Discoms ramp up power supply during elections, despite demand surge

States like Karnataka, Odisha and Haryana have kept their power tariffs unchanged, while Bihar has cut rates

In the election season, power outage is bad news which no state wishes to inflict on the voters. To ensure there is no such risk, state electricity boards (discoms) are doubling down on power supply. So, while demand for power has touched even 233 GW this May, an over 11 per cent year-on-year (Y-o-Y) rise, there has been no major incident of “load-shedding” from any state.

To maintain the status quo, the electricity regulatory commissions are also chipping in. Since February, four of them, Karnataka, Bihar, Odisha and Haryana have issued tariff orders for FY25, the price at which consumers will pay for the electricity they use. 

Each of them have either kept the tariffs unchanged or like Bihar have cut those. The Bihar Electricity Regulatory Commission has reduced tariff by 15 paisa per unit across all consumer categories. Odisha has cut green energy tariffs by 5 paisa. This is a risky path to take since the demand for electricity is rising fast across India (See table).

Table: Peak demand met comparisons

Sample states	FY23 (GW)	FY24 (GW)	% change
Maharashtra	28.6	27.9	-2.9
Gujarat	21.3	24.5	14.8
Punjab	14.3	15.2	6.9
Uttar Pradesh	26.6	28.2	6.4
Tamil nadu	17.7	19	7.5
Karnataka	15.8	17.2	8.8
Andhra Pradesh	12.3	13	6.2
All India	207	239	15.8

Source: IEX bulletin 
 

The fall out of this cost avoidance is also being felt in another corner of the power sector. The electricity markets. One would expect that as the demand for power rises country wide these exchanges would also do brisk business. Data from the premier Indian Energy Exchange (IEX) however shows a more sedate trend.

Price of power traded in the market is rising but the volume of business transacted has not. Data for the market on Monday shows spot power prices on IEX rose to Rs 7.06 in the peak evening hours, a huge 40.9 per cent premium in a 24 hour cycle from the average of Rs 5.1 in April. As the chart below shows the gap between demand and supply has remained wide on all days this May yet because of the price cap of Rs 12 per unit, the sell side has not expanded. 

“Despite the rise in prices there has been no significant increase in the volumes traded in the power exchanges” said Akhilesh Awasthy, former Chief Operating Officer of Hindustan Power Exchange Limited (HPX).

While the central power ministry has always maintained that discoms are better off signing on to long term power purchase agreements for the bulk of their supply, at times like the present one when they can do arbitrage in the market, those opportunities are falling through. As power minister RK Singh has put it “…we are persuading the discoms to enter into long-term PPAs for at least 85 per cent of their electricity requirement. We have laid down Resource Adequacy Rules which stipulate that discoms have to tie up power to meet the needs of the areas they serve. We have also laid down rules which specify penalties for gratuitous loadshedding”.

Yet there is no getting away from the rising cost of electricity even by the PPA route. Even though the chief attraction for the bilateral PPAs is the promise of assured supply at fixed prices. In the integrated rating of these companies released by central power utility, Power Finance Corporation in March this year, data showed the average power purchase cost has increased by 71 paise per kWh during FY23. It was 4.78 in FY22 but climbed to 5.49 next year. 

The culprit is the rise in prices of imported coal, says former Power Secretary Alok Kumar. Since affordable domestic coal could not reach the typically high load areas like Western and Southern India adequately, the power plants, especially the coastal one have to depend on imported coal. Against an average of Rs 4,500 for domestic coal, imported prices of the raw material had risen to Rs 19,000 in FY21. This means the gap between the adjusted cost of supply bought by them and the adjusted revenue that had hovered at 33 paisa per unit has risen to 55 paisa. 

At some stage those changes have to be factored in, adds Kumar. “The two instruments are the annual tariff revisions and the second is the PPA cost adjustment”. 

He acknowledged that passing through such a high cost in just one year would have implications, but it can be solved by say a monthly series of adjustments. If those are done, the discoms could make more savvy decisions on which source of power to depend on. Kerala is one of the pionner in trying this out. 

“For discoms there is the added advantage of not having to pay up immediately for the power contracted, which is easier for the cash book”, says Awasthy, who had also played a key role in setting up IEX.  

Meanwhile because of the cap, supply and demand are being matched just around it, says former member (economic and commercial) Central Electricity Authority. (See chart)

Supply demand gap in the day ahead market
 

Source: IEX bulletin

The cost of power purchase by the discoms is Rs 8 trillion annually. The net result of these cost avoidance means the difficult decisions are being pushed to the future. As Kumar puts it, “our energy transition can’t happen without the discoms and those will remain predominantly government owned entities”. As the round of elections forces more state regulators to join the list of naysayers to power tariff reforms, the path to energy transition will just get a little longer this year.