The Hindu Business Line : Power at all cost

Power at any cost is better than none at all. This is probably what more and more State governments are realising as they sign up for whatever power is available from any source, unmindful of the cost. There are reports that some governments, notably of Delhi, Haryana and Uttar Pradesh, are tying up power at more than Rs 7 a unit — a marginal wholesale price that is much higher than what the utilities will be able to realise from consumers. This situation, in a way, mirrors the plight of the power sector today. States continue to be short-sighted in their policies because of which the demand-supply gap continues to widen. Supply of free and subsidised power continues unabated, resulting in inefficient use of energy. A healthy power sector must recover at least the cost, even if there is no profit. This has not happened. With installed generating capacity at about 128,000 MW, the country faces a 15 per cent deficit in peak demand and a nearly 10 per cent shortage in energy demand. The gap is only bound to widen in summer when a larger number of electrical appliances will be switched on.

Most projects tie up their generating capacity through long-term power purchase agreements with the utilities, leaving little for inter-regional trading. As it is, power trading accounts for just about 3 per cent of the total energy generated. There is scope for increasing this as captive power plants with industries and cogeneration units of sugar mills can be brought into the grid through attractive prices. Pune, with a large number of industrial units, has shown the way with the entities promising to run their captive plants and the utility prepared to buy the power despite the high cost, just to avert shutdowns, which are a bigger drain on the economy. There is an opinion that the market for power trading is reaching a plateau; this will only be a temporary phenomenon due to the non-availability of surplus electricity. Over the years the price of traded power has been on the rise — available data show that it has gone up from Rs 2.15 a unit in January-March 2004 to Rs 5.75 in July-September 2006. It is because of this rise that the central regulator capped the margin on traded power.

The current power crisis, with States tying up whatever capacity is available irrespective of the cost, is an opportunity to even out the imbalance — some States (especially in the eastern region) are power- surplus and many (in the West and the South) chronically starved. But this trade calls for bigger investment in the evacuation infrastructure. Also, needed are merchant and peaking power plants, both of which require an active policy push and an enabling environment.