The share of generation segment in fresh power sector investments in the future is set to fall to 30 per cent over the next five years.
A report by CRISIL Research estimates that power sector will attract Rs 9-9.5 trillion new investments from FY19 to FY23. While the share of generation (excluding renewables) in the projected investments will be substantial, it is expected to fall to 30 per cent compared to 51 per cent share which the segment had in the previous five years.
According to the report, capacity additions in power generation are expected to slow down to 35 GW (excluding renewables) between FY19 and FY23, compared with 88 GW added over the past five years. Consequently, a large number of projects that are at a nascent stage are likely to get postponed until the demand situation improves significantly. Moreover, fresh project announcements are limited as players are opting for the inorganic route for expansion, as a number of assets are available at reasonable valuations.
Power sector investments would be fuelled by transmission and distribution sectors that would have a share of 36 per cent and 34 per cent respectively.
Transmission sector alone will draw Rs three trillion investments in the next five years led by robust investments on inter-regional networks by Power Grid Corporation of India Ltd (PGCIL). Steady investments are expected to flow from states to boost intra-state transmission network. Investments in transmission sector will also be aided by enhanced private sector participation.
The country's inter-regional transmission capacity has shot up from 17 Gw in FY07 to 86 Gw at the end of FY18 and is pegged at 123 Gw by FY23. “Strengthening and expanding the regional and intra-state grids along with improved rural electrification is also expected to ease grid congestion and supply constraints, eventually benefiting power generators. The planned strengthening of the inter-state transmission system in West Bengal and the northeastern region, associated transmission systems within states, and ultra-high-capacity green energy corridors with expected investment of Rs 430 billion would drive growth in the transmission segment”, the report by CRISIL Research noted.
In the distribution sector, investments of the order of Rs 2.8 trillion is estimated to flow in, driven by increased outlay from the central government on a string of schemes like Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGY) and Integrated Power Development Scheme (IPDS). Distribution segment investments will also be bolstered by the resolve of state governments to cut down on aggregate technical & commercial (AT&C) losses.
Also, on the distribution front, there has been reasonable traction with all major states (except West Bengal) signing MoUs (memorandum of understanding) under the Ujwal Discom Assurance Yojana (UDAY), which will gradually improve the respective discom’s financial position. With bonds worth Rs 2.3 trillion being issued (86 per cent of target) at the end of FY2018, debt and interest burden on discoms has been reduced, resulting in higher liquidity. On the operational efficiency front, the gap between average cost of supply (ACS) and average revenue realised (ARR), and aggregate technical and commercial (AT&C) losses reduced to Rs 0.28 per kWh and 20.2 per cent, respectively, in March 2018 from Rs 0.58 per kWh and 24.6 per cent at the end of FY015.