 "power, electricity")
This summer will be challenging for power distribution companies (discoms) with an unprecedented surge in electricity demand and the cost of energy, largely dependent on coal, going up.
Since January, the Centre has been pushing for a variety of regulations to ensure a steady supply of electricity and avoid a deficit of coal.
The impending cost increase has pushed the discoms to seek tariff hikes. Large states such as Uttar Pradesh, Maharashtra, and Madhya Pradesh have submitted an across-the-board tariff increase in the range of 15-30 per cent. While approval is pending, the proposals are indicative of the cost pressure faced by the loss-making state-owned discoms.
Energy cost: Up, up & above
To avoid what happened last year, when several states had clamoured against sub-optimal coal supply, the Centre has started preparations ahead of the summer months. In a series of notices and regulations, it has mandated blending costlier imported coal, allowed pass through of its high cost, opened up coal transport routes, including rail-sea-rail, and is looking to tap hydro and gas-based power.
Despite capacity addition, the share of renewable energy (solar and wind) is at a minuscule 10 per cent of supply. Hydro and gas are being prepared for peaking power supply (instant availability with need). This leaves demand pressure solely on thermal power.
These measures come with a high cost for discoms, which are facing a spike in power demand, which was muted last two years. A member of a state electricity regulatory commission told this newspaper most of the tariff petitions by discoms seeking hikes in rates were based on the increase in energy cost.
“Discoms have increased their power purchase, which naturally increases coal demand. Now gencos are importing costlier coal. Hydro and gas are costlier anyway. It is estimated the energy cost has doubled for some discoms over the last two years,” said the member.
According to ICRA, coal import by power utilities is higher by 110 per cent in 10 months of FY23 over the same period in FY22.
“The thermal plant load factor has increased to 64 per cent (till February) from 59 per cent last year. This also leads to increased demand for coal. Though there has been double-digit growth in coal supply, there are limits to domestic coal supply,” said Vikram V, vice-president and sector head (corporate ratings), ICRA.
Additionally, the average tariff at power exchanges is more than Rs 6 a unit in the current fiscal year against the long-term average of less than Rs 3.5.
“All this will eventually lead to an increase in power tariffs for discoms. That is why we are seeing tariff hike proposals,” said Vikram.
Everything, everywhere, all at once
Over the past two years, there has been enhanced scrutiny of the financially beleaguered discoms. Be it the Revamped Distribution Sector Scheme or payment discipline through Late Payment Surcharge Rules, the noose is tightening around discoms.
Under late payment surcharge, the Centre has made it clear if the discoms don’t pay the gencos, power supply will be regulated. Vikram said this was another reason why discoms needed more funds.
“Due to stricter rules, the discoms cannot delay payment to gencos. For legacy dues, they might tap some funds and loans but for the ongoing dues, they must pay from their own operations. Tariff hike is a measure for them to reduce the losses that have accumulated over the years,” he said.
A senior executive with a private power unit said while the tariff hike was tied to political obligations, especially with the general elections in 2024, the discoms are in a tough spot.
“Merchant sales (on power exchanges) are a boon for several power units which were running at suboptimal rates. As demand goes up, it will become a sellers’ market. Discoms would need to run a tight ship to have funds for procuring surplus power,” he said.
“From Covid to high demand to imported coal and late payment surcharge, we are seeing a culmination of all these variables this year. It would be a costly summer for the discoms and for consumers it might come with a lag,” Vikram added.
The state regulatory commission member quoted above said the Revamped Distribution Sector Scheme had linked all power sector schemes under which the discoms used to get funds to their performance.
“Tariff revision is just one of the metrics. There are several other operational and financial parameters. The post-Covid power demand surge is a jolt to the power distribution system to leave the old ways behind,” he said.
