Sector Trends     30-Sep-12
Sector
Electricity: Coal based thermal power generation shines
The power generation in the current fiscal through August 2012 increased 4.9%, powered by double digit growth in coal based thermal power plants in India

Electricity generation for the first five months period of April-August 2012 was up by 4.91% yoy (to 382466.05 million units) with the generation for the month of August 2012 grew by modest 1.91% yoy (to 74498.36 million units). Just a modest generation in the month of August 2012 is largely on account of inadequate supply of fuel from indigenous sources as well as poor water storage at reservoirs. In addition some of generating stations reported no generation or fall in generation as SEBs are reluctant to purchase high cost power generated out of high cost overseas fuel or on account of transmission constraint or no/low schedules.

Electricity generation from Hydel power plant was lower by 10.98% for the first five months of current fiscal but it was down by 11.96% for the month of August 2012. Weak hydel generation was largely on account of poor/delayed monsoon in most part of the country. However the thermal generation that grew by 8.56% in April-August 2012 period has registered a growth of 6.42% in the month of August 2012. Lower generation from gas plant dents NTPC's total generation in Aug 2012.

Power generation of the country's largest power producer i.e. NTPC excluding generation from its JV was up by 5.82% yoy for the first five months of current fiscal but that of August 2012 was up by mere 0.75%. As the generation from thermal power plants in Aug 2012 was higher by 1.49% (to 15545.3 million units) the generation from gas based power plants was lower by 5.37% due to inadequate availability of fuel.

Overall the electricity generation (including that from JVs) in August 2012 was lower by 1.57% to 18461.11 million units impacted further by 52.75% drop in electricity generation at RGPPL on account of lack of gas.

NLC's generation was down

Power Generation of Neyveli Lignite Corporation for the first five month of April-August 2012 period was higher by 7.12% to 8293.66 million units with commercial generation of both units of Barsingsar contributing. However the generation for the month of August 2012 was lower by 1.83% to 1520.15 million units with lower generation from TPS II.

NHPC sees 10.13% jump in generation in Aug 2012

Electricity generation of NHPC for the first five months of current fiscal was up by 2.01% to 11362.62 million units but the generation for the month of August 2012 was higher by 10.13% to 2611.80 million units. Generation of select private players

Power generation of JSW Energy was higher by 78.30% for the month of August 2012 but that of GVK Power and Infra for the same period was lower by 55.22%. While the former gained by higher generation capacity coming on stream the latter continue to suffer by inadequate gas availability.

Power sector capex in 12th plan is estimated at Rs 13.7 lakh crore Investment in power sector during 12th Plan would be of the tune of Rs 1372580 crore as per the Report of Working Group on Power for 12th Five Year Plan. Total capex covers funds requirement across generation, transmission, distribution, captive power plants, R&M of power plants, Research and Development, DSM, fund required for RE (Renewable Energy) projects etc. This also includes advance action funds requirement for 13th Plan projects.

Twelfth plan mega power project not to hit by levy of import duty on power plant equipment

Imported equipment for power projects all categories irrespective of mega power projects, UMPPs, non mega power projects a customs duty of 5%, countervailing Duty (CVD) of 12% (as applicable from time to time on imported power equipments) and special additional duty of 5% aggregating to a total duty of 21% with effect from July 19, 2012. This is aimed to create a level playing field to the domestic power equipment manufacturing industry vis-à-vis foreign vendors and promote self sufficiency, the project which have already been granted final mega/provisional mega certificates were exempted from levy of import duty. Since all the mega projects coming up during current 12th five year plan period (2012-17) have been issued final/provisional mega certificate will get the duty exemption. Thus it will not affect the tariff structure for projects coming up during 12th plan.

Captive coal blocks allotted to Reliance Power get clean chit from IMG The Inter Ministerial Group (IMG) constituted on July 3, 2012 to review the progress of coal blocks allotted to private and public firms since 1998, has reviewed the development of 28 coal blocks allotted to private companies and recommended de-allocation of 12 blocks awarded and encashment of bank guarantee for 13 another . It has given clean chit only to three of the 28 blocks , which include Moher and Moher Amlohri blocks that have been allocated to Reliance Power for its Sasan UMPP and the Pachmo block (in Jharkhand) which was allotted to Tata Steel.

Coal based power plant to drive growth of power generation in 2012-13

The country targets a generation capacity addition of 17956.30 MW during the year 2012-13 with predominant of that target generation capacity addition i.e. about 15154 MW happening in thermal sector. The hydel and nuclear are targeted to achieve a generation capacity addition of 802 MW and 2000 MW respectively.

On the back delayed and poor monsoon in part of the country of the 84 reservoirs monitored across the country about 20 have a water levels of 40% or below of Full Reservoir Levels (FRL) as on Sep 27, 2012. Of the total 84 reservoirs only 38 have water levels over 80% of FRL. Moreover out of 84 reservoirs 14 reservoirs have storage upto 50% of normal storage. Especially reservoirs in river basins of Krishna, Rivers of Kutch, Cauvery and neighboring East Flowing Rivers are facing deficiency and those in Godavari, West flowing rivers of South are close to normal. This is all likely to affect the hydel power generation going forward.

Similarly the generations of gas based power plants too remain weak or negative on the back of inadequate domestic gas reluctance on the part of SEBs to buy power generated out of high cost imported fuel etc. However the coal based power generation is expected to see strong growth in current fiscal on the back of additional capacity coming on stream including some plants with captive coal mines too. Moreover the softened coal prices globally are also to favour increase blending to offset any shortfall in domestic coal. Supply of coal by CIL for Power Utilities/sector in 2011-12 was 312.02 million tonnes (95% of 328.21 million tonnes target & up 2.59% from actual supply of 304.145 MT in 2010-11) and with the company already signed 28 FSA out of the identified 54 FSA so far the supply to power sector is projected to be about 347 million tones, with a short fall of 10-15%.

Outlook

Indian's demand for power continues to be strong, despite power generators are faced with fuel supply concern, volatile merchant/short-term tariffs and weak financial conditions of Discoms/SEBs and resultant to offtake power or delay in payments. The delay in commissioning of projects beyond original schedule is also adds woes curtailing the revenue growth of the generators.

Given the volatile nature of short-term power market as Discoms/SEBs comfortable with long power outage rather than buy high cost power forced the IIPs, who have significant merchant power exposure to look for long-term power supply arrangements so as to secure steady revenue stream.

CIL's inability to raise production is often cited as major reason for inadequate coal supply CIL was left with a huge pithead stock (it was over 70.88 million tonnes as end of March 2012) on account of logistics bottlenecks and resultantly to fill the demand supply gap with imports. The recent de-allocation of mines on fallout of CAG report on Coal mine allocation has injected uncertainty for power generators as well as captive power plants.

Government of India's recent initiative on debt restricting on DisComs/SEBs will improve the cash flows of the Discoms and will result bringing down receivable days for generators. Moreover the strong push for reforms on the part of GoI bring in much more confidence for investors and augurs well for the power sector there is lot more to be done. Overall with fuel supply uncertainty continue, players such as NLC who well backwardly integrated with captive mines are better placed.

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