GRID
Renovation, Modernization
and Life Extension of
Power Plants
Opportunities and challenges
Strictly Private
and Confidential
February 2013
Agenda
Page
1
2
3
R&M - opportunity
R&M - challenges
Way forward
Appendices
1 Sustainability of up gradation
2 Case Study
1
8
15
17
19
Section 1
R&M - opportunity
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
February 2013
1
Section 1 R&M - opportunity
Indias growing energy requirements need solutions and options are few...
Highlights:
Total capacity for India is 203 GW
with thermal energy accounting for
73% of capacity as of Jan13.
Thermal power supplied 631 billion
kWh (83%) of Indias electricity in
April- Jan13.
Thermal power has seen a growth
of 9% over past year as compared
to 2% rise in nuclear energy and
decrease of 13% in hydro energy in
the same period
Key
drivers
for
electricity
consumption in India include: 1. Peak shortage of 14% and
ongoing growth
2. Per capita use growing (but <
1/4th global average)
3. 44% households have no access
to electricity
4. Continued rise of urbanization
from 28% to 41% (2030)
... And, supply continues to
depend on thermal power*
Energy Demand is growing
Fuel Mix of capacity
1914
CAGR 7%
5%
1292
2%
350
MW
20%
968
73%
Thermal
2011-12
2016-17
Nuclear
Hydro
RES
2021-22
R&M program provides cost and fuel efficient thermal power generation for India with lower gestation periods
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
February 2013
2
Section 1 R&M - opportunity
R&M is supported by policy and regulations
Current policies governing R&M practises in India
(a) Electricity Act 2003
The Electricity Act2003 (EA 2003) is
the primary legislative instrument
which governs the electricity supply
industry in India.
Section 61 (C) of the Act requires the
appropriate Commission to set tariff
by considering, the factors which
would encourage competition,
efficiency, economical use of resources,
good performance, and optimum
investments
(b) National Electricity
policy,2005
National Electricity Policy notified by
the Govt. of India (GOI) in 2005 under
the provisions of EA 2003states the
following
Renovation and modernization for
achieving higher efficiency levels
needs to be pursued vigorously and all
existing generation capacity should be
brought to minimum acceptable
standards
(d) Integrated Energy Policy 2006
Integrated Energy Policy notified in
2006 within overall objective for
sustainable growth with energy security
and improved efficiency
Rehabilitation of existing thermal
stations could raise capacity at least
cost in the short run and this should be
taken up urgently.
(c) National Tariff Policy, 2006
National Tariff Policy notified by the
Govt. of India in 2006 under the
provisions of EA 2003 states:
Multi-Year Tariff (MYT) framework
may be prescribed which should also
cover capital investments necessary
for renovation and modernization
and an incentive framework to share
the benefits of efficiency improvement
be fixed by the Appropriate
Commission.
(e) Guidelines for Renovation and
Modernization / Life Extension
works of Coal/Lignite based Thermal
Power Stations, 2009
The guidelines provided a framework
to be followed if generators are to be
benefit from debt financing from the
Power Finance Corporation (PFC) at
an interest rate subsidy of 3-4 percent
Guidelines provide detailed
methodology for implementation of
R&M and LE&U programmes
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
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February 2013
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Section 1 R&M - opportunity
R&M is supported by policy and regulations
Current policies governing R&M practises in India
(f) CERC (Terms and Conditions of
Tariff) Regulations, 2009
In order to provide requisite
compensation to the generating utility
for R&M:
Generating company for meeting the
expenditure on Renovation and
Modernization (R&M) for the purpose
of extension of life or a unit thereof
shall make an application before the
Commission for approval of the
proposal with DPR.
(g) Tariff Regulations by State
Electricity Regulatory
Commissions
(h) National Perspective Plan for
Renovation &Modernization:
In line with provision of the CERC
tariff regulations various state
electricity regulatory commissions have
also incorporated relevant provisions
for recovery of expenditure incurred
on R&M as part of their tariff
regulations.
Identification of thermal units
requiring LE during 12th Plans
(i) Indian Boiler Regulations, 1950
Regulation 391 A of IBR, 1950
elaborates on the aging effects on
boilers and maximum permitted
working pressure allowed for operation
of various types of boilers
Objectives:
Assessment of total investment
required during 12th Plans for LE
programme.
Road map for smoother
implementation of R&M/LE schemes
Projection of expected benefits
(j) PAT Scheme of the Bureau of
Energy Efficiency
PAT is a market based mechanism to
enhance cost effectiveness of
improvements in energy efficiency in
energy-intensive large industries and
facilities (classified as Designated
Consumers), through certification of
energy savings that could be traded
144 Thermal Power Plants in the
country have also been identified as a
set of designated consumers
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
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February 2013
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Section 1 R&M - opportunity
Meanwhile market has also evolved to support R&M activity
Characteristics/
Market Change
Before
enactment of
the EA 2003
Current
Scenario
Implications for R&M
Presence of
power markets
Absent
Present
Alternate power procurement avenues available to state utilities to prevent
outages when plants undergo R&M
Increased focus on efficiency improvement owing to competitive
procurement of power
Private
Sector
Participation
Low
Medium
Increased private sector participation across the value chain in the
electricity supply industry has resulted in better response, lower leadtime and risk sharing.
Equipment
vendors base
Small
Medium
Open market policy of GoI and increasing capacity expansion has attracted
many international players, particularly Chinese players against market
dominant players like BHEL
Focus on
Optimization
Low
High
PAT Scheme of the BEE is aimed enhancing energy efficiency in existing
power plants has set power sector as one of the Designated Consumers
(DC).
DCs have to achieve notified reduction in fuel consumption (kg/kWh) by
2014-15
Market
framework for
Environmental
Compliance
Absent
Present
With power sector contributing 40% to carbon emissions of India, R&M
with short gestation time can support short and medium term strategy to
achieve National Action Plan on Climate Change
Coal Constraint
No
Yes
In an extreme coal supply constrained scenario, focus on available coal
being used in most efficient form by the market participants is high, hence
trend favors R&M of thermal plants
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
February 2013
5
Section 1 R&M - opportunity
R&M compares favourably to fresh capacity addition
Key factors
Output from Renovation and
Modernization of a thermal plant
Output from new thermal
capacity addition
Timelines
10-12 months
38-42 months
Rs 2-2.5 Crore/MW
Rs 4-5 Crore/MW
None
High
Negligible
High
Already present
To be developed
Only marginal addition/MW
0.94 Kg/unit of CO2 emissions*
Network already present
To be developed
Only marginal addition/MW
15-20 % of average cost of
supply / unit *
Already present
To be developed
Costs
Land acquisition issues
Environmental Clearances
Fuel and water linkages
Emissions
Transmission Capacity
Labour costs
Power purchase agreements (PPAs)
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
February 2013
6
Section 1 R&M - opportunity
And there is significant opportunity size available for stakeholders
Aging condition of thermal plants presents an opportunity
Program for 12th Plan
Particulars
R&M Works
LE Works
No. of Units
30
105
6501
21679
12000
32897
Estimated Cost (
Rs. Crores)
Expected Benefits
Life Extension
Generation
sustenance
only
6900
Number
Capacity(MW)
Central Sector
68
13953
State Sector
103
20982
Total
171
34835
12th Five Year Plan- Capacity
of Works for R&M
12th Five Year Plan- Capacity
of works for LE
15 Years
With total size of current opportunity being
32000MW in India, R&M presents a
unique opportunity for investors as
well as bidders
Around 2/3 of opportunity in R&M lies with
the state sector with around 20,000 MW
viable for R&M works
In 12th plan, GoI has undertaken the around
4000MW of capacity in the central sector
for R&M works along with ard. 13000MW of
capacity for LE works
13199
4341
MW
Additional
Generation(MU/
annum)
Thermal Plants > 20 years of age
8480
2160
Central
State
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
MW
Capacity(MW)
Particulars
Central
State
February 2013
7
Section 2
R&M - challenges
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
February 2013
8
Section 2 R&M - challenges
Financing requirement for R&M
Key constraint :Huge financing costs in up gradation of plants act as deterrent for R&M program
Plan
R&M Works ( @
Rs. 1 Cr./MW)
Life Extension Works ( Rs. Crore)
LE without up gradation (
@ Rs. 1.25- 1.5 Cr//MW)
Total
( Rs. Crore)
LE with up-gradation (EE R&M)
(@Rs 1.5-2.0 Cr/MW)
Indigenous
funding
With external
funding
11th Plan onwards
950
2334
2356
450
6090
12th Plan
630
4640
8760
14030
Total
1580
2334
6996
9210
20120
Funding from own
resources( 20% of
estimated costs)
316
467
1399
1842
4024
Fund requirement
from indigenous
institutions like
PFC/REC/ etc.
1240
1867
5597
8728
External Assistance
7368
7368
Out of above fund requirement for EE R&M during 11th & 12th Plan, funding from external agencies to the tune of 96
million Euro from KfW for 3 units (630MW) and 180 million USD from World Bank have been committed.
Combining the huge financial costs for R&M along with deteriorating financial health of distribution
utilities due to non cost of supply reflective tariffs and high demand-supply gap , R&M program would need a huge
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
February 2013
push from government policies to remain relevant in the present power situation in the country.
PwC
9
Section 2 R&M - challenges
Why is there lack of investment in R&M?
Generation Companies
Debtors for Generation Companies ( % of Income)
173%
138%
138%
113%
85%
Electricity
Flow
Money
Flow
70%
49%
54%
43%
33%
18%
27%
14%
22%
30%
27%
12%
41%
0%
Financial position for Distribution Companies( Losses
Crs)
10
23
Distribution Companies
11
10
14
6
18
15
20
11
FY 09
Profit making
Losses< 500 crores
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
FY 10
Loss between 500-1000 crores
FY 11
Losses> 1000 crores
February 2013
10
Section 2 R&M - challenges
R&M phases
Pre Implementation
Identification of plant units
Plant Assessment based on RLA studies,
Energy Audit, Past history of plant
Selection of agencies for technical studies/
implementation support
Execution
Post Implementation
Arrival of equipments via
procurement plan
Post R&M Performance
guarantee tests
Plan for shutdown of plants
Plant Performance Analysis
Start of execution of R&M work
Follow up activities to meet
deficiencies
Closure on R&M work
Sourcing of funds
Post R&M Training and
O&M of Plant
Submission of proposal to regulator
Benefit Assessment from R&M
Evaluation of alternatives
Issue of tenders and selection of bidders
Procurement Plan design
Negotiation and award of R&M Contracts
Bidders/Vendors, OEMs
Financer
Execution Agency/Consultant
Generating Company
Regulator
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
Regulator
February 2013
11
Section 2 R&M - challenges
Key stakeholder concerns: Pre implementation
Utility
Pre
Implementation
phase
Bidder
Financer
Regulator
Gaps in evaluation
framework for
identifying plants
suitable for R&M
Poor baselining of
initial data makes it
difficult to provide
post R&M guarantees
Financing constraints
for undertaking the
program
Delay in decision of
undertaking R&M
post RLA studies
Low credit worthiness
of the utilities make it
tough for investors to
seek guarantees on
payback
Low level of
transparency over data
baselining by utilities
leading to issues with
R&M expenditure
approvals by regulators
Lack of internal
expertise to evaluate
technically or
commercially
Concerns over
contracting clauses
including liquidated
damages
Limited agencies to
carry out R&M studies
end to end
Inflexible price clause
do not allow for price
escalation due to
owner delays
Concern over
adequacy of regulatory
benefits
Low risk appetite of
utilities makes the
complex multi party
R&M exercise a
concern
Accuracy of estimated
costs and benefits for
R&M
Concern over
sustainability of
benefits achieved via
R&M works
Stringent
qualification
requirements for
bidders makes it
tough for parties to
qualify
Lack of
standardization of
tendering documents
for R&M works
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
February 2013
12
Section 2 R&M - challenges
R&M Program in India- Execution phase
Utility
Bidder
Low project planning
and change
management capacity
of personnel in state
generators
Lack of reliable third
parties for providing
adequate quality and
quantity of
equipments desired
for implementation
Concern over
contractual
requirements for
providing power in
R&M phase
Execution phase
Delay in approvals for
plant shutdown due to
power situation in the
state
Lack of transparency
and control over R&M
activities for Turn key
contract
Inability to integrate
multivendor activities
across various packages
Financer
Concerns over
execution capability
within costs and
timelines planned by
utility
Regulator
Impact of cost and
time escalation
Cost of power
purchased during the
renovation and
modernization
Delay in
implementation
approvals for
procuring equipments
from state utilities
Lack of drawings and
historical data of
relevant plants make
the implementation
difficult
Weak dispute
resolution mechanism
constraining the
execution of work
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
February 2013
13
Section 2 R&M - challenges
R&M Program in India- Post implementation phase
Utility
Bidder
Sustainability of up
gradations in the plant.
Some key areas are:
Project closure issues
due to slow speed of
decision making of
utility
Sustainability of
project benefits
achieved from R&M
works
Open item / dispute
resolution mechanism
not satisfactory
Poor health of public
sector finances
Post
Implementation
phase
Non existent
operational
documentation
O&M culture of the
utility
Inefficient
organizational
structure
Lack of specialized
operational cells for
effective O&M
practises
Absence of ex-post
evaluation and
feedback loop in R&M
works
Financer
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
*Source: CEA Reports, PwC Research
Regulator
Sustainability of change
achieved in the plant
Concern over the
effectiveness of the
R&M program
Lack of post R&M
guarantees from
implementation
agencies
Justification of
additional cost on R&M
projects
February 2013
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Section 3
Way forward
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
February 2013
15
Section 3 Way forward
We need to solve for ...
1.
Focus on financial health of generating utility
2. Incentivize R&M through regulatory support
3. Enhance O&M capability in power generating utilities - adoption of R&M
culture
4. Create a framework for increased tie up between state and central
generating utility
5. Modularize the R&M approach through segmentation in key steps that are
interlinked
6. Enhance engagement of external experts (from other utilities / market) for
support in R&M decision making, execution and post project benefit
realization
7.
Create success stories for replication
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
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February 2013
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Appendix 1
Sustainability of up gradation
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
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February 2013
17
Appendix 1 Sustainability of up gradation
Sustainability of up gradation: Preventive maintenance practises
Key constraint : Lack of preventive maintenance schedules leading to lack of sustainability
One of the major concern of utilities and
regulators is maintaining the sustainability
of up gradations in the plant
Utilities suffering from lack of preventive
O&M practises face this issue
Some key issues include:
1. Lack of robust data monitoring for
effective consumption baselining
2. Lack of unit wise energy efficiency data
analysis
3. Lack of accurate measurement of quality
and quantity of coal in the plant
4. Non existent operational documentation
available to relevant staff
5. Lax O&M culture of the utility along with
inefficient organizational structure
6. Lack of specialized operational cells for
effective O&M practises
7. Redundant training schedules used as a
tick mark exercise by the utility
Organizational culture and
climate :
Clarity on job descriptions for
key positions in O&M practices
along with key performance
indicators
Standardization of training and
development schedules for
employees
Knowledge Management
Process:
Establishment of consumption
baseline
Establishment of robust
knowledge management
framework implemented
through department level
Information systems for
sharing all relevant data on a
proper knowledge sharing
platform
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
Preventive maintenance:
Presence of specialized cells like
O&E cell, Trip Committee,
Energy audit committee,
centralized maintenance
planning team, condition
monitoring cell for enabling
preventive maintenance
procedures
Energy Audits for efficiency:
Energy audits (including
efficiency tests for boiler,
turbine and other sub systems)
for capturing unit wise energy
efficiency instead of plant wise
efficiency. Analysis of unit wise
auxiliary power consumption
for benchmarking
February 2013
18
Appendix 2
Case Study
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
PwC
February 2013
19
Appendix 2 Case Study
Case Study: Impact of financial position of utility on maintenance
expenditure... (1/2)
Overall cash crunch of the power sector in the state restricted adequate maintenance of the plants.
With the increase in age, effective expenditure on maintenance, rather than increasing has
practically gone down.
Expenditure on Repair and
maintenance at 2007 Levels ( L
Rs/MW)
FY07
FY08
FY09
FY10
FY11
4.34
4.81
3.54
3.96
3.86
Liquidity issues have further constrained the timely availability of spares, adversely resulting in
the health of the units.
Action Plan to Improve
MPPGCL envisages adequate expenditure on maintenance
With availability of funds, healthier practice of preventive maintenance will also be adopted.
The alternate option of LROT is also being explored for these units.
In parallel MPPGCL is also envisaging need based R&M works.
Comprehensive R&M works, as per guidelines of CEA are also being planned for PH 1 of SGTPS
Birsinghpur.
Renovation, Modernization and Life Extension of Power Plants Opportunities and challenges
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February 2013
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Appendix 2 Case Study
Case Study: R&M results are showing...(2/2)
MPPGCL has undertaken Need Based R&M
It has done in unit 6 & 8 of STPS Sarni & SGTPS Unit 2 in FY 12, results are encouraging.
Performance Improvement in Satpura Unit No.6 (AOH From 29 -July to 29-Sept 11)
S. No.
Particular
Generation in MU
Before AOH
After AOH
Gain
Gain in Rs Lakh
304.3
681.5
225.06
2 PLF in %
52.0
77.6
25.62
3 [Link] in %
11.9
9.9
4.50
4 Sp. Coal Cons. Kg/kwh
1.10
0.93
37052
712.5
5 Oil [Link] Ml/kwh
8.4
1.4
1583
772.7
6 Heat Rate Kcal/kwh
3534
3378
156
Total
48.9
1534.1
Performance Improvement in Satpura Unit No.8(AOH from 9 Sept to 8 Dec.11)
S. No.
Particular
Generation in MU
Before AOH
After AOH
Gain
Gain in Rs Lakh
412.5
435.1
160.17
2 PLF in %
44.7
70.8
26.05
3 [Link] in %
12.5
11.0
3.39
4 Sp. Coal Cons. Kg/kwh
1.1
0.9
44360
853.0
5 Oil [Link] Ml/kwh
9.3
2.9
1438
701.7
6 Heat Rate Kcal/kwh
3589
3396
193
Renovation,
TotalModernization and Life Extension of Power Plants Opportunities and challenges
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34.8
February
1589.62013
21
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