NDA govt’s electricity push when states are switching off costly powerhttps://indianexpress.com/article/business/business-others/nda-govts-electricity-push-when-states-are-switching-off-costly-power-4862810/

NDA govt’s electricity push when states are switching off costly power

Being locked into these expensive cost-plus perpetual contracts, despite having cheaper power available in the spot market, effectively bleeds the state discoms and limits their capacity to push for last mile linkages by offering cheap power.

Being locked into these expensive cost-plus perpetual contracts, despite having cheaper power available in the spot market, effectively bleeds the state discoms and limits their capacity to push for last mile linkages by offering cheap power.  (Representational Image)

The NDA government’s electricity push aimed at last-mile connectivity announced by the Prime Minister on Monday comes at a time when states have moved to unplug expensive electricity supplied by a number of power stations operated by Central utilities.

Over the last three months, as many as 16 states and Union territories are learnt to have surrendered a cumulative entitlement of 6,625 MW of electricity from mostly old and inefficient power stations operated by Central utilities such as thermal major NTPC Ltd and hydroelectric utilities NHPC Ltd and THDC India Ltd in recent months.

Most of this supply is under contracts (power purchase agreements or PPAs) that states are locked into, wherein the power generation utility is entitled to extract the fixed charges even if distribution companies or discoms are not drawing their allocated share of power. At least a third of these states — including Madhya Pradesh, Haryana, Rajasthan, Bihar and Jharkhand – are ruled by the BJP, either on its own or in a coalition.

A majority of these thermal and hydro power generating stations operate on the cost-plus tariff model, under which developers get assured returns over the investments made and operating costs are passed on entirely to the consumer. The overall tepid electricity load trends on account of the continuing sluggishness in the industrial sector has further prompted the move by states to give up their allocations from these stations.

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Being locked into these expensive cost-plus perpetual contracts, despite having cheaper power available in the spot market, effectively bleeds the state discoms and limits their capacity to push for last mile linkages by offering cheap power. Many of the thermal plants under question are operating at very low plant load factor and many units remain under continuous shutdown. As a result, many new power plants are in financial distress due to poor offtake and are hard pressed to service loans.

“The stranglehold of state and central generating stations on the government and the electricity regulators is such that the discoms are not allowed to exit the legacy long-term power purchase agreements of the pre-reform era and obliged to pay entire fixed and variable charges even if these plants are hardly operating,” an analyst tracking the power sector said. As a result, despite the available surplus supply, there are admittedly over four crore households, or about 20-25 crore people living in darkness.

On Monday, the Prime Minister launched a nationwide electrification scheme — the Pradhan Mantri Sahaj Bijli Har Ghar Yojana ‘Saubhagya’ scheme — which aims to provide electricity connections to cover these 4 crore families that still lack an electricity connection. The power from most of these plants from where states have surrendered their allocations averages at about Rs 5-6 per unit, even as the prices in the day-ahead market on the power exchanges averages at about Rs 3-3.5 per unit.

Despite the lower prices, there are no takers for about 50 per cent of the power offered on the power exchanges — partly a result of the fact that financially-starved discoms lack the leeway to shift from costly power sources to cheaper options.

Discoms are generally singled out as culprits for the power sector’s woes, while the practice of state-owned generators saddling them with expensive power has escaped the attention of policymakers. “Unless discoms are allowed to exit from the old, inefficient and polluting PSU generators as wells from other exorbitant PSU power plants, they will not have money to buy additional power required to supply additional consumers. Delicensing generation sector has been a great success but in order to tap its benefits in full measure, it is necessary to free up discoms from old PPAs,” an official from a state-owned discom said.

Given the power surrendered by states, an exercise that they had initiated over the last 30 months, the Centre has now moved to ask other states if they are interested to avail of this power. “Suitable reallocation can be considered by the Ministry if other states move to seek this surrendered power. Some states such as Uttar Pradesh and Himachal Pradesh have already moved to claim some of this,” a power ministry official said.