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Cover Story | May 2016

Power Tariff Policy to change things for the better

Anil Sardana | Managing Director and Chief Executive Officer, Tata Power

What is the kind of estimated loss per annum in terms of energy at prevalent prices and estimated capital/interest loss for the companies that have set up these capacities?

While exact numbers and figures will be hard to come by, for long Indian power producers have suffered great losses due to idle capacity. The recently enacted Power Tariff Policy has, however, brought relief to the industry. The new Power Tariff Policy allows, Indian power producers to sell spare capacity via electricity exchanges as part of reforms that seek to improve affordability, reduce litigation and revive investments. The Policy is expected to reduce the burden of fixed charges, which retailers have to pay to generators as a component of the tariff even for the power they haven´t purchased because of their long- term purchase commitments. Now, profits earned from the sale of spare generation capacity will be equally divided among generators and buyers.

Due to prevalence of higher generation capacity power is trading at very low prices on the power exchanges. To what extent it is affecting viability of new projects - coal- or gas-based or any other ones?
Generation capacity in the country has been steadily increasing, driven by fresh investments by private players, attracted by a combination of factors such as growing demand for power, alongside economic growth and creation of a vibrant power market that provides price signals for trading of merchant power. Trading is not negatively impacted due to increased generation. In fact, the outlook for power trading is bright in the long term. However, the power sector value chain is currently facing challenges due to multiple issues like poor financial health of discoms, lower trading margins, transmission constraints, lack of regulatory clarity for trading of imported power, lack of growth of open access.

How power sector and related sectors are getting affected due to inability of discoms to buy more power and provide round-the-clock power supply? How do you see the contrast between surplus power capacity and power scheduled power outages?
The power sector is facing a huge issue due to slow reforms in distribution. There is no good reason for government to be in the business of distribution but the state is unable to let-go of the sector due to various factors of general indecision and ennui. There is lack of political will in pursuing reforms with earnestness and whatever is being done today is more to keep various vested interests in balance. Although several states are adapting different measures to deal with poor financial health of discoms - steadily increasing tariffs, upgrading infrastructure to check losses, aligning with UDAY schemes - this continues to remain a matter of top concern for the sector. Discoms continue to prefer load shedding against supplying unmet demand of the customers.

Power distribution needs a combination of tariff increases to reflect the increasing cost of fuels and depreciating rupee, as also competition & open access. The distribution segment caters to 200 million consumers with a connected load of 400 GW, comprising one of the largest customer bases in the world. However, high financial losses of the discoms are almost becoming a big question mark for viability of generation capacity addition in India, in terms of their credit worthiness to pay for power. Also, creation of regulatory assets in the books of discoms has dried up their ability to source incremental bulk power. These need to be liquidated by way of tax-free bonds, etc, so that customer´s cost of paying for regulatory tariffs can be optimized.

UDAY scheme for distribution is one of the enabling policies that have ushered the investment confidence of the sector. UDAY is a good scheme; it´s cleaning up giving the opportunity to state electricity boards to make sure that once again the losses don´t pile up on their balance sheet or P&L. One has to now make sure that implementation under UDAY happens in the manner that it has been conceptualised in the scheme. The key part of this scheme is how the state electricity boards will, within the assigned time, reduce their AT&C losses, will make sure that the delivery of power will happen as it ought to happen. If these two aspects are taken care then people should get electricity on predictable basis.

What are the remedies available for bringing the companies suffering from idle capacities above water?
Strengthening the transmission and distribution infrastructure physically and financially is critical to ensure proper evacuation of power. In addition, there is need to resolve all issues pertaining to fuel - both availability and price. The recently enacted Power Tariff Policy has, however, brought relief to the industry. The new Power Tariff Policy allows, Indian power producers to sell spare capacity via electricity exchanges as part of reforms that seek to improve affordability, reduce litigation and revive investments. The Policy is expected to reduce the burden of fixed charges, which retailers have to pay to generators as a component of the tariff even for the power they haven´t purchased because of their long- term purchase commitments.

According to reports about 20,000 MW of built power generation capacity is lying idle due to various reasons. What is the real quantum and what are the reasons for such a huge idle capacity?
Choked and inadequate transmission networks are the primary reason behind generation capacity lying idle in India. In addition to inadequate transmission capacity, strict regulatory restrictions on the utilisation of existing networks, keep a large amount of transmission capacity idle as a safeguard against grid collapse. According to Central Electricity Authority (CEA) data, India´s thermal power plant load factor (PLF), a measure of the utilisation of a power plant, slipped to 64.95% in February, 2016 as compared to 65.72 in February, 2015.

Restrictions on capacity utilisation of transmission corridors often prevent generation companies from supplying power even after signing long-term power supply agreements. Moreover, power generation companies in India are running below capacity as debt-ridden power distribution companies are shying away from buying more power. Distribution continues to be the weakest link in the Indian power sector, with the customer not being at the centre stage of the delivery process and fiscal viability. Aggregate Technical and Commercial (AT&C) losses in India continue to be one of the highest across the globe.

What is your generating capacity, and give a break-up of various sources?
Tata Power is India´s largest integrated power company with a growing international presence. The Company together with its subsidiaries and jointly controlled entities has an installed gross generation capacity of 9130 MW and a presence in all the segments of the power sector viz. Fuel Security and Logistics, Generation (thermal, hydro, solar and wind), Transmission, Distribution and Trading. It has successful public-private partnerships in Generation, Transmission and Distribution in India namely ´Tata Power Delhi Distribution Limited´ with Delhi Vidyut Board for distribution in North Delhi, -´Powerlinks Transmission Ltd.´ with Power Grid Corporation of India Ltd. for evacuation of Power from Tata hydro plant in Bhutan to Delhi and ´Maithon Power Ltd.´ with Damodar Valley Corporation for a 1050 MW Mega Power Project at Jharkhand. Tata Power is serving more than 2 million distribution consumers in India and has developed the country´s first 4000 MW Ultra Mega Power Project at Mundra (Gujarat) based on super-critical technology. It is also one of the largest renewable energy players in India with a clean energy portfolio of 1630 MW.

Its international presence includes strategic investments in Indonesia through a 30% stake in the leading coal company PT Kaltim Prima Coal (KPC), 26% stake in mines at PT Baramulti Suksessarana Tbk (´BSSR´) and a geothermal project; in Singapore through Trust Energy Resources to securitize coal supply and the shipping of coal for its thermal power generation operations; in South Africa through a joint venture called ´Cennergi´ to develop projects in sub-Saharan Africa; in Zambia through 50:50 joint venture with ZESCO for 120 MW Hydro which has become operational in 2016; in Georgia through AGL which is a joint venture with Clean Energy, Norway & IFC for development of 185 MW hydro project which is scheduled to be commissioned in 2016; in Australia through investments in enhanced geothermal and clean coal technologies and in Bhutan through a hydro project in partnership with the Royal Government of Bhutan.

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