Electrifying discoms

| Updated on July 14, 2021

The ₹3.03 lakh crore power sector package for distribution needs fine-tuning

Discoms’ finances have been in a parlous state since tim e immemorial, with their unpaid dues to power generation companies now in the region of ₹80,000 crore. Last May, the Centre announced a credit line of ₹90,000 crore to discoms to help them discharge their dues to stranded gencos. However, discoms’ finances have been hit by legacy PPAs — with thermal generators in particular— based on overestimation of demand for which both the discoms and the States are to blame. Reduced offtake has led to higher fixed costs per unit, while variable costs have risen owing to fuel and transportation costs. Power purchase accounts for 70-80 per cent of discom costs, and unfortunately there can be no getting away from these bad deals — which includes renewables being contracted at ₹7 a unit by States such as Tamil Nadu. This leaves discoms with improving transmission and billing efficiencies. The good news is that there is considerable potential here, particularly with respect to reforming electricity supply and use in the rural sector.

In this regard, the Centre’s ₹3.03 lakh crore scheme over the next five years to push smart metering and strengthen the system (equal allocations for both) by reducing aggregate technical and commercial losses, among other targets, is well timed. Agriculture accounts for 20 per cent of electricity use, and much of the supply is for free. However, feeder separation of lines for agriculture (which falls under the second aspect of the Centre package) along with their ‘solarisation’ under KUSUM (Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan) can improve quality of supplies, load management and reduce technical losses. The supply of power from a local solar plant (sanctioned under Component A of KUSUM) can bring down generation and transmission costs sharply, altogether by about ₹2 a unit for discoms, as estimated by Prayas Energy Group. Power supply to farms through separate lines is increasingly being restricted to the day time in relatively solarised States such as Gujarat and Maharashtra; household needs are met later. Smart metering, with time-of-day tariffs, introduces efficiency in power use and spacing out of peak demand.

The scheme includes a grant component of ₹97,000 crore based on conditions, which, however, need to be framed differently. Solarised pumps under KUSUM should cater to 15-20 per cent of agriculture demand, a move that according to Prayas, will confer a saving of ₹3.3 lakh crore over a 25-year period in procurement costs. Feeder segregation targets should be ambitious. Detailed pilots should precede the ambitious investment in smart metering. Above all, discoms and States should learn from past mistakes — of not signing ambitious PPAs. An investment in grid strengthening and storage to cope with renewable power would be a better option. At a time of rising fuel prices and strained State finances, the push for solarisation of agriculture assumes a special urgency.

Published on July 14, 2021

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