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December 2009 - January 2010
CII A.T. Kearney Study on Sustaining Growth: Future of Indian Power Sector“About $250 Bn investments would be needed in the power sector over the next 8-9 years”, according to a CII A.T. Kearney Study on `Sustaining Growth: Future of Indian Power Sector’. The study highlights the emerging opportunities and challenges in the future power markets.
The Indian power market is evolving rapidly from a “nascent/ opening” market phase to a “developing” phase. The power demand in the base case is expected to grow at a steady 7.5%-8% CAGR till 2017. Further, the low “power penetration” levels indicate large latent/unmet demand. The power markets will have to achieve consistent high growth rates to bring our per capita consumption to comparable levels of some of the other developing countries like China and Brazil.
Sudhir Trehan, Chairman - CII India Energy Conclave & Energy Expo and Managing Director, Crompton Greaves said, “The emerging dynamics of the Indian power market would require industry players to realign their strategies and operating models to the changing sectoral trends”. “The focus would need to be both on project execution as well as efficient operations, in line with the ‘growth’ characteristics of the sector”, Mr Trehan added.
A.T. Kearney Partner, Kaustav Mukherjee said, “A new era of ‘Power on Power’ competition will emerge by the year 2014 that will bring in at least 80-85 GW of new capacity - 80- 90% of them thermal units targeting high PLF of 80-95% - reducing the base load deficit to a low of 1-2%”. “Accordingly, we expect pricing pressures in the generation space and a 40-50% decline in average short term/merchant prices by 2014-15”, Mr Mukherjee added.
The Report highlights new business opportunities will arise across the value chain. Gas, Hydro and Nuclear energy will renewed interests and growth in addition to coal, which will continue to be the dominant generation fuel.
Renewables will strengthen its role in the sector: Wind energy will continue to grow at 15-20% pa with new opportunities in offshore capacities and large capacity turbines (> 3MW). Government incentives will open up opportunities for solar farms/distributed generation as well as PV manufacturing.
However, constrained fuel supplies present a major threat to the sector’s growth: As per current trajectory, India, in spite of substantial reserves, is expected to confront a supply deficit of ~25% (250 MTPA) of domestic coal by 2014. Similarly, there will be a seven fold increase in uranium requirement for meeting nuclear power ambitions of India.
Distribution, financing and manpower are other concerns that require immediate attention: High AT&C losses and slow rate of discom reforms will hurt the industry in the last mile. Financing may also present a challenge to industry growth. About $ 250 Bn investments will need to be undertaken in the power sector in the next 8-9 years to fuel the planned growth. Similarly, over 150,000 additional skilled and semi skilled personnel required over the next 5 - 7 years.
In the emerging power scenario context, the study has highlighted some critical success factors for the industry
1. Strengthen project management & execution capabilities, to ensure on-time, at cost execution.
2. Secure fuel supplies through well defined fuel sourcing plan especially coal (linkage, captive, imported) and its associated costs. Fuel logistics planning and implementation is also critical and should be a focus for project leadership.
3. Realign market & customer strategy, by striking the right balance between long term PPAs and merchant trading. Reforms will also give rise to customer mix options (SEBs, traders, bulk buyers, etc), which will open up different possibilities. Alternate market facing models like power tolling, distributed generation, peaking power supplies should also be evaluated.
4. Develop Capital and Operational excellence through selection of right technology and suppliers/manufacturers for the units. The asset availability and utilisation should be maximized through O&M best practices.
5. Establish robust organizational enablers, across people –processes and systems. Many organisations will have to manage concurrent “projects” and “operations” stages. Accordingly, a flexible organisation structure should to be designed and implemented.
Overall, the report is cautiously “optimistic” about the Indian Power Sector and its ability to support India’s growth aspirations. Effective implementation of next generation reforms, addressed constraints in fuel, financing and distribution and improved access & reach of Power / realisation of latent demand will ensure sustained growth of the sector and enable REAL “Power for All”!