Is it the “real” second coming for the Power sector in India? - Feedback

Power is one sector in India which often brings to mind the sorry state of affairs of delayed projects, developers losing money and the news of load shedding all around. With the rising temperatures in the North, the failing power sector news is often hyped up more, leading one to lose patience with this sector. There have been many small initiatives taken up in the last 5-6 years, which showed some hope of a “Second Coming” for the sector, but failed to live up. So, is the “Real” second coming in the Power sector about to be true?

Power sector in India was opened up post liberalization in 2001 and with the introduction of Electricity Act 2003, it paved way for some structural reforms in the sector for the first time. The result of this was seen in the 11th plan period of 2007-2012.

  • Launch of Electricity Act in 2003 opened up the sector for private sector participation and the beginning of reforms in the state led Power utility business in India
  • The impact of this Act was witnessed in the 11th Plan period of 2007 to 2012 which has witnessed dramatic change for better in the sector by freeing up Power capacity addition to private sector. For the first time in history, there was a record generation addition of 89 GW in the period of 6 years in India. This was predominantly driven by private sector participation and an increased share of Renewable Power in power generation addition in India
  • Initial reforms were bought in the T&D sector, while Transmission made some improvement, the Distribution Sector was still a laggard

However, a sector so neglected for the past 60 years could not be solved with one major Act and needed constant efforts to boost the sector. Unfortunately, this was seen lacking in the last 4 years. In the last 3-4 years, the sector has been impacted adversely by the policy paralysis in the Central Government and the insensitivity of many State Governments. The 2010-2013 period was a period of no major forward movement on the earlier reforms of 2003-2008, rather, the sector witnessed a further deteriorating environment with

  • Continued public appeasement with low prices and free power worsening the financial conditions of utilities
  • Coal scam and Environmental clearances were hard to come by impacting Fuel availability, ROW in Transmission and Green clearance for Thermal plants delaying projects
  • Cost of doing business went up in India impacting new investments due to the overall macro economy downturn

But the situation is set to change now and the next 5 to 7 years are very interesting times for the Power sector. The Sector is likely to be a key focus area for India. An early indication of the new NDA Government showcases a very positive outlook for the sector. Some positive vibes which has propelled most large Power sector firm’s stock prices to reach new highs are:

  • The first sign of forward movement was forming of a Common Energy  Minister (Power, Coal and New & Renewable Energy) hastening the inter-department co-operation and making fuel available for both existing and new projects.
  • Environment activism is likely to be put in the back burner and quicker decisions are likely to be made and projects cleared. The Environment Minister has recently said that India cannot stop developing, signaling a clear shift when it comes to sensitive sector projects.
  • Energy partnerships / Infra partnerships with other nations such as Japan, EU, China and USA will see investments being bought in these sector
  • The Center – State relationships likely to be changed for better with Power being one of the key points of discussion and making the states involved in improving the Distribution utilities finances with reforms – Focus on reducing AT&C losses (efficiency-linked incentives) by grid strengthening and new technologies (Smart Grid) and metering of power rather than raising Power Tariffs. As stated recently by the new Power minister, the focus of the new Government is going to be on Feeder segregation, metering consumption and harnessing renewable energy potential are the key focus areas.
  • The New PM has already indicated the “Solar Revolution” in the making – likely to witness very aggressive policy for Solar Power generation in India
  • Active Energy participation with neighboring SAARC countries to impact the Power Sector much more than any other sectors – import / export of power and export of technology / Power EPC
  • Formation of 2 PSU’s in Renewable energy – formed by bring in funds from Oil cos and IREDA & MNRE for the RE technology perspective. 2 PSU’s – one headed by ONGC and one by IOC will be formed. One will be formed to make large scale, grid connected projects and the other will be formed to off-grid projects. The funds from these oil cos specifically from their CSR budgets will be utilized to form these energy firms and add to the energy security in the country.
  • Centre asks States ERC’s to increase tariffs periodically

While the initial signs are very positive, the upcoming budget will be a first clear indicator on the Government’s intentions and the push this sector gets.  We will continue to track the developments in this sector.

About A. M. Devendranath

Vice President, Head - Energy Practice Feedback Business Consulting Services Private Limited I

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