Energy sector to bag lion's share in NIP with Rs 24 trn investment

To improve energy access and sustainability, the Central government’s National Infrastructure Pipeline (NIP) to enhance its focus on the power sector with more than Rs 24 trillion of investment envisaged for the sector. The government expects major private players to contribute a major share.

This comes at a time when private investment in conventional energy space is at an all-time low with Rs 2 trillion worth of stressed assets and renewable energy sector is facing dearth of investors. 

In a report released by the Finance Ministry on Tuesday, the Centre laid down the plans for increasing private participation in the energy sector, especially in power distribution. The report forecast India’s per capita energy consumption to go up to 1,616 kwh by 2025 from 1,181 kwh currently. 

The Vision 2025 states 24x7 clean and low-cost power available to all households, industry, commercial businesses and agriculture. It also expects total power generation capacity to touch 619 GW by 2025 with 50 per cent contribution from thermal and 39 per cent from renewable sources. 

According to the report, all the investment needed in renewable energy would come from the private sector. “100 per cent of the NIP to be implemented by the private sector. There is well-stocked pipeline through to FY25 because of 450 GW target visibility,” said the report. 

India’s current renewable energy capacity stands at 84.3 GW. This week, ICRA Ratings downgraded the year-end outlook for the renewable energy sector, from stable to negative. It said the sector is facing several challenges including long payment delays the state distribution utilities; execution delays in projects bidding, challenges in project completion, land acquisition and transmission connectivity difficulties and financing in a timely manner.

“This has impacted the investor sentiments in the sector and is reflected from the slowdown in tendering of wind and solar projects. It came down to 10.6 GW in Jan-Sept 2019 from 16.7 GW in the corresponding period of previous year. Moreover, many of bids called by central nodal agencies remained under-subscribed,” said Sabyasachi Majumdar, Group Head & Senior Vice President - Corporate ratings, ICRA.

With regards to conventional energy, the Centre in its NIP has envisaged state government to take lead in investment. It expects close to 57 per cent of expected Rs 11.8 lakh crore to come from the states. The government is also hopeful of opening doors for private sector in power distributions sector which continues to be sick due to debt-ridden status of state owned power distribution companies (discoms).

The NIP report said increased public-private partnership in discoms would lower the losses. It has also proposed other reforms such as open access in distribution, regular tariff revisions and extensive smart metering. The cumulative loss of discoms (21 states) stands at Rs 28,369 crore by end of FY19, up by 88 per cent over year before. RBI recently in its report on state finances observed the losses of discoms have now plagued the state government's balance sheet as well. 

For improving natural gas supply, the NIP has proposed 74 per cent of the projects be put up by the Central government. Major projects which will be focus areas are Strategic Petroleum Reserve at Chandikhol and the Jagdishpur– Haldia, and Bokaro-Dhamra Natural Gas Pipeline. The report said more than 60 per cent of the projects are under implementation.