Over the past decade, particularly since the passage of Electricity Act in 2003, the power sector has been undergoing a profound change. The transformation has been radical in nature spanning crucial aspects like policy, procedures and practices. The dramatic changes that the power sector has witnessed, albeit a pace that could have desirably been much faster, promise to transform the sector not just superficially but down to the core.
For a conservative country like India, implementing reforms has never been an easy task, and the power sector is a particularly acute case. While the intent of reforms is noble, transmuting new policies and new thinking into action has been a hurdle that the country is defiantly trying to surmount with varied degrees of determination. The Indian power sector has traditionally been enmeshed in political hues. With such questionable legacy, the tardy progress that India has been able to manage is quite understandable, but certainly not condonable.
Despite the slow pace of progress, it is reassuring to know that the overall direction is right. Team Electrical Monitor believes that the new NDA-led government will accelerate the power reforms process initiated by its predecessor. Besides, the new government will also explore unchartered avenues where there exists scope for new thinking and new possibilities.
In this special report, Electrical Monitor attempts a prognosis of where one could expect India’s power sector to be in 2020, with respect to various parameters ranging from basic village electrification to ultra modern practices like Smart Grid.
Reaching electricity to all its households is every developing nation’s priority. It is indeed the absence of assured electricity supply that separates developing countries from developed ones. The previous UPA government announced a celebrated mission “Power for All” that was to be achieved by 2012. Intensive village electrification was the biggest agent in realizing this mission. Though the “Power for All” objective could not be achieved in the timeline envisaged, we expect that the village electrification will continue to be pursued as a national priority.
As of October 2014, a total of 5.72 lakh villages were electrified across India’s states and Union territories. This meant national village electrification achievement of 95.8 per cent, considering that India had 5.97 lakh villages as per Census 2011. It should be noted that by extant definitions a village is deemed electrified if a mere 10 per cent of its households have an electricity connection. Thus, one has to cope with the dubious reality of an “electrified” village having most of its households devoid of an electricity connection! A status of 100 per cent village electrification in its absolute sense is elusive, much like another critical parameter—literacy. As of October 2014, nearly 25,000 villages remain non-electrified, which means that not even 10 per cent of its households have an electricity connection. Most of these villages are located in states like Odisha, Bihar, Jharkhand and Rajasthan.
By 2020, we do not expect much change from the overall electrification level (by extant definition) of around 96 per cent, but certainly there will be intensification of electrification. Villages despite being electrified by technical definition should have an increasing number of households coming under the ambit of electricity. Reaching electricity to remote villages will continue to be impracticable. However, one can expect off-grid solutions like solar-powered lighting to stand up as an efficient alternative.
Role of China
The growing role of Chinese equipment in India’s power sector has been a very contentious issue. Domestic manufacturers have been crying hoarse over the invasion of the Indian market by Chinese power equipment. Various industry associations have made representations to the government to create a “level-playing field” so that Chinese suppliers would not benefit from any undue advantage.
Despite the disadvantages like alleged inferior quality and poor after-sales service, Indian buyers have subscribed to Chinese equipment right from tiny components to boilers and turbine-generators for power plants. It is officially estimated that the share of China in India’s total imports of electrical equipment has risen to 38.9 per cent in FY14 from around 15.3 per cent in FY06. In value terms, imports of electrical equipment from China amounted to $3.8 billion in FY14, growing annually at a phenomenal 34 per cent over the past eight years. This onslaught from China should also be seen in conjunction with the fact that total import of electrical equipment (from all destinations) accounted for a significant 35 per cent of the domestic market. This has led to significant under-utilization of domestic manufacturing capacity.
By 2020, we expect that there would be significant control on the import of Chinese equipment into India. This would take place partly through policy measures and partly through choice. As far as government projects go, there would be wider application of the “domestic manufacturing facility” clause that would preempt Chinese suppliers from participating. This would also be in keeping with the Prime Minister’s “Make in India” campaign.
What is also a distinct possibility is a respectable number of Chinese companies setting up manufacturing plants in India so as to comply with the tendering norms of government entities. Already a major Chinese transformer manufacturer TBEA has set up a large manufacturing base in Gujarat and there are reports of another entity in the same line of business, BTW, toeing the line.
Supercritical power equipment
In line with government expectations, we expect that by 2020, all the upcoming coal-fired power generation capacity will use supercritical technology. Bharat Heavy Electricals is expected to be a key supplier along with a host of joint ventures that are currently in their early days. Joint ventures like BGR-Hitachi, L&T-Mitsubishi, Toshiba-JSW, Alstom-Bharat Forge are expected to have established a track record with their early orders—currently underway—fulfilled. The government sector—both Central and state—are expected to continue keeping Chinese equipment out of the purview through the “local manufacturing requirement” clause. Large private sector power generators like Reliance Power and Adani Power would be likely buyers of Chinese power equipment. At this juncture, it is worth observing that the Union power ministry’s ultra mega power plant series (a huge market for supercritical power equipment) could need a serious rethink as this major programme is not finding takers despite the recent changes in norms favouring bidders. As a possibility—however bleak at the moment—one could very well see large Chinese supercritical equipment suppliers like Dongfang, SEPCO-III or Harbin, seriously contemplating setting up manufacturing base in India. As discussed earlier in this story, one transformer manufacturer from China has already established manufacturing facilities in India.
There has been a noticeable trend of multinationals in the electrical equipment industry acquiring a footprint in India, using the organic or inorganic route. We expect this trend to continue. Over the past few years, large homegrown companies like Anchor Electricals, Numeric Power, Vijai Electricals and Luminous Power Technologies have been acquired by Panasonic, Legrand, Toshiba and Schneider Electric, respectively. We believe that when traditional companies grow rapidly, they need special managerial skills to consolidate their presence in the local market and to expand their footprint overseas. This is precisely where multinationals come into the picture.
Multinationals would also be interested in tapping business opportunities specialized and upcoming areas like EHV cables, high-efficiency conductors, high voltage transformers, etc. Multinationals would prefer to set up joint ventures with Indian partners or acquiring equity stake in existing Indian companies, as opposed to launching a wholly-owned subsidiary in India. This is because local companies have a deeper understanding of the rather intriguing Indian market. Multinationals, on the other hand, have superior technology. A partnership therefore would complementary advantage.
Apart from an increasing role of multinationals in India, we also expect major consolidation to take place at the global level in the power equipment and electrical equipment business. A very recent case in point is General Electric (GE) that has proposed to acquire the power business of Alstom. In early 2014, two Japanese giants—Mitsubishi Heavy Industries and Hitachi—integrated their power generation equipment business into a single entity.
In summary, multinationals are expected to have an even deeper engagement with India in the coming years. Their association will take several forms like majority or minority stake in Indian companies, joint ventures, technical collaborations or setting up wholly-owned Indian outfits; the structure would depend on the nature of services offered by the multinationals.
In January 2014, India realized its aspiration of creating a National Grid to synchronous interregional transfer of electricity. Today, electricity can be transmitted synchronously (which means at the same frequency of 50Hz) between the five regional grids—north, east, west, northeast and south. The National Grid especially helped in the southern grid to become synchronously unified with the other regional grids.
South India has traditionally paid higher tariffs for importing power from other regions due to absence of connectivity. Secondly, south India has substantial wind power generation that could not be exported to other regions, once again due to connectivity-related issues. Tamil Nadu, as of early 2014, accounted for 36 per cent of India’s wind power capacity. Restoring of fiscal incentives to wind power generators is expected to boost wind power capacity additions in the country in the coming years. Tamil Nadu is expected to add 1 GW of new wind power capacity annually in the medium term.
By 2020, we expect that the National Grid will get stronger with more interregional lines, especially those connecting to the southern grid. The overall transfer capacity of the grid should be in the region of 66,000 mw by 2020, which would be roughly twice the present level.
UHVAC Power Transmission
By 2020, one can very much look forward to India’s pressing a few ultra high voltage AC (UHVAC) power transmission lines of 1,200kV into commercial operations. The voltage level of 1,200kV is the highest anywhere in the world, by current thinking. China, it is reliably learnt, is working on voltage level of 1,150kV. A 2-km test line of 1,200kV at Bina in Madhya Pradesh is fully functional and under testing. The 1,200kV enterprise is being fulfilled entirely through Indian knowhow. All the equipment—including transformers, reactors and hardware—have been supplied by Indian companies like BHEL, CG, Transformers & Rectifiers (India), Vijai Electricals, Siemens, etc.
The introduced of 1,200kV on commercial scale will depend on the ongoing test results of the Bina pilot project. We believe that the first commercial 1,200kV should be ready by 2020, although it might not operate continuously at 1,200kV. While 1,200kV would be a national achievement to look forward to, we also expect sufficient traction in high-voltage DC power transmission with significant number of ±800kV lines emerging on the power transmission landscape.
Solar energy will be an important agent of India’s green energy aspirations. By 2020, as per the revised targets, India has pledged to achieve 20 GW of grid-connected solar capacity. This would mean annual installations of 3-4 GW per year, which is much higher than the track record so far. All the same, the target is not impossible if the right kind of government support like viability gap funding is made available. We also expect that India’s solar power equipment manufacturing base, which is currently highly-underutilized, will get productive. If domestic solar equipment manufacturers, mainly solar cells and modules, can progressively turn cost competitive, they could have a promising local market unmindful of whether the government reserves capacity under the domestic content requirement (DCR) norms. Currently, domestic equipment is much costlier than imported ones, resulting among other things, in higher viability gap funding (VGF) by the government.
Wind energy is expected to do well thanks to the restoration of fiscal incentives like accelerated deprecation (AD) and generation-based incentives (GBI). By current thinking, India should be able to add around 5 GW per year during the period 2015 to 2020. We also expect that by 2020, India would have its first offshore wind project—a 1 GW enterprise currently in planning stage—in operation.
The government must renewable energy accounts for a significant proportion of the country’s overall electricity generation, and not just installed capacity. To this effect, strict enforcement of renewable purchase obligations (RPO) by state power utilities. Currently, there is a huge unsold inventory of nearly 114 lakh renewable energy certificates (REC) as majority of states have not been able to honour their RPO commitment.
Demand side management will be a focus area in the years ahead, meriting equal or even more importance than augmenting power generation capacity. We expect that by 2020 India will actively pursue consumption-side energy efficiency, through regulatory measures at different levels of consumption—residential, commercial and industrial.
We expect LED lighting to be a big contributor to energy efficiency by 2020. Reliable estimates suggest that the Indian overall lighting industry would be in the region of $6 billion by 2019 out of which LED lighting would account for $1.5 billion. Between now and 2019, the LED lighting industry is expected to grow by 35 per cent year-on-year and by at least 20 per cent thereafter. By 2020, costs of LED lamps are expected to come down perceptibly prompting even low-end residential consumers to opt for them. The drop in capital costs is expected to come about by the gradual evolution of innovative technology and by the sheer growth in production volume.
The commercial sector including hospitality, BPOs, malls, and ITeS, is expected to be a widespread adopter of LED illumination. The government will play an influential role with LED illumination replacing existing equipment in government offices and street lighting.
Considering that capital costs of LED lighting—though declining in recent years—will still be significantly higher relative to CFL and incandescent lights. The government could do well to launch innovative financing or subsidy schemes for retail consumers so that percolation of LED could improve even at the residential level.
Currently, lighting accounts for 20 per cent of India’s total electricity consumption. By 2020, experts feel that even with a ten-fold increase in the illumination (measured in lumens), India will spend not more than 12 per cent of its electricity on lighting, thanks to LED illumination.
Privatization of discoms
One area where India has summarily failed is in bringing commercial viability to its atrophied power distribution sector. The reorganization of erstwhile state electricity boards into separate entities for power generation, transmission and distribution has not served its purpose. It has merely reorganized the old corporate structure with practically no bearing on the mindset, ethos and work culture. With decades of mismanagement and financial morass, it is unreasonable to believe that state-owned discoms could extricate themselves out of their present condition on their own. Power distribution needs fresh thinking and efficiency that only private sector participation can provide.
India’s attempts to introduce private sector participation have been feeble so far. Clearly, political will is lacking and there is no aggression to pursue the movement earnestly. While there have been cases of distribution circles been handed over to private franchisees, the process appears to be half-hearted. One is not inspired to believe that privatization of power distribution will cover any respectable distance, with such a passive approach.
By 2020, we do not expect too many circles to be privatized. But what we certainly expect is that public sector discoms change their attitude towards privatization. The incumbent distribution franchisee should be seen as a partner towards realizing a larger national goal of achieving techno-commercial efficiency in the power distribution space. There have been cases where attempts at proposed privatization of circles have been resisted by state discoms themselves. When privatization passes through and circles are handed over, discoms allegedly keep a grudging distance from the private operator. Some distribution franchisees that Electrical Monitor has interacted in the recent past have alleged that distribution circles and simply “dumped” on the franchisee. There is simply no hand-holding, which is very critical in the early days of the franchise. The attempts made by the franchisee to improve metering and revenue collection appear “threatening” to the consumer who is not used to paying fairly for the electricity consumed. Without adequate state support and protection, it becomes difficult and even risky for the private franchisee to act upon electricity theft. It must be appreciated that private franchisees are sought in circles having high commercial losses. This necessarily means that such circles have inherent commercial inefficiencies, which primarily include non-payment of electricity dues.
The government will do well to play its role as a true facilitator of private enterprise in power distribution. There is respectable number of examples, where private franchisees after enduring initial hardship, have achieved significant turnaround in loss-making circles.
Prima facie, Smart Grid is a culture that will catapult India into the league of developed nations. The degree of sophistication and the penetration of Smart Grid would of course be much lower in India. A beginning in the direction of Smart Grid has already been made and by 2020, one can expect that there would be a few areas (not necessarily entire cities) where basic Smart Grid features would be deployed on a commercial scale. Smart Grid is an evolving culture and there is no tangible point where a power grid could be deemed “smart”. Smart Grids will need to get smarter with time, even as they retain their basic nomenclature.
A pilot project is currently underway at Puducherry where a commercial-scale Smart Grid is being developed, with significant integration of renewable energy sources like wind and solar. By 2020, we expect the Puducherry Smart Grid project to be fully complete and to be in a position to provide feedback to other Smart Grid ventures in the country. Puducherry is the largest of the 14 pilot Smart Grid projects planned by the government. The remaining 13, spread all over the country, are under various stages of implementation. By 2020, we expect a few of these come into operation.
Apart from these pilot projects that are being pursued specifically as “Smart Grid” projects, we expect some metropolitan distribution circles to imbibe the quintessential features of Smart Grid, such as automatic meter reading (AMR), advanced metering infrastructure (AMI) and time-of-day usage (ToD). It is evident that these modern features would be inducted in areas that have private distribution licensees or franchisees. In fact, Delhi that has private operators like Reliance Infrastructure and Tata Power has made significant progress in this direction.
In summary, by 2020, we can expect multifaceted progress on the Smart Grid front. Firstly, the India Smart Grid Task Force (ISGTF) formed in September 2010 is expected to cover significant distance in preparing a roadmap for Smart Grid in India and towards formalizing standards and protocols. Secondly, there would be pilot Smart Grid projects in operations that would largely be “showcase” or “learning curve” projects. These will basically assist in building overall national experience and knowledge. Thirdly, there will be key Smart Grid-like features in regular distribution networks, especially those under private operatorship. It must also be appreciated that the government’s success in privatization of power distribution would also directly influence the spread of Smart Grid in India.