Massive equipment imports needed for Indian generation

NEW DELHI, INDIA - In a recently published power sector report titled "Power Industry: Why it is failing?" the Associated Chambers of Commerce and Industry of India (ASSOCHAM) says that to achieve an annual target of 14,000 megawatts (MW) of additional power generating capacity, India will need to import $1.28 billion worth of power generating equipment annually.

The value of imports is expected to be high, since the country's domestic availability of power generating equipment is currently worth no more than $428.5 million. The report said that $1.71 billion worth of equipment is required for setting up thermal power plants, which makes the industry heavily dependent on imports.

Dr. Swati Piramal, president of ASSOCHAM, said that Bharat Heavy Electricals Limited, India's biggest power equipment manufacturer, will not be able to singlehandedly fulfill the growing domestic demand for power generating equipment.

The company, which is proposing to augment its production capability, has increased its generator ratings from 500 MW to 660 MW; has forayed into production of supercritical power plant equipment; and plans to upgrade its power equipment manufacturing capability to 15,000 MW from the current 10,000 MW. Piramal indicated that these expansion initiatives are not sufficient to meet India's growing demand for power equipment.

The report suggests that the demand-supply deficit will create a huge potential for domestic private-sector players and foreign power equipment manufacturers, and is likely to increase demand for skilled and semi-skilled manpower.

The Indian government, which signed nuclear fuel deals recently, announced that it was increasing its nuclear power target from 10,000 MW to 20,000 MW for the year 2020. ASSOCHAM's study reiterates the proposal for amendments in the Atomic Energy Act, which will allow private sector investments in the country's nuclear power sector.

Currently, India's nuclear policy does not allow private and international power producers to develop and operate nuclear power plants in the country. However, the policy allows foreign companies to work as technology partners. Domestic nuclear power generation is fully controlled by the central government through Nuclear Power Corporation of India.

During the ongoing 11th five-year plan period, 2007-12, NTPC Limited, India's leading thermal power producer, plans to augment power-generating capacity by 22,400 MW. The firm has a current generation capacity of 30,644 MW.

The report forecasts that NTPC is likely to account for about 28% of the country's proposed power generating capacity addition. Private sector power producers are expected to augment India's power generating capacity by 10,760 MW, with investments of about $9.21 billion.

The study elaborates that private sector participation is expected to increase due to the government's efforts to improve the country's transmission and distribution network, fast-track electricity generation program, and market conditions. The report also recommends that India should focus on reducing the cost of power generation. Currently, one kilowatt-hour (kWh) of power generation costs about 8 to 10 cents (US).

The study indicates that effective implementation and execution of power sector reforms will ensure that this sector becomes competitive, successful and efficient. It is also imperative to develop a self-sufficient electricity production marketplace, which will pay full price for fuel on par with global pricing standards and assist in making the power generation and supply system more effective.

An open and transparent system, which also will address cross subsidy, is critical. The report suggests that the system should be managed and supervised by a state electricity regulatory body.

In a related development, a study conducted by Confederation of Indian Industry and global management consulting firm AT Kearney has revealed that India's power sector will require $250 billion in the next eight years to sustain growth in demand. Growth in demand and production capability is likely to add 150,000 jobs in the sector.

By 2014, the power sector is expected to witness high levels of competition, which will add new power generating capacity of 80,000 MW to 85,000 MW. Until 2017, the demand for electricity is forecast to grow at a rate of 7.5% to 8% per year. The wind energy sector is expected to grow at 15% to 20% per year, with new capacity addition in offshore windfarms.

India, which has a power generating capacity of 147,402.81 MW, has set a target of adding 78,700 MW by 2012 in the current Five Year Plan. The CII-AT Kearney report, which is cautiously optimistic of growth in the power sector, has raised concerns about the funding of power projects and transmission and distribution systems, and the availability of fuel. The report indicates that a transparent system, which makes electricity easily accessible, is critical for India's economic growth.