All stakeholders should work collectively to ‘make the elephant dance.’

Indian power sector which was presumed to be a perpetuating power deficit sector has turned the tide. Power surplus in all formats of market are beginning to show. Though, the deficits may be questionable due to lack of buying impetus from DISCOMS, but this has led to a significant power generation capacity under stress. Execution risks came to the fore and have accentuated the stress in power assets particularly coal and hydro power projects. Regulation and in more particular, the implementation of regulation also failed to keep pace with the changing market realities to facilitate an adequate risk reward for private sector investments in conventional power.

Power sector is in the middle of another revolution. Renewable energy has come to the fore aided by sustainability concerns and also declining cost dynamics. For government as well as for energy businesses, renewable energy seems an attractive proposition as it helps them expand, improve profitability, gain a competitive advantage and maintain their commitment to high levels of environmental performance.

Existing conventional power capacity owners may need to cause a fundamental shift in their strategies of operating as a monolithic fixed return PPA (Power Purchase Agreement) with 100 per cent guaranteed offtake. A change in mindset from adversarial position between lenders, regulators, DISCOMS and developers is required in order to adopt a more harmonious approach to discover and address this uncertain journey together.

Government's role in facilitating this transition in the business model would be critical. It needs to unshackle the coal and power markets completely to enable the generators to operate with flexibility required to operate in changing market conditions. Government also stands to benefit as stress resolution helps the financial position of various public sector banks and institutions, where government is a shareholder. The stress resolution could also free up balance sheets of banks to release fresh growth capital to infrastructure creation and kick start economic growth which is a key objective of the government.

The way forward for companies is to make changes to their strategy and operating models while following a systematic and holistic approach. In these uncertain times it’s the agile businesses models which can help survive. And, to help ensure this, all stakeholders should work together to ‘make the elephant dance.’

Hitesh Sachdeva
Partner, Infrastructure and Government Services – CF