UNIT 3

GENERATION PLANNING
POWER SYSTEM ECONOMICS
POWER SECTOR FINANCE
FINANCIAL PLANNING
PRIVATE PARTICIPATION
RURAL ELECTRIFICATION INVESTMENT
CONCEPT OF RATIONAL TARIFFS
 FINANCIAL PLANNING

Investment requirement of the power sector

has increased exponentially over the years.
a need was left to mobilize resources to meet this
huge requirement
by way of foreign assistance, private capital, public
borrowings and internal resource generation, to
reduce the financial burden on the public.
The state electricity boards and the central
sector corporation are expected to generate at
least 20 per cent of their total investment as
internal resources.
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 FINANCIAL PLANNING ..

The capital structure of the state electricity

board is built up with loans from the state
governments, financial institutions like banks,
LIC, PFC, REC etc. and market borrowing. They
are also expected to generate internal
resources from their statutory earnings after
meeting the liabilities of operating
expenditure, interest on loans, capital-and
depreciation
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 FINANCIAL PLANNING
The negative internal resources indicate losses incurred by
SEBs ue to lack of rational tariff and other reasons
Power being the basic infrastructure required for sustainable
economic development, cannot be ignored even in such a
situation and ways and means will have to be found to
mobilize finances for funding the new schemes.
The capital finance debt and/or equity is required for fixed
capital (long term) for land, building, machinery, materials,
construction etc. and working capital (short term) for raw
material such as fuel for two months etc.
Working capital has highest interest rates. Competitive
financial markets are emerging. The innovative approach by
various financial institutions has made funding a complicated
process.

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 The broad options available for power sector finance are as follows,
(i) Issue of bonds by the central corporations, electricity boards,
(ii) Internal resources generation by utilities,
(iii) Subscriptions of shares/debentures from public,
(iv) Loans from power finance corporation (PFC),
(v) Promoters money,
(vi) State plan resources for state electricity boards,
(vii) New budgetary support from the government of India,
(viii) Joint sector participation between central and state governments,
(ix) Joint ventures between public and private sectors,.
(x) Bilateral assistance on selective basis in terms of grant, equity and loans,
(xi) Multilateral assistance from world bank/ AOB etc., in terms of grant, equity
and loans
(xii) Loans or equity from financial institutions such as LIC, UTI, commercial
banks, NABARD, IDBI etc.,
(xiii) Loans from specialized financial corporations such as IFC, ICICI, pension
funds etc.
(xiv) Lease financing to power utilities

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 Pattern of investment
4:2:1:1
Plan outlay
- Generation R&M
- Investment on optimum utilization of existing generation plants through R&M
programmes has also not always been adequate, though large investment in
R&M - programmes would probably have resulted in higher average PLF of the
power plants.
Techno-economic viability
Projects identified investment PG
Invesment on sub sectors fesibility
The Central Electricity Authority has acquired the Integrated System Planning
Package (ISPLAN)developed by M/s I.D.E.A.of USA.
Another proprietary package, the Electric Generation Expansion Analysis System
(EGEAS) is a computer software package which contains five capacity expansion
analysis options ranging from preliminary analysis tools based on screening curves
and linear programming to sophisticated non linear analysis tools utilizing
Generalized Bender's Decomposition Technique and Dynamic Programming
Algorithm.

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 PRIVATE PARTICIPATION
Private power projects are important as a part
of the country's investment resources raising
and least cost expansion plan for the supply of
electricity.
Under the Indian Electricity (Supply) Act, the
private sector generating companies,
transmission or distribution companies are
encouraged to participate in power sector.
Another advantage of private' sector
participation is that it opens up new work and
management skills for timely execution of the
project and delivery of quality in work and
service. Some of incentives for private sector
versus public sector are given in the below
table.
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As notified by the Government of India

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FINANCE STRUCTURE OF PRIVATE
SECTOR

MINIMUM
ANNUAL
REQUIREMENT

DEPRECIATION
INTEREST DIVIDEND
FUEL
ON DEBT. INCOME TAX LABOUR
MATERIALS
INSURANCE

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FINANCE STRUCTURE OF PUBLIC
SECTOR

MINIMUM ANNUAL
REQUIREMENT

DEPRECIATION
FUEL
INTEREST ON DEBT. LABOUR
MATERIALS
INSURANCE

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 Debt Equity Ratio
The Government of India has stipulated a debt-equity ratio
of 4:1.
A higher ratio is considered more risky for the lenders.
Debt-equity ratio is calculated by dividing long-term debt
by the equity.
Debt and equity are defined as follows
Debt
- Long-term loans/deposits (repayable after twelve months)
including interest bearing unsecured loans from government
agencies, promoters etc. & deferred payments.
Equity
Ordinary paid-up share capital, premium on issue of
shares, amount of central/state subsidy, non-refundable
deposits in the case of cooperatives.
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 Modes of participation
Given the present provision of electricity laws,
the private sector could participate in four ways.

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