Sustainable Power for Future

8/2/2019 Sustainable Power for Future

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Sustainable powerfor future


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Sustainable power for future 1

Contents

Section 1: Introduction 4

Section 2: Fuel to meet the growing power demand 6

Section 3: Availability of necessary infrastructure support 7

Section 4: Regulatory support 8

Section 5: Merchant power plants 10

Section 6: Emerging trends in power 11

Section 7: Sustainability challenges in the power sector 16

Section 8: Strategically targeting the key sustainability risks

and identifying opportunities 19


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Sustainable power for future2

Foreword

India has been witnessing

rapid economic progressover the last decade and this

growth is bound to continue

over the long term. However,

such sustained growth cannot

be achieved without having

the fundamentals of economic

development in place. Power

is one such fundamental

constituent for economic progress. With the rising

energy demand, the annual per capita electricity

consumption has signicantly increased, reective of

the opportunities and avenues present in the Indian

power sector as this sector holds great potential for the

foreseeable future, as is also amply evident through the

growth in the Indian economy.

The capacity addition of power generation in the public

power sector is expected to be 62,000 MW during the

Eleventh Plan Period (20072012), which is lower than

the projected target of 78,000 MW. However, the

capacity addition in the private sector is expected toexceed the set target, which is estimated to positively

impact the development of the power sector. In its

endeavor to encourage private entities to invest in

power generation to meet the demand-supply gap for

power, the government has been proactive in bringing

about various reforms. There is a strong need to

integrate and address concerns such as the availability

and transportation of coal, tariff xation and the

emergence of non-fossil fuel to meet power demand,

environmental risks and interstate issues in the

evacuation of power, among other sector activities, in

order to lend an impetus to private players to enter the

Indian power market.

Thermal power plants using coal currently accounts

for 64% of our total generation capacity. With India

targeting 9% GDP growth, the peak demand is

projected to be around 217 GW. It is expected that

60% of this projected demand would be met by coal.


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However, alternative energy has demonstrated a

positive uptrend in India, and with its ourishingperformance, the country is well poised to capitalize

on this growing opportunity. As the Government of

India rises to the challenges of energy security and

climate change, renewable energy has emerged as one

of the most promising alternative solutions.

Further, companies have to be well prepared to deal

with the upcoming climate legislations and taxes.

Organizations need to develop a long-term carbon

strategy for their operations by effectively reducing

and offsetting their carbon footprint. The path to

transformation from a conventional organization to a

climate-responsive organization through sustainablestrategies and solutions would also bring a host of

opportunities with them.

At this critical juncture, Ernst & Young Private Limited

is extremely happy to be associated as the knowledge

partner in conducting this conference on Sustainable

power for future in association with CII. The theme

and underlying objective of the conference is to focuson the power sector and to reach out to the larger

business audience in terms of opportunities that the

renewable energy sector provides. This is critical for

the creation of a sustained platform for the Indian

power sector for energy security and in addressing

the nations stand on climate change.

Sujeet Kishen Waghray

Executive Director

Climate Change & Sustainability Services

Ernst & Young Pvt. Ltd.


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The southern region, comprising Andhra Pradesh, TamilNadu, Karnataka, Kerala, Pondicherry and Lakshadweep,

accounts for 27% of the electricity demand in India. Notably,

the share of coal in the installed capacity at 41% is less than

that in any other region, save the countrys north-eastern

states, while the region is a leader in renewable capacity, at

18% of the total.

Section 1Introduction

Southern region energy requirement (MU): 200910

Source: CEA

Andhra Pradesh,

78,996

Karnataka,

45,550

Kerala,

17,619

Tamil Nadu,

76,293

Pondicherry,

2,119

Lakshadweep,

24

Source: CEA

Mix of available generation capacity includingallocated CGS MW (August 2010)

0 20 40 60 80 100

Northern

Western

Southern

Eastern

Islands

All India

Coal

Gas

Diesel

Nuclear

Hydro

RES

North-

Eastern

The split of consumers is similar to what has been witnessed

in the northern and western regions: industrial consumers (LT

and HT) constitute the largest demand, followed by agricultural

and domestic consumers. Despite having a similar consumer

prole, the southern region has the lowest (aggregate technical

and commercial (ATC) losses among all regions in India. More

importantly, even with a lower base, the region has demonstrated

the highest degree of improvement in loss levels among its peers.


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Source:CEA

5,094 19,34525,966

95,340

Commissioned in XI Plan

(Aug 2010)

Under development

Capacity addition in XI and XII plan, MW

South All India

Andhra Pradesh, Karnataka, Tamil Nadu and Kerala representvery different stories in electricity sector reforms. While

the rst of these Andhra Pradesh (AP) was a pioneer in

opening up the sector to private investment in the 90s, and

while both AP and Karnataka have unbundled their sectors into

generation, transmission and distribution as the rst step in

the reforms process, the latter two states of Tamil Nadu and

Kerala are still unbundled at the time of writing.

With a demand shortage of 11% and an energy shortage of

6%, the southern region, as the rest of the country, has an

immediate need for power. The good or bad news is that

this need for power is not constant; it is on the rise all the time.

Indias projected demand in 2017, at an 8% GDP growth rate,

would be 1425 TWh by 2017 and 1980 TWh by 20221 (as

compared with 771 TWh of the energy supplied at bus bar in

200910). If the share of 27% for the southern states were

to be held at a constant, then the regions energy requirement

would be 385 TWh by the end of the Twelfth Plan and 535 TWh

by 2022.

To meet this growing demand, India would need adequate fuel,

infrastructure and regulations.

Much of this demand would be met by plants outside the

Southern region. Of the total MW capacity estimated to be added

from plants already commissioned or under some stage of

development in the XI and XII Plan period, around 20% are from

the South. This is lower than the historical and estimated power

consumption in the region, which is 27-28%.

State-wise capacity addition under XI and XII plant, MW

0

2,000

4,000

6,000

8,000

10,000

Tamil Nadu KAR Kerala AP

Commissioned

Source: CEA

Under development

0

10

20

30

40

50

Eastern North-

Eastern

Northern Southern Western

ATC losses (%)

200708 200809200607

Source: PFC Report on Performance of State Power Utilities

Source: Integrated Energy Policy and EY analysis

Electricity demand, TWh

7121026

1425

1980

192 277 385535

2007 2012 2017 2022

Total India Southern region

Source: Integrated Energy Policy and EY analysis

Supply and shortage in the southern region

0

2

4

6

8

10

12

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Mar-10

Apr-10

Jun-10

Demand (MW) Energy (MU)

Demand shortage % Energy shortage %

May-10

Feb-10

Jan-10

Dec-09

Nov-09

Oct-09

Sep-09

Aug-09

Jul-09

0

50

100

East North South West

Domestic Commercial Agricultural Industrial Others

North-East


Electricity sale by consumer: 200809 (%)


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The immediate pertinent questions to meet the projected

power demand are: where is this supply going to come from

which regions, what fuel types, and does India, specically

Soth India, have the wherewithal to manage it?

While domestic coal is still the lowest cost option currently,

policy support has been navigating the sector to a wider

spectrum of diversied energy alternatives. The lowest-cost

paradigm was created in mid-2000 with the popularity of tariff-

based bidding. The distinct cost advantages of pithead-based

projects became apparent with the discovery of extremely low

prices in these bids (refer to Table 1).

The substantial cost advantages of pithead-based projectsbrought into question the viability of other sources, particularly

where sourcing was going to be through the case 1 route. The

allocation of 200+ coal blocks for captive mining strengthened

the impression that pithead-based plants were the only feasible

option for power generation.

In subsequent years, obtaining forest and environmental

clearances from the respective state and central ministries has

emerged as a major challenge for the development of these

captive mines. This could become one of the major obstacles

for power producers to access resources. Social unrest among

the indigenous population in some of Indias mineral-rich states

has also exacerbated the problem of developing mining assets

for coal producers and owners. In the meantime, the

demand for power has risen unabated, which has created

diverse opportunities for alternate sources of energy. For

the Twelfth Plan projects, the government has drafted a

policy for coal-block allocation wherein contenders would

qualify through a points-based system. One of the signicant

features of the policy is that IPPs located within 150 km of

the nearest port will have to meet 30% of their coal

requirements through imports.

Currently, the government is considering the use of the import-

price parity for pricing domestic coal. If any steps were to be

taken in that direction, region may witness additional growth

beyond domestic coal.

The choice of fuel would, to some extent, determine the

location of future projects. Pithead-based plants would mean

that the generating capacity would come up in the eastern

region (and in the lignite districts of Andhra Pradesh), while a

move toward imported coal would mean power plants on the

coast, of which the southern states have plenty.

Section 2Fuel to meet the growing powerdemand

Table 1: L1 and L2 levelized tariffs of some landmark bids

(Pithead projects are italicized)

Year Project L1 L2 Difference

2006 Sasan 1.19 1.41 0.22

2006 Mundra 2.26 2.66 0.4

2007 Bhaiyathan 0.81 0.88 0.07

2008 Krishnapatnam 2.33 2.68 0.35

2009 Tilaiya 1.77 2.39 0.62

Source: Times of India, The Economic Times, Business Line

Table 2: Coal linkage policy for the Twelfth Plan projects

Import for state andcentral projects

Government to x the quantum of coal importfor state and central gencos

Points-based systemfor linkages

Supercritical technology, at pit-head orin state where no major plants have beenplanned in the Eleventh/Twelfth Planshelves, usage of sea water, progress of landacquisition

Import for IPPs IPP projects located within 150 km fromthe nearest port will be required to meet atleast 30% of their coal requirements throughimport

No linkages forimported coal

No domestic linkages to power plants basedon imported coal in the Twelfth Plan

Source: CEA


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The third question is: does the southern region have the hard

and soft infrastructure to support growth? The issues with

hard infrastructure manufacturing plants, fuel supply, port

capacity, usually take center-stage, but it is equally important

to focus on the three kinds of soft infrastructure that will be

needed technology, manpower and enabling regulations.

The rst is technology: Indian companies have been

traditionally strong in the balance-of-plant (BoP) and contract

management under EPC, and if the state-owned behemoth

BHEL were to be included, it would demonstrate equal strength

in the manufacturing of boilers and steam turbine generators

(STG) as well.

The power sector can draw an interesting parallel with the

auto sector, which is also growing rapidly, where technological

know-how has percolated to domestic companies through the

JV route and licensing arrangements, and where indigenous

manufacturing is essential to compete in the market.

In this context, the conditions stated for NTPCs tender for

BTG equipment, which require the involvement of an Indian

company or JV, are signicant. CEA subsequently issued

guidelines for sourcing equipment, urging developers to strive

for achieving indigenization in supply.

The key international players in the BTG space have already

moved to establish JVs in India, aiming for a capacity addition

of 26,000 MW in boilers and 17,000 MW in STG.

Table 3: CEA guidelines on the selection of BTG suppliers for supercritical equipment

Foreign manufacturer A qualied bidder must have an Indian subsidiary/JV with a minimum 51% holding or 26% in JV with a sevenyears lock-in period. The deed of joint undertaking should be provided, making a JV, subsidiary and qualied

bidder jointly liable for performance as per the contract.

Indian subsidiary Indian subsidiary of a qualied bidder as per the aforementioned clauseIndian JV JV with a qualied bidder as per the rst clause

Indian partner of JV Indian partner of JV as per rst clause

Indian manufacturingcompany

Indian manufacturing company with the experience of manufacturing 500 MW boilers or subcritical steamturbines, with a valid ongoing collaboration and technology transfer agreement with a qualied bidder

Source: CEA

Section 3Availability of necessary

infrastructure support


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The second dimension is regulatory support. Here, it shouldbe noted that while the Electricity Act, 2003 has made

signicant improvements to the viability of the electricity

sector, fundamental issues still need to be addressed. Some

of these are:

Open access and Section 11 of the

Electricity Act

Open access was a cornerstone of the Electricity Act, but its

success has been limited on account of high cross-subsidy

surcharges and reluctance of states to part with power; as

has been the case hitherto. Originally meant as a measure tobe invoked under conditions of emergency, the states have

resorted to Section 11 when faced with electricity shortages.

Tariff cross-subsidiesHistorically, industrial and commercial consumers in India have

been subsidizing domestic and agricultural users. Over time,

this has led to the increased use of captive power by large

industrial users, with the consequent loss of revenues for state

electricity boards. The National Tariff Policy was an attempt to

correct this anomaly: one of its salient recommendations was

the gradual removal of tariff-cross subsidies, with any subsidies

being funded directly by the state.

Specically, the policy advocated bringing the gap between

tariff and cost of supply to plus-minus 20% by 2012. Currently,

however, it is still short of realizing that goal.

Cross-subsidies create articially high tariffs, which further

incentivizes users to migrate to open access or captive power.

A liberal open access regime acts as a natural check to

excessively distorted tariffs, and it is here that governments,

regulators, discoms, power producers and the civil society need

to pull in the same direction.

Section 4Regulatory support

Section 11 of the Electricity Act states that:

1. An appropriate government may specify that agenerating company will, in extraordinary circumstancesoperate and maintain any generating station inaccordance with the directions of that government.

For the purposes of this section, the expressionextraordinary circumstances refers to circumstancesarising out of the threat to the security of the state,public order or a natural calamity or such othercircumstances arising in the public interest.

2. The appropriate commission may offset the adversenancial impact of the directions referred to in

sub-section (1) on any generating company in suchmanner as it considers appropriate.

Though this section clearly states that section 11 can beinvoked only in circumstances arising out of the threat to thesecurity of state, various state governments are using it as atool for denial of open access.


Revenue gap (ARRACS) of southern discoms (%)

0

20

40

60

80

100

120

140

APCPDCL

APEPDCL

APNPDCL

APSPDCL

BESCOM

GESCOM

HESCOM

MESCOM

CHESCOM

KSEB

PuducherryPD

TNEB

200607 200708 200809

-20

Source: Electricity Act, 2003


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ATC losses

ATC losses remain an area of improvement for all discoms. The

improvement in commercial losses would make it possible to

reduce the overall subsidy to the sector, while the improvement

in technical losses would increase the energy available to the

end consumers at no extra variable costs.

Discoms have been attempting to address the problem of

high losses since before the reforms were initiated, but the

progress has been somewhat sluggish. As mentioned earlier,

the southern states have done far better than the rest of the

country despite having a similar split of industrial, domestic

and agricultural consumers. Nevertheless, there is ample

room for improvement, given that in the developed markets,

loss levels are about 25%50% of what they are in the best of

Indian states.

In the early days of distribution reforms, it was believed that

privatization would solve the problem of ATC losses. While

privatization has not taken off in the distribution sector,

except in some states, discoms have realized the benets that

a private operator can bring in curbing losses through the

franchise model.

Table 4: Select features of the National Tariff Policy

Direct subsidy State governments can give subsidies to the extent they consider appropriate as per the provisions of Section 65 of theAct. Direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross-subsidizingthe tariff across the board. Subsidies should be targeted effectively and in a transparent manner. As a substitute of cross-subsidies, the state government has the option of raising resources through the mechanism of electricity duty and givingdirect subsidies only to consumers who are really needy. This is a better way of targeting subsidies effectively.

Linking tariff tothe cost of service

To achieve the objective that the tariff progressively reects the cost of supply of electricity, the SERC would notify a

roadmap within six months with a target that latest by the end of 201011, tariffs are within 20% of the average costof supply. The road map would also have intermediate milestones, based on the approach of a gradual reduction in crosssubsidy.

Source: National Tarrif Policy

38

33

30

26 26

12

8 76

4 4

Nigeria India Nicaragua Pakistan Cameroon Russia UK China US Japan Germany

Transmission and distribution losses (%)

Source: CEA


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Pure merchant power plants are still a rarity: apart fromsome hydro-plants, and most notably, the plants at JSPL and

JSW in Rajasthan and Chhattisgarh, merchant capacity is

typically what remains after 60%70% of the capacity has been

contracted through a PPA.

Nevertheless, part-merchant operations have emerged as an

attractive option. In case 2 bids, particularly in the case of

pithead-based plants, the provision of a merchant upside, has

often led to contracted tariffs being driven to cost.

There are several factors that shape the dynamics of merchant

power in the southern region:

FinancingPure project nance for a merchant plant is rare at most

places in the world. Nevertheless, projects with sound

credentials a cheap source of fuel, proven technology

and creditworthy offtakers do achieve nancial closure.

However, nancing a plant with part merchant operations

is easier.

Inter-regional transmission capacityInter-regional and intra-regional transmission capacity

constraints help high-cost producers and adversely impact

low-cost producers. For coal-based merchant plants,

intra-regional constraints are undesirable (in the southern

region), while inter-regional constraints may actually work

in their favor by limiting the ow from low-cost pithead

sources (CERC has introduced a system for transmission

pricing, which effectively replaces the old postage stamp

system and avoids pancaking of transmission charges).

VolatilityThe recent volatility in short-term prices has been extreme.

In the S1 region, for instance, peak prices have variedbetween INR2.2/unit and INR6.28/unit. While long-term

merchant prices are pegged at INR3.54.0 per unit, there

will expectedly be periods of low PLF. Developers have to

be cognizant of that risk, particularly as the higher share

of hydro and renewable alternatives in the south could

amplify volatility.

Section 5Merchant power plants

Day ahead power price (INR/MWH): S1 region

02,000

4,000

6,000

8,000

01-07-2010

06-07-2010

11-07-2010

16-07-2010

21-07-2010

26-07-2010

31-07-2010

05-08-2010

10-08-2010

15-08-2010

20-08-2010

25-08-2010

30-08-2010

04-09-2010

09-09-2010

14-09-2010

19-09-2010

24-09-2010

29-09-2010

04-10-2010

Night average Day average

Evening (peak) average

Source: PXIL


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According to the BP Statistical Review of World Energy, June2010, the energy consumption of India has increased at a

CAGR of 5.3% since 1999, reaching 469 million tons of oil

equivalent in 2009. With rising consumption levels, there is an

increasing risk of depleting hydrocarbon energy sources and

the associated climate change concerns. However, coal is the

primary source of power in India, and given the large reserves

of coal in India, coal is expected to be the primary source for

energy.

Environmental and climate change concerns have heightened

the focus on improving efciency with high-efciency

supercritical power plants being encouraged by the

Government of India. The country is focused on increasing theenergy supply through renewable energy, nuclear energy and

improving energy efciency.

Solar energy is still at a nascent stage and has a major cost

disadvantage against conventional energy sources such as

coal, gas and oil. Under various schemes, the Government

of India offers generation-based incentives (GBI), renewable

portfolio standards, tax benets and capital subsidies to

promote renewable energy. With technological improvements

and government-sponsored incentives, the use of solar energy

in electricity generation and heating applications is expected to

increase signicantly.

Nuclear energy appears highly attractive as it has low-carbonemissions. Further, nuclear power would diversify Indias

energy portfolio and has the potential to be scaled up to meet

Indias rising energy demand. The development of nuclear

power in India was held back due to restrictions on the sale

of nuclear fuel and technology to India. The civil nuclear

cooperation between US and India has rejuvenated the nuclear

energy sector in India. Nuclear power is expected to rise to 20

GW in 2020 from the current capacity of 4.6 GW.

Solar energyThe global solar PV capacity has increased at a CAGR of 41%

during 20002009. Despite the credit crunch and the severe

economic recession, the worlds PV capacity increased at 47%

y-o-y to 22.9 GW in 2009. This growth was driven by new

capacity addition in Germany (3.8 GW), Italy (730 MW), Japan

(484 MW), the US (477 MW) and Czech Republic (411 MW),

which collectively accounted for more than 88% of the growth,

due to continued government support in these markets.

India receives high solar radiation and has a recorded annual

solar radiation incidence of 5,000 trillion KWh1. Given the

high solar irradiance, the Government of India is encouraging

solar power plants under the Jawaharlal Nehru National Solar

Mission (JNNSM). The mission is focused on achieving grid

parity for solar energy, increasing grid connected solar power

generation and has envisaged an ambitious target of 20 GW of

solar installed generating capacity by 2022.

Section 6Emerging trends in power

1. Potential of Solar PV for Distributed Power Generation in Rural & Urban India, Solar Semiconductor, August 2009

Global solar PV installed capacity trend

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

5,000

10,000

15,000

20,000

25,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Growthy-o-y

CapacityMW

CapacitySource: Statistical Review of World Energy, June 2011

Growth

With five-fold increase

in capacity, Spainbecomes the second

largest solar market

Germany

initiated FIT

for solar


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arm of NTPC, has been designated as the nodal agency to

purchase solar power generated by independent solar power

producers, at rates xed by CERC and for a period of 25 years.

For 201011, CERC has xed the rate of INR17.9/unit for PV

and INR15.3/unit for solar thermal power plants. Tamil NaduElectricity Regulatory Commission has xed INR18.45/unit for

electricity generated under the Rooftop Power and Standalone

Small Grid-Connected Power Plant Scheme. Karnataka

Electricity Regulatory Commission has xed promotional

tariff of INR14.5/unit for photovoltaic power and INR11.35/

unit for solar thermal based generation. Also, manufacturers

of polysilicon, silicon wafer and PV cells can avail the capital

subsidy of 20%25% under the SIPS scheme, which is expected

to reduce the capital cost of installing solar power plants.

NVVN has received 418 requests for selection applications

to generate 1,740 MW, which far exceeds the target of 150

MW for Phase I. The enthusiastic response is driven by thegeneration-based incentives offered for solar power. Under the

JNNSM, solar plants for which PPA has been executed with the

respective distribution utility/state government, but have not

been commissioned before 19 November 2009, will be allowed

to migrate to NVVN. MNRE has identied 16 project developers

with a total capacity of 84 MW as eligible for migration to the

JNNSM scheme.

The JNNSM is divided into three phases with the following main objectives:

Table 5: JNNSM objectives and targets

Parameters Phase I (20102013) Phase II (20132017) Phase III (20172022)

Solar deployment Scale-up Rapid scale-up

Objectives Drive down costs

Spur domestic manufacturing

Promote off-grid applications

Validate social and economicviability of different solarappliances

Scaling up of various validatedapplications

Roll-out of business models

Solar power cost reduction toachieve grid tariff parity by2022

Utility grid power, including

roof top (MW)

1,100 4,00010,000 20,000

Off-grid installations (MW) 200 1,000 2,000

Solar collections

(million square meters)

7 15 20

Source: Mission statement for Jawaharlal Nehru National Solar Mission, www.mnre.gov.in , accessed 30 September 2010

The solar market in India is characterized by off-grid

applications as compared to the west where the focus is

on grid-connected applications. As in the case of any industry

which is in the early phase of development, the solar energy

market in India is imbued with its teething concerns, which aretypically witnessed at a nascent stage. These predominantly

pertain to high capital costs, lack of awareness of the

benets and the potential of solar energy as well as the

lack of standardization of products and systems. However,

policy makers have taken steps in the right direction to

address these issues, as has been witnessed through the

launch of various schemes and initiatives in recent times.

Most domestic players operate in the manufacturing and

system assembly segments and are totally dependent on

imports for raw materials. However, this is set to change as the

Government of India is promoting the production of polysilicon,

silicon wafers and PV cells through the special incentives

package scheme (SIPS). This will, in turn, minimize the overall

manufacturing costs, strengthening Indias position in the

global solar energy market.

Some of the Indian states are implementing renewable

purchase obligations (RPO) based on the potential for

renewable energy in the respective states. Under JNNSM,

NTPC Vidyut Vyapar Nigam (NVVN), which is the power trading


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The state governments of Tamil Nadu and Andhra Pradesh

have encouraged energy generation through attractive tariffs.

In June 2010, Indias rst 3 MW solar power plant was

inaugurated at Yalesandra in Karnataka

Nuclear powerAccording to the integrated energy policy of India, the existingcoal reserves would be exhausted in 45 years if domestic

production rises by 5% every year. Given this projection as well

as the concern regarding carbon emissions, nuclear power is

the only way forward to meet Indias ever-increasing energy

needs. India is targeting 20 GW by 2020 and 63 GW by 2032

from nuclear energy.

India has modest reserves of Uranium, the primary and

established nuclear fuel. India has around 115,000 tons2 of

Uranium resources, which is insufcient to meet Indias goal of

20 GW by 2020. The Indo-US nuclear deal and the agreement

with the Nuclear Supplier Group will help India secure fuel forits planned nuclear capacity.

South India has abundant reserves of Thorium and nuclear

power is a good option to meet the growing demand for power

in South India. Kalpakkam in Tamil Nadu and Kaiga in Karnataka

are the two operating nuclear power plants in India and a

new nuclear power plant is expected to be commissioned in

Kudankulam, Tamil Nadu in 2011.

Table 7: Operating nuclear power plants in India

Reactor State Type Capacity

(MWe )

Commercial

operation

date

Tarapur 1and 2

Maharashtra BWR 320 1969

Kaiga 1 and 2 Karnataka PHWR 440 199900

Rajasthan 1 Rajasthan PHWR 100 1973

Rajasthan 2 Rajasthan PHWR 200 1981

Kalpakkam 1and 2 (MAPS)

Tamil Nadu PHWR 440 198486

Narora 1 and 2 UttarPradesh

PHWR 440 199192

Kakrapar 1and 2

Gujarat PHWR 440 19931995

Rajasthan 3and 4

Rajasthan PHWR 440 199900

Rajasthan 5

and 6

Rajasthan PHWR 440 February and

March 2010Tarapur 3and 4

Maharashtra PHWR 1080 200506

Kaiga 3 Karnataka PHWR 220 2007

Total capacity 4,560

Source: Plants under operation on the Nuclear Power Corporation of India

Limited website, www.npcil.nic.in, accessed 30 September 2010

Table 8: Nuclear capacity under construction

Power plant Capacity

(Mwe)

Expected commissioning

date

Kudankulam 1 and 2 2,000 March to December 2011

Rajasthan 7 and 8 1,400 June to December 2016

Kaiga 220 December 2010

Kakrapar 1,400 June to December 2015

Total capacity under

construction

5,020

Source: Projects under construction on the Nuclear Power Corporation of India

Limited website, www.npcil.nic.in, accessed 30 September 2010

2. Mr. Prithviraj Chavan, Minster for State for Science and Technology and Earth Sciences, Indias Uranium reserves at 115,000

tonnes, Hindustan Times, 23 October 2008

Table 6: Tariff for solar-based power for different Indian

states

States Solar PV Solar thermal

Andhra Pradesh 7 7

Karnataka 3.4+12* 3.4+10*

Kerala 3.18+12 0Maharashtra 3+12* 3+10*

Rajasthan 15.7 0

Tamil Nadu 3.15 3.15

West Bengal 11 11

Haryana 15.96 0

Source: Report on Development of Conceptual Framework for Renewable

Energy Certicate Mechanism for India, prepared by ABPS Infrastructure

Private Limited for Ministry of New and Renewable Energy (MNRE),

June 2009, p. 38.

The installed capacity of nuclear power in India is nearly 4.6

GW and the capacity under construction is 5.0 GW, of which

2.2 GW is expected to be commissioned in 2011.


16/28


The Government of India will give preference in allocating

coal linkages to supercritical power plants to encourage plant

efciency, economies of scale and reduce environmental

impact. Projects using supercritical technology will be allocated

20 points out of a total of 100 points used in allocating coal

blocks. Of the remaining 80 points, 50 would be based on the

status of land acquisition, 20 for projects located at pitheads

and the balance for generation plants using sea water instead

of fresh water.

The Government of India is planning to establish eight

ultra-supercritical power plants. Ultra supercritical power

plants operate at a pressure of more than 300 bar, and

result in further improvement in efciency over supercritical

power plants.

JVs for coal mining: coal MDO concept

In recent times, the joint venture route to coal mining has

become increasingly popular, especially with government

companies. In this model, the mine owner is typically

responsible for proving the resource, land acquisition, relief

and rehabilitation, approvals from various agencies, including

environment and forestry and other facilities. The mine

developer cum operator (MDO) is responsible for mine designand planning, construction, coal handling, mine equipment

and operations.

Private sector players in India can install nuclear power

plants only by forming joint ventures with the Nuclear

Power Corporation wherein private players will be the minority

shareholders. Various private players, including Tata Power

and Reliance Power, have expressed their interest in setting

up nuclear power plants. Some of the companies have formed

joint ventures to address the opportunities in the nuclear

value chain such as forging, EPC and services for nuclear

power plants.

Supercritical and ultra supercriticalpower plants

A few coal-red ultra-mega-power projects using supercritical

technology rather than sub-critical technology (used

for existing power stations in India) are currently under

development. Though the supercritical technology costs

are more than that of subcritical technology, supercritical

technologies result in lower fuel consumption, and hence,

lower carbon dioxide (CO2) emissions as compared to

subcritical technologies.

Source: Issues in captive coal block development in India, July 2009,

Observer Research foundation website, www. observerindia.com,

accessed 2 October 2010

Mine owner Mine owner

JV agreement

Ministry of coal

allocates mine

Coal supply

agreement

Mining lease

executed by JV

Mining contract

Mining JV MDO

Typical structure of an MDO contracting

Table 9: Some of the supercritical power plants being

implemented by private players in IndiaProject name State Sponsor/

promoter

Capacity

(MW)

Sasan UMPP Madhya Pradesh Rpower 5X800

Mundra UMPP Gujarat Tata Power 5X800

Talwandi Saboo Punjab SterliteEnergy

3X660

Amravati Phase 1

Maharashtra IndiabullsPower

2X660

Bhaiyathan Chhattisgarh IndiabullsPower

2X660

Amravati Phase 2

Maharashtra IndiabullsPower

2X660

ChhattisgarhIPP

Chhattisgarh IndiabullsPower

2X660

KrishnapatnamUMPP

Andhra Pradesh Rpower 5X800

Tilaiya UMPP Jharkhand Rpower 5X800

Krishnapatnam Andhra Pradesh GayatriEnergy/Sembcorp

2X660

Source: Times of India, The Economic Times, Business Line


17/28


Coal linkages from Coal India Limited, though cheaper, do not

constitute an assured supply as Coal India is unable to increase

its production to meet the rising demand. To overcome this

issue, under the Coal Distribution Policy, the government has

mandated Coal India to enter fuel supply agreements (FSA)

with coal procurers with clearly dened penalties if Coal

India fails to supply 90% of the annual contracted quantity.

On the other hand, captive coal plants in India require

several regulatory approvals. Imported coal faces regulatory

restrictions/approvals in their home country, congestion at

Indian ports and rail/road infrastructure bottlenecks from the

port to the plant site in India.

In recent years, environmental concerns have resulted in

withdrawal of environmental clearance for a 2,640 MW power

plant in Srikakulam, Andhra Pradesh. Environmental concerns

can result in stalling nearly 21 power plants expected to be

setup in and around Krishnapatnam, Andhra Pradesh.

Considering the aforementioned scenario, execution delays

remain a key challenge in India. Developers with the capability

to obtain regulatory approvals, complete land acquisition

quickly and secure assured fuel supply at a lower cost would be

successful in India.

Bottlenecks for capacity addition in power

According to CEA, the total new capacity addition by the end

of the Eleventh Five Year Plan is expected to be 62 GW, as

against a target set of 78 GW by the Planning Commission.

The reasons for not meeting the targets can be classied into

execution challenges and coal shortages.

The land acquisition for power plants continues to be a

major concern even though the land acquisition for power

plants qualies as public purpose under the 2005 National

Electricity Policy. Under the Land Acquisition Act, 1984,

any person with an interest in the land being acquired hasthe right to object to compulsory acquisition on the grounds

that the project is not intended for public purpose, or the

land is not suitable for public use, the proposed area is

excessive or that the land acquisition will negatively impact

historical monuments/religious buildings, among other such

reasons. Land owners can also argue on the inadequacy of

compensation determined for their land.

Coal-based power plants of 500 MW and above feature in

category A, for which there is a category-specic clause

necessitating them to procure environmental clearance from

the Ministry of Environment and Forestry. On the other hand,

coal-based power plants below 500 MW are classied ascategory B, and would require environmental clearances

from the respective state environmental impact assessment

authority. In case the land is a part of a forest or is located

near coastal regions, the project would require forest clearance

and coastal regulatory zone approval. In India, there is no

standard relief and rehabilitation (R&R) policy and R&R is

a state government subject. It is time consuming to obtain

environmental and/or forestry clearances as well as an equally

cumbersome process to implement an R&R policy.


18/28


It is certain that the power sector is set for rapid growth in

the coming decade. Though renewable energy is slated to

get integrated in the mainstream, fossil fuels, especially

coal, would continue to dominate the Indian power sector.

Concurrently, the awareness of local communities and the

pressure from international communities are compelling the

government, and therefore, the power producers to consider

sustainability as a matter of prime importance. The local and

international communities are closely observing the actions on

sustainability by both government as well as producers.

Among various aspects of sustainability, climate change has, in

the past decade, emerged as the topmost priority for the global

community. In this context, it is worthwhile to mention that the

much-discussed Conference of Parties (COP) at Copenhagen

last year witnessed India and China facing immense pressure

to accept the mandatory GHG-emission reduction targets. The

conference culminated with the signing of the Copenhagen

Accord. In the Copenhagen Accord, India has committed

voluntary but internationally pledged climate change mitigation

targets. India has committed to 25% voluntary emission

reduction targets by 2020. The targets themselves and the

performance with respect to these targets will be subject to

international consultation and analysis. India may have to

report mitigation efforts to the UNFCCC every two years.

The Indian climate change policies are focused on achieving the

reduction target, while maintaining the growth of the sector

through three major routes: carbon charge, energy efciency

and Nationally Appropriate Mitigation Actions (NAMA).

Section 7Sustainability challenges in thepower sector

India releases the

national action plan

on climate change

International

community adopts

the Copenhagen

accord

Indias National

Climate Action

Agenda

India commits

voluntary reductions

of emissions by

20%25% by 2020

Approval of

National Missions

on Solar & Energy

Efficiency

Government of

India communicates

to specific industriesto report GHG

emissions

Internal target under

NAMA and other regulationsEnergy efficiencyCarbon charge

The Energy Coordination Committee

has proposed to add carbon

charge in the thermal power plants

based on the energy benchmark

A similar policy will be replicated for

all other identified sectors.

Countries such as the US and the UK

will impose cross-border carbon taxon the Indian exported goods.

Creation of the energy benchmark

and trade in energy efficiencycertificates.

Introduction of accelerated

depreciation of 80% on energy

efficient equipment

Promoting the construction of green

buildings to reduce energy consump-tion in buildings

Mandatory carbon footprint

reporting for the identifiedsectors/industries.

Increased share of investments in the

renewable sectors; 10% of the total

power traded should be from

renewable sources

Achieve a

20%25%

reduction

of GHG by

2020

Focus of Indian policy on achieving reduction targets


19/28


The National Action Plan on Climate Change (NAPCC)

is one of the major voluntary initiatives taken by the

Government of India to attain a low-carbon status.

It delineates the multi-pronged, long-term strategies in

the form of eight National Missions to enable the country

to adapt to climate change and enhances the ecological

sustainability of Indias development path.

Under the NAPCC, each state would draft a climate change

action plan. Orissa is one the states in the country to have

formulated a draft climate change action plan. The state level

plans would focus on the issues relevant to the states. It would

provide specic actions to be taken by the state level agencies

and industries in the state. Similarly each state in the country

would develop a state level plan for mitigating climate change.

Power has been identied as one of the most energy intensive

sectors by the Government of India. Hence, any policy on

climate change in any of the southern states would denitely

impact the existing sub-critical and the new large supercritical

power plants expected to come up in the region.

The next sustainability aspect, which is gaining momentum

globally after climate, is the sustainable use of water.

Considering the water stress situations faced in the country

and the global direction, the Government of India is set

to undertake various measures for the efcient use of

water. Nation Water Mission (NWM) under NAPCC is one

such initiative in this direction. One of the intentions of the

Government of India under NWM is to increase the efciency of

water use by 20%. This target would not be achievable without

the support of industrial sectors. The power sector consumes

nearly 78% of the total water consumed by industries in India.

Nevertheless, being the largest consumer of water, any effortsby the government in the direction of water efciency would

directly impact the power sector.

To achieve water efciency targets, the existing policies

on water may undergo reforms in the coming year. The

Government of India is expected to introduce regular

mandatory water audits for major consumers, provide

incentives for recycling water and wastewater as well as

incentives for the use of water-efcient technologies.

Eight missions of NAPCC

Solar missionStrategic knowledge

on climate change

Sustaining

Himalayan ecosystem

Water

mission

Sustainable

agriculture

Enhanced

energy efficiency

Sustainable

habitat

Mission for a

green India

National

action plan on

climate change

(NAPCC)


20/28


This would potentially impact the bottom line of carbon

and water intensive sectors like power. It would make it

imperative for the sectors to take a holistic and long term

view on sustainability.

Similar to climate, water also is a subject on which each

state would in the due course of time formulate state level

action plans.

Drivers

Indias National Action Plan on Climate Change: National Water Mission

Goals of NWM

Conserving water, minimizing

wastage and ensuring its moreequitable distribution both withinand across states throughintegrated water resourcesdevelopment and management

Review of National Water Policy

Research on water storagemeasures/water conservation

Provision for mandatorywater audits

Increase in water use efficiency

by 20%

Incentivization of recycling of water

Integrated water resourcesdevelopment & management.

1.

2.

3.

4.

Nationalwater

mission


21/28


For every organization, climate and water, the two pillars

of sustainability, present both opportunities and risks.

Understanding the implications of both and creating a balanced

but ambitious response to climate change and water in the

business strategy are critical steps in reaping the rewards and

gaining competitive advantage.

Corporate strategy involves the examination of the current

and anticipated direction of the business environment, the

expectations of stakeholders and competitive factors. These

determine the strategy that an organization adopts to achieve

a competitive advantage and long-term success. One of

the primary objectives of businesses worldwide is to meet

stakeholders expectations, since they are greatly inuenced by

investors who direct strategic decision-making.

In order to comply with upcoming climate regulations and

achieve growth in a low-carbon sustainable trajectory, Indian

industries would have to reduce their carbon footprint

signicantly. They will have to monitor, report and ensure that

their emissions are externally veried to strengthen strategic

and operational actions on mitigation efforts. Given the fact

that the Indian Government has proposed, with a base year of

2005, a 20%25% voluntary emission intensity reduction target

between 2005 and 2020, the industries would be subject to

individual carbon emission caps or sector energy benchmarks.

Thus, individual companies need to strengthen their endeavor

to increase the efciency of their processes, explore alternative

fuel usage and strategize investments in clean technology.

Climate change and its associated regulations impact all thebasic drivers of business such as (a) revenue generation, (b)

cost reduction, (c) regulatory compliance and (d) managing

stakeholders expectations. This, therefore, gives an

opportunity to more efcient companies to act proactively with

a well-outlined strategic direction across all the domains of

business, creating a signicant gap between their performance

levels vis--vis those of other companies whose approach

is more slanted toward somehow complying with these

regulations. The next exhibit represents how the response to

climate change and its regulations are required to be program-

managed right from the board level, down across almost all

functions of business to the operating levels.

Section 8Strategically targeting the

key sustainability risks and

identifying opportunities


22/28


Thus, one may appreciate that earning carbon revenues

through the route of the clean development mechanism

(CDM), wherein some of the Indian companies, primarily in the

private sector have done quite well, is not the only opportunity

that imminent climate change regulations bring for Indian

industries. Regulations such as Perform, Achieve and Trade(PAT), and the Renewable Energy Certicate (REC) introduced

by the Government of India are both risks and opportunities.

The current and future renewable energy obligation would

impact the role of different states in REC. Tamil Nadu,

Karnataka and Kerala have potential to be donor states from

the Southern region. Hence, the renewable power generators

in these states can act as sellers of REC. Under the current

scenario, Andhra Pradesh has lesser potential of being able to

act as a supplier of RECs. As such, the larger opportunity lies

around developing a proactive climate change strategy anddriving it down various levels and functions in order to establish

a sustainable business model around these regulations. This

will create a key differentiator between leading organizations

as well as others in a carbon-constrained economy.

Internal

management

metrics

Monitor

and measure

Execution

Vision, direction,

goals and planning

Nonfinancial

reporting

Greenhouse gas

accounting

and reporting

Third

party verification

TaxFacilities

management

Operations

Product

development

Climate change initiatives portfolio

Risk

management

Opportunity

assessment

Strategic

direction

Governance

Goals and

objectives

Supply chain

and procurement

Finance Transactions

Information

technology

Marketing

and

communication

Regulatory

and

compliance

Programmanagement

Business drivers

Revenue

generation

Cost

reduction

Stakeholder

expectationsRegulation

Considerations

Geography Industry

Technology

Geography

Establish baseline

Quantify current GHG emissions

and set reduction targets

Climate change framework: a path to transformation

Source: EY research


23/28


cost, b) operational efciency, c) prots and d) compliance

requirements. The opportunity here lies in strategically

improving the water requirement per MW of generation,

upgrading technology, identifying alternate sources of water,

minimizing water wastage, using clean technology ranging

from solar to desalination, among other alternatives. However,

only companies with a structured and proactive approach

would be able to competitively position themselves.

Hence, the power sector has identied and realized the

pertinent and irrefutable need to embark on the road to

sustainability, thus paving the path to build an unyielding

foundation for sustainable development in the power sector.

It is very encouraging to note that some of the leading Indian

business houses and especially those in carbon intensive

sectors such as the thermal power sector or metals sector

have already embarked upon such a journey.

Water should also be viewed and responded to as a strategic

business issue with the same seriousness as that accorded

to the issue of climate globally. To achieve 20% efciencyin water as decided by the Government of India, individual

companies are likely to be subjected to sectoral benchmarks,

further restrictions in the usage of fresh water, differential

water tax or possibly the trading of water certicates. This

could severely impact the direct business aspects: a) operation

Market-based mechanism that will use energy conservation certifications to

encourage efficiency improvements across large energy-intensive industries.

Applicable to more than 700 industrial units across energy-intensive industries.

Perform, Achieve

and Trade (PAT)

An REC is created when one megawatt hour of electricity is generated from an eligible

renewable energy resource.

It will be an effective instrument to help meet the renewable power obligation.

The Government of India has announced a levy a clean energy cess of INR50

on both domestically produced coal and imported coal.

The revenues will be channelized through a National Clean Energy Fund that will be

used for funding research and environmental remedial programs.

Renewable energy

certificate (REC)

Carbon tax

Some regulatory reforms in India to address climate change


24/28


ATC Aggregate Technical and Commercial

CAGR Compound Annual Growth Rate

CDM Clean Development MechanismCEA Central Electricity Authority

CERC Central Electricity Regulatory Commission

COP Conference of Parties

DPSC Dishergarh Power Supply Compant Limited

EPC Engineering Procurement Construction

FSA Fuel Supply Agreements

GBI Generation-Based Incentives

GHG Greenhouse Gas

GoI Government of India

GW GigaWatt

JNNSM Jawaharlal Nehru National Solar Mission

JSPL Jindal Steel and Power Limited

JSW Jindal South West

MDO Mine Developer Cum Operator

MW MegaWatt

NAPCC National Action Plan on Climate Change

NTPC National Thermal Power Corporation Limited

NVVN NTPC Vidyut Vyapar Nigam

NWM Nation Water Mission

PAT Perform Achieve & Trade

PLF Plant Load Factor

PV Photovoltaics

R&R Relief And Rehabilitation

REC Renewable Energy Certicates

RPO Renewable Purchase Obligations

SERC State Electricity Regulatory Commission

SIPS Special Incentive Package Scheme

T&D Transmission & Distribution

Abbrevations


25/28


Notes


26/28


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Artwork by Purnopoma Debnath and Jayanta Ghosh.

About CII

The Confederation of Indian Industry (CII) works to create and

sustain an environment conducive to the growth of industry in India,

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CII is a non-government, not-for-profit, industry led and industry

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