The Modi government has claimed several records in the power sector in its first year in office, including the highest annual capacity addition ever and the best generation growth in two decades with output touching the trillion unit mark. What it hasn’t pointed out is that 2014-15 also recorded the lowest plant load factor in over 15 years with the country’s power capacities operating at a mere 65%.
That the power sector, which till recently was only worried about fuel supplies, is sitting on a fresh time bomb has been brought to Prime Minister Narendra Modi’s attention by top government officials in a recent meeting to assess infrastructure sectors. “Now we are staring at a new power crisis that requires an expeditious intervention.
There are no takers for all the generation capacity that is in place. There is demand but they don’t have the money to pay for the power due to the health of the discoms (state distribution companies),” a senior government official told ET, adding that discoms across all states had incurred accumulated losses of Rs 2.51 lakh crore in 2012-13.
In 2014-15, 22,566 MW of capacity was commissioned, which officials and experts said were stuck in the pipeline for years till they were put on the fasttrack by the UPA in its fag end through the Cabinet Committee on Investments.
India now has an installed power capacity of 158,000 MW with 30,000 MW more in the pipeline. Another 1,00,000 MW would be added from solar power over the next five years, as per the government’s plans. “Who will buy all this power if discoms are unhealthy?” said another official aware of the presentation made to the Prime Minister by the NITI Aayog on May 2 where the issue was red-flagged.
“The PM was informed that if this situation continues, it will become a very big problem and must be looked into now,” he said. “The average gap between power generation costs and tariffs charged by state discoms is now 82 paise and makes generation unviable,” the official said, adding that power firms already owe Coal India around Rs 8,000 crore as they haven’t been paid by discoms.
A bigger worry, said experts, is that no new power generation project has been announced in the past two years and the low PLFs as well as lack of clarity on bidding parameters for new ultra mega power projects has made investments unattractive for now.
“We are back to the 1990s for the power sector with plant load factors in the low sixties. My worry is even if we tide over this crisis, there will be a bigger supply crisis four year from now when demand would rise further but no new plants are slated to come up,” said Kameswara Rao, leader energy, utilities and mining at consulting firm PwC.
At current utilisation levels, electricity producers may still be able to service their debt, but their profit margins would take a serious hit, Rao said, stressing that this is a key reason for prospective investors to put off any greenfield project plans.
Officials said that the plant load factor would remain under stress till tariff reforms are pursued with states. And unless state distribution utilities are made viable and tariff reforms are pushed again, the government’s 24X7 power promise would face a serious challenge.
“Just six state discoms are not in the red – Karnataka, Gujarat, Punjab, West Bengal, Delhi and Sikkim and transmission and distribution sectors require an investment of Rs 3 lakh crore,” said an official referring to the NITI Aayog presentation to the PM. Top cabinet ministers, including Finance Minister Arun Jaitley, power and coal minister Piyush Goyal, oil and gas minister Dharmendra Pradhan and transport minister Nitin Gadkari, were present at the meeting.
Rao said discom accounts are significantly delayed and often don’t reflect that they haven’t been paid receivables from their own state governments, so the their accumulated losses may be far worse by now than the Rs 2.51 lakh crore figure for 2012-13.
With power secretary PK Sinha retiring this month, his successor to be picked soon by the Prime Minister-led Appointments Committee of the Cabinet would have his plate full, said an official, referring to the new challenges that have arisen in the sector that the government is gearing up to counter. “The focus is now more on transmission and distribution sector,” said a power ministry statement, recapping its ‘record achievements’ in the government’s first year on Wednesday.