imacs

1. www.imacs.in

2. Contents • Market Overview • Government regulations & policy • Business opportunities and Advantage India

3. Market Overview • Market Overview • Government regulations & policy • Business opportunities and Advantage India

4. Market Overview India • Federal : Division of power between between Union and State • 29 States & 9 UT • Constitution specifies distribution of legislative subjects into • Union List • State List • Concurrent List • Electricity falls under the Concurrent List whereby both the Union and State Government can regulate the sector

5. Market Overview India’s Energy Position/Consumption Relative Primary Energy and Electricity Consumption Relative Primary Energy and Electricity Consumption • Total energy consumption at 387.3 MMTOE • Targeted GDP growth : 7 to 8% • Per capita electricity consumption is approx at 600 kwh per capita • Energy-GDP Elasticity = 0.58 • Low by world standards and expected to grow in the coming years

6. India’s Power Position • Total installed capacity is 126839 MW • Electricity generation mix is heavily dependent on coal /thermal at around 70% with hydro contributing to 26% Market Overview Indian Power Industry- Installed Capacity Source: www.infraline.com

7. NERLDC NRLDC ERLDC WRLDC SIL SRLDC Market Overview India Power Industry: Transmission & Distribution Structure • At Regional Level • Five Regional Load Despatch Centre • Operated & Owned by System Operator • Power Grid Corporation India Ltd (PGCIL) • Energy Accounting by NRLDC • Financial Accounting by Regional Power Committee • Managed by CEA ( Technical wing of Ministry of Power) • At State Level • State Load Despatch Centre • Operated & Owned by State Transco • Transmission Network • EHV: • Central Sector : 47000 ckm • State Sector : 2,25,000 ckm • HVDC: • Central Sector:4300 ckm • State Sector: 1500 ckm • The Domestic and Agricultural categories account for over 50% of power consumption in the country Source: Ministry of Power

8. State Centre Policy MOP State Government Plan CEA Regulations CERC SERC Generation Central Generating Units GENCOs IPPs Some Private Players in Generation & Distribution Transmission CTU STU System Operations NRLDC RLDC SLDC Distribution Licencee Distribution Trading Licencee Trading Licencee Trading Appellate Tribunal Appellate Tribunal Appeal Market Overview Power Sector Structure

9. Market Overview Roles of institutional players • Central Government • Formulate National Electricity Policy and National Tariff Policy • Formulate national policy on stand alone systems • Formulate national policy on Rural Electrification • Make Rules & Procedure for implementing provisions of Electricity Act 2003 • Appoint Chairpersons& other members of CEA • State Government • Assist Central Govt. in formulating National Electricity Policy, Tariff Policy, etc • Make Rules & Procedure for implementing provisions of Electricity Act 2003 • Form SLDCs for optimal scheduling & dispatch for the power systems • Make Rules & Procedure for implementing provisions of Electricity Act 2003 • Central Electricity Authority • Advice Central Government on matters relating to National Electricity Policy • Advice appropriate government on technical matters related to electrical systems • Formulate plans for optimal utilization of resources in accordance with National Electricity policy • Central Electricity Regulatory Commission • Fix tariff for generating stations either owned by central government or having sales in more than one state • Regulate inter-state transmission tariff & fix trading margin • Grant of licenses for interstate transmission & trading • State Electricity Regulatory Commission • Fix tariff for generation, Supply, transmission & wheeling with in the state • Fix Cross Subsidy Surcharge when open access is allowed • Fix trading margin for intra-state operations • Grant of licenses for intrastate transmission & trading • Advice the State Govt. on policy matters • National Load Despatch Centre • Interface with all the five Regional Load Dispatch Centres (RLDCs) that are operational at present to acquire real-time data to continuously monitor integrated operation of the proposed National Grid • To ensure optimal Scheduling & Dispatch among the RLDCs

10. Government regulations & policy • Market Overview • Government regulations & policy • Business opportunities and Advantage India

11. Government regulations & policy Salient Features of the Electricity Act 2003 • Encouraging investment by introducing competition and reforming distribution • Reduction in entry barriers by: • Delicensing generation, • Freedom to the captive generation and group captives • Recognition of trading as separate activity • Introduction of transmission level open access • Open access to consumers consuming more than 1 MW by January 2009; • Multiple licenses in distribution; and • Setting up of regulatory commission to fix tariff and develop the sector.

12. Government regulations & policy Salient Features of the Electricity Act 2003 • Independent Regulatory Commissions in the States as well as in the Center • Freeing up of thermal generation from the requirement of any prior clearances/licenses • Full freedom for setting up captive power plants including group captive power plants • Open access in transmission; creation of an all-India market • Private investment in transmission through licensing by Regulatory Commission. This is in addition to fuel freedom for building dedicated transmission lines • Open access in distribution to be introduces in phased with consumers above 1 MW getting the right to open access latest by January, 2009 • Enabling provisions for more than one distribution licenses in the same area • Prescription of performance standards for distribution licensees and its enforcement by Regulatory Commissions • Competitively bid generation tariffs to be accepted by Regulatory Commissions. Power purchase costs of customers availing open access to be market determined • An Appellate Tribunal for quick disposal of appeals against decisions of the State Regulatory Commission/Central Commission

13. Government regulations & policy Electricity Act 2003: Enabled Market Model-Intermediate Single Buyer model (SBM) Multi Buyer model(MBM) – Intermediate Phase Generators Generators PPAs PPAs Traders Direct Contracts Single Buyer Single buyer BST BST Distribution Utilities Distribution Utilities Distribution Utilities

14. Generation Genco Genco Genco Open Access in Transmission Transmission Creating whole sale competition Traders Disco Disco Disco Distribution Creating Retail Competition Open Access in Distribution Traders Customer Customer Customer Government regulations & policy Electricity Act 2003:Enabled Market Model- Final

15. Generators Generators Traders Transmission Transmission Distribution Distribution Consumers Consumers Government regulations & policy Electricity Act 2003 :Impact on industry Structure • Free access to consumers and traders of choice • Long Term PPAs • No restrictions on captive generation • Licensing of capacity; extended project lead times • Reduced lead times • Need for guarantees • Reduced financial and regulatory risk • Restrictions on captive generation • Provisions to develop a robust power trading market • Will mitigate off-take risk for generators • Bulk Supply Tariffs (BST) • Will balance inter-regional disparities in • Single Buyer Model (SBM) power availability • Natural monopolies • Non -discriminatory open access to • No private investment transmission lines • Multi Buyer Model • Retail Supply Tariffs • Private captive investment allowed • Monopoly over consumers • Lopsided tariff structure • Open access (in 5 years) • Power Theft • Surcharge on open access (not applicable to captive generation) • Poor collections • No monopoly over consumers • Parallel distribution networks allowed • Unreliable supply • 100% metering in 2 years • Poor quality Consumer choice available •

16. Government regulations & policy Implementation Status of the Electricity Act 2003 • National Electricity Policy Announced • National Tariff Policy Announced • Appellate Tribunal for Electricity operationalized • Regulations on Transmission Open Access by the central regulator notified • Regulations on Distribution Open Access notified by many state regulators • Guidelines for tariff based competitive bidding in generation and transmission notified • Regional Power Committee for five regions operationalized

17. Government regulations & policy Salient Features of National Electricity Policy • Total village electrification by 2010 • By 2012: • Per capita consumption of 1000 kwh; • Installed capacity over 200,000 MW; • Spinning reserve of 5% of total capacity; • Minimum lifeline consumption of 1 unit per day per household; • Inter-regional transmission capacity of 37000 MW; • Energy efficiency/conservation about 15% • Quality and reliable power supply.

18. Government regulations & policy Salient Features of Tariff Policy • Tariff of all generation and transmission projects in private sector by competitive bidding-public sector to compete in five years • Reduction of cross subsidy to +-20% in next five years • Emphasis on distribution level open access; clear computation of cross subsidy surcharge • Transmission tariff sensitive to direction and distance • Strict implementation of performance standards • Agricultural tariff to encourage sustainable use of ground water • Time bound introduction of Multi-Year-Tariff structure

19. Government regulations & policy Summary of Policy and Regulations Scenario Recent policy/regulatory actions Evolving market structure in power sector • EA 2003 introducing • Non-discriminatory open access to transmission at least • Section 63 and – ERCs to follow competitive bidding process • Section 79(2) - CERC to advise GoI on promoting competition • Section 60 – Controlling abuse of market power • Competitive Bidding Guidelines - 2004/5 • Competitive acquisition of new generation – contestability • National Tariff Policy – 2006 • Promoting retail competition • Supporting competitive acquisition of generation capacity • Enabling choice Facilitating open access, supporting comp bidding , separating wires businesses enforcing USO Increasing potential competition National ‘Tariff’ Policy -2006 Reducing need for micro management by regulators + Contestable Price Discovery Competitive new generation Comp. Bidding Guidelines -2004/5 + Possible Wholesale / Retail Competition Electricity Act 2003 Open Access, Sec 63/ Section 79( 2)/ Sec 60 The market is evolving towards competitive structure with minimal regulatory micro-management

20. Business opportunities and Advantage India • Market Overview • Government regulations & policy • Business opportunities and Advantage India

21. Business opportunities and Advantage India Generation: Huge capacity addition requirement • Generation capacity addition target may be revised upwards by 5000 MW provided gas/LNG available at right price • Additional generation by RE sources by 5000 MW • Captive generation not included in the targets • Opportunity in distributed generation in the poorly served areas; in such areas there is no need of distribution license under the Electricity Act 03 Source: Ministry of Power

22. Business opportunities and Advantage India Ultra Mega Power Projects by Government of India • Government of India (GoI) has launched Ultra Mega Power Projects initiatives to step up power generation capacity at rapid speed • Seven projects of capacity 4000 MW each identified to be allocated to the developers on tariff based competitive bidding • Each Project to cost around USD 3 bn • Tariff determined in this manner to be accepted by the regulator under the Electricity Act • GoI to acquire land, secure environment clearance, arrange water linkage and secure Captive Coal Mine (for pit head plants) before handing over the projects • Payment Security Mechanism in terms of Letter of Credit, Escrow Arrangement and Third Party Sale • In two projects, the bidders have been qualified and RFP documents have been handed over to submit the final proposal by November 22, 2006. PPA to be signed by January 2007 • Other five projects are moving at fast pace

23. Business opportunities and Advantage India Transmission: To match the generation capacity addition • National grid to comprise hybrid system of HVDC, UEHV and EHV lines • Inter-regional transmission capacity to be augmented to 37000 MW from the current level of 9500 MW • Intra-region transmission capacity needs to expand according to generation capacity addition Source: Ministry of Power

24. Business opportunities and Advantage India Distribution: All set to go • Old distribution licensees are working satisfactorily in Kolkata, Mumbai, Ahemdabad and Surat • Positive impact of privatization of Distribution in Orissa in 1999: • Turned-around after initial difficulties • 11%-14% ATC loss reduction in 3 years • Estimated financial gain to Orissa of USD 330 million during 1996-2003 • No tariff hike since 2001 • Positive impact of privatization of Distribution in Delhi in 2002: • All distribution companies met loss reduction targets • Cash outflow reduced from USD 260 million to USD 35 million in 2005-06 • Transformer failure rate decreased from 15% to 1% • Load shedding reduced from 2.32% to 0.85% of the input units • Positive impact of reforms in distribution sector: • Commercial losses as percentage of total revenue of the state utilities have reduced from 41% in year 2000 to 14% in 2004 • Revenue gap reduced from 1.61 cents in 2001 to 0.86 cents in 2004

25. Business opportunities and Advantage India Investment opportunities are galore • Foreign Investment: • 100% FDI is allowed in all segments of power sector including Trading • No discrimination between domestic or foreign investors • Fiscal incentives: • Zero customs duty on import of capital goods for Mega Power Projects • Income tax holiday for generating plants for 10 years • Impressive progress in project execution: • Public sector investment also stepped up to supplement the private sector • 40,000 MW of generation capacity already under execution and USD 43 bn already committed • Financial closure of 4400 MW capacity in generation projects in private sector • Financial Closure of another 2200 MW is in advanced stage • Another 10000 MW being appraised by Financial Institutions

26. 999 950 1260 5500 Generation Transmission Distribution Rural Electrification Business opportunities and Advantage India Required investment in the Indian Power Sector (Next 3 to 5 years) • Areas for investment • Additional generation capacity • Transmission system to envisaged additional generation capacity • Renovation and Modernisation • Cross Country Grid • Efficiency improvement in generation • Reduction of T&D losses: Energy Audit /metering • Energy Conservation & Demand Side Management Source: Ministry of Power All figures in billion INR

27. Business opportunities and Advantage India Key domestic players Generation National Thermal Power Corporation Limited Sixth largest thermal power producer in the world and India’s largest power producer; state owned player operating across the country Tata Power The Tata group pioneered power generation in India nine decades ago. Tata company has presence in all segments - Thermal, Hydro, Solar, Wind Energy, Transmission & Distribution Reliance Energy Ltd India's leading integrated power utility company in the private sector. It has a significant presence in generation, transmission and distribution of power in the states of Maharashtra, Goa and Andhra Pradesh. Torrent Power Entered the power sector by acquiring two old state owned electricity companies and turned them into power utilities comparable with the best.

28. Business opportunities and Advantage India Foreign players entered/planningto enter India AES Corporation CLP Power Sumitomo