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CERC has also tabled proposals to introduce intraday trading regulations. It has recently reformed the deviation settlement mechanism to improve forecasting and planning by moving from administrative penalties to market-based penalties linked to the average price in the DAM. An ancillary services market co-optimised with the DAM and real-time markets would allow the procurement of tertiary reserves (15-30 minutes). CERC is also targeting amendments to grid connectivity rules, including the definition of stand-alone storage, and the ancillary services market. It is already looking at the next level of reform, which would introduce financial transmission rights, locational pricing and market monitoring and surveillance.

To foster trade with neighbouring countries and underpin India’s growing power exports, in March 2019 CERC adopted regulations on cross-border trade of electricity, which apply to participating entities in India and neighbouring countries. The regulations set out the roles and responsibilities of system operation, payment security and transmission capacity, among other matters.

Experience in international power markets shows that power reforms take time. They require a gradual learning process for all stakeholders, a strong reform agenda and a joint vision that is shared by states, central government, system operators and all regulators as well as market participants. The successful experience of Nord Pool in the European Union relied on the role of the transmission system operators and their support for wholesale market creation by ensuring efficient transmission capacity and trading across large interconnected systems (see Box 7.1). Under the EU Electricity Regulation of 2019, 70% of cross-border transmission capacity needs to be offered to the market. The key objective is to promote the liquidity and depth of the power market. In the Nordic power market, all available transmission capacity between the different market areas was given to the market, the only route to cross-border trading. The European Union has introduced market coupling to achieve gradual market integration across the regional grids in the one synchronised zone.

Investment in the power sector

Investment patterns in India’s power sector are largely reflective of the country’s energy transition goals. Final investment decisions for new coal power capacity fell to a historic low in 2018 (after 15 years), while investment in renewables reached USD 20 billion and for the first time overtook total investment in the thermal power sector.

Power sector investment in India has increased since 2015 thanks to strong solar PV and wind investment, which compensate for the fall in new coal plants. Network spending has remained at historical highs, accounting for more than a third of total power sector investment (Figure 7.14). Investment in renewables has been driven by a more than doubling of solar PV investment and record spending on onshore wind projects.

Despite overall policy signals, investment in dispatchable renewable power plants, notably hydropower and bioenergy, but also gas power, has remained relatively low. There are a number of risks on the horizon, notably for renewable investment in India (for a detailed analysis see Chapter 5 on renewable energy), which relate to the poor financial health of the DISCOMs, safeguard duties imposed on solar PV and module imports, delays in land acquisition, transmission infrastructure hold-ups and the poor design of competitive auctions in India. The safeguard duties alone led to the cancellation of around 5 GW of solar PV projects awarded in 2018.

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Figure 7.15 Plant load factor of thermal generating stations (hard coal and lignite)

90

80

70

60

50

40

30

20

10

0

2017 -1985-1986-1987-1988-1989-1990-1991-1992-1993-1994-1995-1996-1997-1998-1999-2000-2001-2002-2003-2004-2005-2006-2007-2008-2009-2010-2011-2012-2013-2014-2015-2016- 868788899091929394959697989900010203040506070809101112131415161718*

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*2017/18 data are provisional.

Source: CEA (2018b), Plant Load Factor of Thermal Generating Stations (Hard Coal and Lignite), http://cea.nic.in/plant_load_factor.html.

Some 40 GW of coal-fired power generating capacity (with 15 GW under construction) is considered a stressed asset due to a combination of factors, involving surplus capacity, the higher cost of coal (due to higher transport and import costs), low demand, increased competition from renewable energy and lack of timely payment by the financially stretched DISCOMs (HLEC, 2018).

Plant load factors have fallen in response to overcapacity, averaging 60% in 2016/17 and 61% in 2017/18 (Figure 7.15). Because the private-sector plants do not have FSAs (after the change in the coal allocation policy in 2013), they have to bid for coal supplies but do not receive compensation through the new coal compensation cess, which is available to public plants. (For discussion on the profitability of the power companies active in India, see also Chapter 2 on general energy policy, public-sector undertaking rankings versus private company financial performance).

The DISCOMs incur huge financial losses due to poor infrastructure and weak or noncollection of revenues from consumers, linked to power theft, lack of proper metering and billing, and social policies (low tariffs).

By the end of 2019 the DISCOMs had an outstanding debt of USD 9.9 billion to thermal power plants and USD 1.3 billion to renewable generators. Aggregate technical and commercial losses are on average around 20%, while in some states’ DISCOMs have losses of up to 50% (see Figure 7.16).5

5 See detailed information on DISCOMs’ outstanding debt and invoiced amounts on the website of the MoP, Payment Ratification and Analysis in Power Procurement for Bringing Transparency in Invoicing of Generators: www.praapti.in/. See also Brookings India (2019).

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Box 7.2 A government package for stressed assets

In the gas and coal sectors, the GoI adopted measures to increase the supply of the commodities. In 2015 it held e-auctions for liquefied natural gas (LNG) imports to go to stranded gas-fired power plants, with a financial support subsidy from the Power System Development Fund, which compensated for the higher cost of imported LNG versus domestic gas supplies. The scheme expired in 2017 as several states did not want to participate.

In 2017 the GoI amended the traditional coal allocation policy with a view to incentivising short-term power trading (see also Chapter 9 on coal). The Scheme for Harnessing and Allocating Koyla (Coal) Transparently in India (SHAKTI) was introduced. It provided for the auctioning of coal linkages for power assets that had PPAs, but no FSAs. The IPPs participating in the auction had to offer a discount on their PPAs. The goal of this scheme was to ensure supply to power plants, reduce the risk to the banks exposed to nonperforming assets, reduce electricity bills and reduce imports. Since 2019 state-owned generators (e.g. NTPC) have been allowed to share their FSAs with private competitor generators.

The GoI constituted a High-Level Empowered Committee in July 2018 to address the issues of stressed thermal power projects, with a report delivered in November 2018 (HLEC, 2018). The GoI laid out the complex factors that led to the financial stress of the coal-based power plants, including coal supply issues, slower than expected growth in power demand, delayed payments by DISCOMs, borrowing limits for banks/financial institutions, aggressive tariffs quoted by bidders in competitive bidding processes, legal issues related to auctioning of the coal mines, regulatory and contractual disputes, inability of promoters to infuse equity, tardy implementation and other operational issues. The GoI constituted a group of ministers to examine the specific recommendations of the HighLevel Empowered Committee. The ministers made a range of key recommendations for policy measures to solve stressed power projects, which were approved by the GoI:

granting of linkage coal for short-term PPAs and allowing existing coal linkage to be used in case of termination of PPAs due to payment default by DISCOMs

procurement of bulk power by a nodal agency against pre-declared linkages

allowing central/state generators to act as an aggregator of power

increasing in quantity of coal for special forward e-auction for power sector

holding coal linkage auctions at regular intervals

non-lapsing of short-term supplies of coal

determining annual contracted quantity based on efficiency

introducing the mandatory late payment surcharge for DISCOMs

Source: HLEC (2018), Report of the High-Level Empowered Committee to Address the Issues of Stressed Thermal Power Projects, https://powermin.nic.in/sites/default/files/webform/notices/20_Nov_R1_Draft_Report_HLEC_Final_20_Nov.pdf.

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