Strategic Plan for NTPC

Prepared for NTPC Power Management

Institute (PMI)

12 July 2018
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Table of contents

Organization transformation –
1.
framework & principles

2. Context

3. Approach and Methodology

4. External Assessment

5. Internal Assessment

6. SWOT Analysis

7. NTPC in 2032

8. Vision of NTPC

Corporate Strategy and Functional

9.
Strategies

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1. Organization
transformation –
framework and
principles
Framework & Principles

The 9 Levers of Value The 9 Core Principles

Financial outcomes,
structuring, investment &
capital allocation 1.
Driving strategy
2.
development
9. Aligning the
from financial
Markets Prioritizing by
outcomes
CEO, leadership
materiality and and management
Business criticality team to the
Model strategy
Propositions & brands
8.
3.
Identifying
Aligning the
and managing
Clients & channels
+
financial,
intended and
business and
unintended
consequences 9LoV operating
models
Core business Principles
processes
Operating 4.
Operational, infra & Model 7. Engaging
technology Managing fin., business &
interdependencies operating model
constituencies
Org structure, 6.
Determining an
governance & controls organisation’s
5.
Thinking
capabilities and inductively
Information and Key readiness to
Performance Indicator People & culture execute
Dashboard for
Investment Decision

Measures & incentives

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Business Model

Defines key components of strategy

… Includes …
The 9LoV Markets
Financial outcomes, structuring,
investment and capital allocation
Geographies Sectors Segments
Markets

Propositions and brands

Propositions and brands
Clients and channels
Value proposition
Product and brand
Core business processes and market Pricing
choices
positioning

Operational, infra and technology

Organisational structure, Clients and channels

governance and risk controls
Distribution model
People and culture Customer analytics Customer experience
and channel
and segmentation and management
strategies
Measures and incentives

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2. Context
Context
Evolving power market and emerging opportunities call for a fresh look at the
corporate plan, to enhance the shareholder value

NTPC share price with key indices Key objectives

1. Power Sector has consistently underperformed compared to
broader Sensex and the gap has widened
2. Over last year, NTPC has lost its premium compared to the
• Growth
power index

1 • Efficiency

• Value creation

2 • Sustainability

• Employer of Choice
Source: BSE

Significant market changes Key imperatives

• Changing regulatory environment • Portfolio strategy
• Aggressive plans on renewables • Value chain presence
• Changing fuel dynamics • People strategy
• Restricted demand due to discoms financial • Operating strategy
woes • Regulatory management
• New Opportunities – services & new markets • Technology imperatives
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Context
Corporate Plan 2032 will aim to detail out strategy of NTPC and bring out key
imperatives for various functions
Illustrative
Aspect Considerations

• Is 128 GW the preferred target? What is the optimal mix?

Portfolio • Implication of ageing capacity?
• Preferred business model – organic or through acquisitions? Where is the balance?

Value Chain • Is it necessary to diversify into transmission, distribution etc.?

Presence • Can services (EPC, Energy Efficiency, O&M) be a growth driver?

• Is there a need to focus on new markets – Africa, South East Asia etc.?
New Markets
• How to augment existing systems and processes?

• What are the technologies that will shape the power sector?
Technology
• How can NTPC leverage technology to increase business value?

• What should be NTPC’s long-term organizational goals?

People
• How should NTPC re-orient to meet the set targets?

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3. Methodology
Methodology
NTPC has detailed a comprehensive scope for the corporate planning
exercise; we have structured it to align with intended purposes

Phase I Phase II Phase III

Business Understanding Strategic Blueprint Formulate strategy

Define operating model of

Assess current business Vision / Mission workshop
selected option
Assess capability requirements
Review internal environment Assess growth potential
of each department
Review external environment Evaluate & prioritize options Define strategy to bridge gap

Stakeholders expectations Finalize growth plan Growth path and strategy

Benchmarking Identify risk & mitigation plan Functional area strategy

Long-term vision & Strategic

SWOT & Benchmarking Corporate Plan
Blue Print
Discussion and feedback

Phase IV
Execution Road Map /
Implementation Plan
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Methodology
Corporate plan will be based on extensive analysis of the external and
internal environment and stakeholders expectation

External assessment Internal assessment Stakeholder expectation

Factors Factors Segments
• Policy, • Skill • Operating • Fuel • Investors • Policy Makers
regulations availability Model Management • Management • Regulators
• Demand • Emerging • Project • IT & • Employees • OEMs
Supply Technology Management Technology • Customers • Technology
• Sustainability • Fuel • Financial • Human Providers
• Competitors
• Networks Availability management Resource

Tools Tools Tools

• PEST Analysis • Value tree • Benchmarking • Questionnaire • Workshops
• Industry analysis analysis • Discussion • Group Discussion • Dip stick

To determine the To assess internal To understand

evolving market aspirations, plans the expectation
scenario, and capabilities of the
opportunities and Business Understanding Stakeholders
threats for NTPC

Selection of strategic
Strategic Blueprint options based on
specific criteria
Actionable Plan and
Corporate Plan Responsibility Matrix

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Methodology
Scenarios on key external factors will be presented to allow NTPC to
objectively assess the opportunities and threats

External assessment is intended to detail out the potential scenarios in which power market in
India can evolve and the implications it hold for NTPC in terms of opportunities and threats
External Factors for review Tools

Policy and regulatory environment New markets

Extent and pace of evolution of power market Potential new domestic markets and global
• Secondary research
and the implication for NTPC’s markets opportunities • Inputs from SMEs in
KPMG, in India and
Power demand and supply scenario Fuel availability Globally

Implication for capacity addition, and supply Fuel supply scenario and the risk it poses to • FGDs / Interviews with
mix NTPC’s operations key stakeholders
• Regulators / Policy
Sustainability Skill availability / ‘Fight for Talent’ makers
Issues related to community development, • Customers
Competition for talent and implication on
local empowerment, R&R operating model and HR practices • Competitors
• OEMs and
Emerging Technologies Networks Technology
In power generation, energy storage and Network access, open access, regional providers
other disruptive technology integration of grid etc.

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Methodology
Internal assessment is intended to assist NTPC in identifying strengths and
areas of improvement

Internal assessment is intended to do evaluate the key challenges faced by the departments and
the planned responses in view of the existing targets
Internal aspects for review Tools

Operating Model Operating Performance

Presence along the value chain and emerging Operating Performance of assets, cost mgt.;
trends regulatory requirements etc. • Secondary and
Primary research

Project Management Financial Management • Internal stakeholder

discussion
Time & cost overruns; project monitoring, Financing (debt, equity); challenges fund
contract &construction mgmt. availability, cost, covenants etc. • Functional heads
• Plant heads
Fuel Management Sustainability
• Other employees
Fuel sourcing strategy incl. sourcing mix, CSR, R&R polices; new practices and plans
pricing, risk mitigation, logistics in view of changing scenario
• Comparator analysis
• Maturity assessment
Human Resources IT and Technology • Benchmarking
Existing policies & processes - talent IT roadmap & plans, new technologies at
identification, org. structure & culture enterprise & plant level; new assets

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Approach

Meetings with Corporate

Internal and Strategy
External Workshop
stakeholders

SWOT Analysis Plant and RHQ

Workshop Strategy workshop Visioning
visits to formulate workshop
- Mouda generation
- Talcher portfolio and new
- Lucknow businesses

Functional
Strategy
Internal /
Multiple discussions with Workshop
External Data
Analysis Department Heads, Cross-
functional Task Force, MCM,
Internal mtgs ~ 30 (over 250 people) Functional Directors
External mtgs ~10 (over 20 people)
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4. External Assessment
External assessment
Potential trends which will shape the strategy and related actions

2016-22 2022-27 2027-32

Demand-Supply
Supply surplus Supply overhang to aggravate Reduced supply overhang
scenario

Grid solar competitive; Roof Roof top solar to drive the

RE Grid solar - near grid parity
top solar emerges solar growth

Coal: near adequate Coal: adequate Coal: adequate

Fuel/
Gas: constrained Gas: constrained Gas: Constrained
Technology Other: no major breakthrough Other: no major breakthrough Other: no major breakthrough

Grid scale storage turns Storage as peaking & ancillary

Feasible; competitive solution
Storage and EV
not competitive
EVs to gain share EVs to become a strong force

Cycling to be the norm; impact on efficiency, emissions, plant

Coal ops Start of cycling operations
reliability

Emission Emission norms tightened; May see last of the coal Fresh coal capacity likely to
control increases env mgmt costs capacity breaking ground be stopped

Carriage and content separation,

Market structure unchanged;
Market structure Market linked returns,
AS introduced
Shorter-term PPAs
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Certainty High Medium Low
1. Power demand scenario
Demand to almost treble by 2032

Estimated All India demand (in BUs) at generation busbar

Actual Forecast

Historical growth (last 5 Demand is estimated to grow at ~6% CAGR

4000
years) in demand has been between 2016-32 3484
5.6% CAGR
3000
3000 2707
2300 2984
2104
1936
BU

2000 1904
1390
2206
1000 1354
1631
1206
861 935 996 1002 1069 1114
0
2011 2012 2013 2014 2015 2016 2017 2022 2027 2032

KPMG Analysis EPS Niti Ayog

Assumptions

Note: It is understood that under 19th EPS, the estimated demand for 2027 is 2132 BU
Source: CEA Power Supply position, World Bank, Dun & Bradstreet, KPMG Analysis, 18th Electric Power Survey

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1. Power supply scenario
In line with the demand, Installed capacity is estimated to reach 825 – 850 GW
by 2032

Installed capacity
As on March, 2016 2025 (E) 2032 (E)
in GW
IC* PLF IC PLF IC PLF
Coal 185 62% 274 55% 389 60%
Gas 24 23% 24 23% 24 23%
Large Hydro 43 33% 58 35% 65 35%
Solar 7 18% 147 21% 245 21%
Other RE 36 24% 64 28% 87 27%
Nuclear 6 74% 11 75% 24 75%
Total 302 579 834
* IC – Installed Capacity Source: Ministry of Power, MNRE, Niti Aayog, KPMG Analysis Assumptions
Bucket-filling

Proportion of power supply from coal is expected to fall from 72% in 2015 to 63% in 2032; that
of solar will increase from <1% to 15% in the same period

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1. Power supply scenario
Other agencies have similar perspective on power demand-supply scenario

Capacity by 2032 India Energy

KPMG WEF (2016) Barclays (2015)
(GW) Outlook (2015)

Fossil (Coal + Gas) 413 440 440 536

Solar + Wind 315 250 224 355

Hydro 65 90 85 52

Nuclear 24 30 24 11

Other RE 17 10 20 -

Total 834 820 793 954

While there are different views on the success of RE , that on coal are largely similar; Barclays
has assumed demand projections similar to Niti Ayog estimates

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 2. Renewable energy
Solar tariffs have been consistently coming down and its competitiveness
against other sources has improved significantly

State PPA NSM

Nov'14 to Mar'16 Nov'15 - May'16
1600 9
8.0 1500
1400 7.2 8
6.9 6.7 1200 1200 7
1200 6.2
5.7 5.6 5.7 5.8
5.4 5.5 6
1000 5.0 5.2 5.1
4.8 4.8

Rs./kWh
4.6 4.6 4.7
4.4 5
MW

800
4
600 500 500 500 500 500 500
420 3
400 350 350
300 2
250 215
200 170
200 150 150
100 1
0 0
KA TL PB NTPC UP MP TL Gp TL Gp PB UK HR UP KA JH AP AP AP RJ KA TL
AP 1 2 DCR
Capacity on offer Wt. avg. tariff (INR/kWh)

• The tariffs received in some of the recent bids are fairly close to tariffs discovered in coal
based CASE I bidding
• Tariffs discovered under NSM have been typically lower than that in state bids

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3. Fuel
Domestic coal is likely to be adequate

Coal demand (in MT) and supply stack

MT
2,400 Additional 100 MT available in 2032
for supply FY 20 FY 25 FY32
1.9 BT
1,800 Power 700 835 1,175
Additional 400 MT available in 800 Non-
2025 for supply 500 1.3 BT 301 416 662
Regulated
MT

1,200 1 BT
4
107 51 147 188 • Power: Incremental capacity, FY 16-
130 65 106
50 25: ~118 GW; FY 25-32: ~120 GW
600 1,156 1,156
735 781 827 • Non-Regulated: CPP growth ~6%;
611 676
DRI demand ~4%; Cement growth
- 11%
2016 2017 2018 2019 2020 2025 2032

Import Firm imports Captive mines + Other Schedule I mines CIL and others

Increased supply is driven by production growth from CIL and captive mines

Sources : CIL, Working Group Report, KPMG Analysis

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3. Fuel
Natural gas is likely to be constrained

200 Historical gas supply, in MMSCMD

172 • Natural gas consumption has
150 fallen gradually on account of
160 135 133
42
39 reduced availability of domestic
120 39 42
59 gas
39 26
80 24
• While RLNG is an option, it is not
40 71 72 71 68 competitive with coal. The variable
0 cost of gas based generation is
FY 12 FY 13 FY 14 FY 15 currently in the range of Rs. 4- 6/
ONGC + OIL Private + JVs RLNG Total supply kWh for gas price of $8-10/mmbtu

• Even in the most optimistic

400 Domestic gas demand-supply scenario, in MMSCMD 370 scenario, domestic supply will be
320
298 able to meet 50% of the demand
221 240
240 • Additional 30 mmscmd is
158 171 expected from TAPI pipeline, but
160 132
92 104 111 120 timelines are uncertain
80 96
92 96
0 • Unconstrained demand includes
2015 2020 2025 2030 demand from fertilizers, CGD,
Pessimistic supply scenario (Domestic field) Moderate supply scenario (Domestic field)
Power & Refinery
Optimistic supply scenario (Domestic field) Unconstrained demand
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4. Storage
Li-Ion battery storage costs

Discharge
Capex (Rs. LCOE
S.No Project Rating (MW) duration Country
Cr/MWh) (Rs./kWh)
(min)
1 Anchorage Area Battery Energy Storage System 25 34 USA 14.3 12

2 30 MW / 20 MWh Imperial Irrigation District – GE 20 - USA - -

3 AES Tait Battery Array 20 - USA - -
4 Jake Energy Storage Center: RES Americas 20 24 USA 17 11
5 Elwood Energy Storage Center: RES Americas 20 24 USA 17 11

6 10 MW / 10 MWh - Feldheim Regional Regulating Stn. 10 110 Germany 5.2 12

7 Southern California Edison Tehachapi Wind Energy Storage 8 240 USA 10.5 14
8 KIUC Anahola Solar Array and Battery 6 50 USA 9.4 11
Zhangbei National Wind and Solar Energy Storage and 10
9 6 360 China 4.4
Transmission Demonstration Project
Zhangbei National Wind and Solar Energy Storage and 9
10 4 240 China 5.6
Transmission Demonstration Project
11 Stafford Hill Solar Farm & Microgrid 2 60 USA 8.4 12
12 Alameda County RDSI CERTS Microgrid Demonstration 2 120 USA 6.7 14

13 NICE GRID project in Carros Primary Substation Battery 1 27 France 12 10

14 CCET Technology Solutions for Wind Integration 1 60 USA 13.4 14

Source: USDoE, KPMG Analysis Status Announced Under construction Operational

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 5. Impact on PLF
Coal based capacity will be increasingly required to cycle; the average PLF
may fall to ~ 55% by 2025
Illustrative Day load curve and supply stack in 2025 (a typical summer day)
71 75 73 72 69 67
62 65 64
Coal PLFs 61 59 58 57 59 55 52
61
during the day 45 43 Coal supply will have to
38
33 30 35 37 increasingly cycle;
average PLF is
~180 MW available surplus
450 estimated to fall to ~55%
coal based capacity when
solar power peaks. PLF drops
400 Ins. Cap. (GW)
to 30%
350 Coal: 273

300 Solar: 147

243 Other Must Run: 134
250
198 Gas: 24
200
GW

Total: 578
150
Coal PLF peaks to 74% Note
100 as solar goes out and • Other must run: hydro,
demand peaks nuclear, wind, other RE
50 • Gas based generation has
been adjusted for load factor
0 (23%) based on gas
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 availability
RE Solar MW RE Non Solar MW Hydro MW • Figures shown are adjusted
Nucl MW Gas MW Coal MW for PAF/ CUF
Demand (April) MW

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Key emerging themes - Summary
NTPC has the choice to react to these situations or proactively pursue the
developments

1. It is certain that incremental generation will be more skewed towards RE. Market needs to be continually
assessed to realign portfolio targets.

2. The less efficient and expensive plants will come under stress. Future base load plants to be located at
pit head only. For existing plants, linkage rationalisation and variable cost optimisation is imperative.

3. Cycling will become a reality, for which NTPC needs to prepare. Revised operations & maintenance
strategies will be imperative.

4. Storage is likely to be a game changer. NTPC to proactively invest to understand and gain leadership in
this space.

5. Market design will change with evolving technologies, competition, regulations and other changes.
NTPC needs to create integrated offerings and leverage market information, apart from policy advocacy.

6. NTPC needs to develop Integrated Command and Control Centre including analytical and forecasting
capabilities to leverage internal and external information for real-time decision making.

7. Internally NTPC will require a change in org structure, operating model and organisation culture to
anticipate and lead this dynamic market.

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5. Internal Assessment
Business environment
Internal realities- Summary

1. Some of the upcoming plants of NTPC may face dispatch risk due to higher variable
cost, owing to the longer distance from the coal sources.

2. NTPC plants have 25-30% higher capex compared to leading private sector developers,
which adversely impacts the competitiveness. This may lead to PPA denial risk.

3. NTPC has an opportunity to reduce the coal costs through its captive blocks (compared
to CIL notified prices); need to expedite operations to achieve these benefits.

4. For some of its future mines, NTPC may reconsider its model of end-to-end outsourcing
and may look at splitting contract or undertaking departmental operations.

5. With increased coal based capacity and generation, ash management is likely to
emerge as a key challenge. Current ash management strategy may require a re-look.

6. In light of the changing external environment NTPC may have to realign the
organization structure, culture and performance metrics.

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6. SWOT Analysis
Business SWOT
Based on interactions with internal and external stakeholders

Strengths Weakness

 Mine Development and Operations

 O&M Excellence (Thermal Plants)
 Land Acquisition
 Access to Coal Mines  Project Location / Selection
 Low Cost of Finance  Project Costs
 Ash Management
 Government Support
 Commercial Orientation

Opportunities Threats
 Quantum & Pace of Capacity Addition
 Services – Consulting, O&M, Proj. Mgt., Engg.  Expiry of Tri-Partite Agreement
 Coal Mining (Reducing dispatch risk)  Priority Coal Allocation
 Distribution & Retail Business Mgt.  Threat of Substitutes (RE)
 RE Business  Competition from IPPs
 Ancillary Services Market  Dispatch & PPA Surrender Risk
 Tightening of regulatory norms
 Inorganic Growth
 Low PLF (Unit Sizes, Specs, Capacity Target)
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Organizational and People Related SWOT
Based on interactions with internal and external stakeholders

Strengths Weakness

 Strong Brand and Goodwill  Change Readiness

 Pride  Agility
 Skilled Manpower  Stagnation at Critical Levels
 Passionate Workforce  Training & Development
 Honesty and Credibility
 Knowledge Management – Sharing of Good
 Low Attrition Practices
 System and Process Orientation  Risk Aversion

Opportunities Threats
 People Capability Depletion (retirements)
 Growth Prospects in new Business Areas
 Hiring at Requisite Scale and Grades
 Learning New Skills
 Low Morale (Remote Locations, Low/ falling
 Variety of Roles and Domains PLFs)

 Leaner Processes  Attracting and Retaining Talent at Plant

Locations
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7. NTPC 2032
Generation portfolio
As other fuels are not that promising, the portfolio choices are driven by
market share in coal and solar

Multiple options based on the market share in coal and solar generation evaluated
Share in coal Share in solar
Option Strategy
generation capacity generation capacity

Present ~25% ~5%

Business as Usual Retain the market share in coal and

~25% ~10% relatively smaller share in solar
(BAU) #1

Retain market share in coal and

Balanced #2 ~25% ~15% target significant share in solar

Reduce the market share in coal and

RE Focused #3 ~18% ~20% target significant share in solar

Retain the market share in coal and

Audacious #4 ~25% ~25% target an equal share in solar

NTPC’s adoption of balanced portfolio will enable realignment of generation targets

based on market evolution

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Generation portfolio
Total installed capacity remains largely unchanged though the fuel mix has
been revised

Generation portfolio, in GW • NTPC to limit coal

based capacity
addition to under-
NTPC NTPC- NTPC 2032 – 2032- construction
Current Visible existing Est. All NTPC
projects in near
Capacity by 2022 target for India Revised
term
Mar’ 16 2032 capacity Target
Coal 40 62 72 389 85 • Solar capacity
Gas 6 6 21 24 6 addition in line
with the market
Hydro 0.8 2 10 65 5
growth
Solar 0.1 10 11 245 30
Other RE 0 0 0 87 2 • Balanced Portfolio
allows the
Nuclear 0 0 14 24 2 flexibility to move
Total 47 80 128 834 130 in either direction
as the clarity on
market trends
emerges

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Beyond Generation
Other opportunities which were evaluated

1 Ancillary Services

2 Roof top

3 Storage

4 Trading

5 Services

6 Distribution

7 Transmission

8 E-Mobility

9 Cement
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Opportunity evaluation

Evaluation matrix
High

Asset based growth

E-Mobility drivers
Grid. Solar
Storage Services based
Trading growth drivers
Roof top Coal gen. Innovation based
Services
growth drivers
Attractiveness

Ancillary
Services
Key imperatives
• Business environment
Cement
management
Transmission • Corporate agility
Distribution • Strong cost controls

• Culture of innovation
Low

Low NTPC should evaluate

Fitment High
new business
continuously going
No Go Explore Clear Go
forward
© 2016 KPMG Advisory Services Private Limited, an Indian limited liability company and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 36
NTPC in 2032

NTPC in 2032

2016 2032*
Generation capacity 47 130
Power Generation
Ancillary services and Storage
Power Generation
Key businesses E-Mobility
Trading
Trading
Services
Revenues, in Rs ‘000
~70 ~300
crore

*If Tanda decommissions – revenues in FY 2027 will be INR 205,000 crores and INR 305,000 crores in FY 2032; EBITDA will reduce to INR 74,000 cores in FY 2027;
and PAT will reduce to INR 25000 crores in FY 27
© 2016 KPMG Advisory Services Private Limited, an Indian limited liability company and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 37
Thank You