States opt for de-allocation of costly power

Prefer drawal of cheap power to drastically cut financial burden

Amid increased availability of cheap power in the market due to surge in generation, some states have decided to deallocate costly power drawn from the central sector, while some states are resorting to loadshedding due to deteriorating finances.

Odisha, Rajasthan, Delhi, Himachal Pradesh, Sikkim, and Meghalaya, apart from Damodar Valley Corporation, have communicated to the  power ministry for deallocation of their total share of 3,793.52 Mw, either permanently or for some period, citing the higher cost of power purchase at Rs 5-10 per unit. Delhi alone has proposed to surrender 2,675 Mw — of which,  2,255 Mw permanently. Jharkhand, Tripura, and Andhra Pradesh opted for loadshedding during some period to avoid payment towards increased variable cost.

The AAP government in its communiqué to the Centre said the average power purchase cost of Delhi was high vis-à-vis many states resulting in the levy of a higher electricity tariff. Delhi Power Minister Satyendra Jain noted the decision to surrender power from the central sector was taken to reduce the burden of electricity tariff. He appealed to the Centre for the reallocation of Delhi’s share to other needy states. Rajasthan government has called for the deallocation of its share of 9.75 Mw from NTPC’s Jhajjar plant forever.

Kameswara Rao, partner and leader (energy, utilities and mining) at PwC told Business Standard, “Utilities are under pressure to justify their immediate payments but must take a longer term view. Due to fixed costs, power purchase agreements will show higher tariffs during periods of lean demand, but offer guaranteed availability and lower costs as demand picks up in the future. As generation projects have a long gestation and new projects are more expensive, utilities should make these decisions with 10-15 years’ timeframe in mind.”

According to Rao, higher tariffs, in some cases, are due to aged and inefficient plants, that utilities historically shied away from closing down to avoid aggravating shortages. The present healthy supply situation could be used to fully re-equip these projects, which will be cheaper due to savings on land, coal usage, and connecting infrastructure.

Moreover, Indian Energy Exchange (IEX) MD Rajesh K Mediratta said average prices on IEX have continued to remain below Rs 3 per unit for last three quarters in most part of country except South.

"It will be pertinent if the distribution companies use this opportunity and replace costly long-term power by cheaper power from the exchange. The huge savings made by Discoms would help them to reduce their ever increasing financial losses and benefits from such initiatives could be passed to reduce the cost burden on the end consumer," he viewed.

Deloitte's senior director (consulting) Debasish Mishra observed that the primary reason for high cost of power from some of these units are due to inadequate and high cost of fuel supply. "State governments should request Government of India for a solution to that rather than request for a contract cancellation," he suggests.

ON A POWER TRIP

• Odisha, Rajasthan, Delhi, Himachal Pradesh, Sikkim, and Meghalaya, apart from Damodar Valley Corporation, have communicated to the Union power ministry for deallocation of their total share of 3,793.52 Mw either permanently or for some period, citing the higher cost of power purchase at Rs 5-10/unit
• Delhi alone has proposed to surrender 2,675 Mw — of which, 2,255 Mw permanently
• Jharkhand, Tripura, and Andhra Pradesh opted for loadshedding during some period to avoid payment towards increased variable cost
• Rajasthan government has called for the deallocation of its share of 9.75 Mw from NTPC’s Jhajjar plant forever