Budget wishlist: Power sector
Renewable energy tenders have attracted interest from the government, which has floated several tenders, and investors
 "Budget wishlist: Power sector")
KEY DEVELOPMENTS
KEY ISSUES
- Tenders: Renewable energy tenders have attracted interest from the government, which has floated several tenders, and investors, who have actively participated in large numbers. So, renewable energy eclipsed conventional energy last year in both capacity addition and decline in generation cost (reduction of 58 per cent since 2010).
- Supply: Improved coal supply and logistics have addressed fuel shortages. Power plants on average report 24 days of coal stock - no power plant is reporting a critical stock level. Energy and peak power shortages have sharply come down to 1.6 per cent and 1.7 per cent, respectively.
- Energy use: Demand-side management efforts in lighting and energy-efficiency appliances are showing effect; large energy users like municipalities and railways are getting involved in reducing energy use.
- Investments: Those in transmission networks have been significantly enhanced to facilitate power transfer. The proposed projects under the Green Energy Corridor will further strengthen this position.
KEY ISSUES
- Viability: Financial viability of the distribution sector remains a serious issue, even as the government seeks to address the debt overhang with the UDAY Scheme, and to empower regulators through the revised tariff policy, 2016. Over two-thirds of the power utilities are making losses, despite government subsidy, and there is need for more private participation to improve operational performance.
- Capex: Financing capital expenditure remains a key challenge to meet targets for Power for All and for the renewable energy programme.
- Reforms: Stranded and underperforming assets need to be addressed through structural and regulatory reforms. This includes over 14 Gw of gas power projects lacking fuel supply, 21 Gw of private thermal capacity without power sale agreements, and other generation projects awaiting regulatory consent for capital cost true-up and fuel cost pass-through.
EXPERT VIEW: Kameswara Rao
PwC expert answers Business Standard readers' questions on what to expect from the Budget
SAMIR: Success of the UDAY scheme hinges on structuring of discom-debt takeover. This takeover by the states could cause a deterioration in their fiscal health. What can the Budget do to mitigate this?
The scheme's provisions offer reduced interest costs, and an opportunity to save on the cost of bulk power. So, it's not a zero-sum game, and to a degree, state governments benefit from lower financial burden. For the larger part, however, state governments have the accountability and the tools to address the fiscal impact. The provisions of the new tariff policy requiring cost-reflective tariffs, if properly implemented, can reduce discoms' demand for state government subsidy. Further, state governments should actively use the distribution franchisee model to reduce AT&C losses. If the tariffs offered by private operators in the recent tenders are a guide, then a sizeable portion of the government subsidy can be avoided.
Badri: What provisions do you see the government making in the Budget for the UDAY scheme?
There may not be any direct budgetary provision. The scheme essentially allows states a limit for fiscal deficit higher than the FRBM-mandated one to hold the restructured debt of discoms. The central government could, however, enhance the budgetary support under its other flagship schemes for rural electrification, network upgrade, and improved energy efficiency.
PwC expert answers Business Standard readers' questions on what to expect from the Budget
SAMIR: Success of the UDAY scheme hinges on structuring of discom-debt takeover. This takeover by the states could cause a deterioration in their fiscal health. What can the Budget do to mitigate this?
The scheme's provisions offer reduced interest costs, and an opportunity to save on the cost of bulk power. So, it's not a zero-sum game, and to a degree, state governments benefit from lower financial burden. For the larger part, however, state governments have the accountability and the tools to address the fiscal impact. The provisions of the new tariff policy requiring cost-reflective tariffs, if properly implemented, can reduce discoms' demand for state government subsidy. Further, state governments should actively use the distribution franchisee model to reduce AT&C losses. If the tariffs offered by private operators in the recent tenders are a guide, then a sizeable portion of the government subsidy can be avoided.
Badri: What provisions do you see the government making in the Budget for the UDAY scheme?
There may not be any direct budgetary provision. The scheme essentially allows states a limit for fiscal deficit higher than the FRBM-mandated one to hold the restructured debt of discoms. The central government could, however, enhance the budgetary support under its other flagship schemes for rural electrification, network upgrade, and improved energy efficiency.
Kameswara Rao
Leader (energy, utilities and mining), PwC India
Leader (energy, utilities and mining), PwC India
Pratik Agarwal
Vice-chairman, Sterlite Grid
Vice-chairman, Sterlite Grid