Fundamental Analysis of Power Sector

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The exemplary economic growth exhibited by India in the past decade at a constant rate of about 7.5% CAGR has truly been phenomenal. One of the major forces enabling India to achieve this impressive feat has been the advancements made by the Power sector in terms of capacity and availability. It has been facilitating an efficient transition from labor to machine intensive production and constantly fuelling the energy requirements of various other industries. It remains one of the most critical components of infrastructure that affects economic growth.

With the ambitious “Power for All” by 2012, a target formally announced by the Indian Power ministry in 2003, the Indian power sector seemed set for a massive boost backed by incremental investments both by the Government and private players. Although there was much hoopla in the beginning, it all faded out slowly. Currently, India ranks 5th in the world in electricity generation and is placed at 6thwhen it comes to net electricity consumption. An interesting fact is that the per capita annual consumption of electricity in India is one of the lowest in the world at approximately 818.9 KWh when compared to the world average of 2600 KWh and 6200 KWh in European Union, which can majorly be attributed to the population growth and the inability of the sector to achieve its target capacity addition. For a country considered to be a rising economic power, more than 300 million people still have no access to electricity. There is a worrying demand supply mismatch with a peak hour deficit reaching about 10.5%. In the past year alone the gap between demand and supply has grown to 10.2 % up from 7.7% the year before. The crippling hindrances for this are delays in target capacity addition, distribution losses, raw material shortages, excessive dependence on domestic equipment manufacturers and non conducive Government policies. The stakes involved and the severity of these issues may be disastrous for the industry at large and all other stakeholders if ignored for long and may affect India’s economic growth prospects adversely. VALUE CHAIN OF THE POWER SECTOR  IN INDIA

The entire value chain of the power sector in India is dominated by the Central and State sector utilities. In the Power generation space the percentage share of State and central utilities stands at 50.4% and 32.6% respectively. The story remains pretty much the same in Power transmission and distribution space. The central and the State utilities own nearly 87% of the total distribution network.

Source: Power sector analysis by team moneyworks4me
POWER GENERATION
India currently has an installed capacity of 205 GW. This falls short by a long way when we consider the present energy requirements let alone the ever growing demand for electricity due to mass urbanization and increasing population. The Centre had targeted capacity addition of 100,000 MW each in the 12th Plan (2012-17) and 13th Plan (2017-22), although the 12th 5 year plan’s target has now been reduced to 75000 MW owing to shortage of fuel supply. Rapid buildup of generation capacity is aided by the setting up of Ultra Mega Power Projects (UMPP) each of which offers 4000 MW capacity. Some of the major issues in realizing the proposed capacity additions and performance inefficiencies are discussed in the next section.

THERMAL POWER
Thermal power generation is majorly based on inputs like coal, oil or gas where one of the three may be used as a primary source. Coal contributes to about 84% of the total thermal production with oil and gas contributing 15% and 1% respectively. The overall performance efficiency of thermal plants was about 56% in 2011. COAL BASED PLANT

Thermal Power production in India is heavily reliant on coal as a primary source. India has about 10% of the world’s coal reserves but the coal production to reserve ratio is just 0.94 which is significantly lower when compared to China’s ratio of 2.83. Domestic production of coal...
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