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BMI View: In light of India’s economic and demographic growth, we expect power consumption to
increase from an estimated 697.65 terawatt hours (TWh) in 2011 to 1286.19TWh in 2021. The country’s
12th Five-Year Plan anticipates energy demand will grow by 6% per annum and electricity capacity will
expand by 100 gigawatts (GW). Critical to the plan is the focus on measures to combat the continued rise
in India’s dependence on imported energy, and a move to favour diversification towards renewable
sources as well as nuclear. The FY2012/13 budget announcement is indicative of this focus, with the
Indian government initiating a series of incentives and measures that will benefit the power sector.
The key trends and developments in the Indian electricity market are:
?? Several developments in H212 within India’s renewables industry highlight the continued
interest the sector is receiving from private investors and the political will that underpins it. We
expect further significant growth in the industry, and maintain our belief that renewables present
significant investment opportunities. However, we highlight that renewable-generated electricity
is unlikely to contribute significantly to the country’s overall power generation capacity. This is
founded on our concerns about the sheer size of India’s electricity market, coupled with our
long-held view that the renewable industry will not reach its full potential.
?? India’s coal shortage looks set to intensify as the weather turns wetter and colder. At the heart of
the problem lies the inability to launch a new mining bill that will address the sector’s poor
business environment, as well as state-owned coal miner Coal India’s inability to maximise the
country’s coal potential. We believe coal shortages are likely to remain a downside risk to Indian
power producers and infrastructure activity over the short to medium term.
?? In the worst electricity disruption in a decade, two separate grid failures cut power supply to
more than 600mn people in 22 states at the end of July 2012. We believe the disruption is likely
to have come about as a result of the lack of investment in India’s transmission and distribution
network, as well as in the broader electricity market. Consequently, we believe the July
disruption could be the spark that ignites a wave of long-needed reform in India’s electricity
The Indian power sector’s track record is testament to the difficulties the country faces in implementing
its ambitious targets. State government indebtedness is a major obstacle to marshalling the massive
infrastructure investment required, and a lack of depth in the Indian financial sector also limits funding
options. Furthermore, there is still a lack of regulatory transparency, longevity and certainty regarding the
domestic power sector.