Saturday, Oct 25, 2014

Still in the dark

Written by The Indian Express | Posted: June 12, 2013 2:17 am

Lack of clarity on fuel,crisis-ridden distribution utilities remain festering problems in the power sector

On paper,a cumulative power generation capacity of over 41,000 MW has been declared commissioned in the last couple of years (20,501 MW in 2011-12 and 20,622 MW in 2012-13). Recent initiatives have boosted the reforms agenda,including the financial restructuring package announced for state electricity boards,increased momentum in the signing of fuel supply agreements by Coal India Ltd,and the possibility of further tariff hikes by state distribution utilities — nearly all states have hiked tariffs at least once in the last 18 months. Yet,on the ground,problems remain. Uncertainty over coal supplies for commissioned projects,the method and pricing of costly coal imports,floundering gas-based projects and question marks over the scope of regulatory intervention are among the major challenges that continue to fester. Lack of fuel has forced much of the capacity commissioned in the last three years to run on partial load,even as the continuing working capital problem of distribution utilities means that there are few takers even for the electricity generated.

Despite northern states facing sharp peaking shortages,the peak hour tariffs recorded on the country’s largest power exchange (day-ahead market) ranged between Rs 2.60 and Rs 4.05 per unit in the northern region on Tuesday. The low spot rates reflect the fact that utilities are unwilling to buy power in the spot market and prefer instead to shed load,largely due to a cash crunch. In the south,it’s a different story altogether. On Tuesday,the peak rate there was a whopping Rs 16,reflecting a severe power crunch faced by a region that includes some of the country’s biggest manufacturing hubs for automobiles,IT,textiles,leather and heavy engineering. This is largely due to a scramble among industrial consumers across Tamil Nadu,Andhra Pradesh and Karnataka to arrange for power through the spot market window to tide over the debilitating shortages. The lack of adequate grid interconnection between the southern region and the rest of the country has compounded the problem.

On the generation side,the foremost worry is that the momentum seen in the last few years,led by a private sector thrust,could fizzle out if investor concerns are not assuaged quickly. Clarity on fuel is the primary issue that needs to be addressed,for which a concerted effort by the concerned ministries and stakeholders is required. Plus,work on restoring the viability of the distribution sector needs to be fast- tracked,if overall confidence levels are to be revived in the sector.

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