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UDAY : Is the Sun finally rising on India’s ailing energy sector?

‘The weakest link in the channel through which electricity reaches our homes are the state owned distribution companies (discoms).’

With a total power production of 1048.6 BU, Indian power sector witnessed the steepest rise in its history at 8.4% (2014-15) led by an increase in thermal power generation of 10.8%. This rise can be attributed to the recently concluded coal e-auctions by the central government which also earned revenues of over 3.35 lakh crores to coal bearing states. Having said so, we must also be aware that the same year also witnessed the lowest Plant Load Factor in history, with power generation units producing at a mere 65% of their capacity.

The current situation in the country is such that we have lots of capacity, to produce lots of power. Although this sounds like a good thing, an immediate question of why a huge chunk of the population is facing acute power shortage arises. Enter, discoms.

In india, the companies that produce power, generally don’t distribute it. They sell it to Power Distribution Companies which in turn draw up a tariff and charge the consumers for power consumption. Low tariff and high cost leads to delayed payments to the power generation companies, who inturn are unable to pay Coal India for the coal they purchased. The losses keep mounting and bit by bit, the whole industry is brought to its knees by one weak link. We now have lots of power being generated but nobody to buy and distribute it. The prime reason, among many, for failure is the use of discoms for political gain, leading to a decrease in their buying power.

UDAY : Ujwal Discom Assurance Yojana

The central government has successfully attempted to reduce the cost of thermal power through increasing the availability of coal by over 200 MT and reducing the cost of transporting coal to the power plants thus saving over 30,000 crores. The country has witnessed its highest ever increase in transmission lines & sub-station capacity since May 2014. Guidelines have been issued for state takeover of discom debts(upto 75% by 2017) to restructure and make discoms comply with Renewable Purchase Obligation(RPO) which has remained pending by the previous government since 2012.This directly translates into benefits to :

  • The central government – by reducing the Current Account Deficit(CAD);
  • Businesses – by reducing the cost of power as plants run at 90% load from the previous 60%, when coal was a scarce resource; and
  • Banks – by avoiding a banking contagion relating to repayments due in 2015-16 to the tune of 40,000 crores, thus reducing potential NPAs.

Since the last 5 years, power tariff has increased at an average of 8.0% p.a. without converting to profits for discoms. To resolve this, the cabinet has approved a new tariff so that statutory levies can be passed to discoms. This is expected to turn most discoms profitable by 2017-18.

“To solve a problem, the ascertained cause must be right”

For long, the previous governments have tried to bail out the power industry by various ways without addressing the right cause. This time around, the problem is being approached with a different perspective.

Installing Feeders(by mid 2016) and Distribution Transformer Metering Systems(by 2017) is on the cards, which will help the government track losses and take corrective measures in the right direction. For users consuming more than 200 units of power, an upgrade to tamper proof meters will be initiated.

National Domestic LED Program

Under NDLP, 2.5 crore(target 77crore) LED bulbs have been replaced. 7 towns have seen work being completed and another 78 are witnessing work in progress. This has helped achieve savings of 3.16 billion kwh, resulting in a reduction of Rs.1,264 crore in consumer bills and 5.5 million tons of CO2 emissions. Retail prices of LEDs have seen a 50% cut, now costing Rs. 317 and street LEDs down to Rs. 85 from a peak of Rs. 137. This feat has been achieved due to transparency in procurement.

With a promise of electrifying 18,452 villages in 1,000 days, the Prime Minister of India has committed himself to a herculean task. However, GARV, an application and website that has been launched by the government in order to help the people track developments for the same in real time is a huge step forward in the direction of transparency and accountability. At the time of writing this article, GARV readings show that 5,842 villages have been electrified and 12,610 villages remain. This has been done in 197 days(as on 29 Feb ‘16).

Although the government has been able to successfully materialise the Ujwal Bharat program into visible profits for the industry and for itself, we are yet to ascertain whether in the long term these benefits will sustain and if they can bring the ailing discoms back to their feet. The indian economy has for long been burdened by the inefficiency of discoms and the government, which has taken a toll on the industries dependent on cheap power. The future, now depends on the success of programs such as Ujwal Bharat, DDUGJY and IPDS initiated by the central government to realise the dream of 24×7 power to all by 2019 as envisioned by the prime minister.

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