In its efforts to provide round-the-clock power supply, the Madhya Pradesh government has ended with a problem of plenty with projected surplus availability of 23,122 million units of energy in 2016-2017. The problem is compounded as it hardly has any buyers for surplus power.
Ironically, all the three state-run electricity distribution companies (discoms) are running in loss.
Reason: most states are now power surplus. “And states like UP, which need electricity, don’t pay on time,” said R C Somani, a former energy department official.
Also, energy is available at less than Rs 2.50 per unit in the open market, which has prompted industries and railways to buy from there instead of state discoms.
Madhya Pradesh Electricity Regulatory Commission has admitted this in its retail tariff order for 2016-2017. “As the sale of surplus energy is at Rs 2.50 per unit, power generating stations having variable rate of more than Rs 2.50 per unit will have to be backed-down (shut down),” Commission chairman Devraj Birdi said.
Govt signed long-term power purchase agreements
The main reason behind the excess electricity is consecutive governments signing long-term (upto period of 25 years) power purchase agreements (PPAs) with private power generation companies in the last two decades. The flip side of the deal is that the government is required to pay fixed charges whether or not it buys electricity from them.
At present, seven PPAs are in operation in state for which government would pay the power companies Rs 11,884 crore, which is 59% of total purchase cost. Madhya Pradesh’s total power purchase cost is Rs 18,443 crore for 2016-2017.
“PPAs were signed to insulate MP from any power shortage in future. We’ve taken several measures to boost electricity supply within state by offering rebates upto 20% on energy charges,” MP Power Management Co Ltd MD Sanjay Shukla said.
Some other states too are facing a similar problem.
Former secretary to Government of India EAS Sarma in a letter dated July 29, 2016 to Comptroller & Auditor General of India demanded special audit into state governments signing PPAs with a “deemed generation” clause that forces them to pay for power they don’t need.
‘States should have refrained from committing themselves to such PPAs’
“Had states been prudent enough, they would have refrained from committing themselves to such PPAs. States should have asked private players to offer their bids on assumption that no payment (fixed charges) would be made for deemed generation. The amount they need to pay to private developers annually towards deemed generation runs into thousands of crores of rupees,” the letter (HT has copy) stated.
There are other reasons behind discoms in Madhya Pradesh suffering financial loss. Their average cost of power supply (which is approximately Rs 4.50 per unit) is more compared to revenue (of Rs 4 per unit) they generate. Then, they are required to purchase minimum 7% renewable energy (which includes solar, wind, bio mass, micro hydel etc) of their total electricity purchase under Renewable Purchase Obligation (RPO). The RPO will be raised to 9.25% by 2018-2019. If the hydel and thermal energy costs them Rs 3 to Rs 4.50 per unit, green energy costs Rs 5 to Rs 7 per unit.
“Power sector is in ‘dark’ (in the red) given the financial losses it is incurring. Government is not bothered. For instance, state government will ask us to slow down on bill recovery, penalties imposed on power thefts as 2018 assembly polls are near,” a west discom official said requesting anonymity.