A

BRIEF REPORT

ON

POWER AND ENERGY INDUSTRY IN INDIA

October 2013




















A brief report on Power and Energy Industry in India

Private & Confidential Page 2 of 12

1. OVERVIEW OF INDIAS POWER SECTOR

1.1 Background
India's power market is the fifth largest in the world.
The power sector is high on India's priority as it offers
tremendous potential for investing companies based
on the sheer size of the market and the returns
available on investment capital.
As on January 31, 2013, the installed generation
capacity, including capacity from renewable energy
sources (RES), stands at 211,766.22 MW. The break-
up of the various categories are shown in the adjacent
chart.


1.2 Current Scenario

1.2.1 Total Installed Capacity:

Sector MW %age
State Sector 86,343.35 40.77
Central Sector 62,963.63 29.73
Private Sector 62,459.24 29.49

Total 2,11,766.22

Fuel MW %age
Total Thermal 141713.68 66.91
Coal 121,610.88 57.42
Gas 18,903.05 8.92
Oil 1,199.75 0.56
Hydro (Renewable) 39,416.40 18.61
Nuclear 4,780.00 2.25
RES 25,856.14 12.20
Total 2,11,766.22 100.00

1.2.2 Installed Generation Capacity Statewise

STATES HYDRO THERMAL NUCLEAR RES TOTAL
J &K 1513.03 576.78 77.00 129.33 2296.14
Himachal 1736.94 180.31 34.08 375.39 2326.72
Punjab 2984.89 3497.11 208.04 329.25 7019.29
A brief report on Power and Energy Industry in India

Private & Confidential Page 3 of 12

Rajasthan 1484.80 5449.51 573 1467.79 8975.10

Delhi 617.12 5060.97 122.08 2.05 5802.22
Gujarat 772.0 12390.86 559.32 2000.47 15722.65
Karnataka 3599.80 5075.29 254.86 2616.19 11546.14
Maharashtra 3331.80 15813.98 690.14 2809.33 22645.29
Tamilnadu 2122.20 7056.62 524.0 5812.61 15515.43
Andhra
Pradesh
3695.53 10297.28 275.78 766.99 15035.58
Uttar Pradesh 1700.42 7811.81 335.72 609.68 10457.63
Madhya
Pradesh
3223.66 4617.28 273.24 267.16 8381.34
Orissa 2166.93 3132.10 0 70.63 5378.66
West Bengal 1116.30 7039.54 0 161.05 8316.89
Total 37567.40 112824.48 4780.00 18454.52 173626.40

Almost 57 per cent of this capacity is based on coal, about 9 per cent on gas, 19 per cent on
hydro, approximately 12 per cent on renewable sources, about 2 per cent on nuclear and 1 per
cent on diesel. In the past five years, there has been a much greater emphasis on transmission
and distribution reforms.

In the past few years, there has been considerable growth in power plants based on renewable
sources of energy. The Plant Load Factor (PLF) of generating plants has improved consistently
over the last 10 years. The share of thermal power as a proportion of total power generated has
decreased from 71 per cent to 66.9 per cent in the last decade. A capacity addition of 10,431 mw
against a target of 9,623 mw has been achieved from renewable energy sources during the last 3
years. The total installed capacity of power generation from renewable energy in the country
now stands at 26,920 mw. During 2012-13, a capacity addition of 2005.57 mw was achieved till
31.01.2013 against the target of 4,125 mw.

Of the fossil fuel supplies, there is delivery constraint with respect to gas. A number of gas
plants today are running at sub-optimal plant load factor (PLF) levels due to shortages. The
government has decided not to embark on new projects that rely on gas. It is feared that supply
shortages can disturb the capacity addition plans, reduce PLFs, as the rising crude prices have
led to firmer naphtha and natural gas prices.

Emerging environmental concerns have led to an increasing interest in renewables.

Captive power plants (CPPs) also make a major contribution, which is more than one-fifth of
the total installed capacity. Captive power plants generate an additional 34.444 GW. The
introduction of ABTs (Availability Based Tariffs) has changed the thinking of discoms. They
have to pay huge prices as they have to source power from the grid during low frequency
periods. During this time the CPP power comes in handy at a much lower tariff.
The reform process in the power sector continues. Thirteen states have unbundled SEBs into
separate entities for transmission, distribution, and generation. Two states have privatized
distribution. Regulatory authorities have been set up in 24 states. These authorities are applying
A brief report on Power and Energy Industry in India

Private & Confidential Page 4 of 12

commercial principles to tariff setting, monitoring the performance of state utilities, and paying
attention to areas such as demand side management and grid discipline.
1.3 Generation

Over the years, the fuel mix has changed. Growing environmental concerns have led to an
interest in renewable sources of energy (comprising wind energy, solar photovoltaic energy,
biomass power and mini hydro plants). But despite great potential, renewable sources contribute
only a little over 26,000 MW at present.

The PLF of generating plants has improved consistently over the last few years.

A brief report on Power and Energy Industry in India

Private & Confidential Page 5 of 12

2. INVESTMENT POLICY


2.1 Foreign Investment in Power Sector

The present installed power generation capacity in the country is 225.133 GW as of May 2013.
Thermal power projects of 78545 MW and hydro power projects of 15707 MW are under
construction in the country for likely commissioning during 11th and 12th Plan. In order to
attract foreign investments in the power sector, Foreign Direct Investment (FDI) up to 100 per
cent is permitted under automatic route for projects of electricity generation (except atomic
energy), transmission, distribution and power trading. Major contributing countries to the FDI
equity inflows during this period are France, Mauritius, Singapore, UAE, United Kingdom, USA
and Morocco. India received 541.33 billion FDI in power sector during 2012-13.

The Cabinet Committee on Economic Affairs (CCEA) has approved foreign direct investment
(FDI) proposals worth US$ 1322.4 million of two power sector entities. The CCEA gave the
green signal to Grid Equipment for bringing in FDI to the tune of US$ 915.5 million. It also
approved Energy Grid Automation Transformers and Switchgears India's proposal for a US$
406.9 million FDI. These proposals are for downstream investments and transfer of the entire
equity shares of Grid Equipment and Energy Grid from Areva T&D India and other resident
shareholders. Equity shares of the two entities Grid Equipment and Energy Grid would be
transferred to Alstom Grid Finance and other foreign collaborators and their nominees. Alstom
in India is mainly into power generation equipment while Areva T&D India is a leading
transmission and distribution player.

2.2 Investment Policy

The Government has initiated several policies to promote and garner investments in the power
sector. To accelerate capacity addition, several policy initiatives have been undertaken by the
Ministry of Power.

Government is implementing a number of schemes, programmes, throughout the country, for
the development and tapping the potential of new and renewable energy sources. Some of the
projects include wind power -- mw-scale wind farms, aero generators, and hybrid systems.
Schemes also include bio-power: biomass power and cogeneration. In the hydel segment
projects includes small hydro power, small hydro power plants up to 25 mw capacity; watermills
and micro hydel plants.

Some of the prominent policies which have boosted the private player's confidence in the sector
are:
National Electricity Policy
Ultra Mega Power Project Policy
Mega Power Policy
CERC Policy
Tariff Policy

A brief report on Power and Energy Industry in India

Private & Confidential Page 6 of 12

2.3 Electric Generation, Transmission, Distribution and Trading:

Foreign direct investment (FDI) up to 100 per cent is permitted under automatic route for
Generation and transmission of electric energy produced in-hydro electric, coal/lignite-based
thermal, oil-based thermal and gas-based thermal power plants; Non-Conventional Energy
Generation and Distribution; Distribution of electric energy to households, industrial,
commercial and other users and Power Trading

The Cabinet Committee on Economic Affairs has approved the constitution of a National Clean
Energy Fund (NCEF) along with guidelines and modalities for approval of projects to be eligible
for financing under this fund. NCEF will be used for funding research and innovative projects
in clean energy technologies.

The Union Ministry of New and Renewable Energy (MNRE) has introduced a scheme to
achieve the objectives of helping new and young entrepreneurs enter the renewable energy
business and make renewable energy products easily available, besides providing after-sales
service, repair and maintenance. In a boost to power firms with plans to set up units in Special
Economic Zones (SEZ), the Government has exempted them from the positive net foreign
exchange (NFE) obligation applicable to regular units in such enclaves.




























A brief report on Power and Energy Industry in India

Private & Confidential Page 7 of 12

3. PROSPECTS OF RENEWABLE ENERGY

3.1 Current Scenario

The Progress of renewable energy generation has been encouraging as the country is today one
among the top rankers in grid-interactive renewable power installations Adverse local
environmental impacts (SOx, NOx, SPM) and global environmental impacts (green house gas
emissions mainly due to carbon dioxide) associated with fossil fuel use have resulted in an
increased emphasis on renewables.























A brief report on Power and Energy Industry in India

Private & Confidential Page 8 of 12

4. FUTURE PROSPECTS


In order to fully meet both energy and peak demand, there is a need to create adequate reserve
capacity margin. In addition to enhancing the overall availability of installed capacity to 85per
cent, a spinning reserve of at least 5per cent, at national level, would need to be created to ensure
grid security and quality and reliability of power supply.

Renewable energy sector growth in India during the last few years has been significant and the
need to increase the use of renewable energy sources for sustainable energy development has
been recognized by the Government. There has been significant thrust to research, development
and induction of renewable energy technologies in different sectors.

Renewable energy source Current installed capacity
Wind 11807 MW
Solar 10 MW
Biomass/biofuels 866 MW

The National Solar Mission under the National Action Plan on Climate Change envisages a
20,000MW solar capacity addition by 2022. Indias renewable growth so far has been financed
domestically. Majority of financing has been asset financing in the area of wind where captive
power generators have been investing to expand wind-manufacturing capacity and project
development. The investment perception of industry is changing due to the growing awareness,
governments changing priorities and the inevitability of renewable to supplement Indias energy
mix. In the conventional biofuels sector there exists a huge opportunity in manufacturing,
technology development and, operations and maintenance services. Going forward the 2
nd
and
3
rd
generation biofuels offer opportunity in research and development area.

4.1 Future Plans Of Capacity Addition

4.1.1 Plan for Capacity Addition during 12
th
plan (2012-17)

Government is targeting a capacity addition of 62 thousand MW in the 11th Five Year Plan
during the years 2012 -2017. During 2007-2012, the funding requirement in Indian Power
Sector has been estimated at US $ 230 billion, out of which US $ 132 billion is in power
generation.
The existing power deficit and a rising demand coupled with our commitment to provide access
to electricity for all necessitated a large scale capacity addition programme.
The National Enhanced Efficiency Renovation and Modernization Program for
implementation during 11th and 12th Plans covers Renovation & Modernization of about
19000MW capacity, Life Extension of about 7300MW during 11th Plan and Renovation &
Modernization of about 5000MW and Life Extension of about 16500MW during 12th Plan.
Renovation and Modernization (R&M) and Life Extension of existing old power stations
A brief report on Power and Energy Industry in India

Private & Confidential Page 9 of 12

provide an opportunity to get additional generation at low cost in short gestation period.
Besides generation improvement, it results in improvement of efficiency, environmental
emissions and improvement in availability, safety and reliability.

The orders for these capacity additions are likely to be placed by December 2007 so that
they can be implemented during the Plan itself.

Plan for Capacity Addition during XIIth Five Year Plan

A capacity addition target at 90,000 MW has been fixed for the next five years (12
th
Five Year
Plan 2012-17)

India added nearly 55,000 MW of power during the 11th Plan period ended in March 2012,
much lower than the revised target of 62,000 MW. Thermal projects are expected to account for
more than 50,000 MW of capacity addition during 2012-17.

4.2 Policy for Additional Capacity Generation

Following is the policy for future power generation under the National Electricity Plan:
Inadequacy of generation has characterized power sector operation in India.

Government of India has initiated several reform measures to create a favourable environment
for addition of new generating capacity in the country. The Electricity Act 2003 has put in place
a highly liberal framework for generation. There is no requirement of licensing for generation.
The requirement of techno-economic clearance of CEA for thermal generation project is no
longer there. For hydroelectric generation also, the limit of capital expenditure, above which
concurrence of CEA is required, would be raised suitably from the present level. Captive
generation has been freed from all controls.

4.2.1 Non-conventional Energy Generation

The Ministry of Non-conventional Energy Sources is promoting development of small/mini
hydro power projects. The potential of generation of power from small and mini hydel projects
is estimated to be about 10,000 MW in the country.

Feasible potential of non-conventional energy resources, mainly small hydro, wind, and biomass
would also need to be exploited fully to create additional power generation capacity.

With a view to increase the overall share of non-conventional energy sources in the electricity
mix, efforts will be made to encourage private sector participation through suitable promotional
measures.

4.2.2 Hydro Electricity Generation

Hydroelectricity is a clean and renewable source of energy. Maximum emphasis would be laid on
the full development of the feasible hydro potential in the country. The 50,000 MW hydro
A brief report on Power and Energy Industry in India

Private & Confidential Page 10 of 12

initiatives have been already launched and are being vigorously pursued with DPRs for projects
of 33,000 MW capacity already under preparation.

Harnessing hydro potential speedily will also facilitate economic development of States,
particularly North-Eastern States, Sikkim, Uttaranchal, Himachal Pradesh and J&K, since a large
proportion of our hydro power potential is located in these States. The States with hydro
potential need to focus on the full development of these potentials at the earliest.

Hydel projects call for comparatively larger capital investment. Therefore, debt financing of
longer tenure would need to be made available for hydro projects. Central Government is
committed to policies that ensure financing of viable hydro projects.

State Governments need to review procedures for land acquisition, and other
approvals/clearances for speedy implementation of hydroelectric projects.

The Central Government will support the State Governments for expeditious development of
their hydroelectric projects by offering services of Central Public Sector Undertakings like
National Hydroelectric Power Corporation (NHPC).

Proper implementation of National Policy on Rehabilitation and Resettlement (R&R) would be
essential in this regard so as to ensure that the concerns of project-affected families are
addressed adequately.

Adequate safeguards for environmental protection with suitable mechanism for monitoring of
implementation of Environmental Action Plan and R&R Schemes will be put in place.

4.2.3 Small Hydropower Plants

The Electricity Act 2003 is the catalyzing and facilitating factor for the Power revolution in
India. The concern that no households be left out from being electrified, is being aptly addressed
by the Union and state Governments. Impetus is being given to Rural Electrification. In order to
achieve this objective, synergy is to be evolved where distributed Power Generation supplements
(or makes up for the limitation) of electric supply through grid. Besides this mission, initiatives
for environmental conservation are propelling utilities to generate more of Green Power

Decentralised Power Generation and Distribution has the power to adequately make up for the
limitation of the Electric supply through Grid, and is considered a potential means to provide
DPG technologies such as Small Hydro Power help in producing power at the point of
consumption.

In India, small hydro schemes are further classified by the Central Electric Authority as follows:

Type Station Capacity Unit rating
Micro Upto 100 KW Upto 100 KW
Mini 101 KW to 2000 KW 101 KW to 1000 KW
Small 2001 KW to 25000 KW 1001 KW to 5000 KW

A brief report on Power and Energy Industry in India

Private & Confidential Page 11 of 12

4.2.4 ThermalGeneration

Even with full development of the feasible hydro potential in the country, coal would necessarily
continue to remain the primary fuel for meeting future electricity demand.

Imported coal based thermal power stations, particularly at coastal locations, would be
encouraged based on their economic viability. Use of low ash content coal would also help in
reducing the problem of fly ash emissions.

Significant Lignite resources in the country are located in Tamil Nadu, Gujarat, and Rajasthan
and these should be increasingly utilized for power generation. Lignite mining technology needs
to be improved to reduce costs.

Use of gas as a fuel for power generation would depend upon its availability at reasonable prices.
Natural gas is being used in Gas Turbine /Combined Cycle Gas Turbine (GT/CCGT) stations,
which currently accounts for about 10 per cent of total capacity. Power sector consumes about
40per cent of the total gas in the country. New power generation capacity could come up based
on indigenous gas findings, which can emerge as a major source of power generation if prices
are reasonable. A national gas grid covering various parts of the country could facilitate
development of such capacities.
Imported LNG based power plants are also a potential source of electricity and the pace of their
development would depend on their commercial viability. The existing power plants using liquid
fuels should shift to use of Natural Gas/LNG at the earliest to reduce the cost of generation.

For thermal power, economics of generation and supply of electricity should be the basis for
choice of fuel from among the options available. It would be economical for new generating
stations to be located either near the fuel sources e.g. pithead locations or load centres.

Generating companies may enter into medium to long-term fuel supply agreements especially
with respect to imported fuels for commercial viability and security of supply.

4.2.5 NuclearPower

Nuclear power is an established source of energy to meet base load demand. Nuclear power
plants are being set up at locations away from coalmines. Share of nuclear power in the overall
capacity profile will need to be increased significantly. Economics of generation and resultant
tariff will be, among others, important considerations. Public sector investments to create
nuclear generation capacity will need to be stepped up. Private sector partnership would also be
facilitated to see that not only targets are achieved but exceeded.

Nuclear Power Capacity Addition Plan:
Nuclear power is seeing a renaissance. Power-starved India, which has the largest number of
reactors under construction, is at the forefront of this revival of interest in nuclear power.

India is building seven of the 30 reactors under construction around the world. This is likely to
increase significantly once the India-US agreement on nuclear cooperation is accepted by the
rest of the world. India has been commissioning nuclear reactors in record time of less than five
A brief report on Power and Energy Industry in India

Private & Confidential Page 12 of 12

years. The capital cost per megawatt in the case of nuclear plant is Rs 50 million, which is higher
than the average cost of the thermal plants (Rs 40 million or less). However, with the fuel cost
being much lower than the thermal plants, nuclear power becomes an appealing option.

4.2.6 Captive Generation

The liberal provision in the Electricity Act, 2003 with respect to setting up of captive power
plant has been made with a view to not only securing reliable, quality and cost effective power
but also to facilitate creation of employment opportunities through speedy and efficient growth
of industry. The provision relating to captive power plants to be set up by group of consumers is
primarily aimed at enabling small and medium industries or other consumers that may not
individually be in a position to set up plant of optimal size in a cost effective manner. It needs to
be noted that efficient expansion of small and medium industries across the country would lead
to creation of enormous employment opportunities.

A large number of captive and standby generating stations in India have surplus capacity that
could be supplied to the grid continuously or during certain time periods. These plants offer a
sizeable and potentially competitive capacity that could be harnessed for meeting demand for
power. Under the Act, captive generators have access to licensees and would get access to
consumers who are allowed open access. Grid inter-connections for captive generators shall be
facilitated as per section 30 of the Act. This should be done on priority basis to enable captive
generation to become available as distributed generation along the grid. Towards this end, non-
conventional energy sources including co-generation could also play a role. Appropriate
commercial arrangements would need to be instituted between licensees and the captive
generators for harnessing of spare capacity energy from captive power plants. The appropriate
Regulatory Commission shall exercise regulatory oversight on such commercial arrangements
between captive generators and licensees and determine tariffs when a licensee is the off-taker of
power from captive plant.