Power sector is one of the prime constituent of infrastructure that is imperative for the economic growth and development of a country. India as a developing nation has acquired a considerable expertise in the last several years in diversifying its power generation. The various sources of power generation in India include from conventional sources like coal, hydro, natural gas, lignite, nuclear power to feasible non-conventional sources like agricultural and domestic waste and solar and wind.
The demand for electricity has amplified in last few years and is likely to increase further in the coming years. With the purpose to meet the increasing demand for electricity in the country, enormous addition to the installed generating capacity is necessary.
The Modi Government introduced several programmes such as the Integrated Power Development Scheme and the Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY). The country is likely to exert a pull for a substantial investment of R11,55,652 crore in power generation sector by 2022 in setting up projects across thermal, hydro, nuclear and renewables segment. A total capacity addition of 58,384 MW from conventional sources has been foreseen consisting of 47,855 MW of coal-based power stations, 406 MW of gas-based power stations, 6,823 MW of hydropower stations and 3,300 MW of nuclear stations.
This year, in May, India ranked 4th in the Asia Pacific region out of 25 nations on an index that measures their overall power sector.
| Sector Sector | MW | % of Total |
|---|---|---|
| State Sector | 84,637 | 24.2% |
| Central Sector | 104,039 | 29.7% |
| Private Sector | 161,487 | 46.1% |
| Total | 3,50,162 |
According to India Brand Equity Foundation, an initiative by Ministry of Commerce and Industry, India is world’s third largest producer and 4th largest consumer of electricity.
[tie_index]Market Size[/tie_index]
Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower).
Total installed capacity of power stations in India stood at 344.69 Gigawatt (GW) as of August 2018. Thermal power is the “largest” source of power in India. There are different types of thermal power plants based on the fuel used to generate the steam such as coal, gas, diesel and natural gas. About 71 per cent of electricity consumed in India are generated by thermal power plants.
India is the world’s 3rd largest electricity producer with total installed capacity of 3,50,162 MW. Out of this, 84,637 or 24.2 per cent from state owned utilities, 104,039 MW or 29.7 per cent from the central government owned utilities and 161,487 MW or 46.1 per cent of the total from the private sector utilities as on 28th February 2019, according to data available with the Ministry of Power.
The utility electricity sector in India has one National Grid with an installed capacity of 346.05 GW as on 31 October 2018. Renewable power plants constituted 33.60 per cent of total installed capacity. During the fiscal year 2017-18, the gross electricity generated by utilities in India was 1,303.49 TWh and the total electricity generation (utilities and non-utilities) in the country was 1,486.5 TWh. The gross electricity consumption was 1,149 kWh per capita in the year 2017-18. Electric energy consumption in agriculture was recorded highest (17.89 per cent) in 2015-16 among all countries. The per capita electricity consumption is low compared to many countries despite cheaper electricity tariff in India.
India has surplus power generation capacity but lacks adequate infrastructure for supplying electricity to all needy people. In order to address the lack of adequate electricity supply to all the people in the country by March 2019, the Government of India launched a scheme called “Power for All”. This scheme will ensure continuous and uninterrupted electricity supply to all households, industries and commercial establishments by creating and improving necessary infrastructure. It is a joint collaboration of the Government of India with states to share funding and create overall economic growth.
India’s electricity sector is dominated by fossil fuels,in particular coal, which in 2017-18 produced about three fourths of all electricity. However, the government is pushing for an increased investment in renewable energy. The National Electricity Plan of 2018 prepared by the Government of India states that the country does not need additional non-renewable power plants in the utility sector until 2027, with the commissioning of 50,025 MW coal-based power plants under construction and achieving 2,75,000 MW total installed renewable power capacity after retirement of nearly 48,000 MW old coal fired plants.
In addition to that the government is also targeting to ramp up the country’s renewable energy capacity to 1,75,000 MW by 2022. Of this, 1,17,756 MW is expected to be set up during the period through 2022.
According to the Ministry of Renewable Energy’s annual report for 2016-17, India has made significant advances in several renewable energy sectors which include, solar energy, wind power and hydroelectricity.
The Ministry also aims to ensure energy security. Lesser dependence on oil imports through development and deployment of alternative fuels (hydrogen, bio-fuels and synthetic fuels) and their applications to contribute towards bridging the gap between domestic oil supply and demand.
The target is to increase in the share of clean power: Renewable (bio, wind, hydro, solar, geothermal and tidal) electricity to supplement fossil fuel based electricity generation.
Energy availability and access leading to supplement energy needs of cooking, heating, motive power and captive generation in rural, urban, industrial and commercial sectors.
Towards energy affordability by cost-competitive, convenient, safe, and reliable new and renewable energy supply options; and, energy equity through per-capita energy consumption at par with the global average level by 2050, through a sustainable and diverse fuel- mix.
The National Electricity Plan (NEP) report says that no additional fund will be required for gas-based generation capacity as the construction of these plants has been completed and could not be commissioned so far due to non-availability of domestic gas.
The overall fund requisite includes R8,52,804 crore investment in projects likely to be commissioned during this period and R3,02,848 crore expenditure needed with respect to advance action for projects likely to be commissioned in the next five year period (2022-27). Of the R8,52,804 crore to be spent through 2022, R1,42,566 crore would be needed for central sector projects, R92,889 crore for state sector projects and R6,17,349 crore for private sector projects. In this assessment, it is assumed that all the renewable projects will be implemented by private developer.
The government also estimates that an investment of around R9,56,214 crore will go into setting up the targeted 1,65,220 MW generation capacity between 2022 and 2027. This consists of 46,420 MW of thermal projects, 12,000 MW of hydro projects, 6,800 MW of nuclear projects and 1,00,000 MW of renewable energy projects. This estimate does not consist of investment related to advance action for projects expected to be commissioned in the next five-year period (2027-32).
The need for a flexible, resilient and intelligent grid is becoming a priority for policymakers. With the future power system being requisite to deal with new challenges such as a greater incursion of renewable energy, growth in electric vehicles (EVs), new forms of generation sources and a considerable addition of new households to the grid, the government is putting in place solutions and strategies for holistic smart grid development.
During the fiscal year 2017-18, the utility energy availability was 1,205 billion KWh with a shortfall of requirement by 8 billion KWh (-0.7 per cent) against 1,230 billion KWh anticipated. The peak load met was 160,752 MW with a short fall of requirement by 3,314 MW (-2 per cent) against 1,69,130 MW anticipated. In LGBR 2018 report, India’s Central Electricity Authority anticipated for the 2018–19 fiscal year, energy surplus and peaking surplus to be 4.6 per cent and 2.5 per cent respectively. Though few states are expected to face energy shortage, power would be made available adequately from the surplus regions with the available excess capacity inter regional transmission links. By the end of calendar year 2015, India has become power surplus country despite lower power tariffs.
The Government of India has released its roadmap to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power. “Rent a roof” policy is being mooted to achieve the target of generating 40 GW of power through solar rooftop projects by 2022.
Coal-based power generation capacity in India, which currently stands at 196.10 GW is expected to reach 330-441 GW by 2040.
The 2026 forecast for India’s non-hydro renewable energy capacity has been increased to 155 GW from 130 GW on the back of more than expected solar installation rates and successful wind energy auctions.
India could become the world’s first country to use LEDs for all lighting needs by 2019, thereby saving R40,000 crore ($ 6.23 billion) on an annual basis.
All the states and union territories of India are on board to fulfil the Government of India’s vision of ensuring 24×7 affordable and quality power for all by March 2019, as per the Ministry of Power and New & Renewable Energy.
The Government of India is taking a number of steps and initiatives like 10-year tax exemption for solar energy projects, etc, in order to achieve India’s ambitious renewable energy targets of adding 175 GW of renewable energy, including addition of 100 GW of solar power, by the year 2022. The government has also sought to restart the stalled hydro power projects and increase the wind energy production target to 60 GW by 2022 from the current 20 GW.
A CRISIL report says that the government has initiated several measures to alleviate stress in the power generation segment. The most recent being the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) policy, which aims at removing fuel supply bottlenecks by providing coal linkages to plants having a Letter of Assurance. This would keep their generation cost low and ensure increased plant availability with assured fuel supply. However, availability of fresh power purchase agreements (PPAs) and discounting on existing PPA tariffs are key monitorables. The flexible coal utilisation policy for state and central generation plants notified in May 2016 has also brought down the fuel cost, which is evident from the reduced average generation cost of National Thermal Power Corporation Limited (NTPC) plants at R1.94 per kWh in fiscal 2017 compared with R2.01 per kWh in fiscal 2016 owing to improved coal quality and supply.
Moving forward, it is expected that the demand will grow to cater to the continued economic growth of the country, creating more volume in the power market with strengthening of financials of Discoms. The demand is also likely to come from shift of usage from fuel to electricity in transport and agriculture sector in particular from distributed generation with solar installations. Trading of solar power is one segment that has not picked up yet due to aggressive tariffs, however, this also maybe an opportunity in future from the perspective of stronger payment security mechanism. Efficiency improvement measures in the sector especially through the IT enablement, promotion of environment-friendly renewable technologies and energy efficiency solutions in the coming future are expected to provide business opportunities to various stakeholders.
In order to help stressed entity, the government has planned to set up a holding company named as National Asset Management Company (NAMC)) for identified stressed assets, with the help of NTPC, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) besides banks, that will auction stressed plants or lease them on contract basis after the lenders take control of management. However, the lenders and promoters will have to take significant haircut through debt-equity swap. On the other hand, the RBI has issued notification on Resolution of Stressed Assets – Revised Framework that mandates banks to classify debt as default in case of even one day’s delay in servicing the debt. As per the revised framework, projects with interest or principal overdue starting from 1 day to 30 days will be categorised as special mention accounts category. The most stringent change in the framework is that all the lenders have to agree upon a resolution that has to be reached in 180 days. The new guidelines are likely to add further stress to the sector.
Above all, a well-timed and efficient execution of these measures is crucial for any development in the power sector.
As a company, it achieved an epochal milestone the last fiscal, i.e., FY 2017-18. This was the landmark achievement of producing 14.164 MMT of Oil and Oil Equivalent Gas, the highest ever production achieved by ONGC Videsh in its history. This was achieved largely due to the seamless stake acquisition of the Vankorneft, wherein it closed the additional 11 per cent stake acquisition in October 2016, after its initial 15 per cent acquisition earlier in May 2016 and acquisition of 4 per cent stake in Lower Zakum Concession in March 2018.
ONGC Videsh has reported an important discovery at well Mariposa-1 in CPO-5 block in Colombia. It is a significant exploratory success where every step of the way, in house resources and team effort acted as the catalyst in the successful drilling and completion of this exploratory well.
The company takes quiet satisfaction in the fact; it did not lower its targets despite the plummeting oil prices despite plummeting global demand. If anything, it considered this to be an opportunity both to consolidate and grow inorganically, as is evident from its recent Vankorneft and Lower Zakum acquisitions; deals that commenced and reached conclusion in a deeply volatile and uncertain industry environment.
Policy-led transitions in the low-price regime was basically demonstrated in fiscal evolution of the terms offered by resource-rich countries. Several countries now invite investors to bid some of the terms as part of the licensing process, providing it with the opportunity to contribute in the fiscal evolution process. But fiscal disruption also changes the distribution of income from existing assets, after investment has been incurred, and thus enhances the risk especially in fiscally evolving regimes. The drawdown in exploration and production (E&P) spending since 2014 has increased the potential costs of regulatory missteps and delays for resource-focused governments, and as such the fiscal evolution has largely been positive from E&P players’ standpoint.
ONGC Videsh keeps itself abreast of the latest advancements in the field of information technology so as to adopt to the extent required in its pursuit of achieving operational excellence, incorporating industry best practices in IT Security. ONGC Videsh has implemented SAP GRC-Risk module along with Risk dashboard for optimal decision-making and compliance. Risk management efforts of ONGC Videsh have been recognized at global level and the company has won Golden Peacock Award for Risk Management 2017 instituted by the Institute of Directors (IOD) during Global Convention on Corporate Ethics & Risk Management. ONGC Videsh has also won The ICICI Lombard & CNBC-TV18 India Risk Management Awards in the category of “Best Risk Management Framework & Systems – Risk Technology” in 2017-18.
Imperial Energy was another milestone acquisition for ONGC Videsh, both in terms of paid-up value and the sheer scale of acreages that it acquired. However, it has had numerous challenges in this project ranging from complexity of the reserves, harsh terrain and climate, coupled with a taxation system that erodes away the bottomline. It has endeavored to bring in new technology into the shale resources available in these acreages, an initiative again stymied because of sanctions on Russia. Also, construction Of APG plant in Snezhnoye field is in progress and is expected to be commissioned in 2019. This will add production by monetisation of gas/Value Added Products while enabling production of oil in Snezhnoye field presently locked up.
Oil price volatility is a major challenge. It directly impacts everyone including ONGC Videsh, so it is trying to mitigate it by cross-hedging and exposing its portfolio to diverse geographies. Diversity has been seen as a tool to handle volatility.
ONGC Videsh’s production has increased substantially in past few years due to major acquisitions however, due to prevailing low oil prices, the same could not be said about the profit of the company. Now with better prices this year, the company’s profit after tax has increased almost 10 fold to R1,384 crore during H1 2018-19 as against PAT of R142 crore in H1 2017-18.
Hydrocarbon industry has always been challenging due to the inherent risks and uncertainty and with price volatility and increased competition, it has become even more challenging. However, speaking for ONGC Videsh, it has a strong mandate from ONGC and government for equity oil and gas acquisitions and it is a partner of choice for host governments and NOCs. The reputation that ONGC Videsh has built over decades as a trusted and reliable partner is largely a result of its commitment to corporate values, and refusal to do business at any cost.
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