Monday, Nov 24, 2014

Over-the-top demand projections render power investments idle

According to the Load Generation Balance Report 2014-15 of CEA; ** End of 12th Plan period. According to the Load Generation Balance Report 2014-15 of CEA; ** End of 12th Plan period.
Written by Anil Sasi | New Delhi | Posted: July 28, 2014 12:49 am | Updated: July 28, 2014 8:36 am

A month back, when state-owned power major NTPC Ltd invited proposals from electricity generation companies keen on selling their coal-fired thermal projects, there were 34 responses, a surprisingly high number, giving an indication of the widespread distress in the country’s power generation sector.

While a serious operational issue for thermal generators that have commissioned projects since March 2009 is the continuing lack of coal and gas, there is a more fundamental problem that is beginning to show up by way of idling of generation capacities.

The reason can be traced back to a serious flaw in the government’s power demand projections, which based its estimates on an unduly optimistic assumption of over 10 per cent GDP growth during the last five years and the corresponding estimate of a surge in electricity demand in these years.

With actual GDP growth grinding down to nearly half the estimate in the last three years, the projection made by power planners in the 18th Electric Power Survey (EPS) of an all-India peak load growth (compounded annual growth rate or CAGR) — of 9.58 per cent for 2009-10 to 2016-17 — is beginning to manifest itself in terms of commissioned capacities idling on account of lack of electricity being requisitioned by distribution utilities. As against the assumption of a 9.58 per cent growth in peak electricity load from 2009-10 to 2013-14, the actual growth was merely 3.5 per cent.

In hindsight, the assumption of nearly 10 per cent growth in peak demand clearly appears over-optimistic considering that the actual all India CAGR for peak load in the preceding years — from 2003-04 to 2009-10 — was just 3.7 per cent. This is reflected in the fact that sellers lining up include those who set up hydro power projects, the generation from which is used to bridge peaking shortages.
A lack of demand has forced most developers to idle capacities, which, in turn, result in lower-than-projected revenues, thereby affecting debt servicing, an executive with a private firm that is currently offloading assets, said.

Cash-strapped Lanco is one of the firms that is trying to dispose off generation assets to stay afloat, having being forced to sell three of its hydro power projects to clean energy specialist Greenko Energies Pvt Ltd for an estimated Rs 650 crore in February this year and now having put its 1,200MW Udupi Power in coastal Karnataka on the block as it desperately seeks to slash debt.

Delhi-based Jaypee Group is another developer that is open to selling either its hydro or thermal businesses and is in talks with potential buyers, company officials indicated.

Load forecasting, generally carried out by the government in the beginning of a plan period, forms the basis for power developers to estimate demand and set up projects.

As a rule of thumb, peak load continued…

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