As part of the ambitious exercise, the state-owned thermal power utility will appoint a consultant to revise its NTPC Corporate Plan 2032, which lays down its future road map.  (As part of the ambitious exercise, the state-owned thermal power utility will appoint a consultant to revise its NTPC Corporate Plan 2032, which lays down its future road map. )
As part of the ambitious exercise, the state-owned thermal power utility will appoint a consultant to revise its NTPC Corporate Plan 2032, which lays down its future road map.

(As part of the ambitious exercise, the state-owned thermal power utility will appoint a consultant to revise its NTPC Corporate Plan 2032, which lays down its future road map. )

NTPC plans strategy to counter challenges of changing environment

Move comes in the backdrop of the government making energy security one of its top priorities

New Delhi: NTPC Ltd, India’s largest power producer, is working on a new strategy to face the challenges posed by an evolving energy landscape marked by regulatory change, its unfolding acquisition plans and the government’s increasing focus on renewable sources of power.

As part of the ambitious exercise, the state-owned thermal power utility will appoint a consultant to revise its NTPC Corporate Plan 2032, which lays down its future road map.

Consultants such as Bain and Co. India Pvt. Ltd, Deloitte Touche Tohmatsu India Pvt. Ltd and McKinsey and Co. are in the fray for the assignment.

The exercise comes in the backdrop of the Bharatiya Janata Party-led National Democratic Alliance government making energy security one of its top priorities. The government has launched a scheme aimed at ensuring eight hours of quality power supply to farmers and 24-hour electricity to rural households.

For the government’s strategy to succeed, NTPC, which has a 17% share in India’s power generation capacity of 255,012.79 megawatts (MW), has to play an important role. The utility plans to add 14,038MW in 2012-17 and has an ambitious capital expenditure target of 1.5 trillion. It has set itself the target of becoming a 128,000MW power producer by 2032.

“The idea is to prepare NTPC in a fast-changing business landscape. The corporate plan has to be revised. There are both opportunities and challenges. The strategy has to be evolved keeping all the new emerging issues in mind such as regulatory changes, mergers and acquisition opportunities, and a focus on renewable sources of energy. The presentations from the consultants are on," a person aware of the development said, requesting anonymity.

An NTPC executive, who also didn’t want to be identified, confirmed the plan. “A consultant will be appointed shortly," he said.

Spokespersons for Deloitte and McKinsey declined comments. Queries emailed to an NTPC spokesperson remained unanswered. A Bain and Co. spokesperson didn’t respond to a text message.

NTPC’s worries stem from concerns over revised electricity tariff norms.

The utility posted a 17% decline in its fiscal second quarter profit to 2,071.63 crore. Revenue increased by only 1% to 17,267.32 crore compared with a year ago. In the third quarter ended 31 December, revenue fell to 19,339.37 crore from 19,589.01 crore in the year-ago period. Net profit rose 7% from a year earlier to 3,074 crore.

NTPC’s plant load factor (PLF), a measure of average capacity utilization, was 81.5% in 2013-14 against 83.08% in 2012-13 for coal-fuelled projects. Also, there are no takers for around 5,000MW of electricity offered by the utility.

As part of the government’s strategy to strengthen India’s position at global climate change negotiations, NTPC plans to set up 10,000MW of solar projects and has called bids for developing 1,250MW of solar projects in Andhra Pradesh, Rajasthan, Telangana and Madhya Pradesh.

The apex power sector regulator Central Electricity Regulatory Commission (CERC) had rejected NTPC’s representation to revisit electricity tariff norms applicable between fiscal years 2014-15 and 2018-19.

CERC’s earlier order said incentives would be based on the PLF metric and not plant availability factor (PAF), as before. PLF is based on the actual power that is generated by a plant, whereas PAF measures the generation capacity that is available.

Effectively, CERC linked future financial incentives with the purchase of power by distribution companies. Since these utilities are strapped for funds, PLF is often lower than PAF—implying that NTPC would be entitled to fewer financial incentives.

NTPC’s core business is generation and sale of power to state electricity boards (SEBs). Weak financials of the state government-owned distribution companies because of low tariff increases, slow progress in reducing losses, higher power purchase costs and crippling debt have assumed alarming proportions. SEBs with debt of 3.04 trillion and losses of 2.52 trillion are on the brink of financial collapse. Lower demand for power translates to a lower PLF, a measure of average capacity utilization.

This comes as NTPC, in a rare instance of a state-run entity purchasing domestic private sector assets, had been planning to acquire 8,000-9,000MW of capacity and created a committee under the board’s supervision to evaluate potential opportunities.

The utility received 34 proposals for a total of 55,000MW in response to the expression of interest (EoI) it floated early last year for acquiring generation capacity from other power producers. In addition, it has also received around 12 proposals in response to a second EoI floated in December. NTPC, which has cash reserves of around 16,867.7 crore, has set aside 10,000 crore for acquisitions.

Of NTPC’s capex plan of 1,52,341 crore spread over 2012-17, the utility has achieved 41,631 crore (till 2013-14) with the balance 1,10,710 crore left to be achieved, which has been termed as challenging.

“There are several moving blocks and uncertainities in the sector that can shape the future of the industry. Reforms on the fuel side, emergence of renewables, regulatory pressures on efficiency, empowerment of the wholesale and retail customers are just a few trends that can completely change the face of the power sector," said Abhishek Poddar, a partner at consulting firm AT Kearney Ltd.

“The success mantra of the past will no longer be applicable in the emerging energy landscape in India. In this context, it becomes nearly impossible to design a ‘linear’ plan that can form the basis for strategic decisions of a company. I believe that the ‘winners of tomorrow’ will be those who are agile enough to respond to the fast changing environment and flexible enough to make midway changes to their strategies," added Poddar.

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