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Industry Primer: Thermal Power Generation

| 4/19/2012 9:00 PM Thursday

The power sector is a cornerstone of the economy and its growth. While a range of sources are used for power generation, thermal power continues to be among the most important forms. Shrikant Akolkar takes you through the thermal power generation process and the workings of the industry.

The power generation sector has added over 50000 MW of generation capacity over the past five years. Despite this, the companies have not been making adequate profits. Coal security has become an eminent risk for power companies, which actually led to the government forcing Coal India to ensure fuel supply to power companies. Imported coal is getting expensive by the day, while tariffs are not increasing, thereby hurting the profitability of companies in the sector. Except for metro cities most of the Indian population faces several hours of load shedding hampering their day to day working.

Here is a primer throwing light on the nuances of thermal power generation, which would help our readers understand the process of thermal power generation and the current scenario of the power sector, along with important statistics for major companies and some key terms used.

Power generation is simply the conversion of energy from one form to another. Though there are various means of power generation including hydro, solar, wind, etc., thermal power generation is the most prominent source of power generation across the world.

Thermal power is generated by burning primary fuel sources, i.e. coal and gas. In India, coal-based generation contributes 55 per cent to the total generation, while gas and diesel-based generation contributes 10 per cent (Source: CEA website). Apart from this, large capacities will be added for thermal generation in future. Thus, it is interesting to know more about the thermal generation process and the issues around it.

Thermal Power Generation Process

Thermal power generation can be broken down into three main steps. In contrast, electrical energy is formed only after several transformations.

  • Step 1 – Burning Fuel: First and foremost, fuel (coal/gas) is burnt to generate the required quantum of heat.
  • Step 2 – Steam Formation: The heat thus formed is used to the boil water and generate steam.
  • Step 3 – Electricity Generation: This is a complex process in which steam is used to rotate the turbine. A generator is attached to a turbine, which rotates with high velocity to generate electricity. This electricity is then transmitted through the transmission lines.

Coal-based power plants require huge amounts of land, as the companies need to process the coal. Besides, they also produce high quantities of ash, which is required to be disposed off.
All thermal plants also have cooling towers, which are required for cooling the hot water generated during the process.

Power Sector In A Dire State

  • The power generation sector is under tremendous pressure due to severe fuel shortage in the country. Besides, the low tariff rates are not sufficient to cover their costs. Currently, about 28000 MW of capacity is off generation due to coal shortage, while another 22000 MW of capacity that will be commissioned in next the three years is also under a similar threat.
  • Due to stringent environmental norms, new coal mines are being developed at a very slow pace. Many coal blocks allocated in earlier years are not yet operational. The coal output from the existing coal mines drops during the rainy season, and wet coal from such mines decreases the PLFs of power stations.
  • On the gas front too, the picture is not very rosy. The gas output in the country is severely declining, and it is estimated that the output will hit a new low this year. Thus, the Central Electricity Authority has asked power producers not to plan any gas-based power generation plants until 2016. Due to a severe shortage, companies which have gas-based generation capacities are not able to secure fuel supply.
  • Under such circumstances, investors should note that the profitability of power companies would remain weak. With the outlook remaining highly uncertain, investors should skip investments in the power sector.

Key Facts Related With Power Generation

  • The cost of power generation depends on various factors. The principal factor is the cost of fuel. Besides, precommissioning costs such as land, equipment (BTG – Boiler, Turbine and Generator), BoP (Balance of Plant, which is the requirements of the power station other than the BTG package) are also factored into the cost.
  • Power companies are required to sign Fuel Supply Agreements, commonly called FSAs. These are usually for long durations, such as 20-25 years. Some companies have captive mines, from where they can mine coal for the power stations. Coal India plays a major role in the Indian power sector, as it mines nearly 80 per cent of total coal in India. Thus, any action by Coal India has an impact on the power sector.
  • Power generation companies sign long-term power supply agreements with the distribution companies. These agreements are called Power Purchase Agreements (PPA).
  • Power stations not necessarily run for 365 days in a year. They are also shut for maintenance. The availability of stations during the year in percentage terms is called the Plant Availability Factor (PAF). Plant Load Factor (PLF), on the other hand, is the term used to measure the efficiency of the plant. A power plant with an installed capacity of 1 MW is said to have 100 per cent PLF if it generates 1 MW of power every hour.
  • Unlike in other industries, where the installed capacity is measured on an annual basis, the installed capacity in this industry is measured on an hourly basis. A company having an installed capacity of 1 MW will generate1 MW of power, i.e. 1000 units of electricity every hour. This electricity is enough to light 10000 bulbs of a capacity of 100 Watt every hour.
  • Ultra Mega Power Plants (UMPPs) are ambitious projects planned by the government to end the electricity deficit in India. There are a total of 16 UMPPs planned in the country. These UMPPs use super-critical technology, which gives higher efficiency than normal power stations. Each UMPP has an installed capacity of 4000 MW. Currently, four UMPPs are under construction.
  • The cost of setting up a power plant of 1 MW (gas/coal) is about Rs 4-5 crore. A 1 MW power plant consumes about 350-600 kg of coal per hour, based on the quality of the coal. The major cost associated with a power plant is that of the fuel. In FY11, companies like NTPC and Tata Power spent around 50-65 per cent of their total sales on fuel alone.

How Big Could 1 MW Be?

To quantify this, we need to understand what 1 MW is.

1 MW of power is equal to 1000 Kilo Watts (KW) of power. 1 KW is equal to 1000 Watts of power.

As consumers, we are charged for the number of units of electricity consumed per hour. One unit is equal to 1KW of power. A normal 100 watt bulb would take 10 hours to consume 1 unit of electricity. A normal refrigerator also consumes about 2-3 units per day.





10 minutes



8 hours


Bulb - 50 watts

10 hours



30 minutes


Fridge -165 litres



Exhaust Fan

 3 hours


Ceiling Fan

10 hours


AC- 1 tonne

 6 hours


Colour TV

10 hours



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