Indian power sector with an installed power generation capacity of 258.7 GW (excluding captive generation capacity of 40.7 GW) as end of Jan 2015 has added about 13.6 GW in first 10 months of 2014-15, which is higher by 45% compared to a year ago. The power generation of the country in Jan 2015 was up by 2.75% to 86.0 billion units (BU) compared to corresponding previous period.
But the normal power deficit was just 3.1% in Jan 2015 compared to high single digit or early double digit upto 2012-13. This can be explained by slow down in pace of growth in demand due to subdued economic activity as well as steady growth in generation.
The power sector however continue with be impacted by structural issues with continued lack of discipline and efficiency at distribution end of the sector, which there by impacting the cash flow across the value chain.
Budget 2015: Complete Coverage
Financial restructuring of distribution utilities though initiated the betterment is slow given time taken to address inefficiency is long and delay in repayment of huge subsidy bills by respective state governments. Thus continued financial stress impacts the investment in T&D sector for efficiency.
Adequate fuel availability is another crucial issue facing the sector is getting addressed with re-auction of cancelled captive coal mines in transparent manner and increased thrust on ramping up domestic coal production.
Similarly asking the fertilizers units that got allotted Krishna-Godavari gas to source RLNG and reallocation of that gas released to gas based power plants, which is idle in south for want of gas will result in twin benefits of bringing life to idle power plants as well as improve the power availability in southern region, which is still impacted by transmission constraint to import power from surplus regions.
Saturated rail and road capacity continue to hamper the timely transport of coal from mines to power stations as majority of the power generation capacity is close to load centres rather than pithead. To that end setting up a fully empowered mineral logistics corporation can be considered. If that is not possible, then the Directorate of Rail Movement should be converted into an independent commercial entity, involving multi-agency co-operation.
Budget 2015: Complete Coverage
Industry Wish-list
- Sunset clause for the 10 year tax holiday available (u/s 80(I)(A)of Income Tax Act) to the undertaking which begin generation, distribution and transmission of power by March 31, 2017 should be extended by another 5 years. Further give 10-year holiday for all clean energy projects
- Renewable Energy should be made an independent sector separate from power sector, as many banks have reached their sect oral exposure limits thus limiting the flow of finance to renewable energy projects.
- Provide concessional duty on naphtha imports to help run stranded gas-fired generation capacities
- Withdraw excise and import duty on coal to bring down generation costs
- Extend priority sector lending status for renewable energy projects under the guidelines laid down by the RBI and permission to select agencies to issue tax-free bonds to raise money for financing clean energy projects.
- Provide dividend distribution tax benefits on profits earned by renewable projects, policy change to allow continuation of tax holiday post acquisition
- Utilize national clean energy fund to bring liquidity in Renewable Energy Certificate (REC) market and generation-based incentives for renewable energy projects
- Exempt income generated from sale of carbon credits by power plants
- Exempt excise duty for machinery used in coal washeries
- Remove excise duty on bricks manufactured using fly-ash generated in coal-based power plants
- Raising the capacity ceiling from 25 mw to 100 mw for grant of renewable power status for hydropower projects to facilitate funding for these projects
- Projects that implement clean technologies be given benefits in taxes and manufacturers who have already adopted internationally recognized clean technologies be exempted from levy of any clean energy cess.
- Keep power sector out of the purview of MAT so as the sector could avail the benefit u/s 80IA fully.
- Accelerated Depreciation for wind projects which was restored in 2014-15 after withdrawn from 1.4.2012 should be continued with.
- Policy initiatives to increase the rail and road capacity so as mined coal reach the power stations on time.
Budget 2015: Complete Coverage
Analyst Expectations
The sunset clause for power projects commissioned to eligible for benefits u/s 80IA which was extended to March 31, 2017 in the lat budget is all likely to be extended further by another 5 years as that will boost the private investor confidence on that sector which has declined sharply off-late due to various issues. Equally the focus and incentives for renewable power generation capacity will be continued. But the duty cut on raw material imports are not likely.
Stock to watch
NTPC, Power Grid Corporation of India, JSW Energy, Reliance Infra and Tata Power
Outlook
The power sector given its importance in economic development of the country is expected to receive continued attention and the Government of India will also show its commitment in supporting the growth of the sector by extending the sunset clause by another 5 years i.e. upto upto March 31, 2022, coinciding the 13th Five Year Plan given the long gestation nature of the power projects and necessity to attract private interest for 13th plan projects. Similarly the apart from continued incentives for renewable generation capacity projects, the problem areas such as interstate open access, transmission constraints in key states such as Tamil Nadu, liquidity in REC market etc may get support. Overall the budget is expected to be positive for the sector.
