Out of power

The Indian Express : Fri Jun 29 2012,

The runaway crisis calls for urgent action on raising tariffs and fuel supply

Last year, the country saw a record capacity addition of 19,459 MW in the power sector, thanks largely to a spirited performance by private sector project developers. To put this in perspective, the capacity added during one year, 2011-12, was just a tad short of the 21,080 MW commissioned during the entire five years of the Tenth Plan period. The power situation should have been much better this summer, considering the record commissioning. But as a two-part series in this paper that aggregated reports across various states showed, the situation continues to be dismal on the ground. Power cuts are the norm, not the exception, in the majority of states.

There are two main reasons why commissioning of new projects is not translating into more electricity for consumers. One, a number of power projects are struggling to generate electricity for want of fuel, with both coal and gas in short supply. Combined with this is the fact that for distribution utilities across many states that have not hiked retail power tariffs, there is no incentive to buy additional power and offer it to consumers. At the current tariff levels, they lose money with every unit they supply. So, they prefer to restrict losses by supplying less power to consumers and resorting to rampant load-shedding as demand surges. This is reflected in the fact that despite widespread shortages, the spot price of electricity in the day-ahead market on the two operational power exchanges in the country had been under Rs 4 a unit during much of last week. This is at a time when at least six states have declared power holidays and another eight have load-shedding plans lined up. There is a bigger worry now for the power sector. The renewed private sector interest is petering out, with the all-pervasive fuel shortage threatening to derail upcoming projects, turning away both private sector project developers and investors. Add to this a distribution sector that is haemorrhaging cash, a widening demand-supply gap and a slackening reforms agenda — and the power situation is headed for disaster.

The biggest hit is being taken by industrial consumers. With grid supply uncertain, industrial units are falling back almost entirely on captive units to generate electricity at upwards of Rs 10 a unit. There is no denying that the power sector is by far the biggest drag on the country’s industrial sector competitiveness. Without urgent and adequate policy interventions, this sad state of affairs is likely to carry on.