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2 Contents Advantage India Market overview and trends Growth drivers Success stories: NTPC, Tata Opportunities Useful information 2

3 Advantage India Growing demand Expansion in industrial activity to boost demand for electricity Growing population, and increasing penetration and per-capita usage to provide further impetus Opportunities Large capacity additions (100 GW) targeted in the 12 th and 13 th Five Year Plans Ambitious projects and increasing investments across the value chain FY22 Total demand (TWh): FY12 Total demand (TWh): Increasing investments One of the key sectors attracting FDI inflows into India; inflows recorded a CAGR of 63 per cent during FY06-12 Major investments earmarked by public as well as private sector companies across the value chain Advantage India Policy support Elimination of licensing for various segments; removal of entry barriers Cost reduction and rationalisation of tariffs; development of Ultra Mega Projects (UMPP) Fuel supply agreement of power producers with Coal India Source: Assorted articles and research material, Aranca Research Notes: FY - Indian Financial Year (April - March), FDI - Foreign Direct Investment, E - Estimates, CAGR - Compound Annual Growth Rate, TWh - Terawatt-hour, FY22 estimates as per IEA forecasts ADVANTAGE INDIA 3

4 Contents Advantage India Market overview and trends Growth drivers Success stories: NTPC, Tata Opportunities Useful information 4

5 Evolution of the Indian sector 2003 onwards Growth Era Before 1956 Introductory Stage Electricity (Supply) Act 1948 Establishment of semi-autonomous State Electricity Boards (SEBs) Nationalisation Stage Industrial Policy Resolution (1956) Generation and distribution of power under state ownership losses, subsidies, infrastructure bottlenecks, and resource constraints Liberalisation Era Legislative and policy initiatives (1991) Private sector participation in generation Fast track clearing mechanism of private investment proposals Electricity Regulatory Commissions Act (1998) for establishing Central and State Electricity Regulatory Commissions and rationalisation of tariffs Electricity Act (2003) National Tariff Policy (2006) Elimination of licensing for generation projects Increased competition through international competitive bidding engaged in power generation, transmission and distribution Launch of Ultra Mega Project (UMPP) scheme Various schemes and initiatives such as Jawaharlal Nehru National Solar Mission to promote renewable energy Civil nuclear agreement with the US for nuclear technology and fuel Fuel supply agreement of power companies with Coal India ltd Source: KPMG, Corporate Catalyst India, IFLR, Aranca Research MARKET OVERVIEW AND TRENDS 5

6 India is among the world s top five power producers and consumers India is the fifth largest producer and consumer of electricity in the world after China, US, Russia and Japan China World s leading electricity producers (2011) 4,604 generation has grown more than 100 fold since independence while demand growth has been even higher due to accelerating economic activity US* Russia* 983 4,120 Japan 938 India* 880 Canada* 581 TWh 0 1,000 2,000 3,000 4,000 5,000 Source: CIA World Factbook, Aranca Research Note: * - Data mentioned for US, Russia, India & Canada is for 2010 MARKET OVERVIEW AND TRENDS 6

7 generation has been growing rapidly over the years Electricity production in India (excluding captive generation) stood at TWh in FY12, a growth of 8.1 per cent over the previous fiscal Over FY06-12, electricity production has expanded at a CAGR of 6 per cent Electricity production in India (TWh) Electricity production for the period April to October 2012 stood at TWh FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13* Source: Central Electricity Authority (CEA), Aranca Research; Notes: FY - Indian financial year (April - March), TWh - Terra Watt hour, * Data for FY13 is for the period April to October MARKET OVERVIEW AND TRENDS 7

8 Sources of power with shares in total installed capacity Thermal 67% Coal Gas 56% 10% India has large reserves of coal; estimates for FY11 put the figure at about billion tonnes India s proven natural gas reserves measure about 1,074 billion cubic meters Hydro 19% With a large swathe of rivers and water bodies, India has enormous potential for hydropower; 12th Five Year Plan ( ) includes additional 30,000 MW of hydro-electric power generation. India currently has 39.3 GW of hydro power generating capacity Renewable 12% Wind energy is the largest renewable energy source in India; projects like the Jawaharlal Nehru National Solar Mission (which aims to generate 20,000 MW of solar power by 2022) is creating a positive environment among investors keen to exploit India s potential Nuclear 2% India currently has 4.8 GW of net electricity generation capacity using nuclear fuels (across twenty reactors) and aims to increase it up to 20GW by 2020; with one of the world s largest reserves of thorium, India has huge potential in nuclear energy Source: Ministry of Coal, NHPC,CEA, The Hindu, Corporate Catalyst India, Aranca Research Notes: MW - megawatt MARKET OVERVIEW AND TRENDS 8

9 Generation capacity has been increasing at a healthy pace (1/2) India s installed power generation capacity was GW at the end of March 2012 Installed electricity generation capacity (GW) Installed capacity has been increasing steadily over the years; over FY09-12, it posted a CAGR of 10.5 per cent Installed capacity as on October 2012 stood at GW FY09 FY10 FY11 FY12 FY13* Source: Central Electricity Authority (CEA), Aranca Research Note: GW - Gigawatt, Data for FY13* is as on October MARKET OVERVIEW AND TRENDS 9

10 Generation capacity has been increasing at a healthy pace (2/2) Among the different sources of power in India, the Comparison of installed capacity (GW) CAGR in installed capacity over FY09-12 was - 12 per cent for thermal power Thermal per cent for renewable energy, the fastest among all sources of power Hydro Renewable Nuclear FY13* FY 12 FY09 Source: Central Electricity Authority (CEA), Aranca Research, Data for FY13* is as on October 2012 MARKET OVERVIEW AND TRENDS 10

11 Key players in the power sector (1/2) Company Business description NTPC is India s largest power producer and the sixth-largest thermal power producer in the world with an installed capacity of more than 39,674 MW. By 2032, NTPC plans to become a 128,000 MW company It has also diversified into hydro - power, coal mining, power equipment manufacturing, oil and gas exploration, power trading, and distribution Tata is India s largest integrated power company, with significant presence in solar, hydro, wind and geothermal energy. The company accounts for 52 per cent of total generating capacity of the private sector with an installed capacity of 6,900 MW The company has a portfolio of over 35,000 MW of power generation capacity, both operational as well as under development CESC Limited is a vertically integrated player engaged in coal mining, and generation and distribution of power NHPC is the largest hydro power utility in India with an installed capacity of 5,295MW and has drawn up a massive capacity expansion plan of adding 6,697 MW up to the year 2017 *This list is indicative Source: Company websites, News articles, Aranca Research MARKET OVERVIEW AND TRENDS 11

12 Key players in the power sector (2/2) Company Business description Finance Corporation Limited (PFC ) is an NBFC engaged in financing and development activities within the Indian power sector Major products and services include project term loans, lease financing, direct discounting of bills, shortterm loans and consultancy services Adani is one of India s largest private thermal power producers with total capacity of 4,660 MW; the company aims to generate 20,000 MW of power by 2020 The company is building one of the world s largest single location thermal power plants in Mundra, Gujarat Grid Corporation of India Limited (PGCIL) is the single largest transmission utility in India and is responsible for planning, co-ordination, supervision and control over inter-state transmission systems Damodar Valley Corporation is engaged in power generation, distribution and transmission of electric power, irrigation, and flood control SJVN Limited is the second largest hydro power company in India The company plans to diversify into wind power projects soon *This list is indicative Source: Company websites, News articles, Aranca Research Notes: NBFC - Non-banking financial company MARKET OVERVIEW AND TRENDS 12

13 Contents Advantage India Market overview and trends Growth drivers Success stories: NTPC, Tata Opportunities Useful information 13

14 Strong demand and policy support driving investments Growing demand Policy Strong support government support Increasing investments Increase in industrial activity Inviting Electricity Act (2003)- highly liberal framework for generation Resulting in Rising FDI inflows (USD1.65 billion in FY12) Increasing penetration, percapita consumption Fuel supply agreement of power companies with Coal India Ltd Growing M&A activity Growing consumer base Development of Ultra Mega Projects (UMPPs) Large investments in equipment manufacture and power generation Source: Corporate Catalyst India, Ministry of, Aranca Research Notes: FDI - Foreign Direct Investment, M&A - Merger and Acquisition, R-APDRP - Restructured Accelerated Development and Reform Programme, T&D - Transmission and Distribution GROWTH DRIVERS 14

15 Industrial expansion and strong GDP growth driving power demand (1/2) Multiple drivers (industrial expansion, growing percapita incomes) are leading to growth in power demand; this is set to continue over the coming years as well - Share of industry in electricity consumption 57.9% During FY10-15, GDP growth is likely to average per cent India is set to become a global manufacturing hub with investments across the value chain 47.4% 48.1% 48.8% 49.6% 50.3% 51.0% India s power demand is expected to rise up to 1,915 TWh by FY E 2012E E 2014E 2015E Source: Estimates as per BMI India Report Q3 2011, Aranca Research GROWTH DRIVERS 15

16 Industrial expansion and strong GDP growth driving power demand (2/2) 82GW worth of generation capacity is set to be added during FY11-FY15; future investments will benefit from strong demand fundamentals, policy support, and increasing government focus on infrastructure Residential consumption has been growing at a fast pace; growth was 14 per cent in FY11 Government initiatives like RGGVY and for all will further drive the demand Per-capita electricity consumption (KWh) Notes: RGGVY - Rajiv Gandhi Grameen Vidyutikaran Yojana E E 2014E 2015E 2016E Source: Estimates as per BMI India power report Q4 2012, Mckinsey, Aranca Research GROWTH DRIVERS 16

17 Policy support aiding growth in the sector Electricity Act, 2003 National Tariff Policy, 2006 Ultra Mega Projects (UMPP) R-APDRP Elimination of licensing for electricity generation projects Increased competition through international competitive bidding Demarcation of transmission as a separate activity Adequate return on investment to the companies engaged in power generation, transmission and distribution Uniform guidelines to SERCs for fixing tariffs Assured electricity to consumers at reasonable and competitive rates Launch of Ultra Mega Project (UMPP) scheme through tariff based competitive bidding Ease of land possession, provision of fuel, water and necessary clearances for enhancing investor confidence R-APDRP was launched by Ministry of with the purpose of reducing AT&T losses up to 15 per cent by upgradation of transmission and distribution network Linking disbursement of central government funds (to states) with actual reduction in transmission and distribution losses. Sanctioned projects of more than USD5.8 billion Fuel Supply Agreement Fuel supply agreement with Coal India Ltd. will ensure the availability of coal for power companies over the long term Source: KPMG, CRISIL, Ministry of, Aranca Research Notes: R-APDRP - Restructured Accelerated Development and Reform Programme, SERC - State Electricity Regulatory Commission, AT&T - American Telephone & Telegraph Systems GROWTH DRIVERS 17

18 Budget FY13: is a key focus area Government has removed customs duty on import of coal and natural gas Government has directed Coal India Ltd to sign fuel supply agreements with power companies to boost energy generation companies have been allowed to take recourse to external commercial borrowings (ECBs) to part finance their rupee debt The withholding tax on ECBs has been reduced to 5 per cent from 20 per cent The limit for tax-free bonds for the power sector has been increased to INR100 billion (~USD2 billion) from INR50 billion (~USD1billion) Government has also extended the tax holiday for one year; this allows power producers to claim tax exemption up to 10 years Source: Union Budget FY13, various news artilces, Indian Express, Aranca Research GROWTH DRIVERS 18

19 Increasing investments: FDI inflows and key deals (1/2) is one of the key sectors attracting FDI inflows into India FDI inflows into the power sector During FY06-12, FDI inflows into the sector increased from a mere USD87 million in FY06 to USD1,652 million in FY12 USD million CAGR: 63.3% ,437 1,252 1, FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: : Department of Industrial Policy and Promotion, Aranca Research GROWTH DRIVERS 19

20 Increasing investments: FDI inflows and key deals (2/2) The sector has witnessed a total of 35 M&A deals since 2010 Morgan Stanley Infrastructure Fund s investment in Asian Genco Pvt Ltd was the largest PE transaction in the Indian power sector Mergers and Acquisitions (M&A) Acquirer Target Deal date Athena Capital Partners LLP SPS Ispat and Ltd Deal value (USD million) 08 th Jul Global power giants like GDF Suez of France and E.ON of Germany have drawn up plans to enter the Indian market India Infrastructure Fund Warburg Pincus India Pvt Ltd Caparo Energy (India) Ltd Diligent Pvt Ltd 17 th Jun th May Blackstone Group LP Moser Baer Projects Pvt Ltd 18 th Aug Notes: FDI - Foreign Direct Investment, PE - Private Equity Morgan Stanley Infrastructure Asian Genco Pvt Ltd 18 th Mar GSPC Distribution Networks Ltd Gujarat Gas Co Ltd 3 rd Oct Source: Thomson One Banker, Economic Times, Aranca Research GROWTH DRIVERS 20

21 Contents Advantage India Market overview and trends Growth drivers Success stories: NTPC, Tata Opportunities Useful information 21

22 NTPC: A public sector success (1/2) During FY06-12, NTPC s revenues increased at a CAGR of 16 per cent; CAGR in profits was 9 per cent 2.5 Top line and bottom line (USD billion) 16.0 NTPC accounts for 19 per cent of the country s capacity; however it contributes 27.4 per cent of total power generation The company has an installed capacity of 39,674 MW. It plans to become a 128,000 MW company by 2032 It spent approximately USD 2.2billion in FY12 and plans to spend an additional USD4 billion in FY13 in expansion activity FY06 FY07 FY08 FY09 FY10 FY11 FY12 Net Profit Net Sales- right axis Company is planning to set up a Mega watt (MW) advanced ultra super critical plant, which will be the first in India Source: NTPC website, annual reports, Economic Times, Aranca Research Notes: NTPC - National Thermal Corporation SUCCESS STORIES: NTPC, TATA POWER 22

23 NTPC: A public sector success (2/2) NTPC has taken over and successfully turned around a number of sub-optimally performing stations High operational efficiency (indicated by plant load factor and availability factor) is NTPC s trademark It is a pioneer in high-efficiency supercritical and ultra supercritical coal-based power plants in India Impact of NTPC takeover of sub-optimal plants (PLF) 120% 98% 100% 86% 86% 92% 80% 66% 60% 40% 18% 19% 22% 20% 0% Before takeover After takeover Badarpur Unchahar Talcher Tanda Source: NTPC website, Annual Reports, Economic Times, Aranca Research Notes: PLF - Plant load factor, After Takeover - figures for FY08 SUCCESS STORIES: NTPC, TATA POWER 23

24 Tata : Forging ahead in the private sector (1/2) During FY06-12, Tata s profits increased at a CAGR of 11.5 per cent The company has an installed generation capacity of 6900MW in India and presence in all the segments of the power sector The company is developing its first 4000 MW Ultra Mega Project at Mundra (Gujarat) based on super-critical technology The company is increasingly eyeing the clean energy segment; it recently acquired stakes in two Australian companies in the sector Growth in net income (USD million) FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: Company website, annual reports, Economic Times, Aranca Research SUCCESS STORIES: NTPC, TATA POWER 24

25 Tata : Forging ahead in the private sector (2/2) The company estimates its installed capacity to expand five-fold in the next five years to MW (CAGR of 30 per cent from FY07 and 47 per cent from FY12) Installed capacity in mega watts (MW) 25,000 Recognising the enormous potential in renewable energy, the company intends to increase the share of renewable sources to 25 per cent of its total generating capacity in the near future 2,300 3,120 5,297 FY07 FY11 FY12 FY17E Source: Company website, FY17 estimate as per press release, 15th July 2011 Note : MW - mega watt, CAGR - Compounded annual growth rate SUCCESS STORIES: NTPC, TATA POWER 25

26 Contents Advantage India Market overview and trends Growth drivers Success stories: NTPC, Tata Opportunities Useful information 26

27 generation: Overall fundamentals will remain strong (1/2) Demand for electricity is expected to expand at a CAGR of 7.6 per cent over FY07-FY22 to 1,915 TWh Electricity demand forecast Current production levels are not enough to meet demand; annual demand outstrips supply by about 7.5 per cent TWh CAGR: 7.6% 1,392 1, FY07 FY12 FY17E FY22E Source: International Energy Agency (IEA), demand estimates based on IEA forecasts, Aranca Research Note: CAGR - Compounded annual growth rate OPPORTUNITIES 27

28 generation: Overall fundamentals will remain strong (2/2) The government has targeted capacity addition of 100,000 MW each under the 12th ( ) and 13th ( ) Five Year Plans There is tangible shift as regards to policy focus on the sources of power; The government is keen to promote hydro, renewable and gas-based projects, as well as adoption of clean coal technology Addition to generation capacity under Five Year Plans (GW) Plan No 21 10th 11th 12th E 13th E Source: Business Standard, capacity addition estimates by Central Electricity Authority (CEA), Aranca Research Notes: TWh - terawatt-hour, E - estimates OPPORTUNITIES 28

29 Grid Corporation of India Ltd (PGCIL) Current trends point to opportunities across the value chain Adani Plans to invest USD17.7 billion in power generation by 2014 Generation Investments across the value chain T&D Germac Energy and Sepco III (JV) Tata Reliance Coal-fired plant in Tamil Nadu; investment of USD1.3 billion Nuclear power ambition; studying entry strategy with minimum investment of USD3.0 billion USD2.5 billion investment in hydro-power in Arunachal Pradesh with combined generating capacity of 2.5 GW Loan from ADB of USD600 million for development of high-voltage transmission system Developing an integrated national grid, including strengthening of five regional grids; project investment is worth about USD16 billion Joint development of an India - Sri Lanka undersea transmission link with the Ceylon Electricity Board at an estimated cost of USD573 million Source: BMI India power report Q3 2011, Aranca Research Notes: JV - Joint venture, T&D - Transmission and distribution, GW - gigawatt OPPORTUNITIES 29

30 Renewable energy is fast emerging as a major source of power generation from renewables (other than hydropower) has been estimated at 20 GW in 2011, a 2.4 per cent share in India s total power generation India has the sixth largest renewable (ex hydropower) power generation capacity (2011) GW Wind energy is the largest source of renewable energy in India; it accounts for an estimated 87 per cent of total installed capacity in renewable energy. The country aims to increase the importance of wind power even further; there are plans to double wind power generation capacity to 20 GW by India ranks sixth in the world Biomass is the second largest source of renewable energy, accounting for 12 per cent of total installed capacity in renewable energy. There is strong upside potential in biomass in the coming years China United States 11 Germany Spain Italy India Japan Solar energy accounts for 1 per cent of total renewable energy installed capacity. However, the share is not indicative of the country s true potential, which stands at an estimated 5,000 TWh per annum Source: : Renewables 2012 Global Status Report (REN21), Business Monitor International (BMI), Aranca Research; Note: TWh - Tera Watt hour; GW - Gigawatt MARKET OVERVIEW AND TRENDS 30

31 Strong upward trend in nuclear energy likely in the medium to long term In 2010, India was fifth in the Asia-Pacific region in nuclear electricity net generation (behind Japan, South Korea, China, Taiwan) Nuclear energy production in India in (GW) Currently, the country has net electricity generation capacity of 4.8 GW, using nuclear fuels, across twenty reactors. Of the twenty reactors, 18 are pressurised heavy water reactors (PHWR); two are boiling water reactors (BWR) The government aims to quadruple India s nuclear power generation capacity to 20 GW by 2020; seven nuclear power reactors of 4,890 Mw capacity are already under construction Nuclear Corporation of India Limited (NPCIL) is planning to construct five nuclear energy parks with a capacity of 10,000 Mwe E Source: Ministry of New and Renewable Energy, Business Monitor International, Aranca Research Note: GW - Gigawatts; MWe - Mega Watt electric PHWR - Pressurised Heavy Water Reactors BWR - Boling Water Reactiors MARKET OVERVIEW AND TRENDS 31

32 Contents Advantage India Market overview and trends Growth drivers Success stories: NTPC, Tata Opportunities Useful information 32

33 Industry Associations (1/2) Council of Utilities A-2/158, Janakpuri, New Delhi , India Tel : , Fax : cvjvarma@gmail.com, cvjv1933@yahoo.com Web site: Hydro Association (India) Flat no 6, Green Park Apartment, Shriram Society, Warje, Pune , Maharashtra, India Tel: hypaindia@gmail.com, president@hpaindia.org, secretary@hpaindia.org Website: Bureau of Energy Efficiency (BEE) Ministry of, 4th Floor, SEWA Bhawan, R. K.Puram, New Delhi , India Tel: Fax: webmanager-bee@nic.in Website: USEFUL INFORMATION 33

34 Industry Associations (2/2) Indian Wind Energy Association (INWEA) PHD House, 3 rd Floor, Opp. Asian Games Village, August Kranti Marg, New Delhi , India Tel : manish@inwea.org Web site: USEFUL INFORMATION 34

35 Glossary (1/2) CAGR: Compound Annual Growth Rate FDI: Foreign Direct Investment FY: Indian Financial Year (April to March) So FY10 implies April 2009 to March 2010 GW: gigawatt M&A: Merger and Acquisition MW: Megawatt NBFC: Non-Banking Financial Company PE: Private Equity PLF: Plant Load Factor R&D: Research and Development USEFUL INFORMATION 35

36 Glossary (2/2) R-APDRP: Restructured Accelerated Development and Reform Programme T&D: Transmission and Distribution TWh: terawatt-hour RGGVY: Rajiv Gandhi Grameen Vidyutikaran Yojana USD: US Dollar Conversion rate used: USD1= INR48 Wherever applicable, numbers have been rounded off to the nearest whole number USEFUL INFORMATION 36

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