BUDGET WISHLIST: Power firms for market-driven pricing

In the run-up to Union Budget for 2015-16, Business Standard looks at major developments and industry expectations in key sectors of the economy

POWER SECTOR

KEY ISSUES 

• Stagnation: New capacity addition and the share of private participation have both plateaued at around 20 Gw a year and about 65 per cent, respectively

• Challenges: New investment in transmission links and system strengthening is more important now, given the rising share of renewable energy and regional power trading

OUTLOOK 
 

• Investment: So far, transmission investment and private participation have lagged. A robust network investment plan to enhance reliability and power transfer capacity is required
• Policy ambiguity: The future prospects on both new capacity addition and private participation look worrisome, as new investment is held up due to lack of clarity on the power procurement policy

CAPACITY ADDITION | Create infographics

CEO BYTE:

"We are hoping to see market-driven pricing for power and policies that will phase out administered pricing for power tariffs. There is an expectation to see rationalisation of taxes and levies for power projects to bring down production cost. We are also hopeful of seeing several benefits to boost the renewable energy sector"

Anil Chaudhry,

Country president & MD, 

Schneider Electric India

EXPERT VIEW
 

Business Standard had invited readers' queries on the Budget for 2015-16. A PwC expert answers key questions

Kameswara Rao, leader (energy, utilities and mining), PwC India

How can we increase the availability of power for both industry and individual consumers? —  N V D S Raju

Generation of power was delicensed in 2003 but consumption remains regulated, and utilities keep tight control on their consumers. This means, consumers' need does not send investment signal to enhance generation, leaving them to suffer persistent or seasonal shortages.

To overcome this, open access and retail competition must be implemented more strictly, so that new demand can attract new suppliers. Alternatively, the electricity regulators can specify reliability and supply norms, and monitor those more strictly than today. We can take either route to improve availability of power; even under existing legislation, there are sufficient provisions for governments and regulators to take these steps.

What impetus do you recommend for encouraging power generation, especially thermal power from coal, modernisation of power plants, including coal movement/conveying? —  S Balasubramanian

New investment in thermal power generation is stalled for very basic reasons. The power distribution utilities are reluctant to commit to long-term contracts, and investors are reluctant to build new plants till the tariff structure is clear. In the current contract structure, the buyer and seller are not able to judge the cost and returns, respectively. So, they are unwilling to commit.

Further, state regulators have gone soft on tariff revisions this year, pushing distribution utilities into continued losses, increasing counterpart risk. As Indian banks are overexposed to the sector and returns are uncertain, raising finance is a challenge, too. In the end, distribution reforms and private participation in distribution is necessary for the sector to self-finance and lower risk.

While the current govt talks big on power, there is little action. There is talk on supply failure but none on how to increase CIL's mining capability. Is it that the government is trying to keep CIL as a failure child rather than finding ways to improve its production efficiency? —  Swapan GD

The govt, from what we can read, appears keen to equip Coal India to meet production challenges and actions being taken on financing, technology, and logistics. CIL is among the world’s top 40 mining firms and has the potential to be developed as a national champion. Productivity of mining investment declined over the years, as global mining firms built capacity in anticipation of a continued commodity boom. India avoided this as our mining is largely end-use linked. But downstream sectors suffer from supply shortages due to regulatory challenges and restrictions. To overcome these, policy reforms covering licensing process, auction, and local area development are necessary. The government needs to deliver on these now.