In an interaction with Suresh Chandra Suman Director Finance (Additional Charge) & Director Mines, NLC India Ltd.

“The power distribution sector in India faces significant challenges”

In Q1FY24, the company’s net sales fell by 14.15 per cent from the same quarter last year to ₹3,316.49 crore, while its net profit fell by more than 27 per cent to ₹413.55 crore. What factors contributed to the company’s poor performance?
Lignite and Coal based Thermal power generation is the core business and a significant contributor to the revenue mix of NLCIL Group, accounting for approximately 76 per cent of its total revenue. Owing to hurdles in land acquisition in Neyveli mines, the pit head power plants were unable to generate electricity at the desired level, leading to decrease in revenue generation. There was a generation loss by 25 per cent mainly on account of shutdown of thermal units in neyveli due to lignite shortage to the tune of 4510 MU in QI FY 24 from 6051 MU of corresponding period last year. Plant Availability Factor of Lignite based stations in QI of FY 24 declined from 83.10 per cent to 62.58 per cent of the corresponding period last year. 

Plant availability factor in Q1FY24 declined from 83.10 per cent to 62.58 per cent of the corresponding period last year. Despite the challenges faced in Q1FY24, the company maintains a positive outlook and is optimistic about a rebound in the second quarter. This confidence is driven by the positive outcomes of land acquisition negotiations with villagers through district and state authorities. The company believes that land acquisition issues will be resolved very soon and it will unlock significant growth opportunities, leading to an improved financial performance in the upcoming quarters.

What is your revenue mix by segment, and how do you expect it to change over the next 2-3 years?
As said earlier, NLCIL Group revenue mix in Q1 of 2022-23 indicates a substantial reliance on thermal Power generation, accounting for 76 per cent of the total revenue. The Coal & Lignite Sales segment contributes 17 per cent. However, there is a growing contribution from Renewable Energy (RE), making up 6% of the revenue. Looking ahead, the commissioning of Ghatampur Thermal Power Plant (3 x 660 MW) (GTPP) in 2023-24 will bring a positive impact on the company's revenue generation from Thermal Power. 

At the same time, the ongoing renewable energy (RE) projects are set to drive the growth of the RE segment’s revenue share. In line with national mission on RE, the company is unlocking the opportunity in the segment which will help in reducing carbon emissions. Pachwara South Coal Block (PSCB) (09 MTPA) is expected to be operational in Q4 of 2023-24 and its contribution will translate the nation's objective of elevating all India coal production to 1 billion tonnes (BT) by 2023-24, furthering the country's energy requirements and industrial goals. 

As GTPP’s commissioning, operationalisation of PSCB and the completion of RE projects take effect, there will be a significant shift in the company's power generation mix and this transition is expected to be advantageous for the company's overall revenue generation, aligning well with the nation's goals and commitments concerning renewable energy and sustainability. The ultimate effect on revenue generation and Profit After Tax hinges on the successful execution of these projects, market dynamics, and the company's adeptness in cost management and seizing opportunities in the ever-evolving energy landscape.

Can you provide any insight into the Indian power generating and distribution industry?
The power sector in India has evolved significantly to provide a wide range of opportunities across the value chain, in both, the regulated as well as deregulated businesses. India’s power market is the world’s third largest in terms of generation capacity and the third largest in terms of network. India's power generation mix includes a variety of sources such as coal, natural gas, hydro, nuclear, wind, and solar energy. Historically, coal has been the dominant source of power generation, but the country has been making efforts to diversify its energy mix by promoting renewable energy sources like solar, wind and hydel.

India has transitioned from being a power deficit to a power surplus country. The energy shortage in the country has come down from 4.2 per cent in 2014 to around 0.2 per cent in 2023 so far, as stated by Union Power and New and Renewable Energy Minister Shri R K Singh. We have an installed capacity of about 422 GW with 56 per cent from fossil fuel sources and 44 per cent from non-fossil sources including large hydro. The power demand in the country is expected to grow at a CAGR of 7.18 per cent for the next five years. With increase in per capita electricity consumption and a rapidly growing economy, the peak electricity demand is projected to touch 366 GW by 2031- 32 as per 20th Electric Power Survey (EPS) demand projections. We have already touched peak electricity demand of 223 GW recently. All these factors point towards the huge potential for the power generation industry

The industry has been facing headwinds in the form of increased emphasis on phasing down of fossil fuel based thermal plants and the need for rapid and urgent integration of renewables. There is a huge thrust for massive capacity expansion of RE plants as India aims to achieve its net zero targets by 2070 and get 500 Gigawatt (GW) of renewable energy (RE) by 2030. 

Report says that present annual power consumption is 1504 BU which will grow to 2300 BU by 2030.

In this backdrop, it is to be noted that owing to intermittency and seasonality, though the installed RE capacity has increased from 6 per cent in 2006-07 to 41 per cent in 2022-23, a huge chunk of about 75 per cent of electricity demand is still met by thermal power plants. Energy storage technologies hold the key for sustained expansion of renewables in the energy mix. 

To boost the nascent energy storage sector, the government has rolled out various schemes and incentives for capacity augmentation of battery storage systems and pumped hydro storage plants with an aim to supply round-the-clock RE power. Addressing the rising energy demands due to urbanisation and industrialisation is a priority and this indicates that India will have to rely on fossil fuel for some more time. The domestic coal requirement for power is estimated to be 866.4 million tonnes (MT) for 2026-2027, whereas for 2031-2032, it will be 1025.8 million tonnes.

The power distribution sector in India faces significant challenges, including high technical and commercial losses, financial distress of distribution companies, under-pricing of electricity, inadequate billing and collection efficiency, power theft, and disparities in rural and urban electrification. Ageing infrastructure and the burden of providing subsidised electricity add to the complexities. Lack of adequate investments, delayed payments to power generators, regulatory challenges and limited integration of renewable energy also contribute to the issues. To address these challenges, comprehensive reforms are necessary, including tariff revisions, improved billing systems, infrastructure investments, and enhanced metering and better governance. The Indian government has undertaken measures to ensure a sustainable and efficient power distribution system.

NLCIL, as an energy company operating both thermal and RE plants, is pivoting towards green energy and has formulated an ambitious growth trajectory for renewables in this regard. Meanwhile, as a responsible energy major, the existing thermal plants are being retrofitted with emission control equipment and our upcoming projects at Uttar Pradesh, Odisha and Neyveli are also compliant with the latest environmental norms. 

To enable the distribution companies in meeting their renewable purchase obligations, NLCIL is exploring RE bundling with thermal plants and is actively taking action to comply with the latest renewable generation obligation (RGO) norms. Ageing thermal fleet, increased costs for environmental compliance, future availability of supply chain for thermal spares, reduction of technical minimum of operation are some of the challenges facing the generating companies. NLCIL, with its rich legacy and vast experience and expertise has action plans in place to address these challenges.

Your Ghatampur project has faced a number of delays. Can you please elaborate on the specific challenges that the project has faced and how they have been addressed?
The Ghatampur project (3x660MW) faced several challenges that caused significant delays in its implementation:
∎ At the initial stage, a prolonged strike by the Bharathiya Kissan Union persisted for six months, disrupting the project’s progress and causing delays in construction.
∎ The project encountered disruptions due to both the first and second waves of the pandemic. The pandemic led to disturbances in the supply chain, causing delays in receiving essential materials and equipment. Additionally, the inter-state migrant labourers left the site, leading to a further setback in project progress. Transport restrictions and reduced workforce availability also impacted the pace of work recovery.
∎ The delay was exacerbated by financial issues faced by one of the major engineering, procurement and construction (EPC) contractors responsible for the balance of plant (BoP) contract.
∎ To address the delay caused by the financial issues with the EPC contractor, a way forward mechanism was devised and approved by the company’s board. This has involved engaging sub-contractors directly under the BoP contractor and making direct payments to them. This approach was aimed to expedite project progress and mitigate further delays caused by the contractor’s financial constraints. 

 Despite these challenges, the Ghatampur project is now moving forward with the implementation plan in place for ensuring the project's successful completion in financial year 2023-24.

At the moment what are your top three strategic priorities?
As we plan for FY 2023-24 and beyond, our strategic priorities will revolve around the following key areas:

1. We will expedite the award of contracts for critical projects like the 3x800 MW Talabira Thermal power project and the 2x660MW TPS-II 2nd Expansion Project.3 x 660 MW Ghatampur Coal based Thermal Power Project (GTPP) is delayed. As per the present progress of the project, Unit I is expected to be commissioned by Oct 2023 while the commissioning of the other two Units viz., Unit II & III is expected by Mar 2024. Timely completion of these projects is essential to meet the growing energy demands and contribute to the nation's power infrastructure. The development of the Pachwara South Coal Block is a priority and it is expected to commence mining operations by Dec-23. We will focus on its smooth operations and optimizing coal production to support our thermal power plants' seamless functioning. 

2. Emphasising the development of large-scale renewable energy projects will be a significant strategic thrust. Investing in clean and sustainable energy sources aligns with our commitment to environmental responsibility and meeting renewable energy targets.

3. As part of our long-term energy security strategy, we will endeavour to acquire coal blocks for commercial use. This will strengthen our fuel supply chain, reduce dependence on imports, and support the country’s thermal power plants’ sustained operations.