Sunday, March 29, 2009

>Powering India (McKinsey)

India is amongst the world’s largest electricity-consuming and generating economies. Its annual electricity consumption accounts for about 4 per cent of the world’s total electricity consumption, and is set to grow at 8-10 per cent per year, propelled by the country’s accelerating economic growth.

To address this growing demand and create a viable power sector, successive governments have undertaken progressive initiatives such as the Electricity Act 2003, National Tariff Policy 2006, the Ultra Mega Power Projects, the Integrated Energy Policy, the National Electricity Fund and many more. Yet, India’s power sector remains plagued by a plethora of financial and physical risks and bottlenecks.

To understand the challenges that confront India’s power sector, McKinsey & Company’s Electric Power and Natural Gas Practice conducted a 6-month long research effort in collaboration with industry leaders and policymakers. The objective of the effort was to assess what additional measures are required at this time to ensure the sector is able to keep pace with the demands of the economy. This report, “Powering India: The Road to 2017” is a result of that effort. It provides a perspective on the demand outlook in 2017, the factors constraining the sector’s development, and proposes a comprehensive 10-point roadmap to unlock the sector’s potential. Finally, it discusses the opportunities, risks and winning approaches that will surface
as the sector develops.

India will need a fivefold to tenfold increase in its rate of capacity addition if it is to meet demand. The magnitude of the challenge at hand makes it clear that piecemeal measures will not be enough. The country needs a radically new approach that enables financial viability, accelerates the pace of capacity addition, improves operational efficiencies and augments fuel supplies. Needless to say, the power sector’s governance structure and monitoring mechanisms need to be strengthened to ensure successful execution of such a programme.

Several rewarding investment opportunities will unfold across the value chain as India’s power sector develops. Our analyses suggest that a US$600 billion investment opportunity will arise over the next 10 years, if key bottlenecks are removed. Besides the traditional opportunities such as large-scale coal-fired plants, several non-traditional opportunities will emerge, such as peaking plants, renewables and demand-side management.

Finally, competing and winning in India will require players to tailor their business models to address existing bottlenecks, market inefficiencies and development risk. Players will need to develop and execute approaches that are quite distinct from conventional global models. In return, the payoff from entering early, when the sector is still underdeveloped, will be substantially higher than when it has matured. This has been proven by companies in other sectors, such as telecommunications and infrastructure development.

India’s power sector is at a watershed in its development, and its progress is imperative to sustaining economic growth. The time is right for all stakeholders — policy makers, regulators, public and private providers, resource holders, equipment providers, financiers and consumers — to act in concert to power the country’s future.

To see full report: POWERING INDIA