This summer, India’s power sector stress hurt one of the nation’s most industrialised states: Gujarat
Prime Minister Narendra Modi’s home state couldn’t meet the peak demand for the first time in seven years due to falling output at stressed plants. The deficit, which usually rises in summer, hit 7 percent in May—the highest since 7.5 percent in 2011, according to data by the Central Electricity Authority.
Gujarat’s power generation fell 15 percent over the year-ago month to 7,133 gigawatts in May. That was largely due to non-availability of power from Adani Power Ltd. and Essar Power Ltd., Pankaj Joshi, managing director at Gujarat Urja Vikas Nigam Ltd., said in response to BloombergQuint’s text messages. The shortfall was met by purchasing power under “bilateral arrangement and from power exchanges”.
Adani Power, Tata Power Ltd. and Essar Group’s plants face viability issues after the Supreme Court barred them from passing higher costs of coal imported from Indonesia to consumers. The state government appointed a panel headed by a former Supreme Court judge will look to resolve issues regarding the power projects that are idle or under-utilised, multiple newspapers including the Mint reported.
Fuel shortage is among the key reasons for stress in India’s power sector, besides delayed payments by distribution companies, no power purchase agreements and aggressive bidding by private power companies. Countrywide, the government has identified 34 stressed power plants with Rs 1.8 lakh crore of debt at risk.
Gujarat has been power surplus since 2009 and accounts for around 9 percent of the country’s total energy needs, according to a 2017 report of the state’s Energy and Petrochemicals Department. But it faces a shortfall in the summer when demand rises with heat.
What added to the crunch this May is loss of 1,000-megawatt wind generation and a forced outage at 500 MW unit 6 of Ukai thermal power station, said Joshi. Farmers bore the brunt as, according to Joshi, state resorted a load restriction for agriculture.
Private Players’ Woes
Adani Power, Tata Power and Essar Group had raised concerns with the state government after unexpected changes in coal pricing regulations in Indonesia. That has made the units unviable, forcing two units to shut down and one to run at a low capacity.
The power producers approached the regulator to increase tariff from what was agreed under power purchase agreements. The Central Electricity Regulatory Commission in February 2014 allowed them to revise tariffs. But the Supreme Court last year ruled against the tariff hike, asking the power producers to refund higher tariff. That led to losses.
The new panel will look at ways to make electricity cheaper for everyone as power from these stressed plants costs Rs 2.5 a unit compared with the average spot market price of Rs 3.5 a unit, according to KK Bajaj, an energy expert.
Girishkumar Kadam, vice-president, and sector head of corporate ratings at ICRA Ltd., told BloombergQuint, that Gujarat would remain dependent on the short-term market for meeting the shortfall, exposing it to price movements. “Timely pass-through of variation in fuel and power purchase costs for the utilities in Gujarat through the FCA (fuel-cost adjustment) framework remains important.”