Transcript Presentation on PTC

Recent Trends in Power Trading
&
Power Market Development
Rakesh Kumar
PTC India Ltd.
Power Summit 2008, Kathmandu
24 September 2008
Indian Power Sector : Key Statistics
Indian power sector is the third largest in Asia after China and Japan
Installed Capacity: 1,45,588 MW (as on 31st March 2008)
Peak Demand: 108,866 MW
Demand Met : 90,793 MW
Peak Deficit: 16.6%
Energy Requirement : ~ 740 BU
Energy Availability: ~ 666 BU
Energy Deficit: 9.9%
The per capita electricity consumption for 2005-06 at 631^ kWh (CEA General
Review 2006), remains far below the world average of 2,429 kWh.
2
An Overview of Indian Power Sector (1)
Coal-dominated fuel mix:
Coal
Hydro
Gas
Renewable
Nuclear
Oil
: 53%
: 25%
: 10%
: 8%
: 3%
: 1%
Share of hydro declining in the generation mix
Unmet planned targets in generation capacity
addition
In last 3 Plan periods, target versus
achievement ~ 50%
11th Plan (2007-2012) Target: 78577 MW
3
An Overview of Indian Power Sector (2)
Regional Demand-Supply Deficit (2007-08)
Deficit
Northern Region:
9.1%
Western Region :
23.2%
Southern Region:
9.0%
Eastern Region:
11.0%
North-Eastern Region:
23.0%
Aims for “Power to All” by the year 2012
Domestic energy resources not adequate to meet
the total requirement
Need for diversification of energy resources and
regional cooperation - for energy security
4
Scene prior to introduction of power market
concept (1)
Monopoly Suppliers (SEBs, Private Licensees)
Generators (CGSs, IPPs and SEBs) with capacity fully tied up
Each SEB had an allocated share in a Central/ Jointly owned station
Price setting by Central/ State Governments – SEBs hardly having any say
Entire sector developed on fixed rate return
Interplay of market forces remained non-existent
Utilities would back-down in case of low demand and resort to load
shedding in case of excess demand
Power as a resource for earning revenue did not exist in this cost based
regime
5
Scene prior to introduction of power market
concept (2)
Prior to power trading as a business concept:
power exchanges between the States/vertically
integrated utilities were characterized by:
Small , Intermittent volumes
Mostly in the nature of emergency support
Without any commercial arrangements
Non-payment or payment delays with resultant
disputes
The exchanges were further limited due to lack
of transmission inter-connections
Sustained shortages, both in energy and peak
demand, discouraged initiatives
Skepticism about success of trading was
widespread
6
Genesis of power trading in India
PTC was formed in 1999 as a Government of India initiative for development
of power market and incentivising market based investments to the Power
Sector, specially from the private sector:
 Facilitate development of Power Projects particularly through private
investment
 Promote Power Trading to optimally utilize the existing resources
 Develop power market for market based investments into the Indian Power
Sector
 Promote exchange of power with neighbouring countries
Pioneer Role : Initiated development of short term power market and
introduced innovative products for customers
Efforts lead to beginning of sustained trading during 2000-01 (1.6 Billion
units ) and also optimum utilization of existing resources
Exponential growth established the viability of trading as a business concept
7
Introduction of New Products
• Short & Medium Term transactions for peak/off-peak load balancing:
different products brought in the market
• Duration of Transactions (Few hours to 3 years)
• Hours of Supply
• Round the Clock
• Evening Peak / Morning Peak
Continuous
development of
new products as per
market requirements
• Night Off Peak / After Noon Off Peak
• “As and When Available” Power for balancing Scheduled Interchanges
• “Weekend / Holiday Power”
• Banking of Power
8
PTC India – Key achievements
Established the viability of concept
Power market can play key role in growth of sector
Credible intermediary
Payment Security Mechanism
Weekly billing to reduce credit risks
Right to divert in case of default
Relationship of trust, transparency
Comfort to developer of power projects –by addressing market risks
Comfort to lender – by addressing credit risks
A catalyst for private investment in the sector
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GENCO
GENCO
GENCO
TRADER
Transmission
Generation
Emerging Industry Structure
OPEN ACCESS : Transmission
Distribution
DISCOM
DISCOM
DISCOM
OPEN ACCESS : Distribution
TRADER
Customer
Customer
Customer
10
EA 2003 and enabling provisions on Power Market
Electricity Act 2003
The intent and object of the EA 2003 is to develop power market through
increased competition, more players and protect consumer interests
Development of Power Market – EA 2003, Section 66, “The Appropriate
Commission shall endeavor to promote the development of power
market…”, guided by the National Electricity Policy
Suitable safeguards to prevent adverse effect on competition
Recognized Trading as a distinct activity
Definition under section(2) (47): “Purchase of electricity for resale
thereof”
Adequate and progressive provisions governing open access both :
• to transmission networks (inter-state and intra-state) and
• to distribution networks
11
National Electricity Policy on Power Market
National Electricity Policy 2005 – Para 5.7
“ To promote market development, 15% of the new generating capacities, be
sold outside long term PPAs”.
-As the power markets develop, it would be feasible to finance projects with
competitive generation costs outside the long term PPAs….this will increase the
depth of power markets….and in long run would lead to reduction in tariff”
Ministry of Power
A progressive ‘ Merchant Power Policy’ with a view to add 15,000 MW
capacity by 2011-12
12
Power Trading Scenario In India
Inter-state trading licenses (25
Years validity) in the purview of
CERC
Twenty Six (26) Trading licenses
issued by CERC
Volume of bilateral exchanges is
still low (about 2.5% to 3% of
energy generation)
Total short term market
approximately 21 billion units* in
2007-08
* Includes cross- border
Trading Volumes (in MUs)
25000
21301
20000
15000
10000
14188
11029
15023
11846
5000
0
FY 04
FY 05
FY 06
FY 07
FY 08
13
Key Players and Market Share (2007-08)
Market Share 2007-08
PTC
4%
12%
7%
1%
NVVN
46%
Adani
Tata Power
JSW
8%
Reliance Energy
6%
16%
Lanco
Others
Trading
Volumes (MU)
Licensees
PTC #
9889
NVVN
3324
Adani
1322
Tata Power
1682
JSW
1479
Reliance Energy
776
Lanco
2600
Others
229
Total
21301
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Benefits of Trading (1)
Increasing realization among utilities of power as a source for revenue earning
• Improved PLF, particularly of State Power Utilities
•An example: DVC - a rise of 5% in PLF
•
No backing down
85
• Reduction in load shedding
82
80
75
75
72
74
73
70
69
70
65
60
2001
2002
2003
2004
2005
2006
2007
Trading results in optimization of resource utilization
15
Benefits of Trading (2)
The short term market has created “value” for power. There is a distinct shift
towards higher revenue realization
Price volume break up (%)
98
59
48
36
26
5
2
FY 05
9 12
FY 06
Rs 1-3
Rs 3-4
FY 07
Rs 4-5
Rs 5-6
Power as a resource for earning revenue did not exist
16
Benefits of Trading (3)
• Encouraged IPPs to invest in generating assets- spurt in investment based on
competitive tariff due to widening demand –supply gap
•Market-based returns
•No sovereign/government guarantee
• Large merchant capacity is being funded
• States Governments of Chhattisgarh, Jharkhand, Orissa, Himachal Pradesh, J&K,
Uttaranchal, etc. have recognized “ Power as Resource”
• Planned rapid capacity additions – have devised policies to become Power Hubs
• MoU with developers for Capacity addition
• Jharkhand
9,110 MW
• Chhattisgarh
30,000 MW
• Orissa
17,000 MW
•Tamil Nadu
10,000 MW
A paradigm shift from Cost plus return regime to “market determined returns”
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Bilateral Electricity Trading with Bhutan
Salient Features:
Nodal agency for exchange of power with
Bhutan
PTC entered into long term power purchase
agreement with Department of Energy,
Bhutan
PTC purchasing surplus power on long term
basis from following three projects in Bhutan:
• Chhukha HEP (336 MW)
• Kurichhu HEP (60 MW)
• Tala HEP
(1020 MW)
Run-of –the River Projects
4 Hours peaking
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Indo-Bhutan Power Exchange
Year
Energy
export to
India (MUs)
Revenue to
RGoB
2003-04
1751
2691
2004-05
1735
2708
2005-06
1762
3452
2006-07
2963
5695
2007-08
5234
9778
(Nu. Million)
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Indo- Nepal Power Exchange

PTC - an active member of Indo-Nepal Power
Exchange Committee

Pursuing opportunities for short term and long term
trade in electricity for mutual benefits

Acting as facilitator for transmission inter-connection
between the two countries- Investment in
transmission capacity

Arranged 25 MW RTC power to NEA

Initialed PPA with SMEC West Seti for purchase of
750 MW power and MoU with Braspower for
purchase of 309 MW power from Arun III HEP

Proposing to facilitate formation and partner in a
company in Nepal for accelerating hydro power
development.
20
West Seti Project- Salient Features

West Seti HEP of 750 MW (5 Units of 150 MW)
is a reservoir type hydro project located in
western part of Nepal

Being developed by SMEC West Seti
Hydroelectric Power Corporation Ltd. as an
Export Project- financial closure expected
shortly

To generate average energy of 3300 GWh per
annum

Full off-take by PTC

Reservoir Capacity –Equivalent to one full
month generation-which could provide peaking
power for about 8 Hrs at full capacity round the
year
Market values such power highly due to peaking support and flexibility !
21
Power Market –Facilitating Private Investments
The market determined prices in the short term market has
encouraged IPPS and merchant generators to look at the sector with
renewed vigour and as an investment destination
An evidence of this is that PTC has entered into PPAs to procure long
term power with IPPS for more than 10,000 MW and / MoUs for
around 30,000 MW
Power market has in fact become a catalyst for private investment in
power sector
75,000 MW under development by IPPs without any Government
support
Rs. 40,000 to Rs. 45,000 Crores investment already committed
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Power Market: Salient Features
The wholesale market for electricity in India is completely voluntary by
design - that none of the market participants are obliged to operate through
a restricted and compulsory market.
This is because the buyer is free to choose from any of the following options:
Long term PPA based mechanisms
Medium Term
Short term bilateral trades
Day ahead market (through the power exchange)
Real time mechanisms (UI)
Even the real time arrangements are completely voluntary, since the UI
mechanism permits frequency to float within a range, providing tremendous
flexibility to market participants.
Further, the rules regarding standards of supply are more liberal, permitting
greater flexibility to utilities on demand side response.
23
Current Status of Power Market
A fledgling, nascent market
Limited growth of volumes of short
term traded market due to
Volume of Electricity Traded by the Trading Licensees in Total
Generation (%)
Overall deficit scenario
Limited number of active players and
resultant liquidity crunch
Transmission constraints/congestion
2.50%
2.40%
Rising cost of traded power: (The
average cost Rs. 4.50/kWh in 2007-08)
2.30%
(%) 2.20%
Due to overall shortage situation
(widening demand-supply gap)
2.10%
Lack of capacity additions
1.90%
Linkage with UI rates and
Rising fuel prices
2.00%
2003-04 2004-05
2005-06
2006-07 2007-08
(Period)
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Power Exchange : Some Interesting Trends
IEX commenced operation with effect from 28th June, 2008
The data up to 20th August, 2008 reflects that the average purchase
bids received (in MUs) are about four times the average sale bids
received (in MUs)
Even more interesting is that whatever is on offer by the sellers at
perceived high prices are not being accepted by the buyers and less
than 50% sales bid has actually been cleared by the market at market
clearing price.
This data, interalia, establishes without doubt that the buyers are
exercising their choice to procure prudently, keeping in mind
“affordability” and “prudence-checks” to voluntarily not off-take
power from sellers what they perceive as high cost.
Integrated Energy Policy:
25
Key Challenges
Market depth to be increased – more players, regional participation
Open Access Implementation
New Segment of prospective participants
 Industry
SEZs
 HT consumers
Group Captives
Merchant generators
Sufficient transmission capacities required for a vibrant power
market
Government to initially support through ‘viability gap funding’
26
Power Market Development – Next Steps
Main thrust of the Electricity Act 2003 is competition, and power market
development- it has many enabling provisions. Strict Implementation of EA
2003 enabling provisions is essential
Efforts are on to further deepen the market by introducing new trading
products, easing open access and trade through Power Exchange
1st National Level Power Exchange in India i.e., Indian Energy Exchange
(IEX) has become operational since June 2008
Power Exchange has started giving transparent signals on:
Price
Demand
Liquidity
New Products on anvil – week ahead, fortnight- ahead, month-ahead, year
ahead etc
Regional Energy Cooperation
27
Integrated Energy Policy Projections
India - Installed Capacity
1200
960
1000
685
GW
800
400
Generation Mix 2031-32 (8% GDP growth)
24 BU
1%
401 BU
11%
600
200
153 155
220 233
306 337
425
488
778
575
375 BU
10%
0
2006-07
2011-12
2016-17
8% GDP Growth
2021-22
2026-27
2031-32
9% GDP growth
2828 BU
78%
Hydro
Nuclear
Total 3628 BU
Thermal
RE
India – Installed Capacity
Source: Integrated Energy Policy
Generation Mix 2031-32 (8% GDP )
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Window of Opportunities

Nepal is rich in hydro potential
 > 43000 MW techno-economic

Indian Power Market is a voluntary
market – tariff competitiveness is key

Nepal Power Projects, due to moderate
transmission distance involved up to
load centers could be competitive

Integrated Energy Policy of India
encourages hydro power from Nepal

A huge market next door, waiting to be
tapped!
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Power Market –Ripple Effect
Power trading share is 2.5% of India’s total energy generated – but
its indirect impact on the power sector is several times bigger
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