Power prices slump as discom financial woes, transmission contraints rise - Quoted in the Business Standard
Power prices in the short-term market have declined as financially ill distribution companies are avoiding power purchases, even if they have to resort to load shedding to meet the high demand, and transmission constraints have blocked power transfers across regions.
According to the latest data obtained from the Indian Energy Exchange (IEX), the country’s largest electronic platform for power trade, average prices dropped to Rs 2.027 per unit in June as compared to Rs 4 per unit in the same period last year. Average prices during peak hours between April and June this financial year have fallen to Rs 2.8 per unit from Rs 3.5 per unit in the corresponding period last year.
This is despite a record 21,000 Megawatt (Mw) addition of fresh generation capacity last financial year and an around 10% peak deficit. “One of the ways to explain the fall is that the consumer demand is not really the power demanded because the distribution companies, that form the connecting link, prefer load shedding than buying expensive power, mainly because of their financial predicaments,” said Dipesh Dipu, partner at energy and resources consultancy Jenissi Management Consultants.
State power distribution utilities have combined accumulated losses of over Rs 2.4 lakh crore owing to years of stagnant retail tariffs. While states have resorted to tariff revisions over the past year, the revenue gain is not enough to encourage utilities to engage in peaking power purchases, experts say.
“Many discoms are yet to see financial turnaround despite the recent tariff hikes. This is because many of them had not revised tariffs for many years in a row. These State Utilities are facing difficulty to take working capital loans, as banks are reluctant to increase exposure to these utilities, given their financial situation. So, they are still not in a position to buy short term power and are opting for load shedding,” said Debashish Mishra, senior director at Deloitte Touche Tohmatsu India. He added that short-term power prices are expected to remain depressed for the next 18-24 months in the states in the rest of the country outside the Southern region.
The Southern states are still grappling with high power prices owing to a huge lack of availability. This is partly due to transmission constraints and also because a large part of the Southern region’s capacity is hydro and gas-based. Availability of both the resources has remained curtailed. “The southern States, which have faced acute shortages, are also not able to buy power due to transmission constraints. Their demand, therefore, is not reflected in the tariffs observed,” Dipu said.
The Southern regions’ demand is not being met as the delay in the integration of the southern grid with rest of the country has taken a toll on line availability. Also, the 2,000 MW Kudankulam power plant has been delayed. “Situation in Kerala, however, is expected to improve soon because its hydro generation capacity will pick up as soon as monsoon gathers pace. For other states, high short-term rates will prevail for one more year,” Mishra said.
Highlighting the disparity in the demand and prices scenario, BSES Ltd, which distributed power in a majority – 75% – in Delhi, informed demand for electricity in the national capital touched an all time high of 5,653 Mw today, beating the previous high of 5,642 observed on July 12 last year. According to the power ministry, the capital’s demand is expected to go up to 8,729 Mw by 2016.
According to the latest data obtained from the Indian Energy Exchange (IEX), the country’s largest electronic platform for power trade, average prices dropped to Rs 2.027 per unit in June as compared to Rs 4 per unit in the same period last year. Average prices during peak hours between April and June this financial year have fallen to Rs 2.8 per unit from Rs 3.5 per unit in the corresponding period last year.
This is despite a record 21,000 Megawatt (Mw) addition of fresh generation capacity last financial year and an around 10% peak deficit. “One of the ways to explain the fall is that the consumer demand is not really the power demanded because the distribution companies, that form the connecting link, prefer load shedding than buying expensive power, mainly because of their financial predicaments,” said Dipesh Dipu, partner at energy and resources consultancy Jenissi Management Consultants.
State power distribution utilities have combined accumulated losses of over Rs 2.4 lakh crore owing to years of stagnant retail tariffs. While states have resorted to tariff revisions over the past year, the revenue gain is not enough to encourage utilities to engage in peaking power purchases, experts say.
“Many discoms are yet to see financial turnaround despite the recent tariff hikes. This is because many of them had not revised tariffs for many years in a row. These State Utilities are facing difficulty to take working capital loans, as banks are reluctant to increase exposure to these utilities, given their financial situation. So, they are still not in a position to buy short term power and are opting for load shedding,” said Debashish Mishra, senior director at Deloitte Touche Tohmatsu India. He added that short-term power prices are expected to remain depressed for the next 18-24 months in the states in the rest of the country outside the Southern region.
The Southern states are still grappling with high power prices owing to a huge lack of availability. This is partly due to transmission constraints and also because a large part of the Southern region’s capacity is hydro and gas-based. Availability of both the resources has remained curtailed. “The southern States, which have faced acute shortages, are also not able to buy power due to transmission constraints. Their demand, therefore, is not reflected in the tariffs observed,” Dipu said.
The Southern regions’ demand is not being met as the delay in the integration of the southern grid with rest of the country has taken a toll on line availability. Also, the 2,000 MW Kudankulam power plant has been delayed. “Situation in Kerala, however, is expected to improve soon because its hydro generation capacity will pick up as soon as monsoon gathers pace. For other states, high short-term rates will prevail for one more year,” Mishra said.
Highlighting the disparity in the demand and prices scenario, BSES Ltd, which distributed power in a majority – 75% – in Delhi, informed demand for electricity in the national capital touched an all time high of 5,653 Mw today, beating the previous high of 5,642 observed on July 12 last year. According to the power ministry, the capital’s demand is expected to go up to 8,729 Mw by 2016.
posted by Dipesh Dipu @ 5:56 PM
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