Ind-Ra: Power Purchase Rationalisation by Discoms is Welcome

India Ratings and Research (Ind-Ra) believes that suggestions for the rationalisation of power purchase by Delhi distribution companies (discoms) will become a trend setter in the power sector. Re-assessment of power purchase strategies is likely to have a waterfall effect of having the most economical power plants utilised and old plants renovated where it makes economic sense. Rejection of high-cost power would weed out inefficient power plants and enable better utilisation of newer coal-based power plants.

For FY14-FY15, Delhi's energy supply forecast was 20.3% surplus, however peak demand forecast was 6.1% deficit (CEA: LGBR 2014-15). This presents a conundrum for utilities on whether to retain long-term contracts for round-the-clock (RTC) power from base load plants or resort to short-term purchases to meet peak demand. Peak demand being time and season specific, RTC power for meeting peak demand would remain unused for large periods in a year. Unutilised power is being sold through merchant route by utilities.

Lack of gas plants and hydro stations to meet the peak demand requirements of the country has resulted in high cost of meeting peak demand, since capacity charge has to be paid in respect of RTC power from base load plants irrespective of energy utilisation. Rationalisation of power purchase may prompt discoms to buy peaking power through competitive bidding. Standard Bid Document for the purchase of medium-term peaking power has been notified by the Ministry of Power. In FY13-FY14, the monthly average price of the power sold through traders for peak period ranged from INR3.61/unit-INR4.98/unit and the annual weighted average price of electricity transacted through power exchanges was INR2.90/unit. Also, the actual cleared volume of electricity in power exchanges was 16% less than the unconstrained volume due to transmission congestion during the same period.

According to the annual revenue requirement filed for FY15-FY16, the estimated average cost of power for Delhi discoms BSES Rajdhani Power Limited, BSES Yamuna Power Limited, Tata Power Delhi Distribution Limited and New Delhi Municipal Council (deemed distribution licensee) works out to INR4.27/unit. Total energy purchase is estimated at 41.8BU. However, 10.6BU (25% of estimated energy purchase) of surplus energy is estimated to be sold at the average price of INR2.65/unit.

The projected surplus energy available with BSES Rajdhani Power, BSES Yamuna Power, Tata Power Delhi Distribution and New Delhi Municipal Council if sold through the merchant route would result in a loss. Loss on sale of surplus energy would constitute a tariff burden of INR0.68/unit on the expected power sale to consumers for FY15-FY16.

During the 12th Five-Year Plan, the installed capacity of 29,367GW has been identified for renovation and modernisation and life extension works, which constitute about 16.1% of all India installed thermal capacity as of January 2015. As of December 2014, renovation and modernisation and life extension works have been completed for 2,630MW in 12th Five-Year Plan period (CEA: Renovation and Modernisation of Thermal Power Stations, 3Q15).

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