POWER GENERATORS SHUT TING CAPACITY

State entities shutting costlier units and turning to short-term power purchase

The power sector is witnessing an unprecedented amount of generation capacity being shut.

In a month, the demand for power has gone down 31 per cent. According to the data from regional load despatch centres, of the 117,000 megawatt (Mw) generation capacity, 41,037 Mw was shut on Friday due to the low demand/reserve shutdown. With the high-paying commercial consumers shut for another 21 days, states are avoiding power purchase. Some states are shutting down their costlier units and shifting to cheaper sources.

With normal life thrown out of gear with a nationwide lockdown, the power sector is witnessing an unprecedented amount of generation capacity being shut.

In a month, the demand for power has gone down by 31 per cent. And, there has been a 68 per cent increase in capacity which has been backed down.

According to data from regional load despatch centres, of 117,000 Mw generation capacity, 41,037 Mw was shut on Friday due to “low demand/reserve shutdown”. With the high-paying commercial consumers shut for another 21 days, states are avoiding power purchase. Some states are shutting down their costlier units and shifting to cheaper sources. Uttar Pradesh has already said it will be unable to pay to power and coal companies and the railways.

“Independent power producers that have a low fixed cost component in their tariff (rate), will take a huge hit due to this low demand-related backdown,” said Debasish Mishra, partner at consultancy Deloitte Touche Tohmatsu. The supply rate at thermal power plants has two components — fixed cost and variable cost or fuel cost. Under a long-term power purchase agreement with generation companies, buyers are obliged to pay the fixed cost even if they do not procure power during a period.

Mishra says the drastic fall in consumption in the industrial and commercial categories due to lockdown will also have a severe impact on the finan

Capacity shut due to low demand (March 1-28) (Mw) TOTAL Mw

Western

Northern

Southern

Eastern

N-eastern

Total generation outage*

Max power demand during the day (Mw)

February at an average ~2.9 a unit.

An IEX executive says while prices are going down, the purchase volume is not increasing. “As states reduced purchase from several power plants, a lot of sellers became active on the merchant (or open market) sale. However, when the prices crashed, many buyers exited,” he said.

Analysts do not see this short-term purchase as good news for merchant power producers. “They will take a hit, as it is not viable to generate and sell power at the existing low rates at these exchanges,” said Rupesh Sankhe, vicepresident at Elara Capital.

The central government has also allowed deferment of payment by states to power generating stations. It also asked government-owned generators to maintain seamless supply, despite low or delayed payment.

Sector experts say this means financial trouble for power producers. “Three months of moratorium on payments from discoms to gencos will put more financial stress on the gencos, already struggling with low capacity utilisation and outstanding payments from discoms,” said Mishra.

As of January 2020, power discoms owed a cumulative ~86,813 crore to generating companies. The largest share is owed to central governmentowned gencos, ~30,941 crore.