The government has envisaged an investment plan of Rs. 2.6 lakh crore in transmission sector during the FY17-22, of which estimated to be 50 percent or Rs 1.3 lakh crore has been earmarked for intra-state transmission capacity. Apart from this government’s focus is on railway electrification and providing last mile connectivity and electrifying villages so that it can achieve the set target.
In the past couple of years, Indian power transmission and distribution (T&D) sector has witnessed rise in activities, with government pushing programs such as electrifying villages, railway electrification and increase public private participation and electricity for all by 2019.
The government has introduced policy reforms to increase private participation that has triggered a fresh thrust for buying and sales of transmission assets. The companies having core business in EPC or power generation and won electric transmission projects are now willing to monetize such assets to pursue new projects. Interestingly, investment firms have also shown interest and adding to this, there are some companies, with core business in renewable, now eying T&D assets.
With a huge buyer interest from transmission companies and yield-based investment firms, industry experts say it may be a good time for T&D sector. Recently, India Grid Trust (IndiGrid), an infrastructure investment trust (InvIT), has acquired three power transmission assets worth Rs. 1,410 crore from its sponsor, Sterlite Power Grid Ventures Ltd (SPGV).
IndiGrid is not a lone buyer in the transmission sector, Adani Transmission completed acquisition of Western Region Strengthening System assets from Reliance Infrastructure Limited (R-Infra), CLP India Pvt Ltd and Greenko Group has also been reported to be interested in such assets.
“With the government targeting at rural electrification, players in engineering, procurement and construction (EPC) will look for more capital to take up such orders. It will be wise for EPC players to monetise transmission projects and invest,” said Ashish Nainan, an analyst with Care Ratings. Many EPC companies have invested in the transmission segment due to a dearth of EPC projects earlier. According to industry experts, EPC companies may now see a reason to exit from such assets and pursue new orders. More than 60 projects were awarded to EPC companies under build-own-operate-maintain system. For these companies, power transmission is a non-core area.
13,820 circuit kilometres (ckm) of transmission lines have been commissioned during 2017-18 (April-November 2017). This is 59.9% of the annual target of 23,086 ckm fixed for 2017-18. Similarly, 50,805 MVA of transformation capacity of substations has been added during 2017-18 (April-November 2017) which constitutes 94.1% of the annual target of 53,978 MVA fixed for 2017-18.
Expectations
Apart from capacity expansion investment plans, the companies are waiting for the opportunities from state governments lining up intra-state transmission projects. A large part of the Rs. 2.6 lakh crore to be invested in transmission sector during the FY17-22 (estimated to be 50 percent or Rs. 1.3 lakh crore or about Rs. 26,000 crore annually) has been earmarked for intra-state transmission capacity. Government’s focus is now on providing last mile connectivity and electrifying villages.
The other important segment that is coming up for the bidding is railway electrification. This year the government intends to electrify close to 4000 route km (Rkm) of its railway lines, which is a quantum jump as against the electrification of 2500 Rkm last year. It is estimated that close to 66 % of the current railway network of 70,000 km is yet to be electrified. The Railway Ministry is estimated to spend around Rs. 35,000 crore to meet its target of electrifying its entire network by 2022.
Discoms Recovering
The financial health of the state electricity distribution firms has improved due to lower transmission and distribution (T&D) losses, tariff hikes and cost rationalization, the agency said in a report. Historically known to be the weakest link in the energy value chain, the turnaround of discoms is also being driven by volume growth, says India Ratings and Research, a Fitch Group-owned credit rating agency.
The report said discoms have been working aggressively towards lowering their losses and improving collection efficiency. “As discoms work towards lowering their aggregate technical and commercial losses (a function of T&D losses and collection efficiency) below the regulatory benchmarks, their cash flows are likely to improve further.”
Discoms have also gained from healthy tariff hikes allowed in most states between 2011-12 and 2015-16 apart from cost rationalisation initiatives. According to the report, the electricity regulator had lowered the incentive income available to thermal generators for the period between 2013-14 and 2018-19, which resulted in a dip in per unit costs. The government has also worked on coal linkage rationalization, which has led to lowering of fuel cost for some plants. India Ratings also said the output of power from efficient plants has gone up with the same level of coal input owing to the government’s directive of closing old and inefficient plants and diverting their linkages to efficient ones.
The report highlighted that discoms’ cash flow has improved as healthy tariffs have led to recovery of regulatory assets in some cases and slowdown in fresh accretion of regulatory assets in others. The discoms’ cash flow generation is likely to remain healthy in 2018-19 given healthy volume growth as reflected in the power demand growth rate between 5 per cent and 6 per cent.
Government Effort
India is a power surplus country but electricity does not reach all regions due to network constraints in some states, however, government is repeatedly making efforts to reach the set target.
“India is a power surplus country. The installed power generation capacity is 330 GW, while available power is 220 GW. The peak rated requirement is about 155 GW,” Power Secretary A K Bhalla said during a panel discussion in New Delhi. There is sufficient increase in inter-state power transmission capacity. Transmission within the states (intra-state) is where major issues come up. Some of the states’ power carrying capacity is limited.
“Surplus power is available nationally but we cannot carry that to all the places with circuit constraints with these states. These are the constraints which lead to power cuts and other shortages of power in localised areas,” he said. The existing legal framework provides that the power cuts should be done only in case of technical faults or natural calamity. There is penal provision for unscheduled power cuts. But power regulators have rarely invoked that provision and penalised discoms. Bhalla added that the Electricity Amendment Bill will provide for 24X7 power for all from April 1, 2019. The bill will soon be discussed with the states before finalisation for approval of the Union Cabinet and introduction in Parliament, the minister added.
The capacity of transmission system of 220 kV and above voltage levels, in the country as on 30th November 2017 was 3,81,671 ckm of transmission lines and 7,91,570 MVA of transformation capacity of Substations. As on 30th November 2017, the total transmission capacity of the inter-regional links is 78,050 MW.
The transmission lines are operated in accordance with Regulations/standards of Central Electricity Authority (CEA) / Central Electricity Regulatory Commission (CERC) / State Electricity Regulatory Commissions(SERC).However, in certain cases, the loading on transmission lines may have to be restricted keeping in view the voltage stability, angular stability, loop flows, load flow pattern and grid security. Power surplus States have been inter-alia, able to supply their surplus power to power deficit State Utilities across the country except for some congestion in supply of power to Southern Region. Power System Operation Corporation Limited (POSOCO), is managing the National and Regional grid from National Load Despatch Centre (NLDC) and its five Regional Load DespatchCentres (RLDC) through state-of-the-art unified load dispatch &communication facilities.
Renew Hope
The government has extended the waiver of inter-state power transmission charges and losses for the solar and wind power projects commissioned till 31 March 2022, with a view to giving a boost to clean energy sources.
Earlier, the waiver was available to solar and wind power projects commissioned till 31 December 2019, and 31 March 2019, respectively. The waiver was available for a period of 25 years from the date commissioning of the project. “For generation projects based on solar and wind resources, no inter-state power transmission charges and losses will be levied on transmission of the electricity through inter-state transmission system for sale of power by such projects commissioned till 31 March 2022,” according to an order issued by the power ministry.
The waiver will be available to these projects for 25 years from the date of commissioning provided the developers sign power purchase agreements with entities, including discoms, for sale of power for compliance of their renewable purchase obligation, the order said. The order also provides that the waiver would be available to only those projects which are awarded through competitive bidding process as per the guidelines issued by the central government. Earlier the incentive was not available to firms other than power distribution companies. Thus, other entities procuring clean energy from these projects were at disadvantageous position. Now they can also avail the benefit. It also provides that these new conditions for wavier of transmission charges and losses irrespective of purchasing entity will be applicable prospectively.
This order assumes significance in view of India’s ambitious target of having 175GW of renewable energy capacities including 100GW of solar and 60GW of wind energy. At present, India’s installed renewable generation capacity is 62.84GW excluding large hydro projects above 25MW. The central government has planned to auction 40GW of solar energy capacities and 20GW of wind projects in 2018-19 and 2019-20 to meet the tall order.
What next
The mode of development of transmission projects is as important as planning for the expansion of the future grid. A recent Crisil report has rated the power transmission sector as the most attractive for infrastructure investment in India. The success of inter-state transmission system public-private partnership projects on the tariff-based competitive bidding model is testimony to the robustness of the PPP model of the sector.
In some cases, tariffs have reduced by 30% and project execution time by 40%. Additionally, the Revised Tariff Policy of 2016 has recommended the competitive bidding model for intra-state projects. A big measure of success for the transmission grid is the creation of intra-state networks that will bring electricity closer to the consumer.
It is time the states adopt a successful central model for building the network and reap the benefits of private participation. This will ensure that the states can focus their energies on distribution reform and last-mile connectivity, and at the same time, bring down the tariff for the end-consumer.
@EPC World Media
