Submitted by:

Bhavya Kapoor
14020241025
IB Div-A

[TYPE THE COMPANY NAME]
INDIAN POWER SECTOR
FOREIGN TRADE POLICY


16-Jul-14
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INTRODUCTION

Power or electricity is one of the most critical components of infrastructure, affecting
economic growth and wellbeing of nations. The existence and development of adequate
power infrastructure is essential for sustained growth of the Indian economy. With a
production of 1,006 terawatt hours (TWh), India is the fifth largest producer and
consumer of electricity in the world after US, China, Japan and Russia.
The Indian power sector is one of the most diversified in the world. Sources for power
generation range from commercial sources such as coal, lignite, natural gas, oil, hydro
and nuclear power to other viable non-conventional sources such as wind, solar, and
agriculture and domestic waste. The demand for electricity in the country has been
growing at a rapid rate and is expected to grow further in the years to come. In order to
meet the increasing requirement of electricity, massive addition to the installed
generating capacity in the country is required.


HISTORY OF POWER SECTOR

The power sector in India has undergone significant progress after Independence.
When India became independent in 1947, the country had a power generating capacity
of 1,362 MW. Hydro power and coal based thermal power have been the main sources
of generating electricity. Generation and distribution of electrical power was carried out
primarily by private utility companies. Notable amongst them and still in existence is
Calcutta Electric. Power was available only in a few urban centers; rural areas and
villages did not have electricity. After 1947, all new power generation, transmission and
distribution in the rural sector and the urban centers (which was not served by private
utilities) came under the purview of State and Central government agencies. State
Electricity Boards (SEBs) were formed in all the states. Nuclear power development is
at slower pace, which was introduced, in late sixties. The concept of operating power
systems on a regional basis crossing the political boundaries of states was introduced in
the early sixties. In spite of the overall development that has taken place, the power
supply industry has been under constant pressure to bridge the gap between supply
and demand.

Development of Power Sector is the key to the economic development. The power
Sector has been receiving adequate priority ever since the process of planned
development began in 1950. The Power Sector has been getting 18-20% of the total
Public Sector outlay in initial plan periods. Remarkable growth and progress have led to
extensive use of electricity in all the sectors of economy in the successive five years
plans. Over the years (since 1950) the installed capacity of Power Plants (Utilities) has
increased to 89090 MW (31.3.98) from meager 1713 MW in 1950, registering a 52d fold
increase in 48 years. Similarly, the electricity generation increased from about 5.1 billion
units to 420 Billion units 82 fold increases. The per capita consumption of electricity in
the country also increased from 15 kWh in 1950 to about 338 kWh in 1997-98, which is
about 23 times. In the field of Rural Electrification and pump set energisation, country
has made a tremendous progress. About 85% of the villages have been electrified
except far-flung areas in North Eastern states, where it is difficult to extend the grid
supply.
POINTS ON HISTORY:
The Indian Power Industry before independence was controlled firmly by the
British. Then legal and policy framework was conducive to private ownership,
with not much regulation with regard to operational safety.
In line with the Industrial Policy Resolution of 1948, the government played a
dominant role in initiating and regulating development in key sectors of the
economy, which inter alia included the Indian Electricity Sector. It was embodied
in the constitution, the principle that both the Central Government and the States
should be able to legislate on power.
Legislative authority was more formally divided in the Electricity Supply Act of
1948. The Act provided for the establishment of the Central Electricity Authority
(CEA) and of State Electricity Boards (SEBs) which were to become the main
agencies for supplying power throughout India.
The SEBs were autonomous bodies responsible for the development and
operation of generation, transmission and distribution in the most economical
and efficient way.
The CEA was to develop national plans and help formulate national power policy,
to report the progress of the electricity supply industry, to provide technical
assistance, to advise Central Government/ State Government/Boards/generating
company, act as arbitrator between State or Board or licensees, to train
personnel in the sector, to promote research and, in general, to facilitate efficient
power supply. Its role, however, was essentially advisory rather than executive.
The Industrial Policy Resolution of 1956 reserved the generation and distribution
of electricity almost exclusively for the states, letting, existing private licensees,
however, to continue. This led to the gradual domination of the electricity sector
by government enterprises.
Amendment in 1976 enabled generation companies to be set up by the central
and state governments resulting in the establishment of National Thermal Power
Corporation Ltd. (NTPC Ltd.), National Hydro Power Corporation Ltd. (NHPC),
North Eastern Electric Power Corporation Ltd. (NEEPCO), Mysore (now
Karnataka) Power Corporation and Water & Power Consultancy Services (a
consulting firm), etc. The development of the sector took place essentially
through various public sector utilities some under the central government and
the majority under the state governments between them they accounted for
more than 95% ownership.
Until the 1980s, electricity services in most developing countries of the world, as
also in many developed countries of Europe, were delivered by state-owned
monopolies. It was considered that monopolies were best suited to deliver
electricity services, as they enjoyed economies of scale and scope.
In India until 1991, power sector in the states was managed by one large,
vertically integrated entity that generated, transmitted and distributed power,
under the respective State Ministries of Power.
However, the absence of competition led to poor quality of services, sub optimal
utilization of resources, and little consideration for consumer interests. The
inability of state-owned enterprises to deliver services in an efficient and cost-
effective manner led to reassessment of the policies relating to the provision of
services, and there was a growing perception that corporatization of the sectors
could improve efficiencies, quality of service and improve the bottom-line.
Following UK & USA and developing countries like Argentina, Chile, Brazil,
Philippines & Pakistan, the Indian government also commenced the restructuring
of the Indian power sector, which commenced with the unbundling,
corporatization and privatization of Orissa power utility.
The Indian power sector has witnessed significant changes since early 1990s.
Beginning with allowing private investment in power generation in 1991, initiating
regulatory reforms through Electricity Regulatory Commissions Act, 1998, the
Indian government has enacted the Electricity Act, 2003 which seeks a paradigm
shift.
The Electricity Act, 2003 mandates that Regulatory Commissions shall regulate
tariff and issue of licenses and that State Electricity Boards (SEBs) will no longer
exist in the existing form and will be restructured into separate generation,
transmission and distribution entities. Regulatory function has been taken away
from the purview of the government. The Electricity Act, 2003 mandates
licensee-free thermal generation, non-discriminatory open access of the
transmission system and gradual implementation of open access in the
distribution system which will pave way for creation of power market in India.





PRESENT STATUS OF POWER SECTOR:

Electricity production in India (excluding captive generation) stood at 911.6 TWh in FY
13, a 4 per cent growth over the previous fiscal. Over FY 0713, electricity production
expanded at a compound annual growth rate (CAGR) of 5.5 per cent. The Planning
Commissions 12th Plan projects that total domestic energy production would reach
669.6 million tonnes of oil equivalent (MTOE) by 201617 and 844 MTOE by 202122.
As of October 2013, total thermal installed capacity stood at 156.5 gigawatt (GW), while
hydro and renewable energy installed capacity totaled 39.8 GW and 28.2 GW,
respectively. Nuclear energy capacity remained broadly constant from that in the
previous year, at 4.8 GW.
Indian solar installations are forecast to be approximately 1,000 megawatt (MW) in
2014, according to Mercom Capital Group, a global clean energy communications and
consulting firm.
The growth in energy demand in India would be the highest among all countries by
203035, beating even China, according to the 2014 energy outlook report by British oil
giant BP.





Indian Power is derived from many sources like:
Thermal Power is mainly generated through coal, gas and oil. As India being vested
with major sources for coal.
Hydropower is one of the mega power generators in India. Various hydropower
projects & plants have been set up by the ministry of power for generation of hydro
power through construction of various dams and reservoirs on major rivers. The kinetic
energy of the flowing water is being used to generate hydroelectricity.
Wind Power is available in plenty as India witnesses high intensity winds in various
regions due to the topographical diversity in India.
Solar Power is being utilized to generate electricity on a smaller scale by setting up
massive solar panels and capturing the solar power which is instead used by the small
scale industries.
Nuclear Power is generated at huge nuclear power plants and nuclear power stations
in India using the nuclear energy. All the nuclear power plants are managed by the
Nuclear Power Corp of India Ltd (NPCL).
Biogas Power is still in its infancy stage as India is the largest domestic cattle producer
and has plenty of biogas fuel and thus utilization of the fuel for mass biogas production
by setting up more biogas plants would solve the power shortage problem to some
extent.





Investments

The investment climate is very positive in the power sector. Due to policy liberalisation,
the sector has witnessed higher investment flows than envisaged. The power ministry
has set a target for adding 76,000 MW of electricity generation capacity in the 12th Plan
(201217) and 93,000 MW in the 13th Plan (20172022).
The Working group on power for formulation of the 12th Five Year Plan has estimated
total fund requirement of Rs 1,372,580 crore (US$ 227.98 billion) for the power sector.
The industry attracted foreign direct investment (FDI) worth Rs 40,417.6 crore (US$
6.72 billion) during April 2000 to January 2014.
The following are some of the major investments made into the Indian power sector:
Suzlon Group through its wholly-owned US subsidiary Suzlon Wind Energy Corp
(SWECO) has acquired Big Sky wind park from US-based Edison Mission
Energy (EME). With this acquisition, Big Sky will become Suzlons biggest wind
park in the US and one of the best performing installations in the country.
BS Ltd has won several orders worth Rs 722 crore (US$ 119.95 million) from
various power utilities. The orders are for turnkey engineering, procurement and
construction (EPC) contracts for 220 kilovolt (KV) and 132 KV transmission lines
and associated sub-stations in Madhya Pradesh.
Jaiprakash Power Ventures Ltd (JPVL) has signed a deal with Abu Dhabi
National Energy Company PJSC (TAQA) for selling two hydropower projects in
Himachal Pradesh for Rs 10,500 crore (US$ 1.74 billion).
Elecon Engineering Company Ltd has announced that its subsidiary Elecon EPC
Projects Ltd has been awarded an order worth Rs 246.78 crores (US$ 40.93
million) by National Thermal Power Corporation Ltd (NTPC). The order is for
supply of coal handling plant package of Gadarwara Super Thermal Power
Projects, Stage-I (2x800MW), said Mr Prayasvin Patel, Chairman and Managing
Director, Elecon Engineering.




Government Initiatives
India has emerged as one of the fastest growing economies in the world. Its current
economic performance reflects a healthy trend based on increased consumption,
investment and exports. Over the next five years, this growth is expected to continue.
The Government of India has identified the power sector as a key sector of focus to
promote sustained industrial growth.
The following are some of the initiatives taken by the Government of India to boost the
power sector:
India and Sudan have good potential for enhancing cooperation in promoting
renewable energy, according to Dr Farooq Abdullah, Union Minister of New and
Renewable Energy, Government of India. He also offered Indian assistance for
developing renewable energy resources in Sudan.
The Ministry of Environment and Forests (MoEF) has given clearance for a
reworked plan of the power generator NTPC's Rs 15,000 crore (US$ 2.48 billion)
North Karanpura Super Thermal Power Project to come up in Jharkhand.
The Government of India plans to reintroduce 'generation-based incentives' for
wind power projects to boost capacity addition in the sector.
During FY 13, the government liberalised FDI policy for Power Trading
Exchanges. Foreign investments in power exchanges registered under the
Central Electricity Regulatory Commission Regulations, 2010, are allowed up to
49 per cent (FDI 26 per cent and FII 23 per cent).
India and the Netherlands have signed a memorandum of understanding (MoU)
to set up an IndoDutch Joint Working Group to facilitate the exchange of
technical and institutional knowledge on clean energy.
India and Argentina have agreed to enhance cooperation in the field of
renewable energy. The two countries decided to explore avenues for cooperation
in the fields of solar energy, wind energy and bio-fuel generation.






CHALLENGES & LOOPHOLES:

Fuel Shortages:

Power is a capital intensive industry with long gestation periods, and the shortage of
fuel can be a major challenge in the long term. Traditionally, most power plants in India
use coal or natural gas as fuel, both of which are fast depleting reserves. Further, the
Working Committee on Power forecasts a shortage of 238 metric tons of coal per
annum by FY17. Additionally, there is also a shortage of natural gas in the market,
though the deficit has reduced by 25 per cent over the past
decade to reach 20 per cent over FY11.As a remedy, the Indian government plans to
allot 40 billion tons of coal reserves through a bidding process, and deregulate the
power sector to promote investments. Further, the government will explore the
possibility of importing natural gas from countries, such as Bangladesh, which have
surplus of coal reserves.

Difficulty in obtaining environmental approvals and land clearances

Land acquisition is one of the key challenges impeding the growth of the power sector in
India. Further, obtaining environmental approvals is also difficult as a large number of
government bodies need to be contacted for clearances, including the Ministry of
Environment and Forests, Ministry of Aviation, Department of Forests and other
government institutions. These challenges
primarily arise due to concerns over environmental pollution, issues regarding
rehabilitation, afforestation and regulatory delays.

Degrading financial health of state distribution utilities

Eight state electricity boards (SEBs) had stopped making payments to NTPC in 2011,
despite getting discounts of up to 2 per cent on immediate payments, and 1 per cent on
payments made within one month. The losses of distribution utilities in India were
pegged at Rs 75,000 crores (US$ 13.9 billion) in 2011, and are expected to rise to Rs
1.16 trillion (US$ 21.4 billion) by 2014-15.

Detractors or risks associated with competitive bidding

The power sector is inviting bids from private investors, which in turn is increasing price
competition. This is a positive sign for the sector but it might increase risk for private
companies primarily because during the bidding process, power generation companies
normally quote prices for a period of 25 years and power transmission companies quote
for a period of 35 years.



Competition from international OEM manufacturers

Indian companies manufacturing equipment for the power sector face significant
competition from international companies, especially Chinese companies, offering faster
delivery schedules and lower costs. The prices of Chinese players are 50 per cent lower
than that of domestic manufacturers.
These challenges now set a context to discuss the measures that the Indian
Government is expected to take in the future through the implementation of corrective
policies as described in the Union Budget of 201213 and the 12th Five year Plan.



INDIAN EXPORTS & IMPORTS IN POWER SECTOR:

INDIAN ELECTRICAL EQUIPMENT:

Global trade in electrical equipment reached US$ 453 billion in 2010. India
accounts for less than 1% of the total share of global exports of electrical
equipment.
In 2011, the Export Strategy Paper of the Department of Commerce set a target
of doubling exports in three years to US$ 500 billion by 2013-14, with the long-
term objective of doubling Indias share in global trade by the end of 2020
through appropriate policy support.
In 2011-12, Indias electrical equipment exports, including power project exports,
were only US$ 4.6 billion as against total exports of US$ 306 billion, which was
about 1.5% of the total exports from the country. Imports of electrical equipment
in 2011-12 were US$ 15.7 billion as against total imports of US$ 489 billion
dollars, amounting to about 3.2% of the total imports. During the last five years,
exports of electrical equipment have increased at a CAGR of 9.7% whereas
imports have increased at a CAGR of 27.2%. While the share of power projects
in exports is negligible, their share in imports is growing rapidly and was about
43% in 2011-12. The trade deficit in electrical equipment is, therefore, increasing
year by year.
Indian industry is improving its image globally by taking part in international
exhibitions, arranging visits of large number of foreign buyers to ELECRAMA (a
showcase exhibition of the Indian electrical equipment industry by IEEMA, which
is held once every two years). Industry also needs to focus on the emerging
markets and take proactive and timely action to improve quality of products and
productivity to be more competitive.
In order to make the industry more competitive and increase exports, the
following areas need to be addressed.
o Transaction cost of exports
o Port infrastructure
o Exports to emerging markets
o Review of trade agreements
o Funds availability and long term buyers credit
o Support from Government and Indian missions abroad
o Technical barriers to exports
o Industry initiatives and Policy support


COAL IMPORT:
India is the 3
rd
largest producer of coal. It has a production capacity of around 600
million tones and contributes to 5.6% of worlds coal production. The consumption of
coal in India is approximately 800 million tones which is about 9.9% of worlds
consumption. Due to this mismatch in demand and supply India imports about 200
million tonnes of coal, 73% of the coal is used in thermal power production.

Relevant Articles

Fitch: India Budget has Limited Short Term Impact on Power Sector

(The following statement was released by the rating agency) SINGAPORE, July 16
(Fitch) Fitch Ratings says that the measures announced relating to India's electricity
sector in the budget for FY2015 are directionally correct but involve relatively small
steps or lack specifics to support a meaningful improvement in the short-term. There are
entrenched structural issues affecting the performance of the power sector of India and
the solution would require a sustained and disciplined policy focus. There is no
immediate rating impact on any of the Fitch-rated power companies - NTPC Limited,
NHPC Limited and Power Grid Corporation of India Ltd (all rated at 'BBB-'/Stable). In
the Indian budget for FY15, the finance minister announced several measures for the
power sector. These include an extension of the tax holiday for power projects to March
2017 from March 2015, which we consider to be positive for investment activity. The
budget also called for the provision of adequate quantity of coal to power plants
commissioned by March 2015. However, the budget lacked very specific measures
detailing how this will be achieved. Fitch believes that it will not be possible to raise the
production of coal significantly within a year. Aside from inadequate domestic
production, infrastructure bottlenecks such as rail infrastructure also continue to act as a
constraint to ensuring adequate coal supplies to power plants. Among the announced
measures is the rationalization of coal linkages to reduce transportation costs of coal;
while this is a good measure, we believe such a reallocation of coal resources would
have operational issues and can take some time to achieve. Domestic coal production
is much lower than the requirements of the power sector, and hence we think the coal
shortage at various power plants will continue. India's total coal based power capacity at
April 2014 was around 140 gigawatts (GW). This is expected to increase by around
15GW per year, which would require an additional 60 million tonnes of coal. There
needs to be a sustained and long term plan in order to consistently increase domestic
coal production. The new administration has intensified pressure on Coal India Limited
to improve its coal delivery. At the same time, the agency understands the government
may revive coal pooling (i.e. pooled prices by combining both domestic and imported
coal) as the country will have to import higher quantities of coal to support demand
given that domestic production may be slow to ramp-up. India also has around 20GW of
gas based power plants which are severely affected due to the low availability of
domestic gas. The budget also focuses on the renewable sector - most notably solar -
for which there is an allocation of INR10bn for setting up solar plants in a few states and
solar power driven agricultural pumpsets. The entire ecosystem of the power sector -
from generation to distribution - needs to be strengthened. The financial health of the
various state utilities needs to be improved through tariff rationalization and by
addressing transmission and distribution losses.


CONCLUSION:

Renewable energy is the new keyword in Indian power sector and most of the public
and private players are coming up with plans to tap the potential market, on back of
favorable government policies and initiatives. To tap the underlying potential, the States
are focusing on those aspects of energy, in which they have an edge, such as solar
power, wind power, hydro power etc.India has been one of the top performing clean
energy economies in the 21st century, registering the fifth highest five-year rate of
investment growth and eighth highest in installed renewable energy capacity.
Over a longer term, this sector will definitely flourish, because as everyone is aware,
power is a key element for BJP to ensure that the country prospers over the next five
years. Within the power space we have been telling our clients to gradually accumulate
something like Coal India. We believe that if Coal India is managed better, and hopefully
if the Modi government ensures that production volumes from Coal India pick up, there
could be a case for further re-rating here.

Bibliography
http://www.cea.nic.in/reports/planning/dmlf/growth.pdf
http://dhi.nic.in/indian_electrical_equipment_industry_mission_plan_2012-
2022.pdf
http://www.pwc.in/assets/pdfs/power-
mining/energing_opportunities_and_challenges.pdf