Cost of generating power in India

As per a KPMG report titled “India Electricity Market Outlook” published in 2008, capital costs of building power generation plants vary according to the fuel type. Typical costs per MW are as shown below:


As per a KPMG report titled “India Electricity Market Outlook” published in 2008, capital costs of building power generation plants vary according to the fuel type. Typical costs per MW are as shown below:

CapitalCosts_PowerPlantsINdia_Oct2010

According to the International Energy Agency’s World Energy Outlook (India Insights) report published in 2007, the most economic fuel in terms of operating costs (generating costs) for electricity generation in India is coal, though nuclear power can compete at higher coal prices. The generating cost of Combined Cycle Gas Turbines (CCGT) is largely dependent on gas prices. The following graph summarises the power generation costs of different sources, on the basis of key parameters related to fuel prices, capital costs, capacity factors and discount rates. It is interesting to note that generation costs of Wind are quite competitive when compared to coal, nuclear and large hydro.

PowerGenerationCosts_Oct2010

Electricity Pricing

As per a KPMG report titled “Think BRIC: India, Key considerations for investors targeting the power sectors of the world’s largest emerging economies” published in 2009, even though India established a cost-plus pricing model for electricity more than 60 years ago, it has never been able to recover the costs of power generation. Even though both the Central and State Government regulated power tariffs are heavily cross subsidised by commercial and industrial sectors in favour of domestic and agricultural sectors, yet power transmission and distribution utilities, most of which are owned by Central and State Governments, have always made losses, which are then compensated by subsidies.

Typically, domestic (24% of total power supply uptake) and agricultural (22%) enjoy cross subsidies from industrial (38%) and commercial (16%) users. Industrial and commercial users still pay 30-60% above average power price, as depicted in the graph. Moreover, electricity tariffs set by CERC and SERCs greatly vary by regions, municipalities and generator/supply companies. Hence, it is extremely difficult to provide an actual database of power prices in India. Nevertheless, as per Ecoforge analysis using limited availability of average data from the Central Electricity Authority and Wholesale Price Index (WPI) for electricity data from the Office of Economic Affairs of the Ministry of Finance (Government of India), the following historical electricity pricing can be arrived at in India:

AvgElectricityPrices_2009_Oct2010

A modernised regulatory framework based on the Electricity Act 2003, the National Electricity Policy and the National Tariff Policy aims to attract private investments in the power sector, though power tariffs are still largely driven by politically motivated, state-driven monopolistic bodies.

The Electricity Act of 2003 has allowed power trading among private players and following that, power trading has begun on a commercial basis since 2008 on formal exchanges such as the Indian Energy Exchange (IEX). The typical price of electricity on IEX can be considerably higher than grid electricity prices but considering the high cost of backup power (diesel generators etc) that is incurred by industries during frequent grid power outages, prices on IEX are still quite attractive. The following graph shows the price of electricity per unit (kWh) on day ahead market (delivered a day after an order is placed) of the IEX:

AverageDayAheadPrices_IEX

Also read:

Renewable energy in India

How our electricity is priced: A text-book perfect procedure

We are feeding dead technology


  ABOUT THE AUTHOR
Sagar Gubbi is a managing partner at EcoForge, a boutique investment advisory and consulting firm focused on utility-scale and off-grid (captive and micro generation) renewable energy sectors. Sagar comes from a technology and social development background. A regular participant in conferences and online discussions on social entrepreneurship, he used to maintain the popular social development bl... more

   FOLLOW US

   SUBSCRIBE TO OUR NEWSLETTER
  Top Stories on TA






  Top Stories in BUSINESS






   Get stories like this in your inbox

  ABOUT THE AUTHOR
Sagar Gubbi is a managing partner at EcoForge, a boutique investment advisory and consulting firm focused on utility-scale and off-grid (captive and micro generation) renewable energy sectors. Sagar comes from a technology and social development background. A regular participant in conferences and online discussions on social entrepreneurship, he used to maintain the popular social development bl... more
   What's Good

Discuss this article on Facebook