Home » A Ray of Hope, Amid the Gloom

A Ray of Hope, Amid the Gloom

A Ray of Hope, Amid the Gloom

Amidst the chaos seen in the power sector, with 22,000 MW thermal power projects lying idle for the need of coal or gas and lenders taking power generating assets to National Company Law Tribunal (NCLT) to recover dues, the transmission sector- with longer life cycle and lower risks- has exhibited the only ray of hope for investors and developers alike.

As per estimates by the Central Electricity Authority (CEA), there are around 46,000 MW of generation assets which are stranded for the lack of a last mile connectivity and evacuation related issues. Setting up this capacity will require an investment of Rs 2.5-3 trillion over the next five years.

To overcome this problem, the government has initiated schemes such as Saubhagya, which will help in providing electricity to each and every household in the country by December 2018, creating a massive opportunity for transmission companies; apart from emphasising on Green Corridors and Inter-State Transmission System (ISTS) based transmission projects at an investment of over Rs 1 trillion. The government also initiated competitive bidding of the projects to involve the private sector companies in executing large transmission projects.

Green energy corridors
These are high voltage inter-state and intra-state transmission lines which are being created to evacuate wind and solar electricity from the remote corners of the country connecting the rich renewable energy states with the non-renewable energy states. The plan also calls for strengthening the control infrastructure and establishing Renewable Rnergy Management Centres (REMC) at load dispatch centers at state, regional and national levels.

The Standing Committee on Energy in its report stated that the government has allocated Rs 6 billion towards the GEC for FY19 and the programme is targeting a cumulative physical goal of 3,000 circuit kilometer (ckt-kms) of transmission lines this year. The target for 2020 is 8,500 circuit km. However, the Standing Committee pointed out that there is a mismatch between this year’s goal and the funds allocated.

The target for transmission line installations in FY19 is more than five times as large as the physical target for 2017-18 but the budget is only increased by 20 per cent. ‘For FY18, Rs 5 billion was provided for the installation of 350 circuit km of transmission lines and for FY19, Rs 6 billion is being allocated for the installation of 1,900 circuit km of transmission lines,’the Committee noted, citing its apprehension if the GEC target could be attained in the next couple of years as still 5,500 km needs to be constructed.

Raj Prabhu, Chief Executive Officer, Mercom Capital Group said, ‘This is not a good news for the wind and solar sector. Over 11 GW of ISTS-connected solar and wind projects have been tendered so far this year. Though most of these projects will not be completed until sometime in 2019, a robust transmission infrastructure is a must to be able to off-take and transmit multi-GWs of solar and wind power planned over the next several years as India looks to install 100 GW of solar by 2022.’

Saubhagya Scheme
Under this scheme, launched in September 2017, the government aims to provide 40 million electricity connections by the end of December 2018 to reach each and every household in the country. Certain households identified via the Socio-economic and Caste Census (SECC) of 2011 will be eligible for free electricity connections, while others will be charged Rs 500. The total outlay of the project is Rs 163.2 billion, while the gross budgetary support is Rs 123.2 billion. The beneficiary household will get five LED lights, one AC fan and one AC power plug. It also includes the Repair and Maintenance (R&M) for five years. As of August 2018, electricity has reached 91 per cent household in the country with another four months to go for the completion of the target. This scheme has provided a huge investment opportunity for the transmission companies to lay the evacuation facilities to the remote corners of the country.

ISTS-based Transmission Projects
Under this system, the developer is responsible for creating the transmission infrastructure from its generating assets to the nearest substation. It should be noted that the revenue for ISTS projects is assured through long-term (30-35 years) transmission service agreements and is delinked from the quantum of electricity transmitted. The revenue is contingent on maintaining line availability above 98 per cent. But this is easily achievable through routine Operations and Maintenance (O&M) and is not technically challenging.

The SECI conducted India’s first auction of wind power projects in February 2017 in which tariff of Rs 3.46 was discovered, which was much lower than Feed-in-Tariffs (FiT) in vogue those days. This was a 1,000 MW bid for projects to be connected on ISTS, wherein the power generated from one renewable resource-rich state could be transmitted to other renewable deficient states. Mytrah, Inox, Ostro, Green Infra and Adani were winners of the bid.

‘The first auction also signified a major shift from the earlier regime of the state-specific FiT model to a pan-India, market-driven mechanism,’the SECI said in a release.

In all, the SECI issued five tenders for wind power projects of cumulative capacity of 7,250 MW of which 6,050 MW capacity was awarded. Besides the SECI and the NTPC being central agencies, the state agencies of Tamil Nadu, Maharashtra and Gujarat have brought out bids and awarded projects based on tendering. The competitive bidding has also helped in arriving at market-driven tariffs for transmission projects. Experts believe that as the size of investments required in the transmission segment is fairly large and the execution of new projects requires managerial and technical bandwidth, it was imperative that other players would be introduced in the field beside Power Grid Corporation of India (PGCIL).

‘The private players have been able to use the competitive bidding process to its advantage by offering better tariffs while exploiting their technical strengths and financial flexibility. Transmission has also attracted interest from international companies seeking growth markets and having a lower cost of funds. All in all, this has been a largely win-win for the stakeholders,’ Salil Garg, Director-Corporate, India Ratings, said.

Industry Ripe For M&A
The transmission line business enjoys a longer asset life of 50 years as compared to the other infrastructure projects such as roads. They also have higher payment security and lower counter party risk because payments come through the PGCIL. Also, transmission projects receive tariffs based on the availability of transmission line and not the quantum of power transmitted through it, which makes the asset a safe bet for investors.

Several debt-laden power firms have put up their operational transmission assets for sale to pay off their loans. The biggest example would be the sale of 3,063 circuit km of transmission line by Reliance Infrastructure for Rs 10 billion to Adani Transmission to pay off its debt. Adani also bought Reliance Infrastructure’s distribution business in Mumbai for Rs 180 billion. Adani Transmission, with a cumulative transmission network of 12,000 circuit km, is the largest in the segment in India.

It is reported that renewable energy company Greenko Group has been eying operational assets for a while and was in talks with Essel Infraprojects to buy five of its transmission projects. Greenko is also in talks with Hyderabad-based Megha Engineering and Infrastructures to acquire Rs 60 billion of transmission projects in Uttar Pradesh. Besides, Tata Power, Sterling and Wilso- a Shapoorji Pallonji Group company- has also evinced interest in buying out transmission assets.

Resolving the challenges
The evacuation for wind power projects can be resolved through better planning and co-ordination amongst various agencies, i.e., PGCIL, SECI, NTPC, MNRE and the Ministry of Power. ‘It is important that evacuation issues are addressed before bidding for the renewable power projects starts, instead of solving the issue after bidding,’ said Garg, adding that the industry is already seeing positive developments towards this wherein, the nodal agency for the development of renewable power, SECI is keeping the central transmission utility in confidence prior to the bidding and also sharing its 3-5 year development plans so that the CTU has ample time and direction to build evacuation infrastructure accordingly.

The Crisil Research has estimated that investments of Rs 9-9.5 trillion will come into the power sector over the next five years (FY19 to FY23). However, the share of investments by the generation segment is expected to be significantly lower at 30 per cent over the forecast period as compared to 51 per cent over the last five year.

Because the investments in transmission were not undertaken while the generation capacity was being built, particularly in the south and north-eastern region, transmission capacity and particularly inter-state transmission needs investments soon.

Sabyasachi Majumdar, Senior Vice President and Group Head, ICRA Ratings said that the new wind energy projects need to bulk up their transmission capacities or face lower tariffs. ‘Prolonged delays in securing (grid) connectivity would impact the project commissioning timelines (for new wind projects) and in turn, affect the viability of the projects for the winning developer. Delays beyond six months from the scheduled commissioning date would result in a reduction in PPA tariff.’

Leave a Reply