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Overview | September 2016

Awaiting discom revival

Power generators are saddled with more capacity, but discoms have to brace up to cater to the demand in full. For that they have to spruce up their finances first.

The power sector of the country seems to be in full of contradictions - there are about 300 million people who do not have access to power, about a third of the population is not lucky enough to escape scheduled and unscheduled power outages, but about 25,000 MW of installed capacity is unable to find buyers, the reason is that most of the power distribution companies (discoms) are unable to buy enough power to cater their customers´ needs and even if they are ready to do so, there are not enough transmission lines to transfer excess power from pockets of plenty to the needy geographies. This highlights lack of holistic planning across the power sector. As per the estimates made in the Integrated Energy Policy Report of Planning Commission of India, 2006, if the country is to progress on the path of this sustained GDP growth rate (of 9%) during the next 25 years, it would imply quadrupling of its energy needs over 2003-04 levels with a six-fold increase in the requirement of electricity and a quadrupling in the requirement of crude oil. The supply challenge was of such magnitude that there are reasonable apprehensions that severe shortages may occur.

Surplus capacity
About 10 years down the line India´s energy sector seems to have turned around from an era of scarcity and now faces the problem of plenty, with over 25,000 MW of capacity lying idle or underutilised. The sad part is that states are not acquiring or buying power to be able to give their residents uninterrupted power supply. Because of this, the power plants are running at around 60 per cent of their plant load factor (PLF), against 78 per cent four years´ back. There are occasions that the power generating companies are saddled with excess supply, are found offering power at zero price. That is the plight of the power generation sector today.

According to the government estimates power plants of 70,000 MW, of the 300 GW (Giga Watt or 1,000 megawatts) capacity are facing some problem or the other. Fuel supply, which was the major concern for the coal-based plants, has improved over the last two years, giving relief to these plants from high cost imports. However, there is no relief in sight for 14,000 MW of gas-based power plants due to non availability of gas, while 30,000-40,000 MW of power plants, including several hydro projects, are struck at various stages of implementation.

During the recent summer, following drought experienced in many geographies over a couple of years, water shortage led to closure of some power plants in Karnataka, Madhya Pradesh, Bihar and West Bengal.

However, there is nothing to cheer about in the turn around that the power sector has achieved. The practical experience of people is that they have to cope with scheduled and unscheduled power cuts. India lags far behind other BRICs countries in per capita consumption of power. Even as the country is suffering from low per capita power consumption, facing idle capacities is the paradox that is puzzling several experts. Subdued industrial activity is also adding to the woes of the power generators.

The total installed capacity is 298 GW (approx.) as on March 31, 2016, while the peak demand is 144 GW, according to the data from Central Electricity Authority (CEA), which reflects the overall plant load factor (PLF).

Reasons
Discoms shying away from buying more power is the basic reason for the low PLF of power plants. Discoms, saddled with accumulated losses of about Rs.3.8 lakh crore as on March 31, 2015, are not buying electricity generated by new plants. Demand-supply mismatch is a reality. In the past two years, the country added about 40,000 MW of generation capacity, while the demand increased by about 10,000 MW only.

Even with adequate availability of power, Discoms may not be keen on supplying uninterrupted electricity at the current tariffs. They do not have the financial capability to supply power to match the demand. Usually, utilities with weak bill collection system prefer to shed load than buy.

Despite announcing competitive bidding tenders for 16,430 MW of Long-term Power Purchase Agreements (LTPPA), only 5,413 MW capacity was bid by Discoms. Inadequate transmission networks are the other major reason for low PLF of power generators. Strict regulatory restrictions that cap utilisation of existing networks also result in a large amount of under-utilisation of transmission capacity, constraining supplies from those having LTPPAs also, at times.

Lack of national grid connectivity to southern states is creating disparities among various regions, forcing them to buy power at a higher price in the spot market.

Phenomenal loss
Going by the conservative estimate of the present cost of Rs7 crore setting up of one MW power plant, the cost of idle capacity is estimated at Rs.1.75 lakh crore. If bank interest is to be calculated at 13-15 per cent, the real loss on capital comes to about `23,000-26,000 crore per annum.

For several reasons, the gas production in the country has slipped from 52.22 billion cubic meters (BCM) in 2010-11 to 33.66 BCM in 2014-15 leaving a lot of these power plants, with an investment value of over one lakh crore, in the lurch.

Though the domestic natural gas production level is expected to increase to around 140 MMSCMD by 2024-25, it would be too late for the existing gas-based power plants to wait. If not rescued within the next couple of years about 10,000 MW of existing gas-based plants are staring at the prospect of getting mothballed.

Conclusion
The paradox in the power sector is û having surplus capacity is a fiction and energy poverty is a reality, by whatever measure. The effort should be to ensure optimum utilisation of capacities and catering to the power needs of one and all on a 24x7 basis.

Distribution continues to be the weakest link in the Indian power Sector, saddled with huge losses and inability to buy sufficient power to meet the demand. Though Ujwal Discom Assurance Yojana (UDAY) of the Centre is proposes to reverse these trends, we have to wait for its results. Without steeply bringing down India´s Aggregate Technical and Commercial (AT&C) losses, in which India has the dubious distinction of topping the world, Power Sector revival will only remain a mirage. Another urgent need is for the state governments to reimburse all the subsidies they have granted, to ensure financial stability for Discoms.

Transmission seems be a great laggard. Though national grid is being expanded to cover various regions, same is not true at the state and inter-state levels, which is a must to check unused power and diverting it to the needy areas.

The government said that it intends to expand power generation capacity about three-fold to 800 GW by 2030. The intention is good, but balancing various sub-sectors in the sector - Generation, Transmission and Distribution - would hold the key for its success.

Another biggest hope is that the government´s recent initiatives like UDAY and Deen Dayal Upadhyaya Gram Jyoti Yojana, would improve the financial health of Discoms in the coming years. But millions of people are still living in darkness. As such, ensuring universal accessibility to power is still a far cry in the country.

There is a pick up in the industrial activity visible at the end of the tunnel. Once the economy picks up pace above 8 per cent growth, as the government is expecting, the generators may see increased power demand coming their way in a year or two. That is one of the big hopes that are keeping the industry to look into the future. Still bringing back investor confidence into the sector when the sector´s prospects are looking bleak, is a big challenge for the government.

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