A debilitating domestic coal shortage and prospects of costlier imported coal derailing upcoming projects marred what started as a bright year for the electricity sector.
The strong performance by the private sector, which has continued to shoulder much of the generation capacity addition burden, and the emerging popularity of the Power Exchanges as transparent platforms for striking spot market deals were among the positives for the electricity sector in 2011. However, the worsening finances of the State Electricity Boards that has translated into a string of payment defaults, combined with the increasing reluctance among lenders to fund new generation projects on account of viability concerns, threatened to douse the new found optimism in the sector. The fuel availability situation, both coal and gas, continue to remain grim.
From January 2011, the Government had mandated that all power to be procured by distribution utilities should be done via the competitive bidding route. The decision effectively disallowed future generation and transmission projects from entering into power purchase agreements based on the ‘cost-plus', regulator-determined tariffs. The move was expected to bring in transparency in the award of projects and drive down consumer tariffs. Subsequently, a rollback for transmission projects was announced midway through the year.
Also, as the year progressed, an increasing number of private project developers across both the power generation and the transmission sectors threatened to go back on the tariffs they had quoted while bidding, forcing the Government and the regulators to re-examine the competitive bidding format implemented earlier this year. For instance, Reliance Infrastructure sought relief for two transmission links it had bagged through the competitive bidding route, citing delayed clearances and higher input costs. Reliance Power stopped work on the 4,000-MW Krishnapatnam Ultra Mega Power Project (UMPP) claiming higher fuel costs on account of revised imported coal prices. Tata Power has also sought higher tariffs for its Mundra UMPP, citing higher cost of coal sourced from Indonesia.
PRIVATE SECTOR LEADS
Fuel shortages and funding woes notwithstanding, the private sector developers accounted for much of the power capacity addition that took place this fiscal. During April-October 2011, the private sector added 4,301 MW, more than what was added by the Central and State sector utilities put together. The continued hold-up at the near-complete Kudankulam nuclear power units, though, could ensure that the actual capacity added could be well short of the 17,716 MW target for the current fiscal, which is the terminal year of the current Plan period.
FUEL Availability
The biggest concern, though, was on the fuel availability front. Power projects slated to come up on coal were running out of options, with domestic production failing to keep pace with demand and imported coal turned costlier on new regulations announced by major coal exporting nations. A new Indonesian mining law made it mandatory that coal prices be based on international market rate.
In line with Indonesia's plans, resource-rich African nations are also reported to be planning new mineral laws to take advantage of the boom in commodity prices. These include Mozambique, Namibia, South Africa and Zimbabwe, which were being viewed as a fallback option by Indian firms after Indonesia hiked coal prices sharply. A new carbon tax on Australian coal production further added to the woes of Indian developers planning projects on imported coal.
DOMESTIC SHORTAGES
The domestic shortages were made worse on account of a debilitating coal crisis towards the end of the year. From the beginning of October, the number of key thermal power stations in the country facing dwindling coal stocks rose alarmingly, resulting in power disruptions across the country as key thermal stations were left high and dry without adequate fuel to continue normal operations. A strike by workers of Singareni Collieries, coming at a time when the country was yet to recover from the problem of flooding of coal mines in the Eastern Region after the monsoons, triggered the disruptions.
In all, nearly 8,000 MW of thermal capacity was out due to the coal strike, while a drop of another 100 million units in hydro generation due to the receding monsoon aggravated the problems further.
SPOT MARKET
The one bright spot, though, was the growing share of the spot electricity market, riding mainly on the popularity of the two operational power exchanges. While the short-term power market currently accounts for a tenth of India's total electricity generation, the significant point is that there has been a steady rise in the share of transactions being put through the two operational power exchanges (IEX and PXIL) – from hardly 8 per cent in 2008-09 to over 19 per cent in 2010-11 and well over 20 per cent this fiscal. The 800-odd participants on the bourses included electricity generators, distribution utilities and industrial buyers.
anil@thehindu.co.in