India’s summer will be distressing for power utilities and consumers.
Coal shortage at power plants means output hasn’t kept pace as demand increases with rising temperatures. Distribution companies are buying electricity from energy exchanges, where spot prices have gone up by 58 percent on a yearly basis in March and doubled over the previous month.
Higher short-term prices on exchanges will be positive for traders as they will generate profits, Sambitosh Mohapatra, partner, utilities and power at PwC, said. “It may have a negative impact on discoms as it will increase their financial stress.”
Discoms find it difficult to pass on higher costs to consumers as increasing tariffs is a politically fraught move, one of the reasons that left them buried under debt. The government came out with UDAY, or Ujwal DISCOM Assurance Yojana, in November 2015 to get states to take on part of the debt and issue bonds for the rest, besides cutting losses. While the utilities pared a quarter of their losses by March last year, according to Power Minister R K Singh’s written reply to Lok Sabha, these still remain high at Rs 36,000 crore.
A shortfall in generation would also mean more outages due the demand-supply gap, more so in smaller towns and rural regions in India. Prime Minister Narendra Modi’s pledge to ensure electricity to about a fifth of 18 crore households still living in the dark will also increase demand, adding to the shortage.
Demand has already gone up by almost 10,000 megawatts this month with the onset of summer, according to Rajesh Mendiratta, business development executive at India Energy Exchange. “Power is being procured more by Gujarat, Uttar Pradesh, Andhra Pradesh, Telangana and Tamil Nadu.”
The country’s peak demand is 157,000 megawatts this month, 15 percent higher than a year ago, according to data on Central Electricity Regulatory Commission’s website. The coal stock at thermal power plants, according to Central Electricity Authority website, was 15,325 metric tonnes last week, about 44 percent lower than a year ago.
The crunch sent power prices higher. The average price on India Energy Exchange is more than Rs 4 for every unit compared with around Rs 2.6 a year ago. Average price for evening peak power had risen to its monthly high on March 14 at Rs 7.9 per kilowatt hour. On March 21, it was Rs 7.
Demand has gone up because temperature is soaring suddenly and power is also required for watering fields, said Anil Razdan, former secretary at the Ministry of Power. “Producers might not be able to generate electricity at prices quoted earlier because of costlier imported coal. Plants are also not getting enough supply of coal and, therefore, discoms are buying from the exchange.”
For Eastern Power Distribution Company of Andhra Pradesh Ltd., distributor for five districts in the southern state, the demand more than doubled over the previous month to 60 million in March, Managing Director HY Dora said. “Compared with last year, that’s a 5 percent increase and we have to buy power from the exchange.”
Gujarat Urja Vikas Nigam Ltd. purchased 600 million units from the exchange in February at a daily average of around 21.4 million units. By March 17, it had bought 480 million units at an average of around 28.2 million units per day.
“The price discovered in power exchange is higher due to a large number of utilities/buyers bidding for procurement of power owing to various reasons like increase in demand and coal shortage,” Pankaj Joshi, managing director of the discom, said in an emailed reply. It will ask the state electricity regulatory commission to pass on the entire costs to the consumer, he said.
RK Singh, minister of state for power and new & renewable energy, acknowledged that power demand is 6.5 percent higher than the year-ago period. “We are in touch with coal and railways ministry and we will push up the current target of 275 rakes per day to 280 per day next year. We have built up surplus coal stock for 10 days.” said
Coal shortage comes at a time demand from factories is also expected to increase as India’s growth recovers from the setbacks of the cash ban and implementation of the nationwide Goods and Services Tax.
In the last six years, the economy had slowed down, there was surplus generation aided by renewable power and the government took measures to save power used for lighting roads. That led to a slower demand growth, allowing discoms to procure from exchanges at competitive prices and reduce dependence on long-term purchase pacts, Mohapatra said. With bad loans across thermal generation projects and unresolved hydro and gas stations, short-term prices would crawl up, he said.
Rising heat, improving economic growth, more consumption by household users and lower coal output would create a shortfall. Discoms need to expedite long-term power pacts, Mohapatra said. “That will ensure they lock in power at competitive prices without distressing their financial condition.”