India’s growing requirement for electricity has started to draw big overseas power generation utilities.
Spain’s Union Fenosa S.A. plans to enter the Indian power generation sector and is eyeing a capacity of 4,000MW that may require an investment of around $4 billion (more than Rs17,300 crore).
No limits: A power transmission grid near Muzaffarnagar. The Electricity Act, 2003, has opened many opportunities for private sector investments, including 100% foreign direct investment.
If it happens, Union Fenosa’s investment will be the largest by any overseas generation utility in the country.
The Madrid-based company has an installed capacity of 11,120MW with 8.9 million customers.
“Union Fenosa is firming up its India plans and is in talks with Indian power project developers to join their projects as an investor. Alternatively, it is also looking to set up power projects of its own in the country,” said a person close to the development who didn’t want to be identified.
“The only thing we can tell you about India is that Union Fenosa is looking for opportunities in the country (India) as in many other places and that there is no deal closed so far,” said a company spokesperson in an email response.
India allows 100% foreign direct investment in the power sector and the Electricity Act 2003 has opened significant opportunities for private sector investments.
However, analysts note that the only significant overseas entrants in the sector so far are utilities such as China Light and Power Ltd (CLP) and US-based AES Corp. — through their subsidiary companies CLP Power India Pvt. Ltd and AES India, respectively.
In 2003, CLP acquired Gujarat Paguthan Energy Corp. Pvt. Ltd, which has a 655MW gas-fired combined-cycle power station, making the company one of the largest foreign investors in the Indian power sector.
CLP is also working on an expansion project for an additional 1,000MW of gas-based generation capacity.
AES entered India’s power generation and distribution sector in 1993 and currently owns a 49% stake in Orissa Power Generation Corp. Ltd’s 420MW Ib Valley power plant it bought for $143 million.
Sanjeev Aggarwal, director, business development, AES India, said the government should promote such projects. “The Indian power sector needs large investments and not all this money is available locally. We need to bring in foreign investors and utilities not only for the investment but also to tap into their operational expertise. We just don’t need to add capacity, we need to run it efficiently as well. It is imperative that the government actively promotes the projects with foreign investments.”
India has a power generation capacity of 143,006MW. The 11th Plan (2007-12) has set a target of adding 78,577MW of capacity, requiring at current estimates, some Rs10.31 trillion in investments. But, according to the power ministry, the government expects to face a Rs4.51 trillion funding shortfall.
In fact, worried over the likely shortfall, the government is mulling setting up two new power sector funds to help fund the projects, as reported by Mint on 10 October.
Meanwhile, inefficiencies in power transmission and distribution network are hurting the sector as around 40% of power generated in the country is lost because of that.