Sunday, November 19, 2017

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Powerzone

Power posers

India’s power sector continues to face challenges given the falling thermal PLFs, rising subsidy for state owned distribution utilities and uncertainty over resolution of tariff compensations for private sector IPPs, says a report by ICRA.

Energy deficit level has dropped significantly in FY 2014 with slowdown in energy demand and sizeable capacity addition. Against a CAGR of 7 per cent between FY 2005 till FY 2013 in energy demand on all India basis, energy demand growth dipped considerably to 0.7 per cent. The decline in energy deficit levels is a result of subdued demand from industrial consumers (which contribute about 40 per cent of overall demand in the country), constraints in off-take by state owned distribution utilities (which results into load-shedding and thus, restrained demand) and improved energy availability on account of sizeable capacity addition in the thermal segment as well as factors such as higher generation from hydro/wind sources.

Deteriorating PLF levels in thermal segment; demand recovery and improvement in the financial position of state utilities remain key. Thermal PLFs at an all India level have declined to 65.6 per cent during FY14 from 69.9 per cent in FY13, primarily due to backing down of generation units due to low demand from distribution utilities as well as a fall in generation from gas based power plants following stoppage of natural gas availability from KG basin of RIL since March 2013. In the case of coal based stations too, PLF levels varied widely and showed a mixed trend across generating stations driven by a) the cost-competitiveness of power generated, b) extent of fuel availability and c) availability of PPA, which allows the pass-through of cost in consent with distribution utility. For any sustainable improvement in PLF levels, demand recovery from the industrial consumers and more importantly, improvement in the financial position of state utilities remain critical.

Delays have been observed in many states for issuance of tariff orders, despite the satisfactory progress in filing of tariff petitions for FY 2015. Also, subsidy dependence continues to rise further. On an all India basis, subsidy dependence for the state owned distribution utilities for FY 2014-15 is estimated in the range of Rs. 720 billion, which is estimated to have increased at CAGR rate of 16 per cent since FY 2010. Among all the utilities, subsidy dependence for discom in Maharashtra is estimated to increase sharply by about 55 per cent on y.o.y basis in FY 2015 as a result of tariff subsidy of 20 per cent announced by State Government for 11 month period (Jan – Nov 2014), while the same for utilities in other states in FY 2015 is estimated to increase by 8 to 20 per cent. In turn, timeliness and adequacy of subsidy support to utilities from their respective State Governments remains extremely crucial.

Timelines for resolution of compensatory tariff issue for affected IPPs based on imported coal remains uncertain. Further limited progress is seen in case of allowing tariff compensation by SERCs for the affected IPPs based on domestic coal linkage. While CERC issued a favour able order allowing tariff compensation to Coastal Gujarat Power Ltd and Adani Power Limited (both having imported coal based projects), the affected state utilities have appealed against the same to the Appellate Tribunal of Electricity (ATE). In turn, timelines for resolution of this issue remains highly uncertain, which is an area of concern for the generation sector. Subdued outlook on short term traded tariffs is expected to continue in the near to medium term: Given the financial constraints for the state owned utilities in many of the states and slowdown in energy demand in relation to improved energy availability average bilateral short-term tariffs (for contracts of up to 1 year) will continue to remain subdued at around
Rs.4/kwh in the near to medium term.

Increasing constraints for allowing open access by utilities remain negative for short term trading and in turn for IPPs with un-tied up capacity: Increasing constraints are being observed for HT consumers who intend to avail open access, as seen recently from disallowance of permissions by state utilities in Maharashtra and Gujarat and invocation of Section 11 by State Government in Karnataka under the Electricity Act -2003. This coupled with the upward pressure on open access charges (as seen from a sharp rise in cross subsidy surcharge across some of the states as well as levy of additional surcharge as allowed recently by SERCs in few states such as Haryana and Gujarat) remain key challenges for implementation of open access.




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