Power Generation Case Study

Power Generation:

Power generation can be done by any of these methods – Thermal, Hydro, Wind, Solar & Nuclear. Thermal power generation being the most economical and widely used method (65% of total power generation in India) requires a capital investment of Rs 40 to Rs 50 million per MW of power generation. It involves requirement for land, water, fuel and technology besides capital requirement.

In order in improve the efficiency of power generation, several technological advancements have taken place. This leads to reduction in cost per unit of power produced and improved energy efficiency which is a need of the hour. Many companies are trying to gain from the Carbon Credit (CDM – Clean Development Mechanism) under UNFCCC through use of higher level technology to improve energy efficiency.

The power generation companies normally deal with big corporate consumers (lower percentage of total sales) or transmission company (PGCIL in India) for sale of power involving power trading companies to write the power off-take agreement between power companies and consumers. In the process, the transmission companies gets wheeling charges per unit. Many times the power companies can deal with SEB (State Electricity Boards) directly for sale of power. However, given the financial & operating condition of SEB, cash receivables are either delayed or more risky. In case of dealing with Transmission companies, the risk is low but the realization is lower since charges needs to paid to these transmission companies.

In case of power generation, companies have following elements as part of their strategy –

1. Location of source coal mine / fuel to the power plant: Nearness to the source of fuel can definitely be a strategic advantage to avoi...

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...n form of intellect or capital or relationship building, i.e. help them to fill the institutional voids. This advantage may give them some competitive advantage in their journey.

They may even diversify in other areas of value chain at strategic points to diversify its investment and enhance its profitability. They may get their investment in Distribution and Transmission to de-risk their investment and integrate their business in a way to gain higher profitability. Considering the current environmental concerns and awareness, they had divested in renewable sources of power generation in a big way. It will also give them 1st mover advantage as well. They have explored the following --

(Tata Power has an installed generation capacity of 1112 MW through green resources, which is ~13% of their portfolio. They plan to make it 20 – 25% in future)

Harnessing Hydro Power