Industry stakeholders have welcomed the government’s proactive stance towards the power sector, which includes the introduction of various production-linked incentive (PLI) schemes for solar manufacturing, green hydrogen and other renewables. In order to meet the escalating energy demand in India, industry attention is pivoting to innovative solutions and initiatives such as advanced wind turbine technologies, green hydrogen electrolysers and advanced lithium-ion battery equipment. These solutions are expected to not only address the surging energy needs but also contribute significantly to reducing the carbon footprint. Leading equipment manufacturers share their views on the power sector’s performance over the past year and highlight future opportunities and challenges in the equipment market…
What is your assessment of the performance of the power sector in the past year or so?
India has emerged as a powerhouse in the global electricity landscape, currently ranking as the third-largest producer and consumer of electricity worldwide. As of April 2023, India boasts an impressive installed power capacity of 416.59 GW. According to data released by the Ministry of Power, the electricity generation target for financial year 2023-24 has been ambitiously set at 1,750 BUs, signifying a substantial growth rate of approximately 7.2 per cent compared to the previous year’s actual generation of 1,624.158 BUs in 2022-23.
In 2022, India experienced the highest year-on-year growth in renewable energy additions, registering an impressive 9.83 per cent increase. During the same year, solar and wind power accounted for 92 per cent of India’s power generation capacity additions, adding 15.7 GW of new capacity. Additionally, India’s installed non-fossil fuel capacity has increased by a remarkable 396 per cent in the past 8.5 years, reaching over 178.322 GW (including large hydro), which now constitutes approximately 43 per cent of the country’s total capacity (as of July 2023). As of October 2022, the country had installed a total of 172.72 GW of capacity from non-fossil fuel sources, including 119.09 GW of renewable energy, 46.85 GW of large hydro and 6.78 GW of nuclear power capacity.
This remarkable surge in power generation reflects India’s commitment to meeting its growing energy demands. Further, India’s ambitious goal of achieving net-zero emissions by 2070 and its commitment to reaching 500 GW of renewable capacity by 2030 are the driving forces behind the sector’s impressive capacity addition. We anticipate this momentum to persist in the coming years, aligning with the government’s focus on strengthening India’s energy security.
The power sector in India has performed exceedingly well over the past year. A host of reforms, policy initiatives and government support have propelled the sector to become one of the best performing sectors of the Indian economy. India, being the third-largest producer and consumer of electricity with 422 GW of installed capacity, is likely to grow to 817 GW of installed capacity by 2030, as per Central Electricity Authority estimates. All the initiatives of the Ministry of Power (MoP) through various agencies have resulted in increased availability of reliable grid power, reduced deficiency and significantly increased renewable generation capacity.
The MoP’s initiative to classify hydropower with a capacity of more than 25 MW as renewable, hydropower purchase obligations, the rationalisation of interstate transmission charges, enabling infrastructure support and rationalisation of issues such as water cess and free power by state governments have helped the hydropower sector to a great extent. Further, measures such as policy parity with other renewable energy generation, a level playing field for private investors vis-à-vis public sector undertaking players, and the implementation of pumped storage project (PSP) guidelines are urgent needs of the sector. Having achieved only 177 GW of renewable energy installed capacity as of July 2023 as against the target of 500 GW by 2030, we will not only need acceleration in terms of further capacity additions in renewable energy (wind, solar and hydro), but also make a serious effort to implement energy transition systems such as PSPs and battery energy storage systems (BESSs), to ensure round-the-clock (RTC) renewable energy in the grids.
India is a major force in the global energy economy. Underpinned by strong economic growth and a large population, India is one of the largest energy markets and the third-largest power producer and consumer of electricity in the world. Demand for energy in the country is driven by sectoral disruptions, enhanced penetration of electricity across sectors, rapid urbanisation and industrialisation. Electricity generation in India is primarily dominated by thermal generation, which contributes around 60 per cent of the total generation capacity of 416 GW as of March 2023. Although coal continues to be the largest primary energy source, the country is tapping into its vast renewable energy potential and investing more in renewable power. India has set its mark globally in both the thermal and renewable segments.
After the impact of Covid-19, the power sector has rebounded and witnessed a V-shaped growth over the past two years. Generation, transmission and distribution projects were added as per plans, thus giving an impetus to the electrical and allied electronics sector in India to grow in high double digits in the last two fiscal years. Demand from railway electrification, smart infrastructure, the core sector, the realty sector, etc., has supported this growth.
Most noteworthy is the export performance. Indian exports to both developed and developing nations have improved significantly in the past two years, narrowing down the trade deficit gap. Last year, our industry exported goods worth over $11 billion out of a total production output of about $32 billion.
India is one of the few countries in the world that continues to have positive growth in gross domestic product, and this is being supported by the impressive growth in its power sector. It is heartening to see the way the country has taken significant strides in slowing down the addition of coal-based power plants, and given the necessary impetus to renewable energy.
Today, India is the third-largest producer of electricity in the world, but when it comes to per capita consumption of electricity, India accounts for less than 50 per cent of the global average. This also indicates that the demand for electricity will still grow at a fast pace. In the past year or so, the government has taken some key decisions, such as introducing a transmission plan, evaluating BESS by providing viability gap funding for initial projects, announcing a green hydrogen mission and laying the path for a time-of-day tariff regime – all directed towards the COP26 targets of setting up 500 GW of non-fossil fuel power plants. We believe this is the start, and finer steps for integrating this energy are constantly emerging through regular reviews and deliberations.
Sector dynamics over the world are changing and transforming rightly in favour of renewables. We at Wärtsilä are well positioned to support this transformation and nurture the vision of a 100 per cent renewable energy future.
What are the opportunity areas that you foresee in the next one to two years?
India’s clean energy transition has gathered momentum, setting an impressive pace of growth in renewable power generation. This has been the fastest among other major economies. Remarkably, India has not only fulfilled but exceeded its commitment made at COP21 by deriving 40 per cent of its power capacity from non-fossil fuel sources ahead of schedule. This remarkable progress is all the more significant when considering the country’s expanding economy, burgeoning population, and rapid urbanisation and industrialisation, all of which contribute to India experiencing the most substantial increase in energy demand globally.
This surge in energy consumption, occurring simultaneously with India’s determined energy transition, presents a remarkable opportunity for the widespread deployment of cutting-edge clean energy technologies. Innovations and initiatives such as solar PV systems, wind turbines, biofuels, decentralised power systems, offshore wind projects, hydrogen and advanced lithium-ion battery equipment are poised to play a pivotal role in meeting India’s rising energy needs while reducing its carbon footprint.
Renewable hybrid energy systems can generate round-the-clock power with cost and reliability levels comparable to coal-fired plants. If the economics of hybrid systems reach the levels of coal-fired plants, they can potentially become a viable solution for meeting future baseload power requirements, all at zero carbon emissions and future cost-inflation proof.
Having a deep understanding of the energy sector, we at Thermax are constantly looking for new and innovative solutions to make energy cleaner and more efficient. We partner with technology leaders and industry experts to create innovative solutions in the energy space. These sustainable solutions include wind-solar hybrid plants, biomass energy, waste-to-energy, waste heat recovery and converting biomass into bio-CNG.
Hybrid power (wind + solar + PSP), with the promise of RTC supply, is gaining traction as offtakers want to switch to reliable, RTC renewable energy. Energy storage and transition will continue to be the most lucrative opportunities in the Indian power sector in the next two years, be it BESSs or PSPs. As per the National Electricity Plan, in order to integrate 500 GW of renewable energy into the grid, the country will need 17 GW of additional operational hydropower assets, 27 GW of pumped storage and 47 GW of BESS by 2032.
- The Indian electrical industry is offering new opportunities such as the Rs 3.03 trillion Revamped Distribution Sector Scheme for the implementation of smart distribution systems with provisions to install 250 million prepaid smart meters, supervisory control and data acquisition, and distribution management systems across the country by March 2025.
- The new, emerging areas in the Indian power sector are wind-solar hybrid, offshore wind, floating PV projects, the green hydrogen value chain, the electric vehicle (EV) ecosystem, battery storage and battery swapping.
- India offers a great opportunity for investments in the renewable energy sector; $196.98 billion worth of projects are currently under way in India.
- The green hydrogen mission is expected to enable an annual green hydrogen production of 4.1 million tonnes.
- One solar city per state has been approved, as has been a proposal to set up 45 solar parks with a cumulative 37 GW of capacity across the nation.
- The EV adoption rate in India is going to be among the highest in the world. Passenger EVs could account for 10-15 per cent of new vehicle sales by 2030. Moreover, Indian battery manufacturers will supply 35 per cent of the world’s battery requirements by 2030.
India’s power sector is expected to attract investments worth about $200 billion in the next 3-5 years. As per the National Infrastructure Pipeline 2019-25, energy sector projects account for the highest share (24 per cent) of the total expected capital expenditure of $1.4 trillion.
In my view, the next two years will be very crucial for India’s growth story. India’s current installed capacity is approximately 410 GW, of which 110 GW, that is 27 per cent, is solar and wind. This will be growing continuously to contribute to the renewable energy target of 500 GW by 2030. So as much as a robust transmission system and demand-side management are needed, as per our experience from global power system studies, managing the intermittency arising out of such large amounts of renewable energy will also require flexible generating capacities in the overall system. Hence planning the needed system within the next one or two years and starting its implementation will ensure smooth operations in 2030.
Wärtsilä, with a presence in India since the early 1980s, has delivered about 250 power plants with a total capacity of over 4 GW. We help our customers with decarbonisation through our market-leading flexible technologies and services. Wärtsilä’s portfolio for marine and energy markets includes engines capable of operating on hydrogen, ammonia, methanol, etc. Our solutions, based on gas engines and battery energy storage coupled with energy management systems, play the vital role of managing the intermittency of renewable generation.
What is your outlook for the sector for the next few years? What is your policy wish list for the government?
At Thermax, we specialise in providing industrial captive power plants, cogeneration systems, waste heat recovery power plants, waste-to-energy plants, bio-CNG plants and biomass-based plants to various industrial customers, including those in the steel, cement and distillery sectors. We see this sector undergoing a significant transformation, with a strong shift towards biomass and renewable-based energy generation. This transition is driven by several factors, including reduced costs over the long term, industry-wide sustainability initiatives and favourable policies.
Speaking of policies, we are encouraged by the government’s proactive support for the power sector. It has introduced various PLI schemes for solar manufacturing, green hydrogen and other renewable energy initiatives. Additionally, we are eagerly anticipating the upcoming incentive scheme for coal gasification projects, which we believe will further enhance the growth and sustainability of the sector. Thermax is committed to actively contributing to these developments and working towards the advancement of cleaner and more efficient energy solutions in India.
The recent G20 Energy Transitions Ministerial Meeting concluded with an emphasis on the acceleration of just and equitable energy transitions. This would bring private sector investment along with support from international finance institutions to developing countries for interconnection and cross-border trade in electricity. We are already seeing developments in this regard with Nepal and Bangladesh in our neighbourhood, and would see further growth with participation from the Gulf and African nations.
In addition, India’s power requirement continues to grow at a high single-digit rate on account of climatic conditions, rapid urbanisation and population growth, and increased manufacturing activity. In the months of August and September 2023, India even started witnessing peak power shortages. Overall, the outlook for the power sector is very positive for the next five to eight years.
I would like to further discuss two particular issues related to electrical and mechanical (E&M) supplies for hydropower and PSPs, for which policy interventions would provide the right fillip going forward. Voith Hydro, over the years, has built strong capabilities and capacities locally under the Make in India initiative. With a local manufacturing footprint, Voith Hydro is ready to meet the future challenges of supplying E&M equipment for upcoming PSPs.
The case for separate tender packages in the hydropower sector
An ongoing debate revolves around the choice between the two contracting modes for hydropower projects: engineering, procurement and construction (EPC) contracts, which consolidate both E&M and civil works into a single package; and the alternative approach of requesting separate quotations for the E&M, hydromechanical (H&M) and civil components.
EPC contracts may offer a convenient one-stop solution for developers, but there are several challenges associated with this mode, particularly when the proportion of civil work significantly outweighs the E&M scope. Another issue faced in EPC contracts is their single payment terms, which may not adequately address the cash flow requirements of E&M companies. Further, liquidated damage rates are typically uniform for the entire project, even when the share of E&M is disproportionately smaller than the scope of civil work. This results in an unfair distribution of risks and liabilities.
Separate tender packages for E&M were the norm in the industry two to three years ago. Separate contracts ensured that risks were allocated where they rightfully belonged, fostering greater accountability and efficiency. Contractors could thus focus on their areas of specialisation, leading to better E&M solutions, quicker project completion and improved performance.
Rethinking e-reverse auctions
A significant challenge has arisen in recent times with regard to government tenders for hydropower projects. It concerns the mandatory requirement for e-reverse auctions (e-RA) following the opening of price bids. It is essential to revisit whether this approach is suitable, especially in the highly specialised field of E&M work for hydro projects, where customised solutions are offered for each project based on hydrology.
Conducting e-RA after opening the price bid can result in unfair competition and downward price pressure on contractors. In the context of E&M work for hydro projects, which requires meticulous engineering and specialised expertise, this approach is not desirable. It can lead to companies resorting to recovering some money through claims, leading to avoidable litigation later during project execution.
Government developers could do better by inviting sealed bids in two parts, where the technical bids are opened first and checked for completion of scope and parameters. Thereafter, the sealed price bids can be opened publicly and shared with the participating companies, to discover the lowest price while maintaining transparency in awarding the contract.
India’s remarkable economic growth, rising from the 15th to the 13th largest economy globally, has set ambitious goals for sustainable development. To navigate this transformative path, India must seize the opportunities presented by sustainable practices across multiple fronts, such as energy transition, sustainable mobility, eco-friendly agriculture, sustainable finance and innovative technologies.
The growth of electricity in the country is going to be increased multifold with enhanced penetration across various segments such as transport, industry, buildings, agriculture, cooking and lighting appliances. This indicates the significant role of electricity in the growth of allied sectors. We feel that the role of electricity will become very different and much greater, driving the net zero goals.
The IEEMA has drawn up the Vision 2047 and Mission 2030 plans, with the shared goal of achieving a production output of $65 billion, including $25 billion of exports.
The strategic themes driving the growth of the industry shall be:
- Large-scale clean energy generation and storage.
- Green corridors and quality of transmission networks.
- Digitalisation and reliability of distribution networks.
- Electrification of transportation.
- Urbanisation and smart mega-buildings/factories.
- Green hydrogen ecosystem.
With a continued, collective focus on all of the above by policymakers, and supported by the industry at large, we expect the sector to grow at a consistently healthy rate in the next five to seven years.
Policy wish list
- More PLI schemes by the MoP for domestic manufacturing of select items that are currently mostly imported.
- Replacement of bank guarantees/performance bank guarantees with surety insurance bonds to help the industry improve liquidity.
- Incentive mechanisms for early completion of projects, to promote efficiency in project execution and avoid levying penalties for issues not under the control of contractors.
- Movement towards quality and cost-based selection systems from L1 procurement for all major procurements.
- Use of price variation provisions to mitigate the risk of price fluctuations for all supplies over three months.
- Strengthening of the existing testing infrastructure in India to save foreign exchange.
- An increase in the incentive for research and development (R&D) to 200 per cent tax deduction, and the inclusion of R&D under corporate social responsibility.
- Promotion of start-ups through a suitable financing scheme.
- Increasing the acceptability of test reports from Indian laboratories in foreign countries.
- Reciprocal acceptance of test certificates under free trade agreements (FTAs).
- Revisiting FTAs to correct trade distortions, and ensuring that future FTAs focus on India’s competence and emerging destinations.
The IEEMA and its members are committed and eager to work with the Government of India in realising the energy transition goals – achieving the clean and green energy mission, pioneering the future energy market, and seizing the Sustainable Developmental Goals to realise the collective target pledged at COP26 by the Hon’ble Prime Minister of India.
In the current decade, India’s power sector is poised for significant transformation, not only in terms of demand growth but also energy mix, with significant contribution from renewable energy. India’s quest for fast-tracking the clean energy transition by lowering its dependence on fossil fuels and embracing clean renewable energy sources will also require some critical policy decisions to be successful. Some key ones are:
- Implementing a market mechanism for ancillary services.
- Defining the requirement for primary, secondary and tertiary reserves and taking steps to procure the same.
- Introducing flexible generating capacities along with demand-side management, and a robust transmission and distribution system.
The future of the Indian power sector appears very promising. Challenges will always be there, but the right policy framework can help manage them in an efficient manner. We believe in India’s growth story and are looking forward to supporting the country in its decarbonisation journey.