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Home News Power Sector News Overcapacity, low industry demand putting pressure on power tariffs

Overcapacity, low industry demand putting pressure on power tariffs

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ICRADue to large over capacity and low industrial growth, electricity tariff is under pressure this year. Arrival of cheap hydro-electricity – up by five per cent – has added further pressure on prices. Also coal-based power generation is down by nearly seven per cent in September.

But National Capital Territory of Delhi and three imported coal based power plants in coastal Andhra Pradesh are the exceptions. They along with a host of hydel power stations are top sellers on the Indian Energy Exchange this month.

Over the last week, the NCT area sold 4-9 million units which is approximately 150-400 MW on round- the-clock basis. The selling tariff hovered between ₹2.14-2.68 a unit. The region has three discoms and a mixed source of power.

According to Sabyasachi Majumder, Senior Vice-President of ICRA, the region has excess power. Most of the excess capacity is tied up by discoms, which are refusing to take delivery by paying fixed cost.

This power is offloaded in the open market at zero profit or on a marginal (variable) cost addition basis as higher capacity utilisation is helping in keeping overall costs down.

But this doesn't hold good for Thermal Power Tech, Meenakshi Thermal and Simhapuri Energy of Andhra Pradesh. All of them are coastal power plants using imported coal for electricity generation.

Over the last week, Simhapuri and Thermal Tech have often been the top five sellers. These two and Meenakshi were top IPP sellers along with a host of hydel power producers.

Chhattisgarh-based Avantha Power and ACB India and, Tamil Nadu-based Neyveli Lignite (NLC) also made it to the list of sellers from thermal power segment but their transactions were either infrequent or marginal in volume (as in the case of NLC).

There are occasions when power was sold below the regional average tariff, which itself is ruling low. On September 12, Simhapuri and Thermal sold over 4 million units each at ₹2.45-47 a unit as against the regional average tariff of ₹2.69.

According to Girishkumar Kadam, also a Senior Vice-President of ICRA, there is no way a thermal power plant can make profits at such tariffs. At the prevailing price of $38 a tonne (FOB) for 4200 kilo calorie Indonesian coal, an imported coal based coastal power station should recover over ₹2.2 a unit in variable cost and another₹1.8-2 unit for fixed cost, he said.

Kameswara Rao, Partner, PwC, says, "Power generators are bidding close to variable costs for dispatching the power. Given the extended monsoon and lean demand, they otherwise risk losing even this limited cash flow."

According to a source, the IPPs from Andhra are particularly in a sticky wicket due to absence of firm power purchase agreements (PPAs). The State government is expected to enter into agreements soon failing which many producers will suffer losses.

However, the buyer is benefiting from this situation in the short and medium term. State-run discoms in Punjab, Telangana, Bihar Haryana and Karnataka are regularly buying power at around ₹2.5 a unit. Hectic buying is also seen from UP and Rajasthan, but less frequently.

But in the long run it might create new problems. While detailed reports on capacity utilisation are not available, Coal India (CIL) reported a drop in sales in the second quarter.

The drop is sharp in August, so much so that the offtake growth which was three per cent in April-June stands at 0.2 per cent in April-August period. Breaking away from tradition, CIL did not release data for August.

Sources say while State government-run generation units reported dramatic fall in capacity utilisation (PLF), many IPPs too decided to shut shop fully or partially.

Source- The Hindu


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