The power sector in India is geared up to transition to a clean energy future. While the renewable energy segment will witness an increase in capacity additions, emerging sectors such as smart metering and energy storage will also gain momentum. Leading financiers share their views on the sector’s performance, the investor sentiment, key challenges and the future outlook…
What is your assessment of the power sector’s progress during the past year?
In my view, the power sector’s performance in the Past year has been quite good. The two most important developments have been the courts ruling in favour of developers on tariff-related matters, and receivables being delivered quicker across most state government discoms. The introduction of the PRAAPTI portal has played a huge role in ensuring reduced receivable days.
For the power sector in India, 2022-23 has been a happening year in many ways. Power generation has grown by 8-10 per cent across sources, showcasing the rising demand in India. At the same time, many states have managed to reduce their aggregate technical and commercial (AT&C) losses significantly, bringing the overall national average to about 17 per cent. Smart metering has gathered pace, and some states have been able to make notable progress. Further, schemes such as production-linked incentives for manufacturing of high efficiency solar modules are likely to give a boost to domestic manufacturing, which is lagging, especially in the renewable energy sector. Meanwhile, the government has given positive indications about the closer integration of the grid in South Asia and eventual electricity trade through the notification of new regulations and signing of memorandums of understanding. Moreover, after a long time, thermal power has made a comeback and new supercritical capacity additions are being planned. Furthermore, the addition of renewable energy capacity and the corresponding requirement of storage solutions have received keen focus, and 2022-23 has seen a large amount of activity in the pumped storage sector.
What is the current investor sentiment with respect to the power sector?
Investors are quite bullish with respect to the renewable sector. Both domestic corporates and foreign funds have invested large sums of money in the recent past. The size of deals has also increased significantly. With the government’s target of 500 GW of renewable energy by 2030, one should expect an increase in funds being infused by investors, as well as the advent of new investors in the sector.
What are the biggest unresolved issues facing the sector?
Some of the biggest unresolved issues for the power sector in India:
- Further improvement of the financial health of discoms: Significant improvement has been made in the distribution sector in India, to the point that AT&C losses have declined to an overall average range of 17 per cent. However, to achieve a further decrease to about 12-15 per cent over the next two to three years, steps such as modernisation of distribution infrastructure, smart metering and time-of-day metering are needed.
- Faster implementation of storage solutions: Due to the overall target of adding 500 GW of renewable energy capacity by 2030, new challenges in the form of grid stability and load management are arising. Therefore, faster implementation of affordable storage solutions, including battery and pumped storage, is the need of the hour. Furthermore, in order to improve their viability, new commercial solutions pertaining to monetisation of ancillary services (spinning reserve, reactive power, peaking supply, etc.) are crucial.
- Matching investments in transmission and distribution infrastructure: The huge generation capacity addition in the power sector is likely to pose challenges for the transmission and distribution segment. Further, investments in the transmission and distribution segment, especially in the smart network, are essential to herald the next generation of reforms in the power sector in India.
What is the investment outlook for the sector over the next one or two years?
The outlook for the sector is looking positive. The key opportunity areas include:
- Consolidation of operational assets, predominantly through infrastructure investment trusts.
- Replacement of captive thermal power with renewable energy through commercial and industrial power purchase agreements.
- Investments in large pumped hydro projects.
- Increased participation in round-the-clock bids.
- Investment in power storage technologies.
The power sector in India is now geared up to resume its journey into the future. While more and more capacity addition is expected in the renewable energy space, increased activity shall also be witnessed in emerging sectors such as energy transition, smart metering and storage solutions. In addition, investment in the supporting infrastructure, especially in the fields of transmission and distribution, is expected to increase, corresponding to greater installed capacity. Moreover, associated sectors such as electric vehicles (EVs) and EV charging are expected to witness fast-paced investment. Besides these new sectors, considering the huge demand jump and slippages in the capacity addition targets of non-conventional sectors, some investment in conventional hydropower and coal-based thermal generation is also likely to be witnessed. Therefore, the short to medium-term investment scenario for the power sector in India is optimistic and the sector is poised to attract substantial investment.