Description
The Indian power sector has undergone a significant transformation in terms of power supply, energy demand, fuel mix, and market operations. India appeared to be the third-largest power generating country in the world. The total installed capacity in India increased at a remarkable pace of 7.96% during the FY 2010 – FY 2020 period. As of 31st December 2020, India had a total installed capacity of 375.32 GW, transitioning from a power-deficit country to a country with surplus power.
Segmentation insights:
The power sector in India is characterized by its diversified fuel sources, which consist of environmentally sustainable sources such as solar, wind, and small hydro plants, along with conventional sources like coal, oil, and gas. Thermal power was the predominant type of installed capacity in India, accounting for a 62.31% share of the total installed capacity in FY 2020. The commissioning of various Ultra Mega Power Projects (UMPPs) based on thermal power attributed to the largest share of thermal power in the country’s energy mix.
Renewable energy was the second-leading energy source in India, capturing 23.51% of the total installed capacity in India in FY 2020. The Indian government’s ambitious target of installing 175 GW of renewable energy, capacity coupled with the establishment of solar parks and the solar city program propelled the growth of clean energy in India. Furthermore, the financial incentives offered by the government are likely to encourage state-owned operators to invest in Clean Energy Parks and Ultra-Mega Renewable Energy Power Parks (UMREPPs).
Market influencers:
Soaring demand from the industrial and domestic sectors have been the major driving factor for the growth of the Indian power sector. The industrial sector in India expanded significantly over the past few years, marked by the steady increase in the index of industrial production (IIP) for the electricity domain from 126.6 in FY 2015 to 158.4 in FY 2020. The industrial sector has been the largest power consumer in India, accounting for around 42.69% of the total power consumption in FY 2020. On the other hand, the consumption from the domestic sector increased at a fast pace of 7.96% from FY 2010 to FY 2020. Improvements in access to electricity, a surge in the sale of white goods, and higher demand for LED bulbs have driven demand from the domestic sector. Furthermore, supportive government policies such as UDAY 2.0, 24×7 – Power for All, SAUBHAGYA, UJALA Scheme, Green Energy Corridor, and vehicle electrification have helped to boost the Indian power sector.
The restricted supply of raw material poses a substantial challenge to the Indian power sector. Market players have been struggling to acquire raw material for power generation owing to the erratic domestic supply of coal, fluctuations in international coal prices, and shortage of natural gas. Furthermore, the weak infrastructure of the transmission and distribution (T&D) system leads to transmission and distribution losses (T&D losses), which affects the power sector. The T&D loss in India is around 20%, significantly higher than in other Asian countries. The thermal power sector has been experiencing challenges in recent years, owing to its environmental impact, tariff structure, and difficulty in acquiring power purchase agreements (PPA).
Impact of COVID-19
The growth momentum of the Indian power sector has been hindered by the onset of the pandemic and the ensuing lockdown measures. The shutdown of industrial activities as an effect of the lockdown announced on 25th March 2020, led to a sharp fall in power consumption in the industrial and commercial sectors. The steep decline in demand, coupled with a liquidity crunch, has crippled the financials of power generating and power distribution companies. The unprecedented impact of the pandemic has highlighted the need for structural changes in the industry. The lessons learned from the crisis are expected to usher in policy reforms, boost private sector participation, lead to a focus on an efficient power trading system, bring in investments for infrastructure development, and most importantly, facilitate digital transformation.
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Companies covered:
• Adani Power Limited
• CESC Limited
• Damodar Valley Corporation (DVC)
• NHPC Limited
• NTPC Limited
• SJVN Limited
• Suzlon Energy
• Tata Power Limited
• Websol Energy System Limited
• Nuclear Power Corporation of India Limited (NPCIL)
