UDAY effect: With interest burden unplugged, more power to Discoms

The Centre’s scheme to engineer a financial turnaround of electricity distribution utilities is beginning to yield results on two fronts. One, power producers are finding that their cost of generation is coming down. Two, distribution utilities, whose finances are in a better shape now, are buying more power.

To bail out debt-laden distribution utilities, the Power Ministry came out with the Ujwal DISCOM Assurance Yojana (UDAY), under which the State governments would take over 75 per cent of the distribution companies’ debt and banks would convert that portion of the debt not taken over by the State government into loans or bonds. About 10 States have signed up for the UDAY scheme so far. The accumulated debt of the Discoms meant that interest expense formed a big chunk of power supply costs which could not be recovered through consumer tariffs.

The UDAY scheme will bring relief through savings in interest costs, reduction in technical and commercial loss, and lower cost of power purchase. Power generators would also benefit as they were under stress because of weak power demand from Discoms. The scheme improves the distribution utilities’ ability to purchase power and also enable them to sign long-term purchase agreements. Plant load factors of coal-based plants were expected to improve because of all this.

States that signed up for UDAY would get additional priority funding, more coal at notified prices and lower cost of power through NTPC and other Central power utilities.

NTPC’s Chairman and Managing Director Gurdeep Singh said the benefits of UDAY have started to show with demand rising in several States and also the public sector power producer bringing down its fuel cost without reducing the electricity supply.

“Some of the Discoms, which were really stressed with debt, have already started buying more power as debt has reduced, their cost of funding is down and some more elbow room is there for them to buy more power,” Singh said.

The effect of higher demand has also been reflected in the plant load factors of thermal power plants. During April-May 2016, thermal power plants in the country operated at 64.83 per cent plant load factor as compared to 62.94 per cent in the same period last year. Plant load factor indicates the capacity utilisation of power plants.

“Already, in the year to date period, NTPC has generated 7 per cent more electricity than last year’s comparative period,” Singh added.

“Coal cost has been reduced from ₹2.30 in April 2015 to ₹1.6 a unit in April 2016. The reduction is due to the various steps taken by the government on fuel sourcing and efficient running of our plants. We believe that we will be able to further reduce this cost. However, there will be a limit to it sometime in the future,” he said.

All India power demand in the first two months of the 2016-17 fiscal grew by 7.2 per cent to 201,151 million units compared to the same period last year, according to data from the National Load Dispatch Centre. The data measures the demand from electricity distribution utilities across all states.

States which had high debt at their electricity distribution utilities like Rajasthan, Uttar Pradesh and Bihar have shown an increase in power requirement by 9 per cent, 4.6 per cent and 5.3 per cent respectively as compared to the same period last year.

While weak power demand in 2015 has meant there is an aspect of low-base effect in the demand growth rate, if the 2016 figures are compared to 2014, the data indicates the demand growth is broad-based.

Despite the increase in demand, the domestic power plants generated ample electricity and brought down power deficit to new lows. In April 2016, the power deficit in the country stood at 1.2 per cent.

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