Towards Power for All

Developers’ perspective

The power sector witnessed impressive growth in renewable energy capacity during the past year. Initiatives to increase power demand with the launch of the Sahaj Bijli Har Ghar Yojana (Saubhagya) and traction in the electric vehicles (EVs) segment were other key positives for developers. However, issues like coal and gas supply deficit, as well as lack of policy support for the hydropower segment continue to affect developers. Leading power developers share their views on the key achievements and challenges in the sector…

How has the sector progressed over the past year? What were the major positive and negative developments?

Manoj Gupta, Vice-President, Solar (India & Asia), Fortum India Private Limited

Manoj Gupta

India is making quick progress in the field of renewable energy. It has shown incredible growth in the past year. Of the 175 GW renewable energy target, the country has already achieved 70 GW, and an additional 38 GW is under implementation (as of March 31, 2018). Of the 175 GW target, 100 GW is to come from solar, 60 GW from wind, 5 GW from small-hydro and 10 GW from biomass.

The imposition of safeguard duty on imported solar cells and modules was a key negative development. The move will benefit only a small section of the domestic industry because a much larger proportion of the capacity to manufacture solar equipment in India is located inside “export-oriented” special economic zones and will not be exempt from the payment of the safeguard duty, thus creating a challenge for the solar sector. About 80 per cent of the module demand will be met through imports with extra capex to the developer, which would be included in all the future solar bids. Therefore, there will be an increase in tariffs, which need to be paid by the discom and ultimately, it will be a pass-through to the consumer.

Lalit Jain, CEO (International Solar & Wind) and Group Chief Commercial Officer, Hindustan Power Projects Private Limited

Lalit Jain

There has been remarkable progress in the sector in the past year. We witnessed the launch of Saubhagya to provide 24×7 power to all, achievement of 100 per cent village electrification, significant capacity allocation under bids for renewable energy, movement towards the resolution of stressed assets, and promotion of Make in India and EVs. We are keenly awaiting developments like the proposed Renewable Energy Act, amendments to the Electricity Act, 2003 and announcement of the new hydro policy.

The renewable energy sector has achieved growth with the addition of more than 1 GW every month, even though in the last few months there has been a little uncertainty due to the implementation of safeguard duty on imported solar modules. In the past year, multiple auctions for solar photovoltaic (PV) projects have taken place. Regular bidding for wind and wind-solar PV hybrid projects have also begun. Energy storage is another segment where the government should encourage development and invite tenders for the same.

In conventional energy, the Scheme to Harness and Allocate Koyla (Coal) Transparently in India has been announced to ease coal availability. However, the development of greenfield thermal assets has almost stopped due to the unavailability of long-term power purchase agreements (PPAs) and domestic coal, and this is expected to have long-term implications on the sector. Hydropower projects have also been impacted owing to a delay in the notification of the much-awaited hydro policy.

In the transmission sector, though the ministry had announced tariff-based competitive bidding (TBCB) guidelines, most of the projects are being awarded on a cost-plus basis. The industry needs to understand that TBCB has the capability to increase efficiency and reduce costs, and it will prove beneficial in the long run.

Jayant Kawale, Managing Director, RattanIndia Power Limited

Jayant Kawale

A number of laudable  decisions and measures for improving the power sector were taken by the central government in the past year. The Ministry of Power (MoP) has made its intentions clear on acting tough on discoms for falling short on the duration and quality of supply, and not entering into adequate PPAs for fulfilling their obligations to supply, among others. The government has also come up with schemes such as Saubhagya to ensure power for all. The rural electrification programme has reached a major milestone with all villages declared as electrified. While there may be some shortcomings in the implementation here and there, the overall direction in which policymaking is moving is positive and reflects decisive thinking. The government has also recently issued directions to the Central Electricity Regulatory Commission (CERC) on allowing change-in-law events. Such directions are rare, and exhibit a resolve to attack the issues plaguing the power sector head-on.


M.M. Madan, Chairman, Hydro and Tunnelling Group, National Council on Power and Construction Equipment, ASSOCHAM

M.M. Madan

A key positive was the increase in power generation, with the lowering of energy prices and increased export of energy to the neighbouring countries. Also, the transmission capacity was enhanced and new projects were awarded through TBCB. Further, 100 per cent electrification of villages was achieved under the Deendayal Upadhyaya Gram Jyoti Yojana. Other notable developments were a reduction in aggregate technical and commercial (AT&C) losses and huge saving of interest cost by discoms under the Ujwal Discom Assurance Yojana (UDAY), electricity savings under Unnat Jyoti by Affordable LEDs for All, introduction of EVs, installation of smart meters by utilities, and launch of user-friendly apps for the power sector.

A key negative trend in the sector was the continued lacklustre attitude of the MoP towards the hydropower segment. The hydropower segment has become a low priority area for the MoP and private developers have lost all interest to take up new hydro projects.The fact cannot be denied that throughout the world, the need to develop hydropower has been felt by all countries except India. The public at large is misguided about the benefits of hydro power and our politicians are making no effort to guide them. Quick decisions are taken to stop the development of hydropower but least efforts are made to revive hydro power. Most of the hydropower projects are stranded and hydropower companies are becoming non-performing assets (NPAs)/turning insolvent. No efforts are being made by the MoP to assist in the signing of PPAs and to expedite the award of forest clearances as is being done in the case of solar power.

Director, Business Development and Commercial (Conventional), CLP India Private Limited

Naveen Munjal

Many changes are taking place in the power sector.  One of the key positive developments was the launch of Saubhagya with the objective of providing power to all households. The scheme is expected to create a demand for 28,000 MW of power; however, the stringent completion timeline is a challenge. Under Saubhagya, almost 17 million households are yet to be electrified, which is a tall order to accomplish. Other positive developments were the clarification regarding the non-requirement of a licence for setting up EV charging stations, rationalisation of coal linkages for the private sector, as well as flexibilisation initiatives for coal-based power. However, challenges on the coal production and supply fronts remain unresolved.

Further, the MoP’s direction to the CERC for the pass-through of costs on account of changes in duties, taxes, cess, etc., to tariffs is also a positive development. In addition, the merchant tariffs are going up although the discoms are still not looking at medium-or long-term procurement of power and buying power from the short-term market. There is lack of balance in the system in terms of contracting long-term power capacity.

The growth in renewable energy is good but the solar rooftop segment is still lagging behind the target. Further, the discoms’ financial losses have reduced in some cases, like in Haryana. Since the discom debt has been taken by the respective state governments under UDAY, the discoms’ interest costs have reduced. However, there is still a long way to go as far as transmission and distribution losses and tariff revisions are concerned.

What are the biggest unresolved challenges for the power generation industry?

Manoj Gupta

The key challenges being faced by the power generation industry are:

  • Due to the growing fuel availability concerns faced by the industry, thermal capacity addition is limited. As per reports, coal supplies by Coal India Limited (CIL) are restricted to around 65 per cent of the actual requirement by coal-based plants. This leads to increased dependence on imported coal, which results in high power generation costs. Weakening of the Indian rupee by around 7 per cent in the last couple of months has further increased the cost of imported coal.
  • Further, over 50 per cent of the gas-based power plants are facing a shortage in domestic gas supply and are dependent on imports, which ultimately increase the cost of production. The discoms are unable to purchase such costly power.
  • One of the major reasons for power deficiency is the weak financial strength of major discoms.
  • Other issues are water scarcity, power theft, less power demand growth, huge transmission losses, poor quality of coal, non-availability of transmission corridors, poor performance of old power plants, financial stress of private power developers, etc. All these issues are leading to increased formation of NPAs in the power sector.

Lalit Jain

I believe that the availability of coal to the extent of the annual consumed quantity in the fuel supply agreement needs to be encouraged. In the thermal sector, there is little or no progress in coal mining or auction for coal linkage and we need new bidding for PPAs. As far as the transmission sector is concerned, competitive bidding should be promoted.

Jayant Kawale

There has been slow progress on some of the major challenges faced by the sector, for instance coal supply by CIL still remains woefully inadequate despite statements to the contrary by CIL. Further, transportation of coal by rail is another major hurdle. While the demand for power is showing a positive trend and there is adequate capacity to fulfil that demand, there is still unfulfilled demand and the plant load factor of plants, particularly belonging to independent power producers (IPPs) remains low. There continues to be lack of clarity on allowing pass-through of imported coal in case of short supply by CIL as the discoms insist that the pass-through provision has expired on March 31, 2017.

In the absence of an advice from the central government that this should continue to be treated as a change-in-law event even after March 31, 2017, IPPs are unwilling to take the risk as such expenditure may not be allowed to pass-through on to tariffs later. Regulatory delays continue to be an important reason for inadequate or delayed cost recovery, increasing the stress on cash flow. This becomes particularly acute in view of the Reserve Bank of India’s circular dated February 12, 2018, triggering events leading up to the bankruptcy court in case of even a day’s default. All this is also because discoms are, as usual, with their backs to the wall. Their finances continue to be in poor shape in spite of the introduction of UDAY, something that the critics of the scheme had predicted at the outset. Their AT&C losses continue to be high and cross-subsidy to the politically important consumer segments continues to be the source of poor cost recovery.

Separation of carriage from content through an amendment is touted as the solution, but one may well ask that if open access in distribution has been systematically throttled, what chance does separation of carriage from content have?

M.M. Madan

The delay in the notification of the new hydropower policy is a key challenge for the industry. The policy is ready but not getting issued, causing uncertainty in the minds of private developers who have invested millions in the projects. Also, delay in the creation of the proposed hydropower development fund, required for the development of infrastructure in remote areas where hydro projects are typically located, is an issue.

Naveen Munjal

The biggest challenge for power generators is fuel shortage – both coal and gas – which has resulted in significant stranded capacity. There are challenges related to coal transportation also. It is unfortunate that state-owned coal producers and transport companies favour state gencos for coal supply over private gencos, in most cases, although many in the private sector have more efficient supercritical plants that can supply power at lower rates.

Also, the lenders are currently averse to funding power sector projects. In fact, developers are finding it difficult to arrange financing for power plant upgrades to comply with the new environmental norms. On the renewable side too, a fatigue is being observed in the segment. While tariffs are declining at a fast pace, concerns regarding bankability of projects could be a cause for concern. Further, land acquisition continues to remain a big challenge. In addition, unavailability of ancillary services for private gencos is another issue.

Last but not the least, delays in judgments of various power sector cases in courts is also a key challenge. In view of these challenges, there is a need for more structural reforms in the sector.

What is your outlook for stressed assets resolution and the overall power generation industry in the next one or two years?

Manoj Gupta

With the right investment and policies, the power sector will play a crucial role in enabling the country to achieve its target of a sustainable energy system. With the gradual tightening of environmental norms, businesses in all sectors are expected to face challenges. In this changing scenario, industry leaders need to make a range of difficult decisions and innovation will play a major role in the sector going forward.

Industry leaders will need to clarify their role in the distributed energy systems by determining where they can add best value as producers, distributors, managers, operators or financiers. Greater commitment towards sustainable development is required. The PPA structure also needs to be strengthened further to make renewable energy projects more profitable. Further, the proposed amendments in the Electricity Act, 2003, are a positive step by the government.

Lalit Jain

The thermal and hydropower generation sectors are undergoing stress, which in some cases is not solely the fault of the developers. With long-term PPAs not forthcoming and continuing shortage of coal, thermal assets are in difficulty. Stress in the power sector is impacting the banks significantly, due to which the development of greenfield thermal power generation assets has completely stopped in the private sector. As thermal project development has a long gestation period, the same needs to be encouraged.

The National Company Law Tribunal (NCLT) insolvency proceedings is a big positive for the industry. They will help in resolving and restructuring stressed assets. In the next two years, power prices may reduce due to the restructuring of these assets as capacity shall be available at discounted prices and discoms will have the opportunity to secure new PPAs at low prices.

Jayant Kawale

The resolution of stressed assets is unfortunately suffering from a lack of bold, decisive and result-oriented coordinated action on the part of stakeholders. They seem to be looking over their shoulders and seem to be more interested in avoiding taking decisions, for which they will be hauled up later, sometimes at the cost of eroding the asset’s value. It seems going to the NCLT is preferable to trying to resolve matters within the given time frame, because that option absolves stakeholders of individual responsibility. In the process, however, the value of the asset is likely to erode, and the level of sacrifice is likely to go up.

M.M. Madan

A large number of stressed assets need funding support from the government, which was in the form of an interest subvention scheme (part of the proposed hydro policy). The Tariff Policy, 2016, has specifically mentioned under clause 5.8 that the appropriate commission will provide a suitable regulatory framework for developers of hydroelectric projects for using long-term financial instruments in order to reduce the tariff burden in the initial years. Due to the delay in the approval of the scheme, the projects have become NPAs or are on the verge of becoming NPAs. Many power development companies have become insolvent and the NCLT has started the resolution process. There are many legal aspects in complex hydro projects. Therefore, it seems there is a possibility that most of the projects may lead to liquidation and a fruitful outcome may not be achieved. This will be a sheer wastage of efforts and investments in these hydro projects.

Overall, the development of hydropower projects in the present scenario is a Herculean task. The present regime of hurdles like no infrastructure owing to remoteness, clearance delays, increased land acquisition rates (due to the new land acquisition act), risks (construction, social, political, natural), longer gestation period, lower rate of return, etc. does not make hydropower an attractive investment.

Naveen Munjal

The overall outlook for the power sector is positive as the economy is picking up and there are initiatives like Make in India. There are challenges relating to stressed assets and fuel availability, but I believe they would be eventually resolved. It is just a matter of time. Stressed assets is a complex issue which has come up due to many factors – aggressive bidding by project sponsors (in some cases), non-availability of coal supply, lack of firm PPAs, etc. Some of these issues are not sponsor specific but system specific. For now, the developers are breathing easy owing to the Supreme Court’s November 14, 2018 timeline for the next hearing on the resolution of stressed assets.


Enter your email address