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Packing a punch?

Packing a punch?

Many industry observers feel the time is right for the government to exit and look at reducing its investments in power distribution and allow commercial capital to flow into the sector.

First things first. By 2030-35, India is expected to rank number one in the world in energy demand, according to a report by UK oil giant British Petroleum. What this means for a country that still faces bottlenecks in receiving reliable power across large swathes of the countryside is that it needs to get its act together rather quickly. On one hand, it´s all very well to set targets and the Narendra Modi-led government has done an admirable job of setting them up. Let´s sample one such target. The government has announced 175,000 MW of renewable energy by 2022, comprising 100,000 MW from solar, 60,000 MW from wind, 10,000 MW from biomass, and 5,000 MW from small hydro power projects.

Furthermore, according to Union Minister Piyush Goyal, the overall power sector has an investment potential of Rs 15 trillion ($ 237 billion) in the next four-five years, and will provide opportunities in power generation, distribution, transmission and equipment.

On the other hand, the nature of the problems run deep. For instance, power distribution is a state subject and not all states are at par or where they need to be. On the issue of tariffs, increases have not kept pace with rising costs for various reasons.

¨A lot of the state governments are actually pushing the regulators when regulators are supposedly independent; but they´re pushing the regulators to delay price increases. We need to have a system by which the regulators are relatively more independent of the state government. Some price increases have not been kept in mind,¨ says Arvind Mahajan, Partner, KPMG.

Many industry observers feel the time is right for the government to exit and look at strategies to reduce their investment in power distribution, make it more commercial so that commercial capital flows in.

In power generation, India has made rapid strides with huge private investments that have come in over the years. The incremental capacity addition in the private sector has been pretty strong. Investors worldwide continue to be attracted to the India growth story and today, continue to evaluate investments in power generation given the open and competitive framework the government has already put in place in this segment.

The power sector has been identified as key to promote sustained industrial growth and recent steps taken to boost the sector include setting up of the PACESetter Fund. This fund aims to support the Promoting Energy Access through Clean Energy (PEACE) track of the US-India Partnership to Advance Clean Energy (PACE). This is the flagship initiative on clean energy, combining the resources of several US agencies and different Indian ministries. Both countries contributed equally to the initial corpus of Rs 50 crore.

Recently, the Reserve Bank of India (RBI) has also included renewable energy under priority sector lending (PSL). Banks can now provide loans up to a limit of Rs 15 crore to borrowers for renewable energy projects. Moreover, the government has revived the scheme on the National Solar Mission and taken into consideration a number of difficulties that phase I of the scheme was facing. It has become more attractive for businesses now.

A number of such initiatives and policy support measures bode well for the sector in the coming years.

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