Power Sector – A Complex Challenge


The Power sector of India presents a complex set of challenges. On one hand there is no doubt that a 6-8 % growth in GDP also needs 10% growth in power supply. On the other hand, many plants set up recently are not able to supply power. Lets look at the challenges:

  • Power generation capacity – is not the main challenge. Recent programs by GoI have resulted in good and sufficient capacity increases.
  • Power distribution firms weak – The Discoms are short of funds. State wise decisions like low tariffs, free power to agriculture, T&D losses, etc have rendered discoms weak financially.
    • Power Minister Piyush Goyal announced a scheme for turning around discoms , reeling under a combined debt of more than Rs 4.2 lakh crore. Under the scheme, called the Ujwal DISCOM Assurance Yojana (UDAY ), the states will take over 75% debt of their discoms and, in return, get leeway to borrow more. So there is a ray of hope for discoms.
  • T&D losses are huge: Per a recent report almost 25% of the power generated is lost, and never gets billed for — double the global average of about 12%. This problem needs a combination of political will and tough implementation/ law and order, to plug leakages.
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  • Fuel linkage issues: Power plants are set up, but the fuel, be it gas or coal, is not supplied in good quantity or at the right price. New Gas supply expected from Indian E&P firms has not materialized. High LNG prices till end 2014 rendered it uneconomic for power sector.
    • The GoI is attempting to solve this for Coal by setting up agreements between Coal India and large important consumers. Coal India has also increased production recently, improving supplies and reducing the need to import coal.
    • LNG gas scenario may change rapidly after the Qatar Gas – Petronet LNG renegotiation. Spot LNG prices in Asia have also fallen 50% in the last one year.
  • Power evacuation: Some states and regions are surplus in power, and others deficit. Not enough has been invested in a good power grids. Southern states are power deficit.
    • The govt. is inviting bids for transmission projects worth Rs 12,000 crore soon, to address the congestion in supply lines to South and East India.
  • Pollution: Power gen through fossil fuels also creates air pollution and particulate matter.
    • Renewables – solar and wind power, are getting a massive stimulus by government that is trying to build the solar generation ecosystems and is targeting a deployment of 20,000 MW of grid connected solar power by 2022.

From an investment perspective, we are positive on a few firms from the Power – Transmission & Equipment pack.

With the recent economic slowdown, we sense that even though the power deficit has reduced, many consumers are still facing power cuts and poor quality power supply. Lets hope that these new initiatives by the government address and resolve the problems in the power sector.


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