The revival of the country’s power sector requires meaningful structural changes, targeting an improvement in the operational efficiency, a reduction in cross-subsidies and cost-reflective tariffs.

According to Vipula Sharma, Director, Brickworks Ratings, in their sectoral report, “The power sector has been one of the major contributors to banks’ increasing NPA issue, with nearly 60 GW of thermal capacity currently being under stress.”

Meeting peak demand

Given the lack of storage facilities for renewable energy in the country, it is still not in a position to meet peak demand. Although SECI has been experimenting with hybrid and round-the-clock projects, their track record in meeting peak demand is yet to be seen.

Under this situation, the said stressed thermal capacity can play a major role in bridging the gap, and the sector exposure caps of banks would be freed for providing assistance to new projects in the power sector.

Discoms revival scheme

The sector received a substantial boost from the government in the Budget. From monetising operational transmission assets to a ₹3.06-lakh crore scheme for the revival of discoms, the government announced a slew of reforms for the ailing sector.

While the terms of the discoms’ revival scheme are yet to be declared by the government, it was mentioned that these funds would be utilised for the upgradation of the distribution infrastructure, and the infusion would be performance-linked.

In the past as well, multiple attempts have been made to improve the viability of power distribution companies, which are one of the main sources of stress in the sector, but none of the reforms in the past have been able to produce desired results.

It remains to be seen how this scheme would be different from all the measures implemented in the past. In addition, the government has announced the creation of a specialised institution for the takeover and resolution of stressed debt in banks.

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