Renewables in limelight in 2015; Discoms' debt remain a worry

Renewables emerged as the light at the end of the tunnel for the power sector, which continued to be bogged down by the debt worries of discoms during 2015 and all eyes are on the ambitious UDAY scheme on whether it can prove to be the much-needed elixir in the New Year.
Revival of electricity distribution companies or discoms holds the key to bring back the power sector back on track and to ensure optimum utilisation of the installed capacities of electricity generators particularly thermal projects.
"Focus on renewables is undeniably a welcome move by the government. But for making such initiatives work, we have to resolve very fundamental problems of making discoms profitable by reducing commercial losses and rationalising tariffs with all seriousness," Indian Energy Exchange Director (Business Development) Rajesh K Mediratta said.

The government has rolled out an ambitious programme to push clean energy and making discoms profitable in next three years.
According to the Power Ministry data, the overall plant load factor (or the proportion of capacity utilisation) was 66.31 per cent this fiscal till November.
The PLF is low because discoms are not able to buy power and generators are running their plants at lower PLF because power cannot be stored.

"The cumulative loss of discoms has impacted the offtake of power, both in the merchant market and also through long- term PPAs. Discoms are reluctant to purchase additional power due to their poor financial health, and consequently there are very few Case I bids coming up," Lanco Infratech Executive Chairman L Madhusudhan Rao said.

Burdened with huge debts, discoms are suffering losses to the tune of over Rs 60,000 crore every year. They do not have sufficient cash to buy electricity even at the lower rates of Rs 2-3 per unit at energy exchanges.
Elaborating further, Mediratta said, "For making renewables grow, we will also have to solve problem of its integration in the grid and evolve right framework to handle its intermittency. Government should incentivise all types of power resources to sell through competitive markets rather than forcing them to sell under 25-year long-term PPAs."
Last month, the government launched Ujwal Discom Assurance Yojna or UDAY to ease the financial crunch faced by power distribution companies.

The scheme is being presented as a game-changer after a dozen of states communicated their in-principal approval for signing MoUs under this programme.
The scheme will effectively help reducing discoms' debts only after the states, discoms and the Centre ink MoUs for availing benefits under the programme as it is optional.
Government is expecting that by March 2016, the states would issue bonds worth Rs 70,000-1,00,000 crore to write off the discoms debts.
The scheme was launched to tackle debt of Rs 4.3 lakh crore on discoms along with other measures to cut power thefts and align consumer tariff with cost of generating electricity.

The UDAY scheme envisages the discoms reaching break-even in the next 2-3 years through four initiatives -- improving operational efficiencies, reducing power costs, decreasing interest cost of DISCOMs and enforcing financial discipline on DISCOMs through alignment with state finances.
The states having supported the scheme so far include Andhra Pradesh, Madhya Pradesh, Jharkhand, Rajasthan, Gujarat,
Another major issue before the government is putting in
place a power transmission network to support the huge clean energy capacities and for running existing generation capacity to avoid any congestion.
Government is in the process of auctioning transmission projects worth Rs one lakh crore during this fiscal. It has already auctioned many such projects and improved participation of private players. But experts feel that there is a long way to go.

Essar Power Managing Director Sushil Maroo said, "Bidding for transmission projects will allow faster creation of assets and give opportunity to private players who have now achieved reasonable scale to be able to contribute."
"The main problem in transmission is obtaining statutory clearances and ROW (Right of Way) related problems. Government should ensure UMPP (Ultra Mega Power Projects) model in transmission also wherein all the statutory clearances and ROW approvals need to be provided to the developer and then he can set up the project as the Government is best capable to obtain these approvals for the project," he added.

He further said that there should be clear guidelines and rules for ROW compensation which do not create confusion and delay the project development.
Maroo said that the new power tariff policy is aimed at creating more competition, increasing the options available to consumers which would lead to reduction of tariffs for end consumers, improvement in service quality.
The new tariff policy is expected to be approved by the government in next month and is aimed at boosting clean energy and improving regulatory mechanism of discoms for ensuring rollout of big investments in the sector.
Maroo said, "There are some concerns which still linger. Renewable obligation should not be made mandatory for developers because its altogether a different technology and expertise and is being tackled as a separate mandate by Ministry of New and Renewable Energy."

He is of the view that the thermal developers might not be best capable to build up this capacity bringing in inefficiencies which would lead to higher thermal tariffs.
Secondly, renewable tariffs have come down significantly and they are in itself becoming viable so no need to push with this scheme, he added.
Despite all these issues, the government feels that the huge capacity addition coupled with higher generation and improve transmission capacity has resulted in considerably reducing the electricity shortage.
The government is also working on auction of four UMPPs by March 2016. These UMPPs are proposed in Cheyyur (in Tamil Nadu) and Bedabahal (in Odisha), Banka in Bihar and one in Jharkhand.

The Government is also implementing an ambitious Rs 43,033 crore plan to supply separate electricity through separate feeders for agricultural and rural domestic consumption to ensure round-the-clock power rural households.
Also, Rs 32,612 crore Integrated Power Development Scheme has been launched for strengthening sub-transmission and distribution systems this year.
Plan is afoot to reduce transmission losses by 5 per cent, which is significant and it stood at around 27 per cent. A five per cent saving in transmission losses meant that India has additional 15,000 MW of power without any fresh investment, the Power Ministry has said.