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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.

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.

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