Section – 3 Market Analysis and Justification for the Project

Indian Power Sector :

Power sector remains the key infrastructure for economic development of a nation. There is
a strong two-way relationship between economic development and energy consumption.
The growth rate of demand for power in developing countries is generally higher than that of
GDP. The Indian power sector has been receiving adequate priority ever since the process
of planned development began in 1950. The Power Sector has been getting 18-20% of the
total Public Sector outlay in initial plan periods. Remarkable growth and progress have led to
extensive use of electricity in all the sectors of economy in the successive five years plans.
The Indian power sector has registered significant progress since the process of planned
development of the economy began in 1950. Electricity generation capacity of utilities in
India had grown from 1713 MW in December 1950 to over 159398 MW by April 2010 (CEA).

Globally, India is presently positioned as the 5th largest producer of energy, representing
roughly 3.9% of the overall energy output per annum. It also consumes 557.97 TWh, which
is 3.21% of the world’s total consumption (17377 TWh) as per the data on 2006 (Source: IEA
-2008 Key World Energy Statistics-2008). The per capita consumption of electricity in the
country is increased from 15 kWh in 1950 to about 704 kWh in 2009-10. However, per
capita electricity consumption remains much lower than the world average and even lower
than some of the developing Asian economies. Even from the below figure it is evident that
the per capita electricity consumption of Asia (in avg.) is higher than that of India. Per capita
electricity consumption(in kWh) of some countries in comparison to India in the year 2007
are shown below.

The growth trajectory of Indian Power sector in recent years:

The Indian Power sector has registered an upward growth rate except in the year 2008-09.
The electricity generation during 2008-09 was constrained due to low performance of some
new thermal power plants, delay commissioning of new units, critical fuel situation in some
power plants and less hydro generation.

Power supply scenario :

Due to India's economic rise, the demand for energy has grown at an average of 3.6% per
annum over the past 30 years. Despite current developments, the Indian power sector has
been suffering from shortages and supply constraints. India faced a peak deficit of
15748MW in 2009-10 (13.3%) while the energy deficit was 83807 MU with energy availability
of 746,493 MU against energy requirement of 830,300 MU in 2009-10. The power supply
position in India in recent years can be seen in the figure below.

At present, the total installed capacity in the country is 159398.49 MW (as on 31 st March
2010), out of which Thermal power accounts for 102453.98 MW a major part of the total
capacity. Energy from Renewable sources accounts for 15521 MW i.e., only 9% of the total
capacity indicating a huge scope for renewable energy sector in the country.

Rising concerns for the conventional power generation:

The thermal power generation remains the major contributor to the Indian Power sector in
which coal is the major fuel for power generation. The coal based power generation is facing
a critical situation in terms of fuel availability. There are 21 Thermal Power Plants in the
country with critical coal stock of less than 7 days in January 2010. The reasons include less
receipt of coal, delay in import of coal, non-receipt of imported coal etc. The coal supply
position in the country can be foreseen from the statement of Power secretary Mr. H.S.
Brahma that “Power utilities would import 48 million tonnes of coal from Australia, Indonesia
and South Africa during next financial year (2010-11) to ensure regular fuel supply to the
generating plants” on 24th Feb. 2010.

While, today, the domestic coal based power generation is the cheapest electricity source,
future scenarios suggest that this could well change. Already, facing acute energy
shortages, price of electricity traded in the power exchange touched Rs. 7 per unit for base
loads and around Rs. 11.0 per unit during peak hours. The situation may get aggravated, as
the country moves towards imported coal to meet its energy demand. The price of electricity
will be affected by the availability of coal in the international market and the cost of
developing import infrastructure.
The country is increasing the use of liquid fuel based electricity to meet its energy demand,
while it is both expensive (costs as high as Rs. 15 per unit) and polluting.

Apart from the issue of fuel unavailability, adverse environmental effects of fossil fuel power
generation has been a rising concern for the Indian Power sector. The domestic coal used
for power generation has ash content of more than 40% and hence more area shall be used
for ash disposal and ash utilisation need to be increased significantly. The no. of power
plants using imported coal has been increasing due to unavailability of indigenous coal. The
imported coal contains higher Sulphur content which has adverse effects on the human
health.

Energy Generation contributes 65% of Green House Gas generation in the world. India
stands 3rd among the top CO2 emitting countries with 1293 million metric tons of CO2 per
annum. Though India stands much below in terms of per capita carbon emission, it’s facing a
lot of challenge to sustain the rapid economic development amid international pressure to
control GHG emission. National Action Plan on Climate Change has been launched in June
2008 which emphasises a gradual shift from economic activity based on fossil fuels to one
based on non-fossil fuels and from reliance on non-renewable and depleting sources of
energy to renewable sources of energy.

In the view of above concerns, renewable sources of energy have a great potential to
provide energy security to the nation with no environmental issues. In this context, the Sun
occupies the centre stage. India is a tropical country, where sunshine is available for longer
hours of per day and in great intensity. Solar energy, therefore, has a great potential as
future energy source.

Solar Energy & India:

For a long term energy security and

ecological security of the nation, there is
an urgent need to look at the alternative
sources of energy against the use
conventional sources of energy. In a
world of rapidly depleting fossil fuel
resources and increasing constraints on
access to conventional energy resources,
the rapid development and deployment of
renewable energy has become a
necessity. In view high solar radiation
over the country solar energy provides a
long term sustainable solution.
Solar energy is environment friendly as it has zero emissions while generating heat or
electricity. From an energy security perspective, solar is the most secured of all sources as it
is abundantly available.

India is endowed with vast solar energy potential. About 5,000 trillion kWh per year energy is
incident over India’s land area with most parts receiving 4-7 kWh/m2/day. Hence both
technology routes for conversion of solar radiation in to heat & electricity, namely, solar
thermal and solar photovoltaic, can effectively harnessed providing huge scalability for solar
in India.

India’s first megawatt size grid connected solar power plant is established in Jamuria,
Asansol District of West Bengal in December 2009. The installed capacity of solar power in
India is 6 MW as on December 2009. Achievement during 2009-10 till December 2009 was
3.1 MW.

Large multi-megawatt PV plants, approximately to 50 MW, are now in operation in the world.

Solar Photovoltaic (PV) is known to be an important energy source for developing countries
like India. Its importance is now being reaffirmed even by developed countries in view of its
renewable and environment friendly character. In our country also, optimum utilization of
solar energy could not only lead to savings in conventional energy but also result in many
indirect benefits. In India 2MW solar PV now are commercially operated by independent
power producer. But till now solar technology is expensive compared to other technology
and significant financial assistance from government is needed to the developers and
operators of new plants.

In view of this, the Ministry of New & Renewable Energy Sources has been promoting
electricity generation from Solar PV in Mega-Watt level. These projects are covered under
the Grid Interactive Solar PV Power Generation Projects of Ministry of New & Renewable
Energy Sources, Govt. of India. The Ministry initiated the programme to establish as a
viable and environment friendly electricity generation option.

Jawaharlal Nehru National Solar Mission (JNNSM):-

The JNNSM has been the most significant policy step towards promoting the solar power in
India. It aims to achieve a long term reduction in the cost of solar power generation through
economies of scale. Grid connected capacities are clearly the main focus area of JNNSM.
The mission incentivises developers by offering them preferential tariffs and making it
mandatory for utilities to meet renewable purchase obligations (RPO).

The regulatory (CERC) supports the JNNSM by formulating levellised the tariff keeping the
interest of developer for solar power. Another key initiative has been the formulation of
renewable energy certificate (REC) regulation. RECs are market based instruments to
facilitate renewable energy transactions. The REC mechanism classifies the cost of
generated electricity into an energy cost equivalent to conventional energy and a cost for
environmental attributes of such energy. The latter gets exchanged through RECs. A
renewable energy generator can either sell power at a preferential tariff or sell the energy
and environmental attributes separately. Besides this the developer can earn revenue by
trading carbon under the CDM mechanism to Annexure 1 countries i.e. developed countries.

Annual mean daily global

solar radiation in India

Orissa Power Sector Scenario:

The State of Orissa situated in the eastern part of the country, is the first State to take up
Power Sector Reform to ensure stable and quality power at a reasonable cost. With a land
area of 155,707 sq. Km, the state has a population of 3.67crore.

The total installed capacity in the state is 4059.33 MW as on 31st March 2010. The Hydro
Power generation is a major source of power for the state with an installed capacity of 2167
MW followed by Coal based power generation with 1828 MW. Power from Renewable
Sources accounts only 64.30 MW. The State of Orissa which was a surplus state in terms of
availability of electricity is reeling under power crisis. The gap between the demand of power
and availability of power/met demand is in an increasing trend over the last few years. The
state is purchasing power from other states to meet its demand. Below figure depicts the
power supply scenario in Orissa in recent years.

In addition to the above mentioned power crisis in the state, the ecological imbalance due to
the emissions from the existing Thermal Power plants becoming a major concern for the
state. It is worthwhile to mention that the western part of the state where a no. of Thermal
power plants are clustered is soon becoming the hottest zone in the country. In this context,
the energy from renewable sources provides a sustainable solution to meet the growing
demand for electricity.

Moreover, the naxal affected areas and hilly areas of the state where there is neither any
grid connection nor the grid connection is cost effective, Solar PV Power can play a major
role in the development of the region.

Orissa, because of its sub-

tropical geographical location
receives an abundance of solar
radiation throughout the year
except for some interruption
during the monsoon and winter
seasons. With a total land area
of 155,707 square kilometres,
Orissa holds a vast potential for
harnessing very large
quantities of solar power. Moreover, large portions of the western part of the state, far away
from the coasts, are in rain shadow areas, which receive solar radiation round the year,
virtually, without any interruption.

The Orissa Renewable Energy Development Agency (OREDA) was constituted as a State
Nodal agency in the 1984 under aegis of Dept. of Science and Technology, Govt. of Orissa
with the view to popularize the exploitation and use of renewable energy resources in the
State. Orissa from the point of view of its geographical location has been endowed with
plenty of Renewable Energy Resources. The estimated resource potentials and
achievements are as under:--

Resource Potential
 Solar PV Power 14,000 MW

Small Hydro 156.76 MW

Wind Energy 236 MW

Biomass Power 350 MW

Waste to Energy 28.5 MW

From the above facts, there is a huge scope for Solar PV Power in the state.

Eight solar power projects in Orissa have been cleared by the State level Committee, Orissa
Government. These power projects will generate 230MW of power in an aggregation,
including two solar thermal plants. For the very first time a STC has approved two Solar
Thermal power plants which will jointly generate 125 MW of capacity.

In view of the available natural resource for Solar Power, Govt. initiatives and incentives and
an increasing power demand and an increasing gap between the energy demand and
energy availability in the country, the Solar power generation remains an attractive option for
investors to meet the energy demand as well as ecological demand of the country.

The State anticipates a good number of Private Industrialists to show their interests in setting
up of power plant units.

The Utkal Power Limited, has planned to install a 24 MW Solar Photovoltaic Power Project in
Therubali in the Rayagada District which can be seen as an appropriate step towards the
growth sustainable energy in the state. The project has no R&R issues as the required land
is under the company (Utkal Power Limited) ownership.

Typical Major issues in Development of a Solar Power Project:

The major issues those are typically involved in a Solar Power project and more importantly
its significance to Utkal Power project are discussed below:

1. Higher Capital Cost – The Capital investment of the project (per MW Cost also) is so high
compared to other conventional power project of same capacity. UPL has planned to
install 24 MW capacity, which is a significant higher capacity in view of the current total
installed capacity in the country. The higher capacity is expected to bring down the per
MW capital cost due to economies of scale and through proper negotiations with the
OEM.

2. Low Capacity Utilization Factor – the total unit generation is low compared other electricity
generation utilities because of availability of solar insolation. The average hours are
typically 12 hours in a day. However, the location of UPL has advantage of high solar
insolation and is estimated to have average 12 hours in a day.
3. Area and maintenance – Typically a PV power plant occupies more areas of land than
conventional power of same capacity. Of late land has become a scarce and expensive
commodity due to very high demand from industry as well as real estate sector. But at the
cost of clean energy this is not something to compromise. But for UPL there is no major
concern for land as it has own land available near the existing plant at Theruballi.

Maintenance is also a very important aspect of PV systems for achieving the output and
efficiency. In PV power plants there is little maintenance involved. PV technology has the
distinct advantage as there are no mechanically moving parts. The only maintenance
required is janitorial work such as cleaning the solar panels.
Benefits of Grid Connected Solar Power Plant:

1. Power from the sun is abundantly available at free of cost.

2. Photovoltaic process is environment friendly as it does not emit Green house gases
like CO2, SO2 or NO2 gases which are normally associated with burning of fossil
fuels and don’t contribute to global warming.

3. Photovoltaic technology are now commercially available and a proven technology

which is inherently safe similar to other proven conventional electricity generating
technologies.

4. Grid connected Solar power plants shall augment the needs of peak power.

5. Helps in grid stability i.e., voltage and frequency

6. Solar Powered Grid Connect Plants can act as tail end energizers, which in turn
reduces the transmission and distribution losses.

7. Assists in meeting renewable portfolio standards goals.

In view of urgent necessity of capacity addition under JNNSM policy and considering the
environmental and social issues both globally and locally, Utkal Power Limited’s 24 MW
Solar Photovoltaic project is found to be justifiable.