Power Sector entangled in Politics

One of my recent posts did talk about the important role India’s Power Tariff is playing in elections: https://bharatvasandani.wordpress.com/2013/10/16/power-tariff-plays-role-in-power-seat-game/

After winning elections in Delhi, the AAP [political party] cleared a 50% cut in electricity tariffs [a promise made before elections].

The government is also on course to order an audit by the national auditor into the finances of three power distribution companies.

The decision to subsidize power tariff, involves a cash outgo of Rs. 61 crore in the next three months, creating a further burden on the State Government finances.

The challenge here is [and as a country we are still trying to find answers] is whether it will be feasible to cut power tariff without understanding the industry dynamics. Since the discoms will be paid by the State [another challenge being whether the State will make the payments on time and we have a great track record here, pun intended], on paper the discoms will not be in a loss.

The Delhi election has made the power sector an election tool for the parties. And the scary part is if this becomes a popular [unfortunately] tool for other political parties, as well.

 

Recently, The Maharashtra cabinet approved a 20% cut in power tariffs in the state except Mumbai. This has drawn criticism from all quarters.  This move is expected to add a burden of Rs. 7,272 crore a year to Maharashtra’s coffers. Besides this, state-owned power utilities Maharashtra State Power Generation Co Ltd and Maharashtra State Power Transmission  Co Ltd. will have to pay Rs.1,200 crore to state-owned power distribution utility Mahavitaran Ltd to make up for the rate cut. Maharashtra already spends around Rs.11,500 a year by way of subsidy to keep tariffs low for agriculture and power loom consumers.

Experts are already stating this to be an imitation of AAP’s move in Delhi for elections. And we fear many others to follow.

“This is a case of bad economics as lower tariffs encourage higher and inefficient consumption, placing more demand on government subsidy than budgeted, and fail to provide right incentive to use energy efficient appliances,” according to Kameswara Rao, executive director and leader of energy, utility and mining practice at consulting firm PwC.

According to CARE Ratings, the subsidy is expected to make the State revenue deficit.

On the other hand in Delhi, industry is already warning people to be prepared for power cuts as electricity distribution companies battle it out with chief minister Arvind Kejriwal [AAP] over tariffs.

One of the most important parameters for investments is a stable environment and ability to forecast. But with such political moves, the Indian power sector cannot expect investors to pump in money at a time when it is really needed.

 

I am personally not against power tariff reduction but using this as a tool for elections is not an encouraging sign for the sector.

 

The answer can be Restructuring and Deregulation of the electricity industry, a move with the aim of achieving lower prices to customers through cost savings. The deregulation of electric power systems in many parts of the world has changed the mechanism of electricity pricing. India is in the processing on restructuring in power sector.

 

 

Sources:

Hindustan Times, LiveMint, Economic Times

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2 Responses to Power Sector entangled in Politics

  1. My opinion on REC: Hope REC benefits will not be allowed with such roof top installations as the REC business model is not good and non democratic as the power exchange promoters are the Renewable Power Producers i.e REC Beneficiaries with the possible conflict of interest….

    In my personal View, Planning Commission can adjust (with necessary mandate, if not existing) the State Budget allocation, after considering the Every State complying RPO with a standard National Percentage with deliberations viz Thermal 35%, Large Hydro 40% (and more), Renewables 15%, others 10% etc (this can be varied every year or two to promote more renewable energy generation and consumption and compensation by all the states with One Nation One Grid concept with APPC re-definition to have low cost energy tariff), thus, we do not need the REC certificate buying and selling, which is making the common man (through DISCOMs) to buy at a total cost Rs. 21/kwh or more apart from tax collection loss through Accelerated Depreciation.

    The idea of REC is to reduce the State DISCOMs non payment issues (but the REC price variation is controlled like Stock market without SEBI like regulators, which will lead to many hits on balance sheets as many developers may have to sell at floor price, whereas a possible INSIDER TRADING like situation, will give an upper hand for few power producers (who can also be promoters of Power Exchanges), so why promote such unsustainable and unethical way of business model, why not compel many states to compel the Renewable Energy Purchase Obligations while allocating the State Budget, which reduces the costs of transactions, which otherwise developers (and the common man too) are paying the charges related to REC mechanism.

    I do not need to name the Promoters of these Power exchanges, wherein REC gets issued and traded, wherein the beneficiaries of REC selling are the Promoters i.e Private Cos…. Is this Democratic?? Needless to say who are the promoters of the Power Exchanges of REC buy and sell platform…

    Also read this link on LinkedIn to know how Planning Commission (read as Mr.Arun Shourie’s comment on Planning Commission as the PARKING LOT of retired IAS officers or Pinjra Pool) has persistently failed to properly forecast the kwh, Mwh or Twh requirement with good break up of Energy mix from various energy sources…..:

    http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=5831648540467683331&gid=4511689&commentID=5834243937233035264&trk=view_disc&fromEmail=&ut=2lgdS5qHF7N641

    20GW to 1000 GW addition (i.e the stupid Capacity Addition concept like IAS mind set) must be eliminated first. The argument must be based on Annual kWh / MWh / TWh addition with a clear break up of Energy Sources, because, Solar PV (only 1.6Mkwh / MW/year-INFIRM), Biomass(6.5Mkwh/MW/year), Thermal, Nuclear (7.5Mkwh/MW/year), Hydro, Wind(2Mkwh/Mw/year – INFIRM) etc…..

    The T n D Loss is pegged at 30 to 45% of 220GW (need to know the kwh loss per shift to know the base load loss and peak load losses), this, if arrested will automatically add 25% of 220GW equivalent kwh in the system with immediate effect i.e around 50GW equivalent kwh, which is a great addition of revenue (this kwh is already consumed, hence, we cant treat it as kwh available to use), thus, DISCOMs will be positive in next few years, hence, subsidy will go away….

    Another Stupidity of 1000 GW demand analogy needs an answer as to how many kwh needed during the hourly pattern of a day, which SMART GRID (SG) can find a quick answer, but, without SG also we can find this estimate. Which kind of Consumer base has been assumed to arrive at this Capacity of 1000GW (but, i insist kwh or Mwh need rather than MW capacity demand)
    – Which kind of high energy Industries will be generated and with what time frame,
    – What kind of per capita consumption is planned with increased population
    – What kind of Energy consumption forecast to reduce the T n D losses
    – How the additional Grid Capacity creation is assumed with its road map with investments tied up (??)
    – What will be the paying capacity of the Consumers or huge subsidy is assumed and how the Economy is planned.

    MW Capacity addition CONCEPT must be avoided, instead, with MW capacity additions, an immediate Mwh addition needs a mention as the INFIRM ENERGY (for peak or part of based load sharing concepts with good hybrid mix without short ckts or Grid failures) and FIRM ENERGY generation and deployment picture with TRANSPARENCY at the PLANNING COMMISSION level (an open document to attract the good comments from the Experts of the World will enable to avoid excess capacity creation or to plan Government Investment plans with Private participation with other associated resource allocations such as Coal (both for power, Steel and other sectors), Water, Creation roads etc..

    Simple energy generation can’t happen with our track record in pic, as it needs other INCLUSIVE GROWTH in consideration to plan the kwh addition through various energy resources with necessary compensation to the states to avoid the STUPID REC mechanism, which is paying money (ar rs. 21.kwh for solar PV) to PRIVATE PLAYERS who are not paying taxes through Accelerated Depreciation !!

    At planning commission level, the states must be encouraged to develop power projects with the local energy resources available and compensate for high cost energy resources with a good percentage mix, which is applicable to all the states (i.e Coal 20%, Hydro 35%, Renewable (minus Nuclear) 35%, Nuclear 1% (no more nuclear), others 9% etc)….. Initially, this can be a different percentage till we really achieve higher Renewables……if a state produces more coal based power, it should pay for Solar PV (after coal trade off adjustment from other states etc), but, through State Budget fund allocation at Planning Commission based on Various energy resource mix based on the kwh consumption, thus, these power exchanges or private players need not LOOT Rs.15/kwh through REC, instead, it can be based on APPC cost with other clear definitions, which will be a pooled and average low cost as it reduces the transportation costs and transmission losses too, due to ONE NATION ONE GRID concept….Thus, the energy bill across all the states can also be thought of uniform with such transparent level playing field….

    Like

  2. Do you think the state is not capable of handling even the few sectors under its control?

    Like

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