A recent directive from the Maharashtra Electricity Regulatory Commission (MERC) asking state-owned distribution company Mahavitaran Ltd to try and limit the cost of its electricity purchases will bring relief to consumers but also lead to the shutdown of a quarter of the generation capacity of Maharashtra's state-owned power generation company.
On 26 June, MERC issued its tariff order for 2015-16 for Mahavitaran. The order noted that Mahavitaran should buy power where generation cost is not more than Rs.2.53 per unit. If it has to purchase costlier power, it should strictly adhere to the merit order dispatch code. The merit order dispatch code states that power must be purchased in order of generation cost.
What this will mean is that the purchase of power from Maharashtra State Power Generation Co. Ltd (Mahagenco) will come down as it produces power at a much higher cost than average.
"MERC's order is a major victory for electricity consumers across the state as consumers were unnecessarily burdened with high-cost power of Mahagenco," said Pratap Hogade, president of Maharashtra Power Consumers Association.
The average cost of power purchased by Mahavitaran from central government companies such as NTPC Ltd and independent power producers (IPP) is around Rs.3.25 per unit, while Mahagenco's average cost is higher at around Rs.4.25 per unit. This takes Mahavitaran's average power purchase cost to Rs.3.75, Hogade pointed out.
One major reason behind the high cost of Mahagenco's power is the delay in executing new projects undertaken since 2004. While IPPs, on average, have completed power plant projects in three to four years, it takes Mahagenco five to seven years to complete its projects. It is also operating at lower plant load factor (PLF) which, in turn, pushes up the unit cost of power.
The PLF for NTPC is more than 85%, while Mahagenco's average PLF is at about 60%.
"The MERC's order is a welcome move because Mahavitaran during the last financial year sold 16% of power it purchased by incurring losses in the open market," said Ashok Pendse, designated consumer representative with MERC.
"So, even if Mahagenco's plants remain shut and Mahavitaran has to pay fixed cost to the generation utility, consumers will benefit because then they won't have to bear the burden of the variable cost," he added.
The per unit cost of power consists of a fixed and a variable cost. The fixed cost includes the cost of the plant, depreciation, interest on loan and staff salaries. The variable cost mainly consists of the cost of fuel. In the case of thermal power, 60-70% of the per unit cost is fixed cost and the rest is variable cost.
Bipin Shrimali, managing director of Mahagenco, however, dismissed fears of Mahagenco's plants remaining shut. "I think fears of our plants remaining shut down are exaggerated. The country's economy is growing and we need power from all available sources," Shrimali said, adding that Mahagenco has taken a number of measures to reduce the cost of power, including improving operations and maintenance practices.
"...this helped us to propose reduction of 30 paisa per unit in our tariff proposal for financial year 2015-16 to MERC. Thanks to the various measures we are taking, we are confident we will manage to reduce our per unit cost by 30-40 paisa more," Shrimali added.