Interview With Patrick Ledermann, VP – Thermal and Renewable Power, Alstom India

Patrick Ledermann
VP – Thermal and Renewable Power
Alstom India

The Indian power sector has seen its fair share of ups and downs. What, according to you, would be the future scenario considering the challenges of fuel supply and a skewed grid capacity?

Despite the challenging market conditions, the fundamentals of the Power sector are strong in India considering parameters such as per capita power consumption in India vis-à-vis global benchmarks or the percentage of the population having access to grid-connected power, etc.

We see various steps required to address the current issues faced by the industry. Recent developments such as the FSA agreements between CIL and various developers and the willingness to consider fuel prices as a pass-through cost are steps in the right direction to address fuel supply concerns. Similarly, the Cabinet Committee on Investment (CCI) should help in faster clearance and hence delivery of projects, including those in grid expansion and strengthening.

Considering the presence of growth drivers and the willingness of authorities to address concerns, the Indian market has long-term growth potential. 

Alstom has been present in India for more than 100 years and supports global operations in engineering, manufacturing, project management, execution at site, supply and services of products and solutions for power plants (thermal and renewable).

There was a time when this sector was being looked upon as the next big opportunity for Indian enterprises abroad, considering the fabulous growth rate and demand for power from the industry segment. This has not really unfolded the way it should have been. Why do you think this is so?

The power industry had been performing well since the introduction of the Electricity Bill 2003, which addressed many of the lingering concerns of the industry. The industry delivered on the expected lines till the crisis hit the global economy. The slow process of economic recovery, which has affected aspects like securing funds, the demand-price scenario, investment in infrastructure etc., along with the delays in further reforms, especially in power distribution, have affected the performance of the sector. The industry was further hit by specific issues like fuel supply constraints – for coal as well as for gas. Delays in implementation of projects have further worsened the condition of the power industry in India.

According to you, has the government done enough to help the power sector players?

The government has taken steps to support the power sector, but challenges still remain with regard to fuel supply and clearances. There is a need to increase domestic production of coal with technology and speed up land acquisition and environmental clearance.

For gas, there is a deficit of domestic supply versus demand – 20 GW are operating below 25 per cent capacity. There is a need to increase investment in exploration and for gas prices to increase to provide cash for companies to invest in exploration.

In addition, a strong push is needed to expand renewable energies (hydro, solar, wind) and nuclear energy for diversification of power sources.

Has the fuel supply problem of the sector been sorted out by initiatives of the government, or are some more steps required?

With strong coal reserves – the fifth largest proven reserves in the world and enough to meet demand for over 50 years – domestic production must be increased to match the requirement from power sector. Investment in technology and improving productivity are to be encouraged.

Problems of gas-based power plants need urgent attention, with ~30 GW installed capacity, ~10 GW capacity remaining non-operational and the balance operating at a meagre ~25 per cent PLF and less than 10 GW under execution. There is an urgent need to increase investment in exploration of gas by increasing gas prices to the market rate.

Energy must not be underpriced, to allow investment from global investors in the sector. In addition, this would also help the economy attaining better energy efficiency, and globally for a rational use of energy.

But an increase in gas pricing is being termed as a big blow for the power sector. What is your view on this? Is it sustainable to generate electricity at a price of USD 8.4 per unit of gas?

The increase in gas prices would result in higher tariffs for gas-based power plants. This would lead to two possibilities, as indicated below. Both these cases need strong government involvement to succeed.

One is that the existing gas-based power plants – commissioned as well as under execution – continue as base-load plants, as they were envisaged initially. However, their viability would depend upon their ability to find and serve customers ready to offtake power at the higher tariff levels. This effectively means opening up of the power distribution sector.

The other option would be to use gas-based power plants in India as peaking plants. The implication of the redefinition would be in terms of renegotiation of PPAs, and hence, on the financial viability of these plants.

Where do you see the Indian power sector heading in the time to come?

All indicators point to long-term sustained growth in the Indian power sector. This is supported by the market forces and policy frameworks, which are evolving with time.

Energy security implies:

• Continuous improvement of energy efficiency (for example with supercritical coal power stations, reducing coal consumption and carbon dioxide emissions)
• Limiting impact on the environment with Air Quality Control Systems (control particulate emission, flue gas desulfuration)
• Expanding renewable energies (hydro, solar, wind) and nuclear
• Alstom has a large, diversified portfolio of products and solutions to serve the Indian power sector for thermal as well as renewable segments, and will continue to contribute to the development of India’s power sector.