Even as plants are
idling and there is hardly any uptick in demand, the number of states
that have sought a hike in power rates is steadily increasing.
-Anil Sasi
Since January this
year, over half a dozen states have kicked-off the process of hiking
their power tariff. What is ironical, though, is that the steady
stream of tariff hike proposals comes in a year when electricity
demand is sluggish and capacity utilisation of the thermal power
plants — the country’s electricity sector backbone — have
fallen precipitously.
While, in theory, a
higher supply and low demand should precipitate a downward push on
prices, the series of tariff hike proposals also militate against the
assumption that delicensed generation and open access to the grid, as
mandated under the Electricity Act, 2003, should have fostered
competition and thereby reduced the cost of supply of electricity. So
what has gone wrong?
In the last 13
years, generating capacity to the tune of 1,30,000 MW has been
successfully commissioned, effectively doubling the country’s
installed capacity to 2,68,000 MW. However, recent years have seen
tardy growth in electricity demand, especially industrial load, has
led to a sustained drop in the plant load factor (PLF) — an
indicator of capacity utilisation — of the country’s power
plants. In the last one year the average PLF of thermal capacity has
plummeted by about 8 percentage points, with the PLF of generating
stations in the state and private sector estimated at just a tad
above 50 per cent.
The reason why
tariffs have not reflected the fall in demand is simple. If one
considers that the capacity of the entire state GENCOS (generation
companies owned by states) and a substantial chunk of private
capacity is tied with discoms on long term PPAs (power purchase
agreements), meaning that whether the plants operate at half the
capacity or one third capacity, the entire fixed or capacity charges
are payable by the distribution companies that buy power from them.
power
For instance, in
case Delhi, the PLF of Badarpur, Pragati, Rithala in April this year
were less than half of what they were during the same month last
year, in case of Haryana, the Panipat Thermal Station and the Rajiv
Gandhi Thermal Station had crashed to near zero while in Punjab, the
PLF of the Bhatinda Thermal Power Station was down to less than 10
per cent in April this year and that for the Ropar thermal power
station was down to 29 per cent from over 54 per cent (see chart).
Because of the loading of the capacity charge that happens
irrespective of the efficiency at which the plants are operating, the
consumers have to still cough up the full capacity charges of these
heavily underutilised plants as part of their monthly electricity
bills, which increases the average cost of electricity.
So, even as the
installed capacity has increased, the lack of infusion of competition
into the process under which tariffs are determined has put paid to
the overall objective of lowering the cost of supply.
While this is
broadly the situation of a majority of coal-fired plants, in the gas
sector, at least 15 stations reported zero PLF in April, an
unprecedented number that has been sparked off by the lack of fuel.
Stations such as Reliance Power’s Samalkot 2,420MW, GMR Vemagiri
800MW, three gas-based power plants aggregating 1,200MW in
Uttarakhand’s Kashipur are reported to be among those that did not
get enough gas to declare commissioning of these projects. So none of
these plants figure in the Central Electricity Authority’s
monitoring format, even as lenders are in a fix over the possibility
of these stations turning into non performing assets.
TARIFF HIKES
So, even as plants
are idling and there is hardly any uptick in demand, the number of
states that have sought a hike in power rates is steadily increasing:
* On June 18, the
Uttar Pradesh State Electricity Regulatory Commission (UPSERC)
increased power tariff for all categories of consumers in the state
by 5.47 per cent.
* On June 13, the
Delhi regulator hiked the power tariff up to 6 per cent by increasing
the surcharge component. DERC hiked the power purchase cost
adjustment charges — a surcharge component — up to 6 per cent in
order to compensate private discoms for variations in market-driven
fuel cost.
* On May 25, despite
large-scale protest against power tariff hike, state-run Chhattisgarh
State Electricity Regulatory Commission (CSERC) decided to effect on
average 14 per cent increase for all categories of customers.
* On March 27, the
Telangana State Electricity Regulatory Commission in its power tariff
order for 2015-16 hiked the overall tariff by 4.42 per cent, with the
average increase in tariff working out to 1.3 per cent for the entire
domestic category.
In all, till March
2015, power distribution utilities in Bihar, Haryana, Madhya Pradesh
and Uttarakhand had sought tariff hikes ranging from 15 per cent to
26 per cent from April 1, while those in Andhra Pradesh, Gujarat,
Maharashtra and Telangana have asked for an increase of up to 8 per
cent, according to a report by rating agency ICRA. The report,
released in March 2015, noted that a few states have not sought any
increase in tariff while power utilities in 14 states are yet to file
their tariff petition with the electricity regulatory authorities.
LACK OF DEMAND
While, at the
consumer end, surging tariffs are a bother, for developers and
lenders alike, the big worry is demand. Subdued demand, an indicator
of sluggish growth in the industrial sector, portends mounting
problems for the developers of projects that have been commissioned
in the last five years and the lenders who extended loans to them.
For an economy that is ostensibly on the mend, an almost flat demand
curve for electricity — a key indicator of whether an industrial
revival is underway — and a mounting list of 57 thermal power units
across the country that are shut down due to lack of demand despite
the onset of peak summer, continues to belie an industrial revival
story. Of the country’s total installed generation capacity of
2,68,603 MW, the peak demand met in mid-May (May 23) was less than
half at just 1,34,892 MW, according to official data available with
grid managers.
For the current
oversupply situation to translate into some degree of respite for
consumers by way of lower tariffs, something that was weaved into the
broad tenets of the Electricity Act, 2003, it’s unlikely to happen
anywhere in the near future.
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