Power prices slump amid discoms' fund woes

Financially ill distribution companies are resorting to load shedding rather than buying power in the short-term market

Power prices in the short-term market have declined, as financially-ill distribution companies are avoiding power purchases, even if they have to resort to load-shedding to meet the high demand, and transmission constraints have blocked power transfers across regions.

According to the latest data obtained from the Indian Energy Exchange (IEX), the country’s largest electronic platform for power trade, average prices dropped to Rs 2.027 a unit in June, compared with Rs 4 a unit in the corresponding period last year. Average prices during peak hours between April and June this financial year have fallen to Rs 2.8 a unit from Rs 3.5 a unit a year ago.

This is despite a record 21,000 Megawatt (Mw) addition of fresh generation capacity last financial year and an around 10 per cent peak deficit. “One of the ways to explain the fall is that the consumer demand is not really the power demand because the distribution companies, which form the connecting link, prefer load-shedding than buying expensive power due to financial predicaments,” said Dipesh Dipu, partner at energy and resources consultancy Jenissi Management Consultants.

State power distribution utilities have combined accumulated losses of Rs 2.4 lakh crore owing to years of stagnant retail rates. While states have resorted to rate revisions over the past year, the revenue gain is not enough to encourage utilities to engage in peaking power purchases, experts say.

“Many discoms are yet to see financial turnaround despite the recent tariff hikes. This is because many of them had not revised tariffs for many years in a row. These state utilities are facing difficulty to take working capital loans, as banks are reluctant to increase exposure to these utilities, given their financial situation. So, they are still not in a position to buy short-term power and are opting for load-shedding,” said Debashish Mishra, senior director at Deloitte Touche Tohmatsu India.

He added short-term power prices are expected to remain depressed for the next 18-24 months in the country, barring the southern region.