Monthly Power News Commentary: October – November 2019
India
Demand
The biggest drop in India’s electricity demand in at least 12 years is hindering efforts of Indian lenders to recover a pile of loans to power producers that have soured. Banks had about ₹1.8 tn ($25 bn) of stressed loans to India’s coal-fired power generators as of last year, according to the State Bank of India. Prospective bidders for these stressed generators are wary as demand from the country’s power distribution utilities contracted in three straight months to October. India’s electricity demand is closely linked to its industrial output, which contracted in September to its lowest level in eight years. An overwhelming majority of data is pointing to continued weakness in the economy that expanded 5 percent in the quarter ended June — the slowest pace in six years. Drop in demand is adding to the weak financial health of the discoms. These state-controlled utilities often serve the populist plans of their political masters by selling power below cost to certain groups of consumers, which leaves them financially broke. However, some power projects, including GMR Chhattisgarh Energy Ltd., and SKS Power Generation Chhattisgarh Ltd. have found new bidders, while some others including RattanIndia Power Ltd’s Amravati project in Maharashtra and GMR Kamalanga are nearing a resolution with lenders writing off part of the loans. India’s power demand fell 13.2 percent in October from a year ago, posting its steepest monthly decline in over 12 years, government data showed, reflecting a deepening growth slowdown in Asia’s third-largest economy. India’s June quarter GDP grew at its weakest pace in six years as consumer demand and government spending slowed, and economists see the falling electricity demand as a reflection of a further slowdown. Consumption in heavily industrialized states such as Maharashtra and Gujarat led the decline. Power demand in Maharashtra declined by 22.4 percent and in Gujarat by 18.8 percent, the data from the CEA showed. Barring four small states in the country’s north and the east, demand fell across regions, the data showed. Populous states such as UP and MP saw demand fall – with MP’s electricity requirement falling by over a fourth and UP seeing a decline of 8.3 percent. Power consumption figures indicate a decline in pomp and show during Kali Puja with many organisers shifting focus to the more popular Durga Puja over the past three-four decades. According to CESC Ltd, the number of Kali Pujas in Kolkata is far higher than Durga Puja. However, many Kali Puja pandals are smaller and quite often organisers manage without a special power connection. The maximum demand for power in Kolkata is estimated around 1,850 MW, which is slightly higher than last year’s 1,799 MW. The total load applied by all Kali puja committees is 19 MW, a third of the 52 MW load applied by Durga pujas. An analysis of data by IIT Kanpur has concluded that peak power demand for power during Diwali has declined in the last three years.
IEX traded 3,391 mn units of power at an average price ₹2.71/kWh the lowest in the last two years. Average market clearing price was down by 54 percent vis-à-vis price of ₹5.94/kWh in October’18 and 2 percent on month-on-month basis. All India peak demand at 164 GW in October’19 declined 4 percent over demand of 171 GW in October’18 and the energy met at 99 bn units declined 13 percent yoy (year-over-year), according to the National Load Dispatch Centre data. Extended monsoon was also one of the key reasons for decline in the demand for power. In the day-ahead-market, total monthly sell bids were 9,771 mn units while buy bids were 3,923 mn units. With sell side liquidity at three times of the buy bids coupled with lower clearing pries, the market helped save on high cost of power for discoms as well as commercial & industrial consumers. The deplorable state of the power sector has been hampering execution and cash flows of the power equipment maker BHEL. Land acquisition delays coupled with slower customer approvals and payment delays have dragged down its power segment sales by 18 percent y-o-y. Some relief has come in the form of a 24 percent y-o-y growth in its industrial segment sales.
Supply
In order to give relief to power generation companies, the Centre has enforced a payment security mechanism where discoms are required to open letters of credit for getting power supply. In a bid to offset the burden of power shortage during the thick of summer, KSEB is planning to engage in power-banking agreements with power utilities and traders elsewhere in the country. Through the power-banking option, power utilities and traders will park with one another excess power available with them during a particular period in a year and reclaim the same from the other when they face shortage of power later. KSEB had engaged in such a practice on several occasions in the past, but it is the first time that the board has decided to opt for a competitive bidding process to choose its power-banking partners.
Tariff & Revenue Recovery
Nearly 84 percent residents of MP are paying less than ₹400 as their monthly power bills, thanks to a ‘smart subsidy’ scheme that encourages low power consumption. Close to 10 mn consumers are now covered by Indira Griha Jyoti Yojana — under which those who use 150 units of power or less a month pay only ₹1 for the first 100 units, and the rest is billed as per the tariff prescribed by MP Electricity Regulatory Commission. The government reimburses what’s left of the dues for the first 100 units. The maximum subsidy a consumer gets is ₹531 per month in urban areas, and ₹521 per month in villages. It has translated into big savings in a state that has one of the highest power tariffs in the country. The scheme has, however, drained the coffers of ₹3.5 bn in the first month of implementation. At this scale, it will cost the government ₹40 bn a year. The previous government had rolled out two power schemes in June-July 2018 — one for waiver of dues and the other, named Saral Bijli Bill Scheme, for providing power at a flat rate of ₹200 per month to unorganized sector workers. Both came into effect six months ahead of the assembly polls. With a change of guard in the state, the present government announced in the first week of February that it would fulfil its poll promise by cutting power bills by 50 percent and that beneficiaries will need to pay only ₹100 for 100 units of power. If they exceed 100 units, consumers will have to bear the rest of the cost, it said.
Transmission
The power ministry recently said that it will reconstitute the NCT with amended composition and TOR. It said that the committee will be headed by the chairperson of the CEA. Under the revised TOR, the NCT will evaluate the functioning of the national grid on a quarterly basis and consider the review of the Regional Power Committee for Transmission Planning for system expansion and strengthening of the transmission system. The CTU is required to carry out periodic assessment of transmission requirements under inter-state transmission system. It said that after considering the recommendations of the CTU and the regional committees, the NCT would be required to assess the trend of growth in demand, generation in various regions, and identify constraints in the inter-state, inter-region transfer system. Other functions of the committee will include proposing construction of transmission lines, grid stations, and will draw up perspective plans keeping 10 to 15 years time in mind. The recently inaugurated 148 km long Edamon-Kochi power highway which will increase Kerala’s power import capability by 800 MW. 93 percent work of this project which had begun in 2005 has been completed. Out of the total 148 km line, this government completed 138 km within just over three years. The Edamon-Kochi line passes through Kollam, Pathanamthitta, Kottayam and Ernakulam. The new line reduces power import via inter-state Udumalpet-Palakkad and Mysore-Arikode lines. Kerala imports around 3000 MW from the Central pool to meet its daily power requirements. The UP government took a slew of decisions in its Cabinet meeting to address the problem of power roasting and overloading. Now, UPPCL will be setting up power grids in four UP districts– Rampur, Sambhal, Meerut and Sindhauli. With a budget of ₹1.15 bn, 765 kV transmission will be setup in Meerut and Rampur and 400 kV in Sambhal and Sindhauli, on public private partnership mode. Soon after the Cabinet meeting, the government said that three bids were received for 765 kV transmission in Meerut and 400 kV transmission at Sindhauli. The power grid was awarded on the basis of a proposal of ₹1.15 bn. Its work will be completed by 2021. Approval has also been given to power grids for 765 and 400 kV transmission lines at Rampur and Sambhal. It will also be completed by 2021. A total of 13 districts of Western UP will benefit from this.
Regulation and Governance
The Union power ministry has an ambitious plan for 100 percent smart metering over the next two years. However, not all state discoms see a financial benefit from smart meters. Also, vendors are reluctant to supply to some states, on payment concerns. A smart meter has a modem (communication device) and a remote switch by which demand, supply and billing can be monitored and controlled remotely. Data from these is collected in a cloud server. This reduces energy theft, improves billing and bill collection. It also helps discoms collect data on consumer demand patterns, useful for improved planning of supply. At present, smart metering is being pushed through two ways. One is where states can go ahead and make a capital expenditure by changing to smart metering. This involves huge upfront outgo. The second way is to allows discoms to move to smart meters through the operating expenditure (opex) model, where nodal agencies like EESL step in to fund it. EESL has installed 400,000 smart meters till date, in Uttar Pradesh, Delhi, Haryana, Bihar and Andhra Pradesh. In addition to some unwilling discoms, there are supply-side concerns. The Uttarakhand government has decided to switch over to prepaid power meters in all government buildings. The UPCL would be installing the prepaid power meters from next month at the government offices. UPCL has over 8,397 power connections of 25 kW belonging to the state government offices, departments and establishment and the meters would be installed in a phased manner. At present, 5,000 prepaid power meters have been given to temporary consumers at different sites. The prepaid power meters recharge value would be between ₹100 and ₹15,000 per month. To begin a campaign for installing pre-paid smart meters at the residence of government officials and ministers, UP Energy Minister installed a meter at his official residence. The government had on 30 October announced a campaign to install prepaid smart meters at the residence of officials, elected representatives and Ministers. The UP government departments owe more than ₹130 bn in electricity bills to the state power utilities, which also makes the state top ranked among peers in this regard. While UP has emerged as the chart topper with its various government departments, state agencies and urban local bodies collectively owing ₹133.61 bn in power arrears till September 2018-19, Telangana and Andhra Pradesh stood distant 2nd and 3rd with corresponding figure of ₹67.37 bn and ₹49.13 bn respectively. Recently, the 15th Finance Commission had also red-flagged the burgeoning losses of UP power utilities, which currently stand at ₹180 bn even after the implementation of UDAY. The Yojana was aimed at financial restructuring of discoms that were struggling under collective losses of ₹3.6 tn. In UP, UDAY was projected to accrue savings of ₹330 bn for the state discoms and help them raise fresh capital for future investments. However, the discoms have continued to grapple with challenges due to high AT&C losses, low bill realisation and rampant power theft. Meanwhile, in the pecking order of the top 10 power defaulter states, Maharashtra, Chhattisgarh, Kerala, Tamil Nadu, Punjab, Bihar and Haryana trail top ranked UP, Telangana and Andhra Pradesh, with the collective dues amounting to ₹372.11 bn. Interestingly, UP government departments with ₹133.61 bn outstanding, comprise almost 36 percent of the total power dues pertaining to the top 10 states. The UPPCL has decided to start a new scheme under which consumers can pay dues in instalments. Now consumers living in urban areas, having electricity connections up to a load of 5 kW can pay their dues in 12 easy instalments. For rural consumers the dues can be paid in 24 instalments. The scheme will be only for LMV-1 or domestic consumers of urban areas up to 4 kW load and all consumers of rural areas. However, only those consumers would be eligible for the scheme who continue to pay power bills regularly on time. Payment would only be accepted online and all queries of consumers would be answered through the toll-free number 1912 and power department offices. After furore over a senior official of UPCL running an electricity bill of ₹400,000 over two years but paying only ₹425 per month due to power being made available to corporation staff at highly subsidised rates, the state’s power firms – UPCL, PTCUL and UJVNL – have informed Uttarakhand High Court about their plan to put a cap on the quantity of electricity provided to their employees. The High Court asked the firms to provide year-wise details on the quantum of electricity provided free of cost to their employees. UPCL along with PTCUL and UJVNL are tasked with generation, transmission and maintenance of electricity in the hill state. The High Court had pulled up UPCL for providing electricity to its employees at highly subsidised rates. Jaipur discom has busted over 28,000 cases of power theft and misuse in the last five months and earned ₹910 mn in fines and revenues. The discom had launched an intense vigilance campaign against power theft and misuse at the feeders from June where the highest pilferage of power was reported under municipal areas. Under the anti-power theft campaign in 13 circles 28,657 cases of power theft from June to October were identified. A penalty of ₹680 mn had been imposed on consumers found stealing power and ₹231.8 mn recovered in revenue. Recovery of remaining penalty and legal action was being taken against guilty individuals/consumers. Power theft prevention police stations had registered 4,527 FIRs during the same period and 131 persons had been arrested. AVVNL, as part of its campaign against electricity theft in 11 districts across the state, has registered 1,606 cases of power theft and imposed penalty of ₹30 mn and 1.2 million. The campaign was started to check the cases of electricity theft in the 11 districts of the state that fall under AVVNL’s jurisdiction. Different teams were constituted to carry out the campaign in Ajmer, Bhilwara, Nagaur, Sikar, Jhunjhunu, Udaipur, Banswara, Chittorgarh, Rajsamand, Dungarpur and Pratapgarh districts. In serious cases of electricity theft, FIRs have been registered against offenders as the burden of electricity theft is borne by the consumers. Bihar government is considering a proposal to fine power distribution companies for load-shedding as part of its ambition to provide uninterrupted power supply to each household in the state as a matter of consumer rights. The proposed “No load-shedding policy” has been placed before the state cabinet committee recommending discoms be penalised even for short outages. India had achieved the dual targets of generating surplus power and electricity connection to every household and was now working towards the next milestone of 24×7 power supply. If implemented this will assign blame on power outages on Discoms. This is not necessarily to according to experts. Power outages are a tool of management of revenue shortfall arising from government policy to subsidise or give away electricity free to household and agricultural consumers along with government failure to disburse subsidy and revenue shortfall payments to discoms on time. By imposing a penalty on power outages on discoms the government abdicates its responsibility in contributing to the problem and deflects it on discoms experts said. CESC has decided not to pursue the demerger of its power generation and distribution business, which it had earlier planned. Demerger of these two lines of business into CESC and Haldia Energy had met with opposition from the West Bengal Electricity Regulatory Commission. It had flagged concerns over asset distribution between the two firms in the case of a demerger, and had questioned if the demerged entities had received any favour from parent CESC. The power regulator refused to approve CESC’s planned power purchase agreement in case of a split. Previously, CESC had said that owing to the complexity of the power generation business in the country, and the low yield from this business, CESC will focus on strengthening its distribution business. On the other hand, investments in power generation are expected to be frozen.
Private Sector
Tata Power said it will create an arm, TP Renewable Microgrid, to set up 10,000 microgrids to provide power to five millions homes across the country. The TP Renewable Microgrid would be set up in collaboration with Rockefeller Foundation, which will provide technical support to the offshoot for achieving its objective. The TP Renewable Microgrid represents important scaling up of efforts to provide access to affordable, reliable and clean electricity in India, and will serve as a model for expanding access to more than 800 mn people who are without power worldwide, Tata Power said.
Cross Border Electricity Trade
As part of India’s strategy of creating a new energy ecosystem for the neighbourhood, the government is exploring to set up an overhead electricity link with Sri Lanka to supply power to the island nation. The electricity link is part of India’s strategy to negate the growing influence of strategic rival China in the Indian Ocean region and South Asia. The earlier plan involved PGCIL setting up a link for 1,000 MW between India and Sri Lanka, of which 30 km will be under the sea. The India-Sri Lanka transmission link was to run from Madurai in Tamil Nadu to Anuradhapura in Sri Lanka’s north-central province. Sri Lanka’ Ceylon Electricity Board has an installed power generation capacity of 35.8 GW. India has an installed power generation capacity of 360.45 GW, with the national grid capable to transfer 99,000 MW of electricity from any corner of the country.
Rest of the World
Africa
South Africa plans a sweeping overhaul of its power sector by breaking up loss-making state utility Eskom over the next three years and opening the industry up to more competition, a long-awaited government paper showed. The paper set out a vision for a restructured electricity supply industry, where Eskom could relinquish its near-monopoly and compete with IPPs to generate electricity at least cost. The government plans to set up a transmission unit within Eskom by the end of March 2020 and complete the legal separation of all three units in 2022. One or more Eskom generation units will be created to compete with IPPs and the distribution model will be reformed so more power can be procured from small-scale producers. The aim is to change a situation where South Africa is reliant on Eskom’s creaking fleet of mainly coal-fired power stations for more than 90 percent of its electricity and has rigid rules for power procurement. Nationwide power cuts spread over several weeks in the first three months of the year contributed to a steep economic contraction, sending Eskom’s operational and financial crisis to the top of the government’s to-do list. South Africa’s NUM threatened to shut down the country’s power sector over the government’s decision to forge ahead with a plan to break up struggling state power firm Eskom. NUM, one of the largest unions at Eskom, fears that the government’s plan to split Eskom into different units for generation, transmission and distribution will lead to job losses. Kenya’s energy ministry and a Chinese firm, China Aerospace Construction Group, have launched the construction of a major power transmission project outside the capital, Nairobi. Once completed, the 40 km, 400 Kva Konza-Isinya Transmission Line Project will ensure reliable power supply for Konza Technopolis, south of Nairobi. Zimbabwe’s state-owned electricity distributor, grappling with drought and ageing equipment, said it will disconnect mines, farms and other users as it looks to recover $77 mn in unpaid bills. The southern African nation is experiencing daily power cuts lasting up to 18 hours after a severe drought reduced water levels at the country’s biggest hydro plant. The ZETDC is also being hampered by ageing coal-fired electricity generators which constantly break down. ZETDC said in a public notice it was owed 1.2 bn Zimbabwe dollars ($77 mn) and it was targeting to recover the money from mining, agriculture, commercial and domestic users. The country imports up to 400 MW from South Africa and Mozambique when they have spare capacity. Zimbabwe hiked its average electricity tariff by 320 percent to increase power supplies, angering consumers already grappling with soaring inflation and the country’s worst economic crisis in a decade. The US has cancelled $190 mn in grants to Ghana under the “Power Africa” initiative in response to the Ghanaian government’s termination of a contract with a private utility provider, the US embassy said. The Millennium Challenge Corp, a US government foreign assistance agency, agreed in 2014 to provide $498 mn in funding to Ghana’s power sector to help stimulate further private investment. The financing was the largest by the US under Power Africa, which was launched in 2013 by then President Barack Obama and aims to bring electricity to tens of millions of households in Africa. One reform under the agreement involved handing over operations at Electricity Company of Ghana in March to Ghana Power Distribution Services, a consortium led by Philippine electricity company Meralco. But Ghana’s Finance Minister informed US officials that the government was cancelling the 20-year concession it had signed with PDS, saying payment guarantees provided were not satisfactory.
Europe
European power exchanges operating in Britain plan separate day-ahead interconnector capacity auctions if the UK exits the bloc without a divorce deal, operator Nord Pool said. In the event of a no-deal Brexit, Britain would no longer be coupled to European power markets. That means capacity allocations via power interconnectors that connect Britain to mainland Europe would be made in a common bidding zone only until 31 October for delivery the next day. Britain’s two market operators are Nord Pool and EPEX SPOT. European wholesale electricity prices could soar by around 30 percent by 2025 due to a recovery in gas and carbon emissions prices and the planned phase out of some coal and nuclear power generation units, S&P Global rating said in a report. S&P said the supply gap would likely be filled by the rise in renewable solar capacity in Europe which could increase to 43 percent of the electricity mix from 23 percent in 2018. S&P said wholesale power prices are set fall in 2020 compared with 2019 but will rise across all markets until 2023 due to a combination of increased fuel and carbon emissions permit prices, and the “large-scale” power plant closures. Germany’s Uniper lifted its full-year earnings outlook, seeing itself a beneficiary of the revival of the British power capacity market programme. The British government gave the go-ahead to reinstate the power capacity market scheme after the European Commission approved it, compensating providers for making output capacity available regardless of whether electricity is delivered. Uniper, which opposes a takeover bid by Finnish state-owned company Fortum, said it was now targeting €750 mn ($827 mn) to €950 mn in 2019 adjusted earnings before interest and tax (EBIT), up from the 550-850 mn it previously predicted. The Dutch are opposed to the Maasbracht (Netherlands) power station, currently shut down, being used in the future to supply Belgium alone with electricity. The power station has a 1,304 MW capacity, the equivalent of the amount consumed by 3 mn domestic users, and is located near the Belgian-Dutch border at Maasbracht in the Netherlands. Its owner, the energy consortium RWE, and the Luxembourg company Nuhma have already given notice of their project to deploy an underground high-voltage power line to link the power station to the Belgian grid by 2020.
USA
The San Francisco-based PG&E has said that strong winds could lead to another power outage in Northern California. PG&E said that it was monitoring a potentially strong offshore wind event on 20 November, which suggests a possible prevention measure of Public Safety Power Shutoff that will cut power supply for some customers in North Valley, North Bay and the Sierra Foothills.
CEA: Central Electricity Authority, discoms: distribution companies, mn: million, bn: billion, tn: trillion, GDP: Gross Domestic Product, UP: Uttar Pradesh, MP: Madhya Pradesh, kW: kilowatt, MW: megawatt, GW: gigawatt, IIT: Indian Institute of Technology, IEX: Indian Energy Exchange, kWh: kilowatt hour, BHEL: Bharat Heavy Electricals Ltd, y-o-y: year-on-year, KSEB: Kerala State Electricity Board, NCT: National Committee on Transmission, TOR: terms of reference, CTU: Central Transmission Utility, km: kilometre, UPPCL: UP Power Corp Ltd, kV: kilovolt, EESL: Energy Efficiency Services Ltd, UPCL: Uttarakhand Power Corp Ltd, UDAY: Ujwal Discom Assurance Yojana, AT&C: Aggregate Technical and Commercial, PTCUL: Power Transmission Corp Ltd, UJVNL: Uttarakhand Jal Vidyut Nigam Ltd, AVVNL: Ajmer Vidyut Vitaran Nigam Ltd, CESC: Calcutta Electric Supply Corp, PGCIL: Power Grid Corp of India Ltd, IPPs: independent power producers, NUM: National Union of Mineworkers, ZETDC: Zimbabwe Electricity Transmission and Distribution Company, US: United States, PDS: Power Distribution Services, UK: United Kingdom, PG&E: Pacific Gas and Electric Company
India Energy Analysis 