Low cash cuts off power firms
October 27th, 2010

India has recorded an additional power generation of 2,000 million units compared to last year, but there are few takers — power utilities across the country are opting for outages or loadsheddings, citing financial constraints while units are available at a reasonable rate.

The average rates, which stood at Rs 7.50 per unit during October-November 2008-2009, have plummeted to between Rs 3-3.50 per unit.

Industry sources told Business Standard that out of the 20 buyers last year, only Tamil Nadu and Rajasthan are procuring power under open access. Several other states including Maharashtra, Madhya Pradesh, Punjab and Haryana are resorting to power outages instead of buying power.

Pramod Deo, chairman of the Central Electricity Regulatory Commission, said CERC was not in a position to initiate action because it is for the state regulatory commissions to take a note of the prevailing situation. “Our concerns are when there are cases of overdrawal. State distribution utilities are short of cash. During election time, a lot of state distribution utilities were buying expensive power, so this present trend could be a result of excessive spending,” he added.

Jayant Deo, managing director and chief executive officer of Indian Energy Exchange, said, “The utilities are preferring load shedding instead of purchasing power, and this will not give a proper signal to investors in the power sector. The regulators are permitting to shed load instead of asking utilities to organise power supply.”

“Average prices on power exchanges have been around Rs 3 per unit, lesser than what utilities usually pay for on a long-term basis. Merit Order principle demands that cheaper power be consumed at any given point in time. If this situation is not arrested, the economic growth will not be achievable as planned,” he said.

Adding: “Utilities are also not allowing bulk consumers open access to buy power from various sources. Due to the states’ rigid stand, the retail consumers are having to face burgeoning load shedding.”

Crisil, in its recent report on merchant power prices, said state distribution utilities (SDUs) are primary buyers in the merchant power market. Hence, purchase decisions of SDUs significantly influence merchant power prices. The accumulated losses of state utilities stood at Rs 850 billion in 2008-09. According to the Finance Commission, the losses could rise further to Rs 1.15 trillion by 2014-15.

“The weakening financial health of utilities has curtailed their ability to set up new power plants to meet the demand. Hence, the utilities are increasingly looking at sourcing power from private players through competitive bidding. This is expected to increase the average cost of supply for distribution utilities and further strain their financials, thus putting pressure on utilities and limit purchase of power from open market at high costs,” the report said.

Rupa Devi Singh, chief executive officer of Power Exchange India, said: “Open access consumers have recently started coming into the market. But prices are determined by purchases from utilities as opposed to open access consumers. Not much demand is coming in from utilities, and as a result, there is unsold power on the exchanges.”

D Radhakrishna, a power analyst, said few states like Andhra Pradesh, who denied permission to sell power to other states and bought power at Rs 4.50 per unit, are now looking at means to back out from the contract. Some states like Madhya Pradesh have started shedding load from four hours to six hours daily.

Source – Business Standard

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