“Discoms need to cut their losses and SERCs need to pursue aggressively and hand-hold state utilities to reduce losses and engage in tariff rationalisation, enabling discoms recover their costs,” says Rajesh K Mediratta, Director Business Development, Indian Energy Exchange
The Indian power sector has witnessed a lot of changes over the last few years owing to creation of competitive short term markets including exchanges. Such markets have resulted in capacity addition in generation, transmission and distribution. Therefore, the generation capacity has almost doubled from 132 GW to 270 GW in the last 7-8 years. However, due to absence of adequate distribution infrastructure (last-mile infrastructure) to support the capacity, more than 50 per cent of households in the country remain un-electrified, observes Rajesh K Mediratta, Director Business Development, Indian Energy Exchange (IEX).
Moreover, the lack of adequate capacity available in the inter-state transmission system networks manifests in the form of transmission congestion on power exchanges. Development of transmission and distribution system within the state has to be taken care of by the state power utilities, but nothing much has been done on this front by most of the states, resulting in severe congestion on the networks. Such congestion bottles up surplus generation at one end and increases the cost of power and creating shortage of power for end consumers on other end. As of today, even with the installed capacity in the country being double of the peak load of 145 GW, there is demand for electricity that remains un-served. This adversely impacts the generators who have made huge investments but lack the opportunity to sell the power so generated. Therefore, power plants are running at sub-optimal PLF, which was at 65 per cent in FY’15 for coal based plants, Mediratta adds.
He also points out that the other big policy level wrong is only plants with long-term PPA are given coal linkage. “It has been observed that most of the private sector plants with long-term PPA have disputes since risk allocation between buyers and generators are normally not rightly balanced and it raises disputes,” he says.
It is also observed that States in a rush to manage its power system, over-do their long-term PPA. Gujarat, Punjab, Delhi and Haryana are found to have done PPA for its peak demand which exists only for 4 months in a year and they have to bear cost of those PPAs for 8 months and their consumers are paying fixed costs of PPAs.
The ailing financial health of state discoms is another area of grave concern for the sector, comments Mediratta. “The state government and state discoms are not working with missionary zeal to reduce theft more eulogistically called as commercial losses. Discoms need to cut their losses and SERCs need to pursue aggressively and hand-hold state utilities to reduce losses and engage in tariff rationalisation, enabling discoms recover their costs.”
In addition he adds, “Discoms need to be in a financial position to procure adequate power and meet the demand of consumers. Therefore, lot of impetus should be given to reduction in losses which will allow distribution companies to earn more and invest in transmission and distribution infrastructure as well.”
Open access related issues are plaguing the power market today. Many states have significantly increased the open access charges, just to deter them opt for cheaper options from the market. Many states are losing their industries while industries lose their competitive edge in the market. “Open access fosters true competition in the sector and to curb open access is surely a move in the backward direction,” adds Mediratta.
Impacts of roadblocksOver the years, the ever increasing problem of inter-state transmission network congestion has been affecting the sector in a big way. Mediratta observes that due to congestion on the ISTS Network, power is unable to be imported or exported from the region to other areas. As a result of this, there is excess supply and not enough demand to offset it. This situation leads to sub-optimal use of generators and suppressed prices at the power exchanges, due to which many generators are not even able to recover their variable cost of generation, he adds.
He also adds that there has been tendency to tie-up at higher prices in congested southern region. Competition suffers and cost to end consumers in South has increased. By an estimate, cost to consumers in Southern region has been to the extent of Rs 5,000 crore.
“In absence of distribution networks, shortages are being faced by end-consumers despite surplus generating capacities. Short-term markets can witness higher volumes if distribution networks are adequately strengthened,” he states.
Short term strategiesAccording to Mediratta, the immediate reforms required to revitalise the power are as follows:
Step up investment on the transmission and distribution front, both at the regional level and more importantly at state level. Even though we have ample installed capacity, consumers are being subjected to load shedding. This is because of inadequate infrastructure to supply power.
SERCs in states are not undertaking in tariff fixation on yearly basis or the increase in tariff is not enough to recover the input cost of discoms. Therefore, annual losses of discoms have magnified and are getting accumulated. These losses are hampering the entire value chain. SERCs should provide adequate tariff to ensure cost recovery. Discoms need to optimise their power procurement in order to reduce their cost of power purchase. About 80 per cent of the discom’s total costs are of purchase of power. Therefore, with MCP on the Exchange currently between Rs. 3 to Rs. 4 per unit, the distribution companies should endeavour to replace high variable cost power with competitive power procured via exchange. This would enable them save on costs and reduce their financial losses.”
The government should encourage discoms to source more competitive power from the markets than to force them to do long-term tie-up.
Allow power plants with linkage to sell power through exchanges so that cheaper power can flow to discoms and reduce cost of power to end consumers, he suggests.
Long term measures to ensure sustainabilityTo ensure sustainability, a number of key imperatives have to be implemented in the coming years. “To start with, from the power market perspective, implementation of open access, which was introduced as a cornerstone provision of the Electricity Act, 2003, still remains partially implemented even after a decade of enactment of the Act,” observes Mediratta. “Therefore, we need to address all roadblocks in implementation of open access and remove all procedural and operational issues that impact open access adversely.”
According to Mediratta, a few more enablers required for power markets to gain more prominence in India are:
Implementation of content and carriage segregation as proposed under the Electricity Amendment Bill 2014.
Reservation of transmission capacity for power exchanges in order to alleviate congestion and facilitate competition.
Introduction of new market segments on the exchange that are forwards and futures market, ancillary market, capacity market, voluntary REC market, escerts market, cross-border trade with neighbouring countries etc.
Development of forwards or futures market and an ancillary market in the near future.