The world is in mayhem regarding surging liquidity crunch resulting in fall of prices in all the sectors. The power becomes the only sector for increasing demand but will be affected due to infrastructural projects. The demand side of the equation in the energy sector in India is likely to be strong attracting more investments in this sector. The financial crisis would, however, delay new capacities in the near term due to collapse of the market and stringent norms for projects approval.
Sudhir M Trehan, MD, Crompton Greaves Ltd comments that power is the only sector where demand will not fall during any crisis as the increasing population demands for more. As per a study done by KPMG and CII on 'India Energy Inc. – Energy Outlook', it reveals that over the last couple of years, the power markets has played a useful role in providing price signals for new capacity creation. Many merchant plants have been conceived on the back of the high process in the short term market for power. However, comfort of long term off take for at least a portion of the total capacity are still insisted upon by lenders and developers have to wait for tenders by state utilities to sell power through the competitive bidding route. Thus, the process becomes slow and the much needed capacity additions are delayed.
The Electricity Act 2003 says that the direct sale of power to large customers through open access route can enable the opening up of the market and facilitate further capacity additions, which is still to be implemented in practical terms.
The study says, "While the country is facing very significant power deficit today to the tune of 20,000 MW, there are plans for very large supply additions going forward. Until the 10th Plan, the 5 year plans were dominated by government capacity additions and constraints to capacity additions were mainly due to government procurement procedures, equipment sector constraints and project implementation delays. The hurdles will largely occur on account of fuel sector issues, including allotment and development of coal mines. Over 81 coal mines have been allotted, delays are seen in development on from land acquisition, obtaining government clearances and lack of mine development capabilities."
As market forces play out in to add new capacities, some constraints, particularly relating to project management and technical capacities related to mining will be eased out. Therefore, supply side response to the current deficit to speed up and catch up with the demand curve during the 12th Plan can be expected.
Banmali Agrawala, Executive Director – Strategy & Business Development, The Tata Power Co Ltd, said, "Mining of coal should be looked carefully. The biomass is the second largest energy resource as far as India is concerned but the efficiency of its usage is rather low. There is tremendous opportunity to see how it can be converted into energy. The amount of energy we consume per unit of GDP is dropping. The role of a regulator is crucial when demand & supply imbalance occurs."
On other energy sectors, the signing of the 1-2-3 agreement with the US is widely expected to give a boost to nuclear energy. Indian companies have to decide on queries like which technology to adopt, what should be the fuel sourcing strategy and the entry model. Solar energy has gained a significant interest. The recent US backing and new players foray are expected to bring down the prices and increase supply of solar modules.
Mr Trehan added that the global scenario is changing at a fast pace. The impact on real economy and sentiments of market and industry is getting affected. By 2015-17, the curve of the gap between demand & supply will be crossed. The Power Exchange being in the nascent stage should be encouraged.
The study says, "Other areas where the investors may like to start working with government are the issues related to how the regulation will work and the way Atomic Energy Regulatory Board (AERB) and Central Electricity Regulatory Commission (CERC) would regulate the industry. Currently, CERC does not have a role in tariff fixing for nuclear power which is done by the Department of Atomic Energy (DAE). AERB whose approval is required at all stages leading to setting up of a nuclear power plant – starting from approval of technology to approval for commissioning of the plant is controlled by Atomic Energy Commission (AEC)."
Conclusion
The Ministry of New Renewable Energy (MoNRE) plans to generate 20 per cent of total energy through renewable energy by 2020. But it should consider the issues faced by renewable energy like lack of adequate technology i.e. offshore wind power and solar energy; costs of setting up the plants; lack of infrastructure and huge capital investments.
The Indo-US 1-2-3 agreement does not open any possibility of India leaping forward before next 25 years. The major constraint is investment, which can be overcome by involving public private partnership (PPP) companies into nuclear power generation. The amendment of the Atomic Energy Act of India, 1962, to address the issue of liability limitation, streamlining of the regulatory process for approvals at various stages of nuclear power development, clarity on the tariff of power generated from nuclear power plants and issues related to allotment of sites for setting up of the plants for new companies must be done.
The kind of role AERB can play will become more important once private players and the public sector companies plan to enter nuclear power generation should be defined.
The Indian nuclear power industry is looking for an investment over $60 to 80 billion in the next 25 years but an appealing market situation should be created which can bring in these expectations. If India would like to add another 60,000 MW through nuclear in the coming years, it is important that these issues are addressed early as nuclear generation has a relatively longer gestation compared to thermal power plants.
