Power in India

Also, according to the report, the Ministry of Power intends to set up an Integrated National Power Grid in the country by 2012 with approximately 200,000 MW generation capacities and 37,700 MW of inter-regional power transfer capacity.

The total installed generation capacity in the country as on September 20, 2011 stood at 182,344.62 MW, with thermal power contributing 118,695.98 MW, nuclear 4,780.00 MW and hydro power 38,706.40 MW, according to Central Electricity Authority data.

Further, India added the highest ever record capacity of 15,795 MW in the power sector during 2010-11, according to Mr Sushilkumar Shinde, Union Minister of Power. The prominent companies which added to the capacity include NTPC, Adani Power, Reliance Power and Tata Power. Further, power generation projects totaling 28,000 MW will become operational in the current financial year, according to Mr Shinde.

As per a recent analysis from Frost & Sullivan the Indian power and distribution transformer markets earned revenues of US$ 2.67 billion in 2009 and estimates this to reach US$ 4.04 billion in 2016.

Technological breakthroughs and economies of scale will make solar power competitive in six years and help India add 67,000 MW of solar generation capacity by 2022—more than thrice of India's target—according to a report by consultancy firm, KPMG.

The investment climate is very positive in the power sector. Due to the surge in the private sector, the power sector has witnessed around 25 per cent higher investment flows than envisaged.

In the first two years of the current Plan period, the sector, especially generation projects, saw investments of US$ 48.17 billion against the projected US$ 38.87 billion, according to preliminary estimates compiled by the Planning Commission.

Private equity players invested around U$ 8 billion in the domestic market in 2010, with US$ 2.14 billion in the energy sector, according to a study released by an industry body.

India's power sector will generate revenue of US$ 294 billion during the 12th five year plan (2012-17), according Mr P Uma Shankar, Secretary, Ministry of Power. Mr Shankar said that the government is looking at revenue estimates of US$ 56 billion from transmission and US$ 91 billion from distribution in addition to US$ 147 billion from generation.

The Government will invite bids for US$ 672.96 million solar power projects under the National Solar Mission in the first week of August 2011. The projects would be awarded by the end of 2011 and the power purchase agreements (PPA) would be signed in January 2012.

In fact, the power sector in Tamil Nadu has recorded foreign direct investment (FDI) worth US$ 57.91 billion from 150 projects, which were cleared by DIPP.

Many power companies have achieved financial closures of their projects and are ready to take on new commitments. Reliance Power has already achieved financial closures of two power projects. Adani Power has started operations in its Mundra power project.

The IT market for power transmission and distribution (T&D) companies in India is estimated at around US$ 305 million in 2010, and is forecast to reach US$ 569 million by 2013, growing at a compounded annual growth rate (CAGR) of 22.6 per cent from 2009-2013, says the latest report “IT in India's Power Sector” from Springboard Research, a leading innovator in the IT Market Research industry.

Private equity (PE) investments in the country's power sector too have started picking up. According to Mr Sanjay Sethi, Executive Director and Head of Infrastructure Group at Kotak Mahindra Capital, the PE investors may invest nearly US$ 1 billion in the Indian power sector in the next six months.

There were 22 investments worth US$ 2 billion in the power sector so far this 2010 till November 2010 as compared to 21 investments worth US$ 560 million in 2009 according to Chennai-based research company, Venture Intelligence. "With the country aiming at high growth target, power sector has become one of the most stable bets for PE investors," said Arun Natarajan, Chief Executive Officer (CEO), Venture Intelligence.

Further, with Government policies and incentives in place for renewable energy, the number of private equity investments in the clean technologies sector is increasing. According to data from Venture Intelligence, a research service focused on private equity and merger and acquisitions , there were five deals in the clean technologies space in January-March 2011quarter; ten in the April-June 2011 quarter and 14 deals in the July-September 2011 quarter. The amount invested in the July-September quarter was $359 million compared with US$ 176 million in the immediate previous quarter.

FDI in renewable energy sector has witnessed an upward trend and investment in 2009-10 has been robust, according to the Government. "The FDI in renewable sector has been growing rapidly. During 2006-07, 2007-08, 2008-09 and 2009-10, the investment to the sector was US$ 2.11 million, US$ 43.15 million, US$ 85.27 million and US$ 497.91 million respectively," according to Mr Farooq Abdullah, Union Minister for New and Renewable Energy (MNRE) stated in a written statement to Rajya Sabha.

The Government has initiated several policies to promote and garner investments in the power sector. To accelerate capacity addition, several policy initiatives have been undertaken by the Ministry of Power. The National Electricity Policy (NEP) in fact, stipulates power for all and annual per capita consumption of electricity to rise to 1,000 units by 2012.

Some of the prominent policies which have boosted the private player's confidence in the sector are:

• National Electricity Policy
• Ultra Mega Power Project Policy
• Mega Power Policy
• CERC Policy
• Tariff Policy

Incentives on Return on Investment (equity):

• 14 per cent return on equity (ROE) in generation and transmission schemes
• Adequate incentive on ROE for increase in generation above normative PLF

The conditions for grant of excise duty exemption for goods supplied to mega power projects have been amended. Now, the project developers, instead of the manufacturers, have been made liable to pay the duty in case they do not ensure that exempted goods are used only in their projects.

Electric Generation, Transmission, Distribution and Trading:

1. Generation and transmission of electric energy produced in-hydro electric, coal/lignite-based thermal, oil-based thermal and gas-based thermal power plants
2. Non-Conventional Energy Generation and Distribution
3. Distribution of electric energy to households, industrial, commercial and other users and
4. Power Trading

Also, the above would be subject to the provisions of the Electricity Act 2003.

Note: The points (i) to (iii) above do not include generation, transmission and distribution of electricity produced in atomic power plant/atomic energy since private investment in this sector/activity is prohibited and is reserved for public sector.

(Source: Consolidated FDI Policy – Department of Industrial Policy Promotion)

The Cabinet Committee on Economic Affairs has approved the constitution of a National Clean Energy Fund (NCEF) along with guidelines and modalities for approval of projects to be eligible for financing under this fund. NCEF will be used for funding research and innovative projects in clean energy technologies. Government assistance under it will not exceed 40 per cent of the total project cost.

The Union Ministry of New and Renewable Energy (MNRE) has introduced a scheme to achieve the objectives of helping new and young entrepreneurs enter the renewable energy business and make renewable energy products easily available, besides providing after-sales service, repair and maintenance. The scheme, ‘Aditya Urja Shops', envisages one renewable energy equipment shop in all major cities in the country. A total of 297 Akshay Urja Shops/Aditya Solar Shops have been sanctioned.