Key signals from the central government to improve the power sector in India

It is well recognized that India needs to make drastic improvements in its fuel supply chain, transmission network and distribution efficiencies. These improvements will take time and sustained political support at the Centre as well as in States.

This article highlight key signals from the Central Government that are expected to improve the power sector and boost the development of renewable energy in India. Find out what these developments mean for the power sector in general and the renewable energy sector in particular.

1. Ensuring adequate fuel supply

Transportation and linkage– The Government is focusing on improving transport infrastructure by expediting construction of railway lines in coal rich states of Jharkhand, Odisha and Chhattisgarh. Revival of discussion on these lines is positive even though it is estimated that they may take upto five years to complete.

Further, the Ministry of Coal is in the process of rationalising coal linkages which will link generating plants to the nearest coal mine thus reducing transportation cost.

Government is also trying to expedite cases related to environment clearances pending in the Supreme Court so that coal mines can start their operations soon.

Revision in Gas price–Gas based generating capacity stood at 22,607 MW[1] as of May 2014. In 2013-14, the average PLF of gas based plants was 25% due to low availability of domestic gas[2]. To fund exploration of new sources in deep and frontier waters, Government is expected to increase the price of gas from the current level of $ 4.2 per mmBtu. A revised price is expected to be decided by the end of September this year. Revenue sharing in Oil & Gas exploration Ministry of Petroleum has also developed a new incentive regime to revive interest in Oil & Gas exploration sector. This regime is likely to be based on a revenue sharing model. The existing model allows for cost recovery by exploration and production companies before the Government is paid its share of revenue.

2. Modernizing transmission and distribution

Reduction of T&D losses-Government hopes to reduce demand supply gap by increasing the transmission capacity in the country. Further, to reduce T&D losses, it is planning to get States on-board for reforms such as feeder segregation for rural agricultural and non-agricultural consumers, metering of all consumers to control the leakages.

Installation of high capacity transmission facilities-To strengthen power transmission network across the country, the Government has approved nine new transmission projects worth over Rs. 12,500 Crore. These high-capacity inter-state transmission lines will benefit the states of Haryana, Chhattisgarh, Uttar Pradesh, Madhya Pradesh and Maharashtra through 765 kV lines carrying up to 2,100 MW each apart from construction of new 765 kV and 400 kV substations.

3. Expediting environment clearances

To expedite the clearance process, Ministry of Environment and Forests aims to give priority to projects based on category. After defence, projects related to highways, roads, ports, railways and transmission which are public purpose projects have been given the priority. Clearances to power projects have been given timelines. Online clearance mechanism is also being introduced for better accountability & transparency.

4. Encouragement to renewbles

Promotion through partnership –The Ministry of Power plans to develop a comprehensive National Energy Policy to balance power generation from various power sources. Under this policy, plans are underway to form two Joint Ventures to oversee the construction of renewable energy projects across the country. One JV will oversee large-scale, grid-integrated projects while other will see the off-grid projects. These JVs will be between state-owned oil sector firms such as IOCL, BPCL, HPCL, ONGC, Oil India Limited and Solar Energy Corporation of India and the Indian Renewable Energy Development Agency. While one of the JVs will be led by ONGC, IOC will lead the other. The initial funding for the new firms will come from the JV partners as a part of their CSR contributions under Companies Act, 2013.

Allocation of funds for Solar Power Plants- Ministry of Finance has allocated Rs. 500 Crores for construction of Ultra Mega Solar Power Projects in the solar resource rich states of Rajasthan, Gujarat, Tamil Nadu and Jammu and Kashmir. In addition to this, Rs. 100 Crores has been set aside for the development of 1 MW Solar Power plants on the banks of canals.

Incentivizing Renewable Energy- To make solar power more competitive with the Conventional sources of energy, Ministry of Finance has exempted excise duty for material used in solar modules in budget 2014. These include EVA sheets, back sheets, tempered glass and other specified inputs used in manufacture of solar cells and modules. Basic customs duty on forged steel rings used in bearings of wind electricity generators has been halved to 5% and Special Additional Duty of 4% on parts and raw materials required for the manufacture of wind-operated generators has been exempted. Renewable energy is expected to be more competitive as cost of thermal power increases. The Government is having a re-look at price pooling of imported coal and introducing a new Coal Regulator. It has also increased cess on Coal from Rs. 50 per tonne to Rs. 100 per tonne.

These positive signals by the Central Government in the meantime are expected to improve the financial climate for renewables in India.

Reference: This article is based on monthly newsletter of Agneya Carbon Ventures Private Limited. You can access it from here.

[1] CEA, Power Sector Executive Summary, May 2014

[2] IDFC, 17^th Annual Report