Discoms face financial stress as coal shortages drive up tariffs

Coal shortages have put state-run power generation and distribution companies in a tight spot operationally and financially, especially with a searing summer forecast by the Met Department.

Distribution companies (discoms) are buying electricity from energy exchanges, where spot prices zoomed 58 per cent y-o-y in March and doubled over the previous month. Buying power at such high rates will hit the financial health of distribution companies and increase their monetary stress.

India’s peak power demand is estimated to be 157,000 MW this month, 15 per cent higher than a year ago, according to the Central Electricity Regulatory Commission. More power is being procured by Gujarat, Uttar Pradesh, Andhra Pradesh, Telangana and Tamil Nadu.

Mounting losses

The crunch sent power prices higher. The average price on the Indian Energy Exchange is more than ₹4 for every unit, against ₹2.6 a year ago. The Indian Energy Exchange is an electronic system-based trading exchange regulated by the Central Electricity Regulatory Commission.

Gujarat Urja Vikas Nigam Ltd purchased 600 million units from the exchange in February at a daily average of around 21.4 million units. By March 17, it had bought 480 million units,or an average of 28.2 million units a day.

Average price for evening peak power had risen to a monthly high on March 14, at ₹7.9 per kilowatt hour. On March 21, it was ₹7.

Despite UDAY (Ujwal DISCOM Assurance Yojana), power utilities have accumulated losses estimated at ₹36,000 crore, Power Minister RK Singh told the Lok Sabha in a written reply.

Discoms typically find it difficult to pass on higher costs of power purchases to consumers as hiking tariffs is a politically sensitive move. “One of the main reasons why discoms are saddled with huge debt is that increasing tariffs are seen to be politically incorrect and hence, passing on the higher costs to consumers is always tricky,” said a Mumbai-based analyst tracking the energy sector.

To add to this, coal shortages at power plants means output hasn’t kept pace as demand increases with rising temperatures.

Power Minister Singh also acknowledged that power demand is 6.5 per cent higher than the year-ago period.

“We are in touch with the Coal and Railways ministries and will push up the current target of 275 rakes per day to 280 a day next year. We have built up surplus coal stock for 10 days,” he told Parliament.
Source: The Hindu Business Line

Keerthika

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