Discom issues in a Power surplus India

With states turning power surplus, DISCOMs are facing additional challenges in India. In a recent statement, India Ratings and Research states that approximately INR 8000 crore can be the expected loss to be borne by the state distribution companies, in lieu of almost 50% of the Indian states turning power surplus by the next fiscal year.

A situation of excess power purchase agreements over the power demand now exists. In such a scenario, it is expected that the Discoms will have to surrender these PPAs. Many of the Indian states are working out ways to change the situation. For example, Punjab state Discom has been asked to sell the surplus power outside the state to avoid losses. Similarly Karnataka has also modified its erstwhile rule of selling power produced within the state itself.

Another issue for these PPAs are the long tenure and fixed costs associated with these PPAs. Due to this the Discoms avoid purchasing low cost power from the power exchanges. The problem is acute in the western and the southern states in India. Fixed price PPAs generally range in between INR 1.25-1.75 per unit, as compared to INR 2.5 per unit rates prevailing on the power exchanges.

As per Ind-Ra, these Discoms will have no other option but to surrender these PPAs at the fixed price agreed upon. This will hold true even for the PPAs having the highest variable cost component. With India turning power surplus and placing more reliance on solar, coal and wind sectors will face some additional headwinds. While curtailment due to grid security is cited as the reason not to buy wind energy, people are suspecting that discoms are using this excuse not to buy power at all, as there is a power surplus in most states.

The Indian Prime Minister has been coming out with innovative ways to simplify the power issues in India. The country needs sufficient and reliable transmission lines to move this excess power from the states to the areas where it is still needed. The country still has hundreds of millions of people still leaving in darkness. Till power reaches them, the country can still not be considered power surplus.

Ind-Ra estimates that spot power tariffs on the exchanges are unlikely to increase beyond the current range of Rs 2.0 to Rs 2.5 per unit over the medium term, which is in line with the CEA’s projections of 1.1 per cent energy surplus and 2.6 per cent peak load surplus during FY2016-17 across India.

Source: Economic Times