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Power Problems Powerful Problems

The winds of change in the environment vast, sudden and unpredictable kill projects that were once the darlings of the day. This is more pronounced in the energy sector. There are tectonic shifts. These point to ending the creation of new power generation capacity based on fossil fuels. The Draft National Energy Policy suggests phasing out lignite as feedstock from 2022 and coal from 2027. Imagine the impact on coal production and conventional manufacturers of power equipment like BHEL! Are we ready for it? The experience of switching over to wind and solar power with steep fall in power prices is impacting the operations of power distribution companies. Add to this the policy changes introduced by the power ministry extending generous support for restructuring state electricity companies. The picture of disruption is complete.

Power Problems Powerful Problems

Let’s look at a few cases: 

The Tamil Nadu Generation and Distribution Corporation (TANGEDCO) that resisted falling in line with the Centre’s Ujwal Discom  Assurance Yojana (UDAY) scheme, experienced mounting losses that led to debts of close to Rs. 100,000 crore. There was corruption at the highest level of both the kazhagam regimes. Mafias were permitted to import coal from Indonesia and charge unconscionable prices with liberal cuts to policymakers. Manipulation of pricing power purchased from private players was the icing on the cake. High price was contracted even on contracts for solar energy. 

These were happening at a time when the state was suffering humungous power shortages. The compulsion to meet the deficit, which peaked in 2012, led reconciling to the very high prices paid. Suffering 16 hours of power cuts a day and frequent disruptions, consumers were desperate to get out of the crisis. 


Steep drop in solar, wind power prices..

For the last two years, Tamil Nadu has been free from power shortages. Import of coal at inflated prices stopped and the distribution companies switched to buying fuel from Coal India at lower prices. Improved transmission helped purchase power at lower costs through competitive electronic bidding. With sizeable capacity additions, wind and solar power  are offered at low prices. TANGEDCO can buy power at around Rs. 3.45 per kwh. Just contrast this with the company incurring even Rs.12 per unit!

With the freedom to perform without interference from the political leadership, TANGEDCO has been able to look closely at its economics. This, however, involves severe policy shocks for the power producers. Consider these:

Adanis set up the 648 MW capacity solar power utility at Ramanathapuram reportedly contracted to supply at around Rs. 5.50 per kwh. Recent competitive bidding enabled power supply at around Rs. 3.47 per kwh and wind energy at Rs. 3.45.  With power available at lower prices, TANGEDCO has switched to low-cost buying options. In the bargain, producers of solar and wind energy are left starving. 


When private power companies crash...

Next, large companies that had borrowed heavily from banks to set up utilities, are unable to service the massive loans. Many of them have been proceeded against under the Bankruptcy and Insolvency  Act causing further disruption. I gather the 1200 MW ETA plant at Tuticorin has been taken over by State Bank and the operation been entrusted to Tata Power. 

Tariff hurts industry most...

The management also has to contend with the massive cross-subsidisation of its tariff. Starting from the free power offered for the farm sector by the DMK government in 1989, there have been significant increases in the subsidies extended to agriculture and domestic consumers. These are way below the cost and unwarranted for universal coverage. Such hefty reliefs are balanced by unconscionably large imposts on industrial and commercial consumers. The average billing rate for high tension consumers at Rs. 11.62 per unit is the highest in India.

Even the small-scale industry is charged power at around Rs 8.50 per kwh. With the poor contribution of agriculture to the state’s GDP (around 8 per cent), there is need to look at such hefty subsidisation of the farm sector. Rational pricing of power for agriculture would result in the efficient production of crops.

Such exorbitant pricing has been driving large HT consumers of power to cheaper alternatives. These include investment in solar and wind power and to contract for power purchases from power traders or to go for the less efficient gen-sets. A report in The Hindu (22 October) points to the high cost of power risks leaving a hole in TANGEDCO finance. 

For decades bureaucracy has been trained and specialised to manage shortages and deal with a limited number of suppliers. Today it has to handle surpluses and procure efficiently from diverse sources! Understandably adjusting to these changes is tough.

In 2010, after years of resistance and dithering The government of Tamil Nadu restructured TNEB into a transmission company (TNTRANSCO) and a generation and distribution company (TANGEDCO). Due to the financial stress that TANGEDCO faced, it was unable to step up the generation capacities in the state in line. Also, as the southern grid was not synchronised with rest of the national grid, it was difficult for surplus power to flow from the rest of India into Tamil Nadu. The state slipped into electricity deficit in FY 09, which became more acute over the next five years. From FY 15 onwards, TANGEDCO completed some of its generation projects that had been delayed and supplies improved.

Demand-supply situation

The energy requirement in the state has increased at a CAGR of 3.2 per cent during FY 13 to FY 17. In the same period, energy availability increased at a CAGR of 8.2 per cent and the resultant energy deficit has fallen to zero. Significant reduction in the energy deficit is observed in FY 16 and FY 17. 

The 19th Electric Power Survey of India estimates a 6.3 per cent CAGR in the electricity demand in the state of Tamil Nadu. The expected growth is marginally lower than the national growth in demand of 7.1 per cent CAGR.

Generation and sales mix

Installed power generation capacity of the state of Tamil Nadu has grown at a CAGR of 11 per cent in the period from FY 13 to FY 17. While thermal and nuclear capacity additions have witnessed greater thrust, renewable and hydro capacity additions have grown less. 

Lead in non-conventional power

Tamil Nadu has a significant wind generation capacity, which equates to nearly 30 per cent of the national capacity. The Kudankulam Nuclear Power Plant in the state is a milestone in the country’s nuclear power sector. 

Tamil Nadu has a diversified manufacturing sector. Industrial demand in Tamil Nadu has witnessed a positive trend in the period from FY 13 to FY 17 and is in line with the trends in the GSDP. 

Balanced sales mix

Industrial consumers represent 28.5 per cent of the total consumption. Domestic consumers form the majority of the sales mix (34.5 per cent). The sales mix is well-balanced since the agricultural consumption (15.9 per cent) is not as significant as the industrial consumption thereby making sufficient room for cross-subsidisation. Despite this the state discom is dependent on government subsidy.

Per-capita consumption and rural electrification

Tamil Nadu has achieved 100 per cent rural electrification decades ago. The per capita electricity consumption of Tamil Nadu is above the national average of 1075 units during FY 2015-16.

Per capita energy available is higher than the per capita energy consumption in FY 15 and FY 16.

In addition the significant focus would be addition of infrastructure for transmission and distribution to ensure seamless evacuation of power and increasing generation capacity to meet future demand. The peak demand is expected to reach 17651 MW by FY 19.

Capacity additions planned... 

Over and above the 2509 MW of planned thermal capacity addition by FY 19, nearly 4900 MW of thermal capacity is under construction with expected CoD beyond FY 19. 

In addition to thermal capacity addition, the state has significant focus on enhancement of renewable capacity with addition of 5265 MW by FY 19, thereby increasing the renewable capacity (FY 16) by more than 60 per cent. 

UDAY - to restructure discoms 

The government of India initiated the Ujwal Discom Assurance Yojana  (UDAY) with the aim to provide relief to the debt–ridden utilities and improve their overall performance. Under the scheme 75 per cent of the debt of the utilities will be taken over by the state government. 

UDAY also aims to improve operation efficiency through compulsory distribution  of transformer metering, consumer indexing and GIS mapping of losses, upgrade/change transformers, meters, smart metering of high-end consumers, feeder audit... 

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