Improving efficiency in the power surplus era

A proclamation of surplus power across India has underlined the progress (and pitfalls) of the power sector in recent years. For decades, the country has been reeling under persistent deficits in peak power and overall energy supplied. Notwithstanding the demand for power, from the millions yet to be connected to the grid, this surplus is an opportune moment for the thermal power sector to overhaul the power procurement process and improve overall efficiency. Power procurement expenses constitute more than 70% of the cost base of most distribution companies (discoms). Reducing this burden will go a long way in addressing their financial woes.

Energy generation assets

As of 31 March, India had an installed generation base of 327GW, of which coal accounted for nearly 192GW. The peak demand for 2016-17 was only 156GW. Factoring in a plant availability (accounting for planned maintenance and contingencies) of 85%, auxiliary consumption (within the power plants) of 7%, and nominal transmission and distribution losses of 20%, coal alone could theoretically contribute to 121GW of the peak demand. This surplus is likely to persist, given the pipeline of projects that are already contracted and under construction.

Recent opinion pieces and the Economic Survey 2016-17 suggest that renewable energy (RE) generation is imposing an inordinate social cost and is resulting in stranded thermal-generation assets. Even if we discount RE sources, and moved all the generation they contribute to coal power stations, the overall plant load factor (PLF) would only go up by 3.9%. Clearly, the issue of current low utilization and stranded assets needs to be dealt with in a more comprehensive manner without making RE the scapegoat.

There are significant gains to be had from rationalizing procurement just from the coal-based generation assets.

Power procurement from coal generation

A bulk of the power procurement (~90%) by discoms is through long-term power purchase agreements (PPAs) with generators, and intra-state short-term purchases. Though the Electricity Act (2003) promotes competitive procurement of electricity by discoms, many of the existing PPAs did not necessarily reflect the best available price (even when they were signed) and certainly do not make economic sense today, given the stock of efficient and lower cost thermal-generation assets. An analysis by the Council on Energy, Environment and Water (CEEW) indicates that nearly 48% of the generation from the cheapest sources  was left unutilized. This is primarily a reflection of the way current PPAs are structured and the rigidity they impose on procurement.

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