India’s power sector has been plagued by inefficiencies and large financial losses. There are substantial peak demand shortages, discoms are unable to pay their bills to power producers, the distribution network isn’t strong enough to ensure optimal supply of power and theft remains rampant. With little initiative to cut down on cross-subsidies, industry continues to bear the burden of high cost of power. India is attempting to build solar capacity—the share of renewable generation in 2019-20 was 10%—but that effort, too, is in jeopardy, not the least because governments are reneging on power purchase agreements. To be sure, the fact that 100% of households have electricity is no mean achievement. But if the sector is to become viable for all stakeholders, and attract investments, it is critical to tackle some of its deep-rooted problems.
Among the objectives laid out in the new draft National Electricity Policy is one to revitalise distribution companies. Despite several attempts to make them viable, discoms remain in poor financial shape; their collective overdues stood at Rs 82,400 crore at the end of March while their collective debt is tipped to cross Rs 6 lakh crore by March 2022. Their financials have not improved despite relief packages over the years, including the latest one for Es 1.25 lakh crore under the Atmanirbhar Bharat package. Until state governments are penalised for defaulting on payments, it is unlikely the financials of discoms will ever improve.
Given that coal-based capacity would be required since it is cost-effective, the draft policy prescribes the use of the most efficient technology by coal-based power stations so as to ensure environmental standards are maintained. It rightly suggests that all coal-based plants should only be of super critical or ultra- super critical technology or technology that’s superior to this.
While there are several gas-based plants in the country, most of these have been rendered inefficient due to the short supply of gas; with the average plant load factor at an abysmal 23.4%, investments worth thousands of crores of rupees have been wasted. The draft policy notes the urgent need to build renewable energy capacity. However, it is not clear how producers can derisk their investments if PPAs are not honoured.
Many of the promoters are spending their time in the courts in litigation that is costly and time-consuming. If the focus is to be on adding renewable energy capacity, these issues need to be sorted out. The draft policy notes that the ‘perverse incentive’ for state distribution companies not to draw power must go. The tariff earned by generators must cover the risk for any curtailment of power by the distribution licensee for reasons other than grid security or transmission constraints. Unless producers are protected, investments will not flow into the sector.