Mind the gap

Contrary to popular belief, the country has registered a sharp reduction in power deficit in the recent period. According to the Central Electricity Authority, the peak power deficit fell to an all-time-low of 3.3 per cent in February compared with 7.9 per cent for the same month last year. All major states, save Maharashtra, have seen significant declines in peak power supply shortages. That includes Uttar Pradesh (from 2,915 MW in February 2013 to 1,725 MW in February 2014), Andhra Pradesh (from 2,796 to 697 MW) and Tamil Nadu (1,782 to 935 MW). Together with spot electricity rates in power exchanges ruling at ₹3.2 to 3.3 a unit — below the minimum ₹4 to 4.5 contracted against long-term power purchase agreements — these numbers make it appear as though deficits are soon going to be passé.

Well, the story unfortunately isn’t that simple. Deficits have come down only due to the sluggish growth in India’s overall power requirement in April-February 2013-14, a mere 0.8 per cent over the corresponding 11 months of the preceding fiscal. This is a result of the general economic slowdown, specifically the low demand from industries running at sub-optimal capacities, if not already shut. While power availability has gone up, the increase of 5.7 per cent is hardly anything to write home about. What is notable, in fact, is how little it has increased in relation to the capacities created in recent times. The 11th Plan period (2007-08 to 2011-12) witnessed fresh capacity addition of about 50,800 MW — more than the 40,000 MW of the previous two plans combined. The first two years in this plan have seen another 33,000 MW being added. A significant part of the new capacities, however, are idling either for lack of demand or lack of fuel to burn. This is partly captured by plant load factors for thermal plants, averaging about 68 per cent now against 75 per cent-plus levels till 2010-11. They would be below 60 per cent if one were to factor in capacities created but not commissioned.

The demand slowdown should be utilised for sorting out issues relating to fuel linkages to ensure utilisation of already created capacities. This would require expediting coal block auctions to enable private mining, along with undertaking state electricity board (SEB) reforms that make fuel price pass-through automatic. Most states may not find this acceptable, but the financial crunch faced by SEBs may leave them with no alternative if the Centre were to offer a recapitalisation package linked to their charging flexible tariffs to consumers. Such reforms are feasible once we have a new government at the Centre that recognises the importance of dealing with real power deficits in the days to come.

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