Challenges and the way forward

NPTC faces several challenges in the new business environment, including its ability to generate power competitively while meeting the new environment norms and improving the flexibility of its thermal plants to deal with the intermittency of renewables. Other challenges relate to securing fuel supplies at reasonable rates, ensuring adequate payment security, meeting capacity addition targets for both renewable and conventional sources, and the associated issues related to securing various clearances and approvals, and land and funding.

External challenges include inadequate demand for power in view of the rapid increase in supply, including from the private sector, as well as weak offtake by the cash-strapped discoms and the country’s narrowing energy deficit. However, NTPC is optimistic about demand as it believes that structural reforms in the distribution segment through the Ujwal Discom Assurance Yojana will yield results in the coming years and that there will be a robust economic growth.

In order to comply with the environmental norms, technology options are available in all areas, except for bringing NOx emissions from burning domestic coal within the prescribed limits. For this, NTPC has collaborated with technology providers and is carrying out five pilots to test new solutions. “The results of these pilots will help other developers in the sector as well,” says Singh.

Another challenge for NTPC is to transform its thermal capacity from operating as baseload plants to variable output plants. In order to accommodate renewable capacity in the grid, the CERC has issued regulations for backing down conventional plants up to a prescribed lower limit of 55 per cent and compensation for varying the output. NTPC is working on mitigating the adverse impact of cycling through various measures including implementation of primary control, sliding pressure operation for part load optimisation and automatic generation control.

These challenges notwithstanding, NTPC remains the clear leader in the power generation space. It, moreover, has a presence across the entire power value chain, which gives it a competitive edge. As the company continues to scale up its generation capacity, the new focus areas are achieving higher efficiencies, ensuring flexible operation of coal-based generating stations and reducing emissions per unit of generation. In the long run, while generation based on fossil fuel will remain the mainstay of the company’s power portfolio, the share of renewables will increase significantly from the current levels. Moreover, its conventional fleet would transform to a more efficient and environmentally compliant one.