States opt for de-allocation of costly power

Amid increased availability of cheap power in the market due to surge in generation, some states have decided to de-allocate costly power drawn from the central sector including NTPC while few states are resorting to load shedding due to deteriorating finances.

Odisha, Rajasthan, Delhi, Himachal Pradesh, Sikkim, Meghalaya apart from Damodar Valley Corporation have communicated to the union ministry of power for the de-allocation of their total share of 3,793.52 MW either permanently or for some period citing the higher cost of power purchase ranging between Rs 5 and 10 per unit.

Of the 3,793.52 MW, Delhi alone has proposed to surrender 2,675 MW of which, 2,255 MW permanently.

Further, states including Jharkhand, Tripura,Andhra Pradesh opt for load shedding during some period to avoid payment towards increased variable cost.

Aam Admi Party government in its recent communication to the Centre said the average power purchase cost of Delhi was high vis-a-vis many states resulting in the levy of a higher electricity tariff.

Delhi power minister Satyendra Jain noted that the decision to surrender the power from the central sector stations was taken to reduce the burden of high electricity tariff. He appealed to the Centre for the reallocation of their share to other needy states.

Further, Rajasthan government has called for the de-allocation of its share 9.75 MW from NTPC’s Jhajhar plant forever due to the availability of cheaper power.

PwC Partner and Energy, Utilities & Mining leader Kameswara Rao told Business Standard, “Utilities are under pressure to justify their immediate payments but must take a longer term view. Due to fixed costs, power purchase agreements (PPAs) will show higher tariffs during periods of lean demand, but offer guaranteed availability and lower costs as demand picks up in future. As generation projects have long gestation and new projects more expensive, utilities should make these decisions with 10-15 years time frame in mind.”

According to Rao, higher tariffs, in some cases, are due to aged and inefficient plants, that utilities historically shied away from closing down to avoid aggravating shortages. The present healthy supply situation could be used to fully re-equip these projects, which will be cheaper due to savings on land, coal usage, and connecting infrastructure.

Moreover, Indian Energy Exchange (IEX) MD Rajesh K Mediratta said average prices on IEX have continued to remain below Rs 3 per unit for last three quarters in most part of country except South.

“It will be pertinent if the distribution companies use this opportunity and replace costly long-term power by cheaper power from the exchange. The huge savings made by Discoms would help them to reduce their ever increasing financial losses and benefits from such initiatives could be passed to reduce the cost burden on the end consumer,” he viewed.

Deloitte’s senior director (consulting) Debasish Mishra observed that the primary reason for high cost of power from some of these units are due to inadequate and high cost of fuel supply. “State governments should request Government of India for a solution to that rather than request for a contract cancellation,” he suggests.