Electricity Shortage Could Popularize Use of Clean Technology in India's Power Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--Electricity-starved India is expected to emerge as the hub for clean technology-based power projects. Faced with environmental challenges, India is focusing on using clean technologies in energy, power efficiency and waste management. The country is also attracting large investments in clean technology power-generation projects from venture capital investors and international energy firms.

In 2009, venture capital investments worth $40 million were made to establish three clean energy companies in India. This included a $19 million deal, which is considered to be the second-largest venture capital investment in the country. The Indian government is also offering several tax waivers and other incentives to encourage investment in clean-technology power projects. This move has encouraged several pure-play green energy and alternate energy firms to tap into India's growing power sector. The annual budget for this fiscal year also involves levying taxes for use of coal and to utilize the funds generated by the taxes to create a national clean energy fund.

However, industry experts are of the opinion that it has become imperative for India to develop its power generation infrastructure to meet growing demand and attract huge investments in this sector. According to Raajeev B. Bhatia, the executive president of KPMG India (Mumbai), to reach an overall annual GDP economic growth of 8%, India's power sector will have to develop at the rate of 1.8 times to 2 times the GDP growth. This translates into 18,000 MW to 20,000 MW of new power-generating capacity from the same period last year. A white paper published by KPMG India has revealed that shortage and delay of power-equipment supply and poor project execution are key deterrents to India reaching its power generation capacity targets.

A recent report published by the investment research arm of UBS AG (NYSE:UBS) (Zurich, Switzerland) has indicated that India has infrastructure project orders worth $300 billion, of which nearly 33.33% is in the domestic power sector. However, the power equipment manufacturing sector is dominated by state-controlled Bharat Heavy Electricals Limited (BSE:500103) (BHEL) (New Delhi). The monopoly is seen as one of the primary reasons for delay in supply of equipment for the power projects. However, private sector companies, including Larsen & Toubro Limited (BSE:500510) (L&T) (Mumbai), have entered this segment. Several international power equipment manufacturers including General Electric (NYSE:GE) (Fairfield, Connecticut), Toshiba Corporation (TYO:6502) (Tokyo, Japan), Westinghouse Electric LLC (Monroeville, Pennsylvania) also have entered India's power equipment manufacturing sector directly or through joint ventures.

Several power projects, including the Mithon power plant developed by Tata Power Company Limited (BSE:500400) (Mumbai), the Durgapur power project developed by Damodar Valley Corporation (DVC) (Kolkata, West Bengal), Bhushawal, and the Ukai power projects developed by Maharashtra State Power Generation Company Limited (Mumbai), have been considerably delayed by BHEL's inability to deliver power equipment on time. The delays have created huge potential for Chinese power equipment suppliers. These organizations have steadily increased their market share as suppliers of power equipment and components to Indian power producers. Experts have indicated that Indian companies developing power projects are choosing Chinese suppliers over BHEL, as they are cheaper and provide faster delivery of components. With stiff competition from China, BHEL has announced plans to augment its manufacturing capacity to 20,000 MW by 2012.

Presently, Chinese power equipment suppliers account for 25% of India's new power equipment sector. Until 2009-10, Chinese imports were used to commission about 4,395 MW of new power generating capacity. During this period, India added 8,211 MW of power generating facilities. According to a power ministry report, by the end of the 11th Five-Year Plan (2007-12), the contribution of Chinese power equipment manufacturers is forecast to increase to 12,618 MW. The projects include Anpara C and Amarkantak power plants developed by Lanco Infractech Limited (BSE:532778) (Hyderabad, Andhra Pradesh); the 600-MW Yamunanagar and 1,200-MW Hissar power plants constructed by Haryana Power Generation Corporation (Panchkula, Haryana); and the 600-MW Sagardigha and 300-MW Durgapur power projects developed by West Bengal Power Development Corporation (Kolkata, West Bengal).

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