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BMI View: Our view that power sector reforms would be a top priority for
Modi's government is playing out. We are seeing notable progress in the Indian
power market regarding renewable energy `expansion, reducing red tape for power
projects and improving fuel availability for thermal generation. That said,
investment in India's power grid infrastructure will need to increase if Prime
Minister Modi's ambitious power plans are to be realised. The transmission and
distribution network remains highly inefficient, posing a significant risk to
the expansion of the power and renewables sector in India. Reforming power
tariffs will therefore be fundamental to ensuring sustainable supply and
achieving Modi's power expansion ambitions.
Latest Updates And Structural Trends
-The sizeable coal power project pipeline and the widespread availability of
coal - from low cost Asia seaborne imports and growing domestic production -
will ensure coal will remain the dominant fuel choice for India's power sector,
despite growth in alternative sources, such as nuclear and renewables. We
forecast coal to contribute 64% to India's power generation mix in 2025.
-Since coming to power, the government has relaxed several environmental rules
to make it easier for companies to develop new projects. Small and medium-sized
coal miners can now expand production by 50% without public consent, while
polluting industries can operate closer to national parks. This relaxation of
environmental laws has translated into a major reduction in red tape for the
power sector and significant progress has been made with clearing the backlog of
projects awaiting environmental approval.
-The revival of nine stranded gas-fired plants in March 2016 shows that gas
power can operate economically without liquefied natural gas (LNG) subsidies.
Although this reinforces our outlook that India's LNG imports will grow as a
result of cheaper LNG spot prices, limitations to the gas pipeline network will
constrain gas consumption by the power sector.
-India will maintain its position as a key global renewables market, as ongoing
support from the government drives growth. The solar sector will register the
greatest expansion, with high installation rates across both residential and
utility-scale projects. Risks are emerging, and continued high levels of
investor interest in the market will be contingent on the timely realisation of
the vast existing project pipeline.