Power Sector in the coming years

"Key Inputs for Power Sector for 11th Plan & Beyond" organised by the Confederation of Indian Industry (CII). T key takeaways from the meeting are given below.

• The conference was buzzing with optimism regarding the power sector, with the actual capacity addition expected to be pretty close to the planned addition in the 11th Five-Year Plan period.
• In the past, the actual additions have consistently missed the planned capacity additions and that too by a long margin. In the 10th plan period itself, the actual addition was just 21,180 megawatt (MW) as against the planned target of 41,110MW, ie it was just 51.5% of the planned addition.
  
  

	Target (MW)	Achievement (MW)	%
7th Plan	22,245	21,401	96.2
8th Plan	30,538	16,423	53.8
9th Plan	40,245	19,015	47.2
10th Plan	41,110	21,180	51.5

• However, the situation is likely to change in the 11th plan period, with a better achievement ratio. The government had earlier set an ambitious target to add 78,577MW of capacity during the period; it has now raised the planned addition target to 80,020MW. Another 82,200MW is expected to be added in the 12th plan period. In the 11th plan period, out of the total target, 9,600MW has already been commissioned, about 66,000MW is under execution and tenders for about 5,500MW have also been floated. This time, most of the orders were placed during the first year of the plan itself, in contrast with the past practice of doing so in the second or the third year of the plan periods. This should improve the achievement ratio.
• It was observed that the demand for power is growing extremely rapidly, outpacing the current supply, with peak shortages rising year on year. It was also noted that the consumers are now willing to pay for quality and uninterrupted power supply—a trend that is no doubt a shot in the arm for the power sector.
• On the technological front, the focus was on supercritical technology. In the 11th plan period, about eight to nine plants would be using the supercritical technology. While it is already mandatory to use the technology in case of the ultra mega power projects, the bulk of the additions in the 12th plan period would also use the technology as it offers much better efficiency.
• The major bottleneck areas were also identified and discussed during the conference. For example, in the previous plan periods, there had been considerable delays on account of delays in the commissioning of balance of plants, such as coal handling plants, ash handling plants and cooling towers. Hence, the urgent need to increase the number of vendors for balance of plants was also recognised. There were also suggestions that the contracts for balance of plants be awarded as a single package instead of breaking them up into equipment contracts, civil contracts and mechanical erection contracts. It was also proposed that additional capacities for forgings and casting component be created in the country to avoid delays in the execution of projects.
• The Central Electricity Authority also suggested that in order to protect the profitability, in the future, the contracts having a gestation period of more than one year have a price variation clause.
• Another important point discussed pertained to the fuel linkages for the power plants. The total fuel requirement for capacity addition in 11th plan period is mentioned below.

Fuel	Requirement
Domestic coal	550MT
Lignite	33MT
Gas/LNG	89mmscmd

• Majority of the fuel linkage tie-ups have already been achieved for the 11th Five-Year Plan, while the power ministry has already recommended to the coal ministry that the window to fuel linkages should be opened for the requirement of the 12th Five-Year Plan.
• All this reinforces our positive view on the power sector. We continue to believe that the entire sector, from generation companies to transmission and distribution companies, would benefit from the buoyancy that would result from the increased investments. It remains a fact that India, which is growing at a healthy rate of 8% and above, needs sustained addition in power capacity to meet the surging demand and plug the shortfall. This scenario sure augurs well for the power sector in the long term.

There were also representations from the corporate side in the conference. Strong investments in the various segments of the power sector would benefit the entire sector. Frontliners such as Larsen and Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL) are taking proactive efforts to create new capacities and develop new technologies for future growth. BHEL BHEL would be one of the primary beneficiaries of the thrust on the power sector. Historically, BHEL has provided equipment for almost 65% of the total installed capacity in the country. For the 11th Five-Year Plan as well, out of the total orders for 73,940MW of capacity, orders for 42,427MW (or 57%) have been bagged by BHEL. We believe that this high ratio would be maintained and the company would benefit from the strong capacity addition in the country. Looking at the demand scenario and the shortages, we believe India would see a sustained capacity addition going forward rather than a sporadic one, and companies like BHEL would be the primary beneficiaries of the resulting boom. In line with the demand, the company has raised its capacity from 6,000MW per year to 10,000MW per year by December 2007. It further plans to raise its capacity to 15,000MW by December 2009 by investing Rs3,200 crore. In future, the capacity may be raised to 20,000MW if need be, to meet the country's capacity addition programme. We maintain our Buy recommendation on the stock with a price target of Rs2,381. L&T L&T has entered into a 51:49 joint venture with Mitsubishi Heavy Industries, Japan to develop indigenous supercritical technology. We believe that this alliance would help the company in getting the right technology in order to get into this lucrative business and tap the huge opportunity. The company is setting up a plant at Hazira at a total investment of Rs750 crore with a capacity of 3,000MW per annum. This plant is likely to become operational by September 2009. At full utilisation, the plant would generate revenues to the tune of Rs3,000 crore. We maintain our Buy recommendation on the stock with a price target of Rs4,044. T&D network development Another feature that stands out in the 11th Five-Year Plan is the strong impetus not only on power generation but also on power transmission and distribution (T&D). The emphasis is on creating new T&D networks in order to evacuate the power from the new capacities being built and on upgrading the current network to cut down the T&D losses that range from 5% to as high as 60% in the country. The government has taken steps in this direction by involving private players in the power distribution sector in cities such as New Delhi, Mumbai, Bhiwandi and Nagpur, which was recently taken over by Crompton Greaves. In our view, with the success of the public private partnership model in various aforesaid cities, the government might choose this path to arrest the mounting T&D losses. All these steps augur well for players involved in manufacturing of inputs for T&D space, such as transformer manufacturers, power cable manufacturers and energy meter manufacturers. In this space we prefer Crompton Greaves, which is the lead player in the 765KV transformer space and provides a host of services and products for the T&D segment. The recent energy efficiency drive by the government has resulted in strong order inflows for energy efficiency meters manufacturer Genus Power Infrastructure. Other companies that will benefit are Bharat Bijlee, Indo Tech Transformers and KEI Industries.

ROhit