Captive Power Trends: Short-term slowdown owing to Covid-19 constraints

Short-term slowdown owing to Covid-19 constraints

Captive power plants (CPPs) play a crucial role in ensuring uninterrupted electricity supply to industries at rates cheaper than grid-based tariffs. Of late, the group captive model is emerging as a favoured option for industries, especially smaller ones, to access uninterrupted electricity supply without having to incur major capital expenditure as required for stand-alone CPPs. In addition, solar-based CPPs are gaining traction owing to falling capital costs and negligible fuel costs.

As per the Central Electricity Authority, as of March 2020, the installed CPP generating capacity stood at 78 GW across industries having a demand of over 1 MW.  About 64 per cent of the installed captive capacity is steam based, followed by 20 per cent diesel based and 12 per cent gas based. During 2019-20, the power generation from CPPs stood at 215,000 GWh, an increase of 0.9 per cent from the 213,073 GWh in 2018-19. The installed generation capacity increased at a compound annual growth rate of 8.92 per cent between March 2012 and March 2020. On a year-on-year basis, the installed CPP capacity is estimated to have increased by 3.71 per cent in 2019-20 from 75.21 GW in 2018-19.

Key trends and growth drivers

India Infrastructure Research has tracked over 72 GW of captive capacity to analyse various key trends. It was observed that the major part of the CPP capacity  was contributed by plants with a unit rating of 100 MW or above. With regard to the end-use industry, metals and minerals accounted for the maximum share of captive capacity in India. Industries such as aluminium, copper, and iron and steel industries have some of the largest CPPs because of their energy intensive manufacturing processes. The sugar, cement and petrochemicals industries are some other major consumers of captive power.

Fuel-wise, most of the large CPPs (of capacity 100 MW or above) are coal based or natural gas based. Coal-based CPPs function with the use of domestic coal, imported coal, and/or a blend of coal with coal washery rejects, pet coke and lignite. Low capital expenditure and ease of implementation on a large scale have been the key growth drivers of coal-based CPPs. These are preferred by industries such as metals and mining, cement, petrochemicals and group captives, owing to economies of scale. CPPs of less than 10 MW are mostly based on small-scale solar photovoltaic, wind, diesel gensets or liquid fuel plants.

Looking at renewable energy-based CPPs, the total tracked capacity is mostly dominated by wind-based and bagasse-based CPPs, closely followed by waste heat recovery plants. Over the past five years, the share of coal in CPPs has stayed more or less the same, but that of solar energy-based CPPs has increased. A number of large industries are also installing renewable energy-based CPPs to meet their renewable purchase obligations.

In terms of state-wise market analysis, Odisha and Gujarat are the leading states, accounting for the maximum share in the country’s captive capacity. Gujarat has a number of petrochemical companies such as the Indian Oil Corporation, Reliance Industries, and the Essar Group, and textile industries such as Aditya Birla Nuvo, and Raymond. These industries have set up a number of CPPs based on gas and wind respectively, owing to a well-developed city gas distribution network and a high wind potential. In Odisha, a number of metals and mining companies such as Vedanta, the National Aluminium Company, Jindal Steel and Power, and Steel Authority of India Limited have set up a number of large-sized coal-based CPPs, to meet their needs. Tamil Nadu, Maharashtra and Karnataka are some other states that account for a large share of CPPs. Uttar Pradesh has the highest number of bagasse-based CPPs, owing to a large number of its sugar units.

Challenges and the way forward

The key challenges in the segment include securing fuel supply, especially coal, as independent power producers and public sector generation companies get priority in coal supplies. However, the onset of commercial coal mining is expected to reduce annual coal imports and also help CPPs faced with the problem of inadequate coal supply. The CPPs will also require additional capex to comply with the stricter environmental norms prescribed by the Ministry of Environment, Forest and Climate Change.

Further, owing to the recent Covid-induced lockdowns, a number of projects, including CPPs, have been adversely affected by the grinding halt in construction, disruption in equipment and spare parts supply chain, delays in approvals, and a severe shortage of manpower. Due to the slowdown in industrial and economic activity, many industries have shelved or postponed their plans to set up new projects. Therefore, going forward, capacity addition in the captive power segment is expected to stay subdued in the near future.