Why US should invest in India's power sector

Indian Power Minister Sushilkumar Shinde made a strong pitch for US investment in the growing power sector in India on Tuesday, asserting that lucrative opportunities were available to investors.

He was speaking at the US-India Economic Opportunities and Synergies Summit in Chicago organised by Federation of Indian Chambers of Commerce and Industry in association with The Executive Club Of Chicago at the Fairmont Hotel in Chicago.

Shinde said the average plant load factor of Indian generation units improved to 77.5 per cent during 2009-10 from 73.6 per cent in 2006.

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The contribution of the private sector to India's electricity output has grown from 11.6 per cent in 2006 and further to 30 per cent as of date and is likely to go up by about 60 per cent in the 12th plan (2012-2017), he said.

Shinde told reporters at a press conference that during 2010-11, 15,795 MW of power got synchronized and 12,161 MW commissioned, which was the highest-ever capacity addition achieved in a single year since Independence.

"80,000 MW is under construction as of now -- such a huge amount," Shinde said.

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"Per capita consumption of electricity has grown from 600 kwh to 785 kwh in a span of five years," Ficci senior vice-president R V Kanoria told reporters.

However, while "Infrastructure has not grown, India has grown," Kanoria added.

Shinde said while the present installed generation capacity in India is more than 1,81,000 MW, over 80,000 MW of new power capacity is under construction.

He added that during the forthcoming 12th Five-Year Plan (2012-2017), the funding requirement of the Indian power sector has been estimated at $230 billion.

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Stating that the 12th Plan aims at capacity addition of nearly 100,000 MW, Shinde emphasised that such a gigantic task can be successful only with strong support from the private sector.

Highlighting the reforms in the power sector in India, Shinde said the Electricity Act, 2003, allows the sector to align itself with market dynamics and clears roadblocks in the way of greater participation by the private sector.

He said an independent regulatory framework in India now provides business confidence to power companies and a fairly lucrative rate of return on equity of 15.5 per cent per annum.

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Underlining that the share of the private sector in capacity expansion has gone up substantially in the 11th Plan, with 33 per cent of total incremental capacity expected to come from the private sector, the minister said that in the 12th Plan, this share is expected to further increase to about 50 per cent.

He said 100 per cent foreign direct investment is permitted to facilitate private investment under the automatic route for power generation, transmission and distribution projects.

Giving an outline of the power projects in India that are to be implemented under a public-private partnership model, Shinde said 16 ultra-mega power projects and 14inter-state transmission schemes have been identified for development by the private sector on the basis of competitive bidding.

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He said while the bidding for 4 ultra-mega power projects and six transmission project has been completed, more than five UMPPs are in the pipeline and offer unique opportunities for investment.

Each UMPP is of 4,000 MW capacity and requires an estimated $4.5 billion investment.

Regarding hydro power, Shinde said the estimated potential in the hydro sector in India is 1,50,000 MW, out of which only 30,000 MW has been harnessed.

The remaining capacity needs to be developed, which offers investors a lucrative opportunity.