SWOT
Analysis Report of Power Grid Corporation
SWOT Analysis of Power Grid Corporation
COMPANY
OVERVIEW
Power
Grid Corporation of India Limited (Power Grid or the company), an electric
power transmission company, owns and operates more than 95% of India’s
interstate and inter-regional electric power transmission system.The company
primarily operates in India. It is headquartered in Haryana, India and employed
9,670 people as on March 31, 2012. The company recorded revenues of
INR100,353.3 million ($2,093.4 million) during the financial year ended March
2012 (FY2012), an increase of 19.6% over FY2011. The operating profit was INR46,162.6
million ($963 million) during FY2012, an increase of 20.6% over FY2011.The net
profit was INR32,549.5 million ($679 million) in FY2012, an increase of 20.7%
over FY2011.
SWOT
ANALYSIS
Power
Grid is engaged in the construction, operation, and maintenance of inter-state
transmission
system
and the operation of regional power grids. Power Grid’s expertise in setting up
and managing transmission infrastructure will enable it to expand its
geographical reach to realize the supply-demand gap in India. However, risks
associated with managing geographically diverse operations could increase the
complexity of conducting the business in these countries and could lead to
increase in operating costs.
Strengths
Leading market position and strong
transmission infrastructure
Power
Grid is the principal transmission company in India. It owns and operates
majority of India’s interstate and inter-regional electric power transmission
system. As on December 31, 2012, Power Grid operated a transmission network of
about 97,286 circuit kilometers (ckt kms) of inter-state transmission lines,
and 159 numbers of extra high voltage (EHV) and high-voltage, direct current (HVDC)
substations with transformation capacity of 1,53,308 mega volt amperes
(MVA).The company operated inter-regional power transfer capacity of about
28,000 MW.
Further,
as the CTU, Power Grid operates, plans, and develops the country’s nationwide
power
transmission
network, including interstate networks. Power Grid’s expertise in setting up
and managing transmission infrastructure enables it to expand its geographical
reach to realize the supply-demand gap in India.
Higher operational efficiency
The
company operates its transmission system at high levels of efficiency. Power
Grid had maintained an average availability of more than 99% for its
transmission system since FY2002. The network has not had a major grid
disturbance, and has been functioning effectively without a disruption affecting
any region or an inter-regional transmission system, since FY2003. In FY2012,
the company maintained a system availability rate of 99.94%. The company
monitors
and
maintains its infrastructure using advanced techniques and technologies for
consistent high
rates
of availability for its transmission systems. High levels of system
availability enable the company to earn additional income under certain
incentive mechanisms built into its tariff structures pursuant to Central
Electricity Regulatory Commission (CERC) tariff regulations.The company has
been rated “Excellent” by the Government of India on an annual basis since
FY1994 for meeting performance targets, which included achieving high
operational efficiencies.
Higher
operational efficiency enables the company to run its transmission network
effectively at
lower
costs and pass on the cost benefits to its customers.
Increasing focus on consultancy business
The
consultancy segment offers consultancy services in the areas of planning,
engineering, load
despatch
and communication, telecommunication, contracting, and financial and project
management in India and internationally. During FY2012 Power Grid bagged 41 new
assignments having project cost of INR10,020 million ($209 million). Further,
the company was appointed as the design cum implementation supervision
consultant for strengthening of transmission and distribution system of six
states of the north-east region of India, having project cost of around
INR84,000 million ($1,752.2 million).
In
international arena, the company is working in 11 countries: Nepal, Bhutan,
Bangladesh,
Afghanistan,
Sri Lanka, Myanmar, the UAE, Nigeria, Ethiopia, Kenya, and Tajikistan. During
FY2012, Power Grid signed a memorandum of understanding with Kenya Electricity
Transmission (KETRACO) and Ethiopian Electric Power Corporation (EEPCo) for
providing assistance for development of power transmission network in their
countries. In addition, a general cooperation agreement was signed with Gulf
Cooperation Council Interconnection Authority (GCCIA) for providing technical services
in areas of operation and maintenance of HVDC, telecom, grid operations,
technical services, system planning, and operation. Further, a memorandum of
understanding was signed with International Finance Corporation (IFC), an
extended arm of the World Bank, for extending co-operation between Power Grid
and IFC to identify and evaluate transmission projects for development and/or
own/co-own transmission projects in Asia and Africa by providing financial and technical
services to project’s client.
The
company, through these steps, is focusing on expanding its business
internationally. Power
Grid
can leverage its leading market position in the transmission business to grow its
consultancy
business.
Weaknesses
Dependence on government funded
consulting clients
The
company offers consulting services, partly or in whole to government-funded
programs. The
consultancy
revenues earned by Power Grid mainly consists of fees from the Rajiv Gandhi
Grameen Vidyutikaran Yojana (RGGVY). If the government reduces its funding
amount to this project, its consultancy income would be affected. The
international consultancy projects served by Power Grid are mostly funded by
multilateral agencies such as the World Bank, or any foreign government. If
these institutions restrict the fund amount, it could hurt the company’s
revenues from these projects. Consulting is the only business of Power Grid
that serves international clients.Therefore, loss of revenues from
international projects could limit the company’s growth potential in the
consulting field.
Opportunities
Expanding transmission businesses
Power
Grid, to increase its presence in the Indian market and also to attract new
customers, plans
on
increasing its transmission business. Power Grid is focusing on enhancing its
rural connectivity. In accordance with this, in April 2012, Power Grid signed
memorandum of understanding with Ministry of Power, Government of India
detailing various targets to be achieved by Power Grid during FY2013. The
targets include addition of 7,240 gigawatt-circuit kms of extra high voltage
transmission lines and 20,000 MVA of transformation capacity. Further, the
company plans to energize 1,100 villages and provide 200,000 connections to
below poverty line (BPL) households under Rajeev Gandhi Grameena Vidhyutikaran
Yojana (RGGVY). Further, in April 2012,
Power Grid signed agreements for three loans totaling $826 million from Asian Development
Bank. These loans will be utilized for the establishment of 800 kV HVDC
inter-regional transmission link from Champa (Chhattisgarh) to Kurukshetra
(Haryana) for transfer of bulk power from IPPs in Chhattisgarh. In December
2012, Power Grid signed a joint venture agreement with Bihar State Power
(Holding) Company (BSPHCL) to take up the works of strengthening and augmentation
of transmission system in Bihar.The 50:50 joint venture will help the states
transmission sector and will also bring it at par with the rest of the nation. Expanding
its transmission business will help the company to explore new growth
prospects, thus increasing market presence and also helping in increasing
number of customers being served by the company.
Investment plans
Power
Grid plans to invest approximately $18,181 million during the 12th five year
plan period
(2012–17).The
company plans to spend $3,636 million during FY2013, $3,455 million during
FY2014, $3,636 million during FY2015, $3,636 million during FY2016, and $3,818
million during FY2017. The planned investment is in a debt-equity ratio of
70:30. In its 12th five year plan, the company plans to add to its generation
portfolio 88 GW of energy and an additional 30 GW of renewable energy, to its
transmission portfolio 109,440 circuit kms and 270,000 MVA, and to its
distribution portfolio 13,05,000 circuit kms and 138,000 MVA. These investment
plans will significantly strengthen the company’s overall portfolio.
Smart Grid initiative
Smart
Grid is confluence of information, communications, and electrical/digital
technologies. Smart Grid, apart from facilitating real time monitoring and
control of power system, will help in reduction of AT&C losses, peak load
management/ demand response, integration of renewable energy, power quality
management, and outage management. Smart Grid will act as a backbone
infrastructure to enable new business models like smart city, electric
vehicles, and smart communities apart from developing more resilient and
efficient energy system and tariff structures. Power Grid is taking leadership
initiative for implementation of Smart Grid technology in the India and has
already undertaken a pilot project in the northern region involving
installation of Phasor Measurement Units (PMUs) as part of Wide area
Measurement Systems (WAMS). The company has also taken up Unified Real Time
Dynamic State Measurement (URTDSM) project for installation of PMUs at all 400
kV and above substations and also on the critical location of the state grids. Further,
the company has evolved a comprehensive scheme for a green energy corridor
associated with renewable energy sources integration into the grid. Towards
Smart Grid in distribution sector, initiative has been taken for development of
a pilot Smart Grid/Smart City in Puducherry through open collaboration. This
would enable development of efficient energy system and energy conservation.
Power Grid has formed specialized “Smart Grid” department to take up
implementation of Smart Grid/Smart City Projects. Detailed Project Report (DPR)
for a number of cities like Amritsar, Raipur (Satara), Puducherry, Agartala,
and Panipat for pilot smart grid projects have been submitted
under
India Smart Grid Task Force. Further, project reports for implementation of
Smart Grid/Smart City for Firozabad and Katra have been submitted and for
Bidhuna, Shikohabad, Jammu (Gandhinagar Division), Baghat, Gulmarg, Pahalgam,
Charar-i-Sharief, Chitradurga (Karnataka), District/cities of Tripura,
Chhatisgarh, Haryana, Punjab, and Bihar are under preparation. The pilot Smart
Grid/ Smart City project in Puducherry has been taken up for which a memorandum
of understanding has been signed with electricity department of the government
of Puducherry in March 2012. In all, 63 organizations have joined hands with
Power Grid for implementation this pilot project. In this project, phase one
was completed in September 2012. In the phase, Power Grid deployed Smart Meters
for 195 consumers. The Smart Grid Control Center was inaugurated in Such
initiatives will help the company increase its green footprint and also help
its customers keep a track of their power needs.
Threats
Risks associated with operations in
foreign countries
Power
Grid currently undertakes consulting business in foreign countries, including
Africa, the Middle East, and South Asia.The company carries out business
activities in these regions directly or through project-specific consortiums
with foreign partners.The company has more than 125 clients in power sector.
Power Grid is currently involved in international consultancy projects in
countries as diverse as Vietnam, China, Kenya, Ethiopia, Uzbekistan,
Afghanistan, and Bangladesh. It has submitted expressions of interest and
prequalification documents to clients in various international countries for
feasibility studies, engineering consultancy, capacity-building, and EPC
projects. With governmental entities as clients, the company faces additional
risks, such as risks associated with uncertain political and economic
environments, political instability, and unfamiliar legal systems, laws, and
regulations. Additionally, the company could be subject to expropriation or
deprivation of assets or contract rights, interruptions from war or civil
strife, foreign currency restrictions, exchange rate fluctuations and
unanticipated taxes, or encounter potential incompatibility with foreign joint venture
partners or consortium members. Regulatory changes in the foreign countries
could require Power Grid to obtain licenses or permits in order to bid on
contracts, conduct operations or enter into a consortium arrangement, joint
venture, agency, or similar business arrangements with local businesses.
Risks
associated with managing geographically diverse operations could increase the
complexity
of
conducting the business in these countries and could lead to increase in
operating costs.
Sharing of Inter State Transmission
Charges and Losses Regulations
The
CERC stipulated the Sharing of Inter State Transmission Charges and Losses
Regulations in
2010
effective from 2011 for five years. These regulations implement a “point of
connection” method for sharing the transmission charges for the inter-state
transmission system in India, replacing the earlier method of regional postage
stamps. These regulations provide that the yearly transmission charges, revenue
requirement on account of foreign exchange rate variation, changes in interest rates,
and losses will be shared amongst the users, including larger generating
stations, state electricity boards, state transmission utilities, bulk
consumers connected directly with the inter-state transmission system, and any
designated entity representing a physically-connected entity listed above.
Under the regulations, Power Grid has been made responsible for billing,
collecting, and disbursing transmission charges for the entire ISTS from all
users. If it fails to collect the charges from all users of the ISTS, including
amounts payable to other transmission utilities in the future, the company’s
receivables could be adversely affected.
Competition in consulting and
telecommunication businesses
Power
Grid faces significant competition in the consulting and telecommunication
businesses from Indian and international companies. Domestic consultancy
projects are generally awarded without a competitive bidding process. The
company primarily competes for these projects with KEC International, Larsen
& Toubro, Kalpataru Power Transmission, Gammon India, ABB, Areva T&D, and
Siemens. International projects are awarded on a competitive bidding process.
The company faces competition from Lahmeyer International, Fichtner, KEMA,
Energy Services, and SMEC International.
In
the telecommunication business, Power Grid faces intense competition for the
provision of
telecommunication
bandwidth services, particularly from telecommunication companies with
geographically
extensive networks.The competition is expected to get fierce in the
telecommunications services industry in India.The company also faces risk of
increasing competition from global players. Power Grid’s competitors in the
telecommunications business include all major national long distance operators.
The company has executed agreements to provide telecommunication bandwidth to certain
customers, and most of these customers are also its competitors. These
competitors provide similar bandwidth services to other telecommunication
operators.
Many
of the company’s competitors in the consulting and telecommunications
businesses are larger than Power Grid and have greater financial resources.
They may benefit from greater economies of scale and operating efficiencies.
These companies could present lower bids for contracts than Power Grid to win
tenders. Intense competition in the growing stage could limit the growth opportunities
for the company.
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