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However India’s biggest capital good equipment company BHEL owned by the government is plannning a $500 million investment to build a solar cell factory in at Sakoli which is part Union heavy industries minister Praful Patel’s constituency Bhandara.Talk about how dumb you can get. BHEL hardly has too much expertise in the solar panel industry and with solar cells in massive oversupply,it is almost sure to lose money. However that is how things work with Indian government companies where investment is made at the whims of ministers rather than rationality and business sense.BHEL is currently trading at one of the lowest valuations in its 10 year history and its not a big wonder why. The company has benefited in the past as did other machinery and engineering companies from an infrastructure invesment boom. However those glory days are over for the company as it faces competition from the Chinese companies and decreasing orders flow. Praful Patel the minister has already spent a few years in the airline ministry presiding over the conversion of the state owned carrier Air India ino a basket case. Now its the turn of BHEL to be turned into a basket case as well.
power projects.See below for the problems besetting India’s thermal power project developers.Note wind and solar power projects are seeing more interent from debt syndication lenders like IDFC,IL&FS because of 2 reasons
a) Strong support from state and federal governments which are going all out to support Renewable Energy through tax breaks,feed in tariffs,capital subsidy
b) Secure Power Purchase Agreements (PPA) by NVVN at even higher prices for green energy
c) No problems of fuel supply availability that plagues the coal and gas power plants in India
d) Lesser Environmental issues that beset the Coal Power and Nuclear Power Plants in India with local agitations
e) Land Acquisitions problems are also lower as solar and wind power plants don’t require prime land
This new plan has following features
1) Reduce the Power Purchasing Agreement Tenure to 5 years from 25 years.This would make it easy to change the prices of power purchased to reflect the changed realities
2) Some sort of fuel cost indexation for electricity tariffs .The reason is that prices of imported coal has risen dramatically which has made the large UMPP get stuck because the revenues don’t meet the costs.
This plan will take 6 months to be implemented as the government talks with stakeholders like states which are reluctant to change the power prices decided in the PPA with the earlier UMPP being built by Tata Power and Reliance Power in Gujarat and Andhra Pradesh.
India faces a Long and Dark Summer in 2012 with its Electricity Industry in Shambles.The list of woes is almost non-ending and the government is the biggest culprit.Locked in a policy paralysis due to its corruption taint,the authorities have failed to move.Indian Electricity Companies too are facing losses and may even default on some project debt.The state distribution companies already have racked up billion of dollar in losses due to total mismanagement of tariffs and power theft.So the whole supply chain is in trouble with the Indian Banks also in trouble as they have lent billions to the power producers.
India suffers from a massive electricity deficit with large swathes of the country undergoing power blackouts of as long as 8-10 hours on a regular basis.The problem becomes even more acute in the summer season when air conditioners are being used in an increasing number of homes and offices.The industry too is using more and more amounts of electricity as the Indian economic growth rate has exceeded at 8% in the last few years.The electricity situation has not improved and looks like it will become more miserable.The sorry state of affairs is that the cost of fuel is rising but the electricity regulators are loath to increase prices.This means that Indian electric utilities will supply low power as they will be reluctant to buy higher cost electricity.According to CEA,India had a peak demand of around 116 MW in Apri-Dec 2009 with 101 GW of Supply resulting in a 12.5% Demand Deficit.The Fast Growing Economy has resulted in even higher demand for power which has not been met by increased demand.