Sustainable Power For Future

Sustainable power for future
Contents
Section 1: Introduction Section 2: Fuel to meet the growing power demand Section 3: Availability of necessary infrastructure support Section 4: Regulatory support Section 5: Merchant power plants Section 6: Emerging trends in power Section 7: Sustainability challenges in the power sector Section 8: Strategically targeting the key sustainability risks and identifying opportunities 19 4 6 7 8 10 11 16
Foreword
India has been witnessing rapid economic progress over the last decade and this growth is bound to continue over the long term. However, such sustained growth cannot be achieved without having the fundamentals of economic development in place. Power is one such fundamental constituent for economic progress. With the rising energy demand, the annual per capita electricity consumption has significantly increased, reflective of the opportunities and avenues present in the Indian power sector as this sector holds great potential for the foreseeable future, as is also amply evident through the growth in the Indian economy. The capacity addition of power generation in the public power sector is expected to be 62,000 MW during the Eleventh Plan Period (20072012), which is lower than the projected target of 78,000 MW. However, the capacity addition in the private sector is expected to exceed the set target, which is estimated to positively impact the development of the power sector. In its endeavor to encourage private entities to invest in power generation to meet the demand-supply gap for power, the government has been proactive in bringing about various reforms. There is a strong need to integrate and address concerns such as the availability and transportation of coal, tariff fixation and the emergence of non-fossil fuel to meet power demand, environmental risks and interstate issues in the evacuation of power, among other sector activities, in order to lend an impetus to private players to enter the Indian power market. Thermal power plants using coal currently accounts for 64% of our total generation capacity. With India targeting 9% GDP growth, the peak demand is projected to be around 217 GW. It is expected that 60% of this projected demand would be met by coal.
However, alternative energy has demonstrated a positive uptrend in India, and with its flourishing performance, the country is well poised to capitalize on this growing opportunity. As the Government of India rises to the challenges of energy security and climate change, renewable energy has emerged as one of the most promising alternative solutions. Further, companies have to be well prepared to deal with the upcoming climate legislations and taxes. Organizations need to develop a long-term carbon strategy for their operations by effectively reducing and offsetting their carbon footprint. The path to transformation from a conventional organization to a climate-responsive organization through sustainable strategies and solutions would also bring a host of opportunities with them. At this critical juncture, Ernst & Young Private Limited is extremely happy to be associated as the knowledge partner in conducting this conference on Sustainable
power for future in association with CII. The theme and underlying objective of the conference is to focus on the power sector and to reach out to the larger business audience in terms of opportunities that the renewable energy sector provides. This is critical for the creation of a sustained platform for the Indian power sector for energy security and in addressing the nations stand on climate change.
Sujeet Kishen Waghray Executive Director Climate Change & Sustainability Services Ernst & Young Pvt. Ltd.
Section 1
Introduction
The southern region, comprising Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Pondicherry and Lakshadweep, accounts for 27% of the electricity demand in India. Notably, the share of coal in the installed capacity at 41% is less than that in any other region, save the countrys north-eastern states, while the region is a leader in renewable capacity, at 18% of the total. Southern region energy requirement (MU): 200910
Pondicherry, 2,119 Lakshadweep, 24
Mix of available generation capacity including allocated CGS MW (August 2010)

0 20 40 60 80 100
Coal Northern Gas Diesel Western Nuclear Hydro Southern RES
Eastern Andhra Pradesh, 78,996 NorthEastern Islands
Tamil Nadu, 76,293
Kerala, 17,619
Source: CEA
Karnataka, 45,550
All India
Source: CEA
The split of consumers is similar to what has been witnessed in the northern and western regions: industrial consumers (LT and HT) constitute the largest demand, followed by agricultural and domestic consumers. Despite having a similar consumer profile, the southern region has the lowest (aggregate technical and commercial (ATC) losses among all regions in India. More importantly, even with a lower base, the region has demonstrated the highest degree of improvement in loss levels among its peers.
ATC losses (%)

50 40 30 20 10 0 Eastern NorthEastern 200607 Northern 200708 Southern 200809 Western
to be held at a constant, then the regions energy requirement would be 385 TWh by the end of the Twelfth Plan and 535 TWh by 2022. To meet this growing demand, India would need adequate fuel, infrastructure and regulations. Supply and shortage in the southern region
35,000 30,000 25,000 20,000 15,000 10,000 5,000 Jul-09 Oct-09 Feb-10 Dec-09 Jan-10 Sep-09 Apr-10 Aug-09 Nov-09 Mar-10 May-10 Jun-10 0 12 10 8 6 4 2 0
Source: PFC Report on Performance of State Power Utilities
Electricity sale by consumer: 200809 (%)

100 50 0
East
North-East Commercial
North Agricultural
South Industrial
West Others
Domestic
Demand (MW) Demand shortage %

Source: Integrated Energy Policy and EY analysis
Energy (MU) Energy shortage %
Andhra Pradesh, Karnataka, Tamil Nadu and Kerala represent very different stories in electricity sector reforms. While the first of these Andhra Pradesh (AP) was a pioneer in opening up the sector to private investment in the 90s, and while both AP and Karnataka have unbundled their sectors into generation, transmission and distribution as the first step in the reforms process, the latter two states of Tamil Nadu and Kerala are still unbundled at the time of writing. Electricity demand, TWh
1980 712 192 2007 1026 277 2012 Total India 1425 385 2017 Southern region 535 2022
Much of this demand would be met by plants outside the Southern region. Of the total MW capacity estimated to be added from plants already commissioned or under some stage of development in the XI and XII Plan period, around 20% are from the South. This is lower than the historical and estimated power consumption in the region, which is 27-28%. Capacity addition in XI and XII plan, MW
95,340 5,094 25,966 19,345 Under development All India
Commissioned in XI Plan (Aug 2010) South

Source: CEA
State-wise capacity addition under XI and XII plant, MW

10,000 8,000 6,000 4,000 2,000 0 Tamil Nadu Commissioned
Source: CEA
Source: Integrated Energy Policy and EY analysis
With a demand shortage of 11% and an energy shortage of 6%, the southern region, as the rest of the country, has an immediate need for power. The good or bad news is that this need for power is not constant; it is on the rise all the time. Indias projected demand in 2017, at an 8% GDP growth rate, would be 1425 TWh by 2017 and 1980 TWh by 20221 (as compared with 771 TWh of the energy supplied at bus bar in 200910). If the share of 27% for the southern states were
KAR
Kerala
AP
Under development
Section 2
Fuel to meet the growing power demand

The immediate pertinent questions to meet the projected power demand are: where is this supply going to come from which regions, what fuel types, and does India, specifically Soth India, have the wherewithal to manage it? While domestic coal is still the lowest cost option currently, policy support has been navigating the sector to a wider spectrum of diversified energy alternatives. The lowest-cost paradigm was created in mid-2000 with the popularity of tariffbased bidding. The distinct cost advantages of pithead-based projects became apparent with the discovery of extremely low prices in these bids (refer to Table 1). Table 1: L1 and L2 levelized tariffs of some landmark bids (Pithead projects are italicized) Year
2006 2006 2007 2008 2009
for coal producers and owners. In the meantime, the demand for power has risen unabated, which has created diverse opportunities for alternate sources of energy. For the Twelfth Plan projects, the government has drafted a policy for coal-block allocation wherein contenders would qualify through a points-based system. One of the significant features of the policy is that IPPs located within 150 km of the nearest port will have to meet 30% of their coal requirements through imports. Table 2: Coal linkage policy for the Twelfth Plan projects
Import for state and central projects Points-based system for linkages Government to fix the quantum of coal import for state and central gencos Supercritical technology, at pit-head or in state where no major plants have been planned in the Eleventh/Twelfth Plan shelves, usage of sea water, progress of land acquisition IPP projects located within 150 km from the nearest port will be required to meet at least 30% of their coal requirements through import No domestic linkages to power plants based on imported coal in the Twelfth Plan
Project
Sasan Mundra Bhaiyathan Krishnapatnam Tilaiya
L1
1.19 2.26 0.81 2.33 1.77
L2
1.41 2.66 0.88 2.68 2.39
Difference
0.22 0.4 0.07 0.35 0.62
Import for IPPs
Source: Times of India, The Economic Times, Business Line
No linkages for imported coal

Source: CEA
The substantial cost advantages of pithead-based projects brought into question the viability of other sources, particularly where sourcing was going to be through the case 1 route. The allocation of 200+ coal blocks for captive mining strengthened the impression that pithead-based plants were the only feasible option for power generation. In subsequent years, obtaining forest and environmental clearances from the respective state and central ministries has emerged as a major challenge for the development of these captive mines. This could become one of the major obstacles for power producers to access resources. Social unrest among the indigenous population in some of Indias mineral-rich states has also exacerbated the problem of developing mining assets
Currently, the government is considering the use of the importprice parity for pricing domestic coal. If any steps were to be taken in that direction, region may witness additional growth beyond domestic coal. The choice of fuel would, to some extent, determine the location of future projects. Pithead-based plants would mean that the generating capacity would come up in the eastern region (and in the lignite districts of Andhra Pradesh), while a move toward imported coal would mean power plants on the coast, of which the southern states have plenty.
Availability of necessary infrastructure support

The third question is: does the southern region have the hard and soft infrastructure to support growth? The issues with hard infrastructure manufacturing plants, fuel supply, port capacity, usually take center-stage, but it is equally important to focus on the three kinds of soft infrastructure that will be needed technology, manpower and enabling regulations. The first is technology: Indian companies have been traditionally strong in the balance-of-plant (BoP) and contract management under EPC, and if the state-owned behemoth BHEL were to be included, it would demonstrate equal strength in the manufacturing of boilers and steam turbine generators (STG) as well. The power sector can draw an interesting parallel with the auto sector, which is also growing rapidly, where technological know-how has percolated to domestic companies through the JV route and licensing arrangements, and where indigenous manufacturing is essential to compete in the market. Table 3: CEA guidelines on the selection of BTG suppliers for supercritical equipment
Foreign manufacturer A qualified bidder must have an Indian subsidiary/JV with a minimum 51% holding or 26% in JV with a seven years lock-in period. The deed of joint undertaking should be provided, making a JV, subsidiary and qualified bidder jointly liable for performance as per the contract. Indian subsidiary of a qualified bidder as per the aforementioned clause JV with a qualified bidder as per the first clause Indian partner of JV as per first clause Indian manufacturing company with the experience of manufacturing 500 MW boilers or subcritical steam turbines, with a valid ongoing collaboration and technology transfer agreement with a qualified bidder
Section 3
In this context, the conditions stated for NTPCs tender for BTG equipment, which require the involvement of an Indian company or JV, are significant. CEA subsequently issued guidelines for sourcing equipment, urging developers to strive for achieving indigenization in supply. The key international players in the BTG space have already moved to establish JVs in India, aiming for a capacity addition of 26,000 MW in boilers and 17,000 MW in STG.
Indian subsidiary Indian JV Indian partner of JV Indian manufacturing company

Source: CEA
Section 4
Regulatory support
The second dimension is regulatory support. Here, it should be noted that while the Electricity Act, 2003 has made significant improvements to the viability of the electricity sector, fundamental issues still need to be addressed. Some of these are:
Tariff cross-subsidies
Historically, industrial and commercial consumers in India have been subsidizing domestic and agricultural users. Over time, this has led to the increased use of captive power by large industrial users, with the consequent loss of revenues for state electricity boards. The National Tariff Policy was an attempt to correct this anomaly: one of its salient recommendations was the gradual removal of tariff-cross subsidies, with any subsidies being funded directly by the state. Specifically, the policy advocated bringing the gap between tariff and cost of supply to plus-minus 20% by 2012. Currently, however, it is still short of realizing that goal. Revenue gap (ARRACS) of southern discoms (%)
140 120 100 80 60 40 20 0 -20
Open access and Section 11 of the Electricity Act

Open access was a cornerstone of the Electricity Act, but its success has been limited on account of high cross-subsidy surcharges and reluctance of states to part with power; as has been the case hitherto. Originally meant as a measure to be invoked under conditions of emergency, the states have resorted to Section 11 when faced with electricity shortages.
Section 11 of the Electricity Act states that: 1. An appropriate government may specify that a generating company will, in extraordinary circumstances operate and maintain any generating station in accordance with the directions of that government. For the purposes of this section, the expression extraordinary circumstances refers to circumstances arising out of the threat to the security of the state, public order or a natural calamity or such other circumstances arising in the public interest. 2. The appropriate commission may offset the adverse financial impact of the directions referred to in sub-section (1) on any generating company in such manner as it considers appropriate.
BESCOM
GESCOM
HESCOM
MESCOM
CHESCOM
200607
200708
200809
Though this section clearly states that section 11 can be invoked only in circumstances arising out of the threat to the security of state, various state governments are using it as a tool for denial of open access.
Source: Electricity Act, 2003
Cross-subsidies create artificially high tariffs, which further incentivizes users to migrate to open access or captive power. A liberal open access regime acts as a natural check to excessively distorted tariffs, and it is here that governments, regulators, discoms, power producers and the civil society need to pull in the same direction.
Puducherry PD
APCPDCL
APEPDCL
APNPDCL
APSPDCL
TNEB
KSEB
Table 4: Select features of the National Tariff Policy

Direct subsidy State governments can give subsidies to the extent they consider appropriate as per the provisions of Section 65 of the Act. Direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross-subsidizing the tariff across the board. Subsidies should be targeted effectively and in a transparent manner. As a substitute of crosssubsidies, the state government has the option of raising resources through the mechanism of electricity duty and giving direct subsidies only to consumers who are really needy. This is a better way of targeting subsidies effectively. To achieve the objective that the tariff progressively reflects the cost of supply of electricity, the SERC would notify a roadmap within six months with a target that latest by the end of 201011, tariffs are within 20% of the average cost of supply. The road map would also have intermediate milestones, based on the approach of a gradual reduction in cross subsidy.
Linking tariff to the cost of service
Source: National Tarrif Policy
ATC losses
ATC losses remain an area of improvement for all discoms. The improvement in commercial losses would make it possible to reduce the overall subsidy to the sector, while the improvement in technical losses would increase the energy available to the end consumers at no extra variable costs. Discoms have been attempting to address the problem of high losses since before the reforms were initiated, but the progress has been somewhat sluggish. As mentioned earlier, the southern states have done far better than the rest of the country despite having a similar split of industrial, domestic Transmission and distribution losses (%)
38 33 30 26 26
and agricultural consumers. Nevertheless, there is ample room for improvement, given that in the developed markets, loss levels are about 25%50% of what they are in the best of Indian states. In the early days of distribution reforms, it was believed that privatization would solve the problem of ATC losses. While privatization has not taken off in the distribution sector, except in some states, discoms have realized the benefits that a private operator can bring in curbing losses through the franchise model.
12 8 7 6
Nigeria
Source: CEA
India
Nicaragua
Pakistan
Cameroon
Russia
UK
China
US
Japan
Germany
Section 5
Merchant power plants

Pure merchant power plants are still a rarity: apart from some hydro-plants, and most notably, the plants at JSPL and JSW in Rajasthan and Chhattisgarh, merchant capacity is typically what remains after 60%70% of the capacity has been contracted through a PPA. Nevertheless, part-merchant operations have emerged as an attractive option. In case 2 bids, particularly in the case of pithead-based plants, the provision of a merchant upside, has often led to contracted tariffs being driven to cost. There are several factors that shape the dynamics of merchant power in the southern region:
Inter-regional transmission capacity Inter-regional and intra-regional transmission capacity constraints help high-cost producers and adversely impact low-cost producers. For coal-based merchant plants, intra-regional constraints are undesirable (in the southern region), while inter-regional constraints may actually work in their favor by limiting the flow from low-cost pithead sources (CERC has introduced a system for transmission pricing, which effectively replaces the old postage stamp system and avoids pancaking of transmission charges). Volatility The recent volatility in short-term prices has been extreme. In the S1 region, for instance, peak prices have varied between INR2.2/unit and INR6.28/unit. While long-term merchant prices are pegged at INR3.54.0 per unit, there will expectedly be periods of low PLF. Developers have to be cognizant of that risk, particularly as the higher share of hydro and renewable alternatives in the south could amplify volatility.
Financing Pure project finance for a merchant plant is rare at most places in the world. Nevertheless, projects with sound credentials a cheap source of fuel, proven technology and creditworthy offtakers do achieve financial closure. However, financing a plant with part merchant operations is easier.
Day ahead power price (INR/MWH): S1 region

8,000 6,000 4,000 2,000 0
Source: PXIL
10
01-07-2010 06-07-2010 11-07-2010 16-07-2010 21-07-2010 26-07-2010 31-07-2010 05-08-2010 10-08-2010 15-08-2010 20-08-2010 25-08-2010 30-08-2010 04-09-2010 09-09-2010 14-09-2010 19-09-2010 24-09-2010 29-09-2010 04-10-2010 Night average Day average Evening (peak) average
Emerging trends in power

According to the BP Statistical Review of World Energy, June 2010, the energy consumption of India has increased at a CAGR of 5.3% since 1999, reaching 469 million tons of oil equivalent in 2009. With rising consumption levels, there is an increasing risk of depleting hydrocarbon energy sources and the associated climate change concerns. However, coal is the primary source of power in India, and given the large reserves of coal in India, coal is expected to be the primary source for energy. Environmental and climate change concerns have heightened the focus on improving efficiency with high-efficiency supercritical power plants being encouraged by the Government of India. The country is focused on increasing the energy supply through renewable energy, nuclear energy and improving energy efficiency. Solar energy is still at a nascent stage and has a major cost disadvantage against conventional energy sources such as coal, gas and oil. Under various schemes, the Government of India offers generation-based incentives (GBI), renewable portfolio standards, tax benefits and capital subsidies to promote renewable energy. With technological improvements and government-sponsored incentives, the use of solar energy in electricity generation and heating applications is expected to increase significantly. Nuclear energy appears highly attractive as it has low-carbon emissions. Further, nuclear power would diversify Indias energy portfolio and has the potential to be scaled up to meet Indias rising energy demand. The development of nuclear power in India was held back due to restrictions on the sale of nuclear fuel and technology to India. The civil nuclear cooperation between US and India has rejuvenated the nuclear energy sector in India. Nuclear power is expected to rise to 20 GW in 2020 from the current capacity of 4.6 GW.
Section 6
Solar energy
The global solar PV capacity has increased at a CAGR of 41% during 20002009. Despite the credit crunch and the severe economic recession, the worlds PV capacity increased at 47% y-o-y to 22.9 GW in 2009. This growth was driven by new capacity addition in Germany (3.8 GW), Italy (730 MW), Japan (484 MW), the US (477 MW) and Czech Republic (411 MW), which collectively accounted for more than 88% of the growth, due to continued government support in these markets.
Global solar PV installed capacity trend With ve-fold increase in capacity, Spain becomes the second largest solar market Germany initiated FIT for solar
25,000 20,000 Capacity MW 15,000 10,000 5,000 2000
2001
2002
2003
2004
2005
2006
2007
2008
Capacity
Growth
Source: Statistical Review of World Energy, June 2011
India receives high solar radiation and has a recorded annual solar radiation incidence of 5,000 trillion KWh1. Given the high solar irradiance, the Government of India is encouraging solar power plants under the Jawaharlal Nehru National Solar Mission (JNNSM). The mission is focused on achieving grid parity for solar energy, increasing grid connected solar power generation and has envisaged an ambitious target of 20 GW of solar installed generating capacity by 2022.
1. Potential of Solar PV for Distributed Power Generation in Rural & Urban India, Solar Semiconductor, August 2009
2009
80% 70% 60% 50% 40% 30% 20% 10% 0%
11
Growth y -o-y
The JNNSM is divided into three phases with the following main objectives: Table 5: JNNSM objectives and targets Parameters
Objectives
Phase I (20102013) Solar deployment
Phase II (20132017) Scale-up
Phase III (20172022) Rapid scale-up
Drive down costs Spur domestic manufacturing Promote off-grid applications Validate social and economic viability of different solar appliances
1,100 200 7
Scaling up of various validated applications Roll-out of business models
Solar power cost reduction to achieve grid tariff parity by 2022
Utility grid power, including roof top (MW) Off-grid installations (MW) Solar collections (million square meters)
4,00010,000 1,000 15
20,000 2,000 20
Source: Mission statement for Jawaharlal Nehru National Solar Mission, www.mnre.gov.in , accessed 30 September 2010
The solar market in India is characterized by off-grid applications as compared to the west where the focus is on grid-connected applications. As in the case of any industry which is in the early phase of development, the solar energy market in India is imbued with its teething concerns, which are typically witnessed at a nascent stage. These predominantly pertain to high capital costs, lack of awareness of the benefits and the potential of solar energy as well as the lack of standardization of products and systems. However, policy makers have taken steps in the right direction to address these issues, as has been witnessed through the launch of various schemes and initiatives in recent times. Most domestic players operate in the manufacturing and system assembly segments and are totally dependent on imports for raw materials. However, this is set to change as the Government of India is promoting the production of polysilicon, silicon wafers and PV cells through the special incentives package scheme (SIPS). This will, in turn, minimize the overall manufacturing costs, strengthening Indias position in the global solar energy market. Some of the Indian states are implementing renewable purchase obligations (RPO) based on the potential for renewable energy in the respective states. Under JNNSM, NTPC Vidyut Vyapar Nigam (NVVN), which is the power trading
arm of NTPC, has been designated as the nodal agency to purchase solar power generated by independent solar power producers, at rates fixed by CERC and for a period of 25 years. For 201011, CERC has fixed the rate of INR17.9/unit for PV and INR15.3/unit for solar thermal power plants. Tamil Nadu Electricity Regulatory Commission has fixed INR18.45/unit for electricity generated under the Rooftop Power and Standalone Small Grid-Connected Power Plant Scheme. Karnataka Electricity Regulatory Commission has fixed promotional tariff of INR14.5/unit for photovoltaic power and INR11.35/ unit for solar thermal based generation. Also, manufacturers of polysilicon, silicon wafer and PV cells can avail the capital subsidy of 20%25% under the SIPS scheme, which is expected to reduce the capital cost of installing solar power plants. NVVN has received 418 requests for selection applications to generate 1,740 MW, which far exceeds the target of 150 MW for Phase I. The enthusiastic response is driven by the generation-based incentives offered for solar power. Under the JNNSM, solar plants for which PPA has been executed with the respective distribution utility/state government, but have not been commissioned before 19 November 2009, will be allowed to migrate to NVVN. MNRE has identified 16 project developers with a total capacity of 84 MW as eligible for migration to the JNNSM scheme.
12
The state governments of Tamil Nadu and Andhra Pradesh have encouraged energy generation through attractive tariffs. In June 2010, Indias first 3 MW solar power plant was inaugurated at Yalesandra in Karnataka Table 6: Tariff for solar-based power for different Indian states States
Andhra Pradesh Karnataka Kerala Maharashtra Rajasthan Tamil Nadu West Bengal Haryana
The installed capacity of nuclear power in India is nearly 4.6 GW and the capacity under construction is 5.0 GW, of which 2.2 GW is expected to be commissioned in 2011. Table 7: Operating nuclear power plants in India Reactor State Type Capacity Commercial (MWe ) operation date
320 440 100 200 440 440 440 440 440 1080 220 4,560 1969 199900 1973 1981 198486 199192 19931995 199900 February and March 2010 200506 2007
Solar PV
7 3.4+12* 3.18+12 3+12* 15.7 3.15 11 15.96
Solar thermal
7 3.4+10* 0 3+10* 0 3.15 11 0 Tarapur 1 and 2 Kaiga 1 and 2 Rajasthan 1 Rajasthan 2 Kalpakkam 1 and 2 (MAPS) Narora 1 and 2 Kakrapar 1 and 2 Rajasthan 3 and 4 Rajasthan 5 and 6 Tarapur 3 and 4 Kaiga 3 Total capacity Maharashtra Karnataka Rajasthan Rajasthan Tamil Nadu Uttar Pradesh Gujarat Rajasthan Rajasthan Maharashtra Karnataka BWR PHWR PHWR PHWR PHWR PHWR PHWR PHWR PHWR PHWR PHWR
Source: Report on Development of Conceptual Framework for Renewable Energy Certificate Mechanism for India, prepared by ABPS Infrastructure Private Limited for Ministry of New and Renewable Energy (MNRE), June 2009, p. 38.
Nuclear power
According to the integrated energy policy of India, the existing coal reserves would be exhausted in 45 years if domestic production rises by 5% every year. Given this projection as well as the concern regarding carbon emissions, nuclear power is the only way forward to meet Indias ever-increasing energy needs. India is targeting 20 GW by 2020 and 63 GW by 2032 from nuclear energy. India has modest reserves of Uranium, the primary and established nuclear fuel. India has around 115,000 tons2 of Uranium resources, which is insufficient to meet Indias goal of 20 GW by 2020. The Indo-US nuclear deal and the agreement with the Nuclear Supplier Group will help India secure fuel for its planned nuclear capacity. South India has abundant reserves of Thorium and nuclear power is a good option to meet the growing demand for power in South India. Kalpakkam in Tamil Nadu and Kaiga in Karnataka are the two operating nuclear power plants in India and a new nuclear power plant is expected to be commissioned in Kudankulam, Tamil Nadu in 2011.
Source: Plants under operation on the Nuclear Power Corporation of India Limited website, www.npcil.nic.in, accessed 30 September 2010
Table 8: Nuclear capacity under construction Power plant

Kudankulam 1 and 2 Rajasthan 7 and 8 Kaiga Kakrapar Total capacity under construction
Capacity (Mwe)
2,000 1,400 220 1,400 5,020
Expected commissioning date

March to December 2011 June to December 2016 December 2010 June to December 2015
Source: Projects under construction on the Nuclear Power Corporation of India Limited website, www.npcil.nic.in, accessed 30 September 2010
2. Mr. Prithviraj Chavan, Minster for State for Science and Technology and Earth Sciences, Indias Uranium reserves at 115,000 tonnes, Hindustan Times, 23 October 2008
13
Private sector players in India can install nuclear power plants only by forming joint ventures with the Nuclear Power Corporation wherein private players will be the minority shareholders. Various private players, including Tata Power and Reliance Power, have expressed their interest in setting up nuclear power plants. Some of the companies have formed joint ventures to address the opportunities in the nuclear value chain such as forging, EPC and services for nuclear power plants. Table 9: Some of the supercritical power plants being implemented by private players in India Project name
Sasan UMPP Mundra UMPP Talwandi Saboo Amravati Phase 1 Bhaiyathan Amravati Phase 2 Chhattisgarh IPP Krishnapatnam UMPP Tilaiya UMPP Krishnapatnam
The Government of India will give preference in allocating coal linkages to supercritical power plants to encourage plant efficiency, economies of scale and reduce environmental impact. Projects using supercritical technology will be allocated 20 points out of a total of 100 points used in allocating coal blocks. Of the remaining 80 points, 50 would be based on the status of land acquisition, 20 for projects located at pitheads and the balance for generation plants using sea water instead of fresh water. The Government of India is planning to establish eight ultra-supercritical power plants. Ultra supercritical power plants operate at a pressure of more than 300 bar, and result in further improvement in efficiency over supercritical power plants.
State
Madhya Pradesh Gujarat Punjab Maharashtra Chhattisgarh Maharashtra Chhattisgarh Andhra Pradesh Jharkhand Andhra Pradesh
Sponsor/ promoter
Rpower Tata Power Sterlite Energy Indiabulls Power Indiabulls Power Indiabulls Power Indiabulls Power Rpower Rpower Gayatri Energy/ Sembcorp
Capacity (MW)
5X800 5X800 3X660 2X660 2X660 2X660 2X660 5X800 5X800 2X660
JVs for coal mining: coal MDO concept

In recent times, the joint venture route to coal mining has become increasingly popular, especially with government companies. In this model, the mine owner is typically responsible for proving the resource, land acquisition, relief and rehabilitation, approvals from various agencies, including environment and forestry and other facilities. The mine developer cum operator (MDO) is responsible for mine design and planning, construction, coal handling, mine equipment and operations. Typical structure of an MDO contracting
Ministry of coal allocates mine JV agreement Mine owner Mine owner
Source: Times of India, The Economic Times, Business Line
Supercritical and ultra supercritical power plants

A few coal-fired ultra-mega-power projects using supercritical technology rather than sub-critical technology (used for existing power stations in India) are currently under development. Though the supercritical technology costs are more than that of subcritical technology, supercritical technologies result in lower fuel consumption, and hence, lower carbon dioxide (CO2) emissions as compared to subcritical technologies.
Coal supply agreement
Mining JV
MDO
Mining lease executed by JV
Mining contract
Source: Issues in captive coal block development in India, July 2009, Observer Research foundation website, www. observerindia.com, accessed 2 October 2010
14
Bottlenecks for capacity addition in power

According to CEA, the total new capacity addition by the end of the Eleventh Five Year Plan is expected to be 62 GW, as against a target set of 78 GW by the Planning Commission. The reasons for not meeting the targets can be classified into execution challenges and coal shortages. The land acquisition for power plants continues to be a major concern even though the land acquisition for power plants qualifies as public purpose under the 2005 National Electricity Policy. Under the Land Acquisition Act, 1984, any person with an interest in the land being acquired has the right to object to compulsory acquisition on the grounds that the project is not intended for public purpose, or the land is not suitable for public use, the proposed area is excessive or that the land acquisition will negatively impact historical monuments/religious buildings, among other such reasons. Land owners can also argue on the inadequacy of compensation determined for their land. Coal-based power plants of 500 MW and above feature in category A, for which there is a category-specific clause necessitating them to procure environmental clearance from the Ministry of Environment and Forestry. On the other hand, coal-based power plants below 500 MW are classified as category B, and would require environmental clearances from the respective state environmental impact assessment authority. In case the land is a part of a forest or is located near coastal regions, the project would require forest clearance and coastal regulatory zone approval. In India, there is no standard relief and rehabilitation (R&R) policy and R&R is a state government subject. It is time consuming to obtain environmental and/or forestry clearances as well as an equally cumbersome process to implement an R&R policy.
Coal linkages from Coal India Limited, though cheaper, do not constitute an assured supply as Coal India is unable to increase its production to meet the rising demand. To overcome this issue, under the Coal Distribution Policy, the government has mandated Coal India to enter fuel supply agreements (FSA) with coal procurers with clearly defined penalties if Coal India fails to supply 90% of the annual contracted quantity. On the other hand, captive coal plants in India require several regulatory approvals. Imported coal faces regulatory restrictions/approvals in their home country, congestion at Indian ports and rail/road infrastructure bottlenecks from the port to the plant site in India. In recent years, environmental concerns have resulted in withdrawal of environmental clearance for a 2,640 MW power plant in Srikakulam, Andhra Pradesh. Environmental concerns can result in stalling nearly 21 power plants expected to be setup in and around Krishnapatnam, Andhra Pradesh. Considering the aforementioned scenario, execution delays remain a key challenge in India. Developers with the capability to obtain regulatory approvals, complete land acquisition quickly and secure assured fuel supply at a lower cost would be successful in India.
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Section 7
Sustainability challenges in the power sector

It is certain that the power sector is set for rapid growth in the coming decade. Though renewable energy is slated to get integrated in the mainstream, fossil fuels, especially coal, would continue to dominate the Indian power sector. Concurrently, the awareness of local communities and the pressure from international communities are compelling the government, and therefore, the power producers to consider sustainability as a matter of prime importance. The local and international communities are closely observing the actions on sustainability by both government as well as producers. Among various aspects of sustainability, climate change has, in the past decade, emerged as the topmost priority for the global community. In this context, it is worthwhile to mention that the much-discussed Conference of Parties (COP) at Copenhagen Focus of Indian policy on achieving reduction targets
India releases the national action plan on climate change International community adopts the Copenhagen accord Indias National Climate Action Agenda India commits voluntary reductions of emissions by 20%25% by 2020 Achieve a 20%25% reduction of GHG by 2020 Approval of National Missions on Solar & Energy Efciency Government of India communicates to specic industries to report GHG emissions
last year witnessed India and China facing immense pressure to accept the mandatory GHG-emission reduction targets. The conference culminated with the signing of the Copenhagen Accord. In the Copenhagen Accord, India has committed voluntary but internationally pledged climate change mitigation targets. India has committed to 25% voluntary emission reduction targets by 2020. The targets themselves and the performance with respect to these targets will be subject to international consultation and analysis. India may have to report mitigation efforts to the UNFCCC every two years. The Indian climate change policies are focused on achieving the reduction target, while maintaining the growth of the sector through three major routes: carbon charge, energy efficiency and Nationally Appropriate Mitigation Actions (NAMA).
Internal target under NAMA and other regulations
Carbon charge
Energy efciency
Mandatory carbon footprint reporting for the identied sectors/industries. Increased share of investments in the renewable sectors; 10% of the total power traded should be from renewable sources
The Energy Coordination Committee has proposed to add carbon charge in the thermal power plants based on the energy benchmark A similar policy will be replicated for all other identied sectors. Countries such as the US and the UK will impose cross-border carbon tax on the Indian exported goods.
Creation of the energy benchmark and trade in energy efciency certicates. Introduction of accelerated depreciation of 80% on energy efcient equipment Promoting the construction of green buildings to reduce energy consumption in buildings
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The National Action Plan on Climate Change (NAPCC) is one of the major voluntary initiatives taken by the Government of India to attain a low-carbon status. It delineates the multi-pronged, long-term strategies in the form of eight National Missions to enable the country to adapt to climate change and enhances the ecological sustainability of Indias development path. Under the NAPCC, each state would draft a climate change action plan. Orissa is one the states in the country to have formulated a draft climate change action plan. The state level plans would focus on the issues relevant to the states. It would provide specific actions to be taken by the state level agencies and industries in the state. Similarly each state in the country would develop a state level plan for mitigating climate change. Power has been identified as one of the most energy intensive sectors by the Government of India. Hence, any policy on climate change in any of the southern states would definitely impact the existing sub-critical and the new large supercritical power plants expected to come up in the region.
The next sustainability aspect, which is gaining momentum globally after climate, is the sustainable use of water. Considering the water stress situations faced in the country and the global direction, the Government of India is set to undertake various measures for the efficient use of water. Nation Water Mission (NWM) under NAPCC is one such initiative in this direction. One of the intentions of the Government of India under NWM is to increase the efficiency of water use by 20%. This target would not be achievable without the support of industrial sectors. The power sector consumes nearly 78% of the total water consumed by industries in India. Nevertheless, being the largest consumer of water, any efforts by the government in the direction of water efficiency would directly impact the power sector. To achieve water efficiency targets, the existing policies on water may undergo reforms in the coming year. The Government of India is expected to introduce regular mandatory water audits for major consumers, provide incentives for recycling water and wastewater as well as incentives for the use of water-efficient technologies.
Eight missions of NAPCC

Strategic knowledge on climate change Solar mission
Sustainable agriculture
Sustaining Himalayan ecosystem
National action plan on climate change (NAPCC)
Enhanced energy efciency
Sustainable habitat
Water mission
Mission for a green India
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Similar to climate, water also is a subject on which each state would in the due course of time formulate state level action plans.
This would potentially impact the bottom line of carbon and water intensive sectors like power. It would make it imperative for the sectors to take a holistic and long term view on sustainability.
Indias National Action Plan on Climate Change: National Water Mission

Drivers
Goals of NWM
Conserving water, minimizing wastage and ensuring its more equitable distribution both within and across states through integrated water resources development and management
Review of National Water Policy
National water mission
Research on water storage measures/water conservation
1. Provision for mandatory water audits 2. Increase in water use efciency by 20% 3. Incentivization of recycling of water 4. Integrated water resources development & management.
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Strategically targeting the key sustainability risks and identifying opportunities

For every organization, climate and water, the two pillars of sustainability, present both opportunities and risks. Understanding the implications of both and creating a balanced but ambitious response to climate change and water in the business strategy are critical steps in reaping the rewards and gaining competitive advantage. Corporate strategy involves the examination of the current and anticipated direction of the business environment, the expectations of stakeholders and competitive factors. These determine the strategy that an organization adopts to achieve a competitive advantage and long-term success. One of the primary objectives of businesses worldwide is to meet stakeholders expectations, since they are greatly influenced by investors who direct strategic decision-making. In order to comply with upcoming climate regulations and achieve growth in a low-carbon sustainable trajectory, Indian industries would have to reduce their carbon footprint significantly. They will have to monitor, report and ensure that their emissions are externally verified to strengthen strategic and operational actions on mitigation efforts. Given the fact that the Indian Government has proposed, with a base year of 2005, a 20%25% voluntary emission intensity reduction target between 2005 and 2020, the industries would be subject to individual carbon emission caps or sector energy benchmarks. Thus, individual companies need to strengthen their endeavor to increase the efficiency of their processes, explore alternative fuel usage and strategize investments in clean technology. Climate change and its associated regulations impact all the basic drivers of business such as (a) revenue generation, (b) cost reduction, (c) regulatory compliance and (d) managing stakeholders expectations. This, therefore, gives an opportunity to more efficient companies to act proactively with a well-outlined strategic direction across all the domains of business, creating a significant gap between their performance levels vis--vis those of other companies whose approach is more slanted toward somehow complying with these regulations. The next exhibit represents how the response to climate change and its regulations are required to be programmanaged right from the board level, down across almost all functions of business to the operating levels.
Section 8
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Climate change framework: a path to transformation
Business drivers Revenue generation Stakeholder expectations
Cost reduction Regulation
Governance Strategic direction Risk management Goals and objectives Opportunity assessment
Establish baseline Quantify current GHG emissions and set reduction targets
Program management
Vision, direction, goals and planning
Considerations Geography Industry
Technology Geography
Climate change initiatives portfolio
Product development
Supply chain and procurement Finance Information technology Transactions Marketing and communication
Execution Operations Tax Facilities management Regulatory and compliance
Monitor and measure
Internal management metrics
Greenhouse gas accounting and reporting
Nonnancial reporting
Third party verication
Source: EY research
Thus, one may appreciate that earning carbon revenues through the route of the clean development mechanism (CDM), wherein some of the Indian companies, primarily in the private sector have done quite well, is not the only opportunity that imminent climate change regulations bring for Indian industries. Regulations such as Perform, Achieve and Trade (PAT), and the Renewable Energy Certificate (REC) introduced by the Government of India are both risks and opportunities. The current and future renewable energy obligation would impact the role of different states in REC. Tamil Nadu,
Karnataka and Kerala have potential to be donor states from the Southern region. Hence, the renewable power generators in these states can act as sellers of REC. Under the current scenario, Andhra Pradesh has lesser potential of being able to act as a supplier of RECs. As such, the larger opportunity lies around developing a proactive climate change strategy and driving it down various levels and functions in order to establish a sustainable business model around these regulations. This will create a key differentiator between leading organizations as well as others in a carbon-constrained economy.
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Some regulatory reforms in India to address climate change
Perform, Achieve and Trade (PAT)
Market-based mechanism that will use energy conservation certications to encourage efciency improvements across large energy-intensive industries. Applicable to more than 700 industrial units across energy-intensive industries.
Renewable energy certicate (REC)
An REC is created when one megawatt hour of electricity is generated from an eligible renewable energy resource. It will be an effective instrument to help meet the renewable power obligation. The Government of India has announced a levy a clean energy cess of INR50 on both domestically produced coal and imported coal. The revenues will be channelized through a National Clean Energy Fund that will be used for funding research and environmental remedial programs.
Carbon tax
It is very encouraging to note that some of the leading Indian business houses and especially those in carbon intensive sectors such as the thermal power sector or metals sector have already embarked upon such a journey. Water should also be viewed and responded to as a strategic business issue with the same seriousness as that accorded to the issue of climate globally. To achieve 20% efficiency in water as decided by the Government of India, individual companies are likely to be subjected to sectoral benchmarks, further restrictions in the usage of fresh water, differential water tax or possibly the trading of water certificates. This could severely impact the direct business aspects: a) operation
cost, b) operational efficiency, c) profits and d) compliance requirements. The opportunity here lies in strategically improving the water requirement per MW of generation, upgrading technology, identifying alternate sources of water, minimizing water wastage, using clean technology ranging from solar to desalination, among other alternatives. However, only companies with a structured and proactive approach would be able to competitively position themselves. Hence, the power sector has identified and realized the pertinent and irrefutable need to embark on the road to sustainability, thus paving the path to build an unyielding foundation for sustainable development in the power sector.
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Abbrevations
ATC CAGR CDM CEA CERC COP DPSC EPC FSA GBI GHG GoI GW JNNSM JSPL JSW MDO MW NAPCC NTPC NVVN NWM PAT PLF PV R&R REC RPO SERC SIPS T&D Aggregate Technical and Commercial Compound Annual Growth Rate Clean Development Mechanism Central Electricity Authority Central Electricity Regulatory Commission Conference of Parties Dishergarh Power Supply Compant Limited Engineering Procurement Construction Fuel Supply Agreements Generation-Based Incentives Greenhouse Gas Government of India GigaWatt Jawaharlal Nehru National Solar Mission Jindal Steel and Power Limited Jindal South West Mine Developer Cum Operator MegaWatt National Action Plan on Climate Change National Thermal Power Corporation Limited NTPC Vidyut Vyapar Nigam Nation Water Mission Perform Achieve & Trade Plant Load Factor Photovoltaics Relief And Rehabilitation Renewable Energy Certificates Renewable Purchase Obligations State Electricity Regulatory Commission Special Incentive Package Scheme Transmission & Distribution
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Notes
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