Monthly Power News Commentary: February – March 2017
The BJP was reported to be in a rush to fulfil two of its key election promises (i) to provide cheap power and (ii) free energy efficient pumps to farmers, even before formally forming the government in the state. An agreement for Centre’s ‘Power for All’, envisaging commitment to 24X7 power supply, connecting all households, supplying up to 100 units at Rs 3/unit for each household and giving free energy efficiency pumps to farmers has been signed. Though UP was one of the first states to accept ‘UDAY’, the Centre’s plan to rejuvenate debt-laden distribution companies, the outgoing government refused to finalise the terms for signing the Power for All document, which commits states to improve power management and supply. The election campaign also mixed communism with communalism with the accusation that there was partiality on the ground of religion on the issue of electrification and power supply in the state which powered it to victory.
UP will issue bonds worth Rs 100 billion against the debt of its discoms which it took over. This is the second issuance by the state under the provisions of UDAY agreement, which aims to restructure the financials of beleaguered power distribution companies. UP issued bonds totalling Rs 240 billion in three tranches till FY16.
The Delhi government whose cheap power plan also powered it to ‘power’ (which is being actively replicated by all political parties) is reported to have set aside Rs 16 billion for its flagship subsidy scheme for power consumers. In total the Delhi government has proposed Rs 21.9 billion expenditure in the energy sector. Under the subsidy programme, in the last two years domestic consumers using up to 400 units of electricity per month are charged at half the rate. The scheme will continue to benefit over 3.6 million domestic consumers in the national capital who come under the prescribed limit of electricity use.
Not to be left out Haryana has proposed to lower fuel surcharge allowance on power tariff by Rs 0.50-0.60/unit. The electricity consumer in Haryana is paying Rs 1.24 to Rs 1.43/unit as surcharge levied by the electricity distribution companies – Uttar Haryana Bijli Vitran Nigam and Dakshin Haryana Bijli Vitram Nigam. The surcharge forms one fourth of the electricity bills of the consumers, hence the announcement may bring relief to all sectors.
The opposition party in Rajasthan termed the rollback of power tariff hike for agriculture connections as a victory of farmers and that it would demand the rollback of the tariff of domestic consumers as well. The state government of Rajastan has apparently taken over the loss of Rs 600 billion under UDAY Bond.
The West Bengal government said that it was committed to provide quality power to all consumers and with that end in view it would install 177 sub-stations across the state in the next two years to overcome voltage problems.
Offer of cheap power during election campaign is a time tested strategy of Indian political parties. Few if any notice that the policy to reform the electricity sector and make it more market oriented and the policy to undermine the market through state intervention are often implemented by the same government.
Odisha is the next state going to the polls and naturally there is plenty of news on how the current government has failed to provide power to households. More than 3.5 million households in the state are yet to have electricity connection. Of the families living without power, 1.5 million belong to the below poverty line category. Power is yet to reach 984 villages in the state. In this light the government has pre-empted opposition parties stating that it will provide electricity to all homes by 2019. The centre has given more than Rs 12.24 billion to cover the villages without electricity.
Dabhol power project re-christened as Ratnagiri Gas and Power is apparently going to be revived with help from the Prime Minister’s office. The Railways has been forced to enter into a power purchase agreement with the company and demerger of the LNG division has been expedited. The Maharashtra state government may also be forced to waive off state-wise transmission charges and transmission losses, and waive off the tax on gas to the project to make the power more viable. The plan for the demerger of the LNG regasification unit from the power unit has been approved by lenders but certain issues raised by Power Finance Corp and LIC have to be sorted out.
The KERC was reported to be considering imposing cross subsidy surcharge for those opting out of grid power and as demanded by the Escoms. Bulk consumers feel they can get power in open market at rates that are competitive than what their respective Escoms offer, and want to shift to such power and reduce dependency on the grid. At present, Escoms are grappling with morning and evening load peaks. Supply peak will not address either the morning or evening supply peaks usually that Escoms experience from 6am to 8am and 6pm to 8pm. This comes between 8am and 6pm when solar power production is expected to be at its peak. Since it is not possible to store the power generated and used to manage morning and evening peaks, the power generator, Escoms will have to find consumers who can utilize this supply peak in a manner that it brings them revenue. This is an interesting development to watch as solar supply during off peak hours is not what the market would have desired. Without storage adding to supply during off peak hours does not necessarily reduce conventional power generation capacity.
Delhi’s peak power demand is expected to touch 6,600 MW this summer, surpassing last year’s peak of 6,261 MW which is the highest ever recorded till date. The peak power demand in the city during the summer of 2017 is expected to touch around 6,500-6.600 MW. Last summer, it was 6,261 MW, highest ever-recorded in the national capital. The peak power demand in South and West Delhi that had reached 2,669 MW during summer last year, is expected to touch around 2,800 MW this year. The peak demand in East and Central Delhi is also expected to rise from 1,493 MW last year to around 1,600 MW. In north and northwest Delhi peak electricity demand of about 1,900 MW is expected in summer compared with 1,791 MW last year.
Power demand in Bihar that has more than five times the population of Delhi increased from 1,800 MW in July 2013 to 3,854 MW (or just half the capacity required to serve Delhi’s rich consumers) in November 2016. High AT&C loss blamed on large scale rural electrification in Bihar was estimated to be 59.24 percent in FY13 and 43.54 percent in FY16. As per the generation plan, additional capacity of 5,589 MW will be added by FY19 and Bihar’s total available capacity was expected to be 8,925 MW, making it a power surplus state.
Subdued demand coupled with surplus electricity availability has slowed down the addition of new capacity for generating power from conventional sources of energy such as coal and gas in one of India’s most industrialised States, Gujarat. The installed electricity generation capacity of non-renewable energy sources in Gujarat grew by just 0.7 percent in 2015-16. The growth was 6.2 percent and 5.2 percent in 2013-14 and 2014-15 respectively. Gujarat’s installed power generation capacity from non-renewable energy sources stood at 20,765.82 MW in FY 16 against 20,611.30 MW in FY15, an annual addition of 154.52 MW.
Turning to cross border developments, Nepal and India have agreed to lay down Butwal (Nepal)-Gorakhpur (India) and Lumki (Nepal)-Bareilly (India) transmission lines and setting up of new 400kV sub-stations at Dhalkebar, Butwal and Hetauda (Nepal). The current import of 380 MW of power from India has been possible on account of the installation of additional transformer at Muzaffarpur by the Indian side, as also by technical improvements at Tanakpur at Nepal’s request. With the commissioning of two new lines — Raxaul-Parwanipur and Kataiya-Kusaha, the installed capacity for export of power to Nepal will increase by another 100 MW to 120 MW by the end of February 2017. Further, with the completion of 220 kV substation at Dhalkebar, the installed capacity will increase to almost 700 MW by the middle of 2017. The Indian side agreed to extend technical assistance for improvement of existing infrastructure, so that the era of load-shedding can end in Nepal for good.
Rating agencies maintained a stable negative outlook on power sector for the next financial year despite an improvement in coal availability, restructuring of distribution companies’ debt and operationalisation of stuck projects. The sector’s return on capital employed remains unattractive and small private companies are the worst hit. It said there is a possibility of sector consolidation, which could be triggered by the new bankruptcy code. India added nearly 115 GW of coal-based capacity since FY11. However, demand growth did not keep pace with capacity addition. This has put pressure on the PLFs of coal-based thermal power plants. In the past, coal and discom financial health were the two key constraints to the overall PLF. However, demand, solar capacity addition and discom financial health will be the major factors putting pressure on PLF in future. Earlier, the private sector kept a part of the capacity untied due to high short-term prices. The PLF of the private sector’s coal-based power plants fell to 56.3 percent in FY17 from 83.9 percent in FY10.
Rest of the World
Nord Pool plans to launch a day-ahead power auction and continuous intraday power trading in Ireland from 2018. Short-term power trading has increased in recent years as coal and gas plant operators can no longer plan their output years ahead as they do not know how many hours they will operate in a market they now have to share with renewables. Experts are concerned that Britain’s vote to leave the EU could jeopardise plans to join the Irish and Northern Irish electricity markets, which is a multi-year project to create a unified Irish electricity market in line with EU legislation.
A one-day strike in the French gas and electricity sector cut power production by 4.2 GW. EDF, the French power generator said that hydropower production was cut by 280 MW, while its 535 MW Porcheville 3 fuel-powered generator and the 580 MW Havre 4 generator, reported unplanned outages after workers downed tools. Unplanned outages caused by the strike had reduced output at seven of France’s 58 nuclear reactors, cutting electricity output from the reactors by nearly 3 GW.
Poland may face electricity shortages after 2020 as some of the country’s outdated coal-fuelled power plants are shut down. Poland generates most of its electricity from coal-fuelled power plants, some of which were built in the 1970s. Poland hopes to introduce a power capacity market to help utilities build new coal-fuelled power plants, despite the European Union’s plan to limit such schemes. Capacity market, in which the state pays producers to keep plants online to generate electricity as and when needed, would help Poland secure power supplies in the long term.
Greece’s power market operator LAGIE and the Athens stock exchange have agreed to jointly set up a power trading exchange, that would start operations as early as mid-2018. The new power trading exchange would replace the existing mandatory pool system, where power producers may enter into bilateral contracts that are constrained within the pool. It is expected to improve power sales transparency, boost competition and lower electricity prices for end users. This new market model is part of plans to reform the Greek electricity market in line with European interconnection plans.
FY: Financial Year, KERC: Karnataka Electricity Regulatory Commission, BJP: Bharatiya Janata Party, UDAY: Ujwal Discom Assurance Yojana, UP: Uttar Pradesh, Escoms: electricity supply companies, kV: kilovolts, discoms: distribution companies, PLF: plant load factor, MW: megawatt, GW: gigawatt, EU: European Union