Despite the fact that installed power capacity in the country is about double than power generated, the power utilities are not able to supply round the clock power supply to the people. Now in view of coming Lok Sabha elections, every political party is planning to promise more subsidies to all sections of consumers. The reforms in the power sector in India is still a distant dream as benefits of surplus power generation capacity are negated by power distribution companies which are facing the cash crunch.
Power surplus India may be a major step towards reliable electricity supply and universal access but the power sector is facing several serious challenges as well. In the urban areas, the average power cuts are to the tune of 25 hours in a month whereas in rural areas the supply rarely exceeds 12 hours in a day. The main reasons are financial constraints of power utilities which prohibits them from purchasing power as per demand and transmission constraints. Bailouts have been a recurrent feature as the sector is marred by shortages, operational inefficiencies, high-interest costs and cross-subsidies for political gains.
The country has a generation capacity of 3, 43,899 MW while the maximum power demand this year was 1, 70,121 MW. The relicensing in power generation has opened the floodgates of private thermal generation capacity across the country. The private developers setting up thermal power plants took undue advantage of the situation and forced the state power utilities to sign power purchase agreements for a period of 25 years with a deemed generation clause.
The power purchase agreements with private companies with a “deemed generation” clause that forces the power distribution companies (Discoms) to pay for the power that they may not consume during the lean periods. The fixed cost payment for backing down of units varies from 50 to 100 percent of the subsidy amount paid by the state government to the Discoms. This has also crippled the state sector thermal units which have been put on forced outage. The plant load factor of thermal plants which used to be 80 percent has now come down to around 60 percent.
Another problem to the aggressive capacity increase especially in the thermal sector is the stressed situation as far as the funding is concerned. Non-availability of regular fuel supply arrangements, lack of Power Purchase Agreements (PPA), the inability of the promoters to infuse equity and working capital and other regulatory and contractual issues were some of the reasons for rising stress in the power sector. Private power producers are at the government’s doorsteps crying out for a cash injection and bailout for the private sector. Now the government has setup a committee headed by cabinet secretary to look into the matter.
In addition to it, bailouts have been made a recurrent feature for the power sector which is marred by shortages, operational inefficiencies, high-interest costs and cross-subsidies for political gains. The government must review and discuss publically the plus and minus points of Electricity Act 2003 but not in a way the government envisages in the form of Electricity (Amendment) bill 2014.
Now the government has planned to further bifurcate power distribution into the carriage (the distribution infrastructure carrying the electricity to consumers) and supply (for the sale of electricity to consumers). That means between the pillar posts outside your house, to which power is brought by the distribution company, into your house there would be a licensee in the name of competition. The motive is very simple to nationalize the losses and to privatize the profits.
Today more than 25,000 MW of thermal power generation capacity is on sale and buyers are hard to find. This idle capacity is one of the major contributors to the huge Rs 10 lakh crore bad debts of commercial banks. Further creation of excess capacity in solar power will add to the economic woes.
The mix of thermal and solar need to be balanced; analysts said adding huge investments would have to be made in grid connectivity and distribution. A recent power ministry study on optimal energy mix has virtually concluded that the present solar and wind power target is more than adequate to achieve the optimal mix of renewable and non-renewable sources of energy. It has suggested renewable energy should not be more than 40 percent of energy requirement.
Power transmission is another critical area because often the place of power generation and the place of power consumption are located far apart. The coal-rich states or states with the run of rivers can generate a lot of power, but they may not be rich enough to consume this power. The eastern and northern states have more generation capacity while the western and southern states cannot use this power because of transmission constraints.
The current challenges are far too strong as power utilities are seeking re-negotiation of old and expensive solar and wind power purchase agreements (PPAs) and delaying the signing of new PPAs. The power utilities which are already struggling with stranded thermal units will find it difficult to sign new PPAs.
For the survival of power sector and meaningful reforms, there is no place for free lunches. Further, no reform is possible without the involvement of power sector engineers and workers.