Bhubaneswar: Odisha could attract investments worth Rs 25,000-30,000 crore in the power sector over the next six to 12 months after the state moved to align with the Centre’s policy on concessional power allocation from thermal plants, an industry body official said.
The state government is set to mandate the supply of 5 per cent of capacity from newly commissioned thermal power plants at variable charges, replacing its earlier policy that required developers to allocate 12-14 per cent of capacity at concessional rates for state consumption.
Industry executives said the earlier policy had discouraged fresh investments despite Odisha’s abundant coal reserves and strategic advantages, including port access and skilled manpower availability.
Odisha has all the enabling factors for power sector growth, but the higher mandatory allocation of power at variable cost has impacted project viability, said Inder Keshari, Director General of the Association of Power Producers.
The state had retained a 14 per cent allocation norm introduced in 2008-09, later reduced to 12 per cent for projects with local coal linkage, even as several states adopted the Central Electricity Authority’s recommendation of a 5 per cent allocation framework.
“Odisha has all the enabling factors for power sector growth – ample raw material, availability of ports, a growing economy, and access to skilled manpower. However, the higher mandatory allocation of power at variable cost has deterred developers. In contrast, Chhattisgarh’s shift to a 5 per cent quota has facilitated investments of over Rs 1.5 lakh crore, resulting in more than 16 GW of capacity addition. Odisha, by comparison, has seen under 4 GW of capacity being set up, translating into investments of less than Rs 40,000 crore,” he said.
Industry interest in Odisha is now reviving, with companies such as Jindal Power, Vedanta, and Adani evaluating opportunities in the state.
According to the industry body, the policy divergence led investors to favour neighbouring Chhattisgarh, which attracted over Rs 1.5 lakh crore in thermal power investments and added more than 16 GW of capacity over the past decade. Odisha, by comparison, saw less than 4 GW of new capacity and investments below Rs 40,000 crore.
Companies, including Jindal Power, Vedanta and Adani Group, are now evaluating investment opportunities in the state, Keshari said.
He said rising project costs had made the earlier concessional supply obligations increasingly burdensome. Thermal power project costs have risen to around Rs 15 crore per MW from about Rs 5 crore earlier, pushing fixed costs to nearly Rs 4 per unit from around Re 1 previously.
As a result, the tariff impact on other consumers from concessional supply obligations has increased to about 55 paise per unit from roughly 14 paise earlier, affecting project economics, he added.
Keshari said concerns over potential revenue losses to the state from reducing the allocation requirement were “largely notional”, arguing that higher investment inflows would offset any foregone gains.
A typical 1,600 MW thermal project could generate around Rs 2,000 crore in state GST during construction and about Rs 100 crore annually during operations, besides creating jobs, he said.
India’s power demand has crossed 270 GW this month amid severe heatwaves, while late-night demand has remained elevated at 240-250 GW due to rising cooling requirements, according to the industry body.
Keshari said Odisha had also faced power shortages in some areas as infrastructure expansion lagged growing industrial and cooling demand, prompting the state to invoke the Essential Services Maintenance Act (ESMA) in parts of the sector.
“The revised policy framework is expected to significantly improve investor sentiment and support Odisha’s position as a key power investment destination,” he said.
Explaining the financial implications of the earlier policy, Keshari said that thermal power project costs have sharply escalated – from around Rs 5 crore per MW earlier to nearly Rs 15 crore today. Consequently, fixed costs have risen from approximately Re 1 per unit to nearly Rs 4. Under the earlier framework, concessional supply obligations led to a marginal tariff impact of around 14 paise per unit for other consumers. However, at current capital costs, this impact increases significantly to about 55 paise per unit, affecting project viability.
Addressing concerns over potential revenue loss to the state due to its moving to a 5 per cent slab, Keshari described such apprehensions as largely notional.
“In the absence of investment, there is no revenue foregone. Moreover, even with the shift to a 5 per cent allocation, the state’s actual receivables remain broadly unchanged given the increase in fixed costs,” he said.
He further highlighted the broader economic benefits of policy reform. A typical 1,600 MW project could generate approximately Rs 2,000 crore in SGST during construction and about Rs 100 crore annually during operations, alongside significant employment opportunities.
“Taken together, the economic and fiscal benefits strongly support a transition to the 5 per cent allocation framework,” he added.
Keshari further added that the country is witnessing record-breaking power demand exceeding 270 GW this month and even late-night demand hovering around 240-250 MW due to extreme heatwaves. Even a well-endowed state like Odisha has been facing power cuts in some areas as power infrastructure and generation have not kept pace with the increasing demand for cooling and industrial load, and it had to even resort to imposing ESMA to address the situation.
This revised policy of Odisha will certainly go a long way in attracting investments in the power sector of the state and maintain Odisha at the forefront in times to come.
