Tuesday, April 25, 2006
The Indian Electricity Sector -- An Update
I was invited to a luncheon yesterday with union power minister, Sushil Kumar Shinde, hosted by the Indian Consulate General in New York. Interestingly, Atanu, Rajesh and I had met Mr. Shinde back when he was chief minister of Maharashtra and we were working on the RISC project. So, it was quite a pleasant change to meet the man without the hangers-on, as was the case the last time we met him. He comes across as a decent man, and perhaps even a candidate for president given his unswerving loyalty to the dynasty. But, that's not the point of this post. Mr Shinde was basically doing a roadshow inviting U.S. investors to invest in India's power sector (100% FDI in generation, T&D and trading). I took some notes about some key issues/facts about India's power sector, which I figured many of you would be interested in as well.
The only thing that worried me in all of this was the emphasis on large, coal-fired (dirty coal, for the most part) plants and big hydro electric projects. India seems to be determined to follow in the foot-steps of the United States in this regard, which can only lead to an ecological disaster as hundreds of millions of people demand electricity. If I were making decisions, I would certainly be looking more carefully at renewables, especially since the cost of fossil fuels is bound to increase dramatically as demand soars in India and China.
I would love to hear from the energy enthusiasts among you what you think of all of this.
Only 56% of the Indian population has access to regular power. That's about 500 million people without access.The real coup that Mr Shinde and his bureaucrats have pulled off though seems to be the idea of the shell companies/SPVs in the power sector. Yesterday's FT special section on infrastructure touched upon this as well.
Per-capita consumption of power in India is 606 KWH, 20% of the world average.
India needs another 100,000 MW to come online by 2012 to keep growth going (too low, in my opinion). 100,000 MW implies an additional investment of $100 billion in generation alone, and therefor the 100% FDI, you see.
The breakdown of India's power generation looks like this:
Hydropower -- 32,335 MW (26% of total)
Thermal -- 82,500 MW (66% of total)
Nuclear -- 3,310 MW (3% of total) [to go upto 25% if we get access to nuclear fuel]
Renewables/Alternative -- 6,158 (6% of total)
That's about 125,000 MW in current production, with another 41,500 MW in execution currently.
Total commercial losses of state utilities as a percentage of turnover dropped from 40% in 1999 to 14% in 2005, though the situation remains abysmal in the BIMARU states.
There seems to be a great opportunity in rural electrification, which because of its importance to the current government, gets you a 90% grant from the central kitty, combined with a 10% loan.
Hidden in the midst of all of this was the opportunity to produce decentralized power in the 5-10 MW range, which apparently companies like GE are looking at very seriously. Personally, I am gung-ho about decentralized, off-grid power.
Unlike most off-the-shelf entities, however, these "fab five" are packed with assets, such as statutory land clearance licences, water agreements, fuel links and coal blocks, assurances on power purchase agreements and even a preliminary credit rating from an Indian agency. The aim is to create and sell "running companies" with locked-in approvals - the bane of foreign investors in Indian power - to investors in India, the US, Europe and even China. Experts describe the "shell companies" as the ace cards in India's new mega-power policy, which, according to Mr Shinde, is designed to achieve "economies of scale in the delivery of power at a comparatively cheap price".
...
Unveiled in January, the five entities contain enough ticked and crossed regulatory clearances to lift the spirits of those foreign investors who over the past decade had all but written off India's power generating sector as a no-go area. The projects will be sited at coastal locations and at pit-heads - India has the world's second largest reserves of coal but only a fraction ends up going to domestic coal-based power plants. Each scheme will have generating capacity of 4,000mw, require investment of Rs150bn and will be commissioned within five years.
The only thing that worried me in all of this was the emphasis on large, coal-fired (dirty coal, for the most part) plants and big hydro electric projects. India seems to be determined to follow in the foot-steps of the United States in this regard, which can only lead to an ecological disaster as hundreds of millions of people demand electricity. If I were making decisions, I would certainly be looking more carefully at renewables, especially since the cost of fossil fuels is bound to increase dramatically as demand soars in India and China.
I would love to hear from the energy enthusiasts among you what you think of all of this.
