Sector Scan : Power Industry

If India continues to grow at an average rate of 8% for next 10 years, the country's demand for power is likely to soar from around 120 Giga Watts (GW) at present to 315GW by 2017. Four key factors will drive this demand:

(1) India's manufacturing sector is growing faster than the past.
(2) Residential consumption may grow at 14% over next 10 years.
(3) Connection of 1,25,000 villages to grid under Power for all by 2012.
(4) The realisation of demand is supperessed due to load shedding.

To fulfill all these requirements (estimated to be about 355 GW) by 2017, India will require power generation capacity of 415 to 440 GW after adjusting for transmission loss etc. This implies trippling of power capacity from 120 GW. This inturn translates into an addition of about 40 GW per annum, which is a 10 fold increase from 4GW per year that was achieved for last 10 years.

But all these constaints are no execuse to development. This is a budding opportunity which is likely to benefit the first mover. Some of them could be:

(1) Integrators : Market inefficiencies and bottlenecks suggest that integration by players into critical bottlenecked part of value chain would be beneficial. For instance, large generation players can win by integratinginto fuel and EPC which will allow them to bid aggressively, win competitive projects and establish a low cost positions.

(2) Specialist: There are two forms of specialists. First, the players who have deep operational expertise and capabilities in a specific segment : such players will succeed since there is a need for significant performance improvement in a particular segment. Such specialists will include world-class players in distribution, generation or mining and project specialists. Second, players who focust relatively small and potentially valuable opportunities to build a strong positions : like companies that develop load centre based peaking plants, serve the captive power market or provide specialised services like demand side management.

(3) Regional Entrepreneurs: These play in multiple parts of the value chain but predominantly work in a few geographies. Such companies will create value by developing a deep understanding of conditions in the region and leverating their strong relationship with stake holders and get access to previleged resources.

In a nutshell, the power sector will provide one of the biggest avenues to participate in the development of india's infrastructure. No doubt, there are multiple challenges and risks. But those who could plan and foray would make an early entry will be at a significant advantage to others who enter this sector once it is reformed.