State boards’ power buying habits put them in a spot

STATES with large power deficits have refrained from tapping the fledgling market for spot power, even as electricity is available at much cheaper rates there, than under long-term power purchase agreements (PPAs). While the stressed finances of the state electricity boards (SEBs) is one reason for this, paucity of distribution infrastructure and in some cases sheer unwillingness to try a new mode of purchase also circumscribed the growth of the spot market.

Given high levels of pilferage that still exist in many states, the more power they buy and sell, the higher the losses they could potentially make. The possibility of bigger losses persists in the case of many SEBs, despite spot-market power being up to 50% cheaper than that procured under PPAs.

For instance, Uttar Pradesh, facing the country’s highest power deficit with an average monthly deficit of a tenth of its demand or 846 million units (mu), bought just 22 mu per month of power from the spot market during 2016. The availability of spot power at R2.53 per unit (versus R5 a unit the state under recent PPAs) hasn’t encouraged the state to tap the spot market more aggressively, leaving even many cities bereft of power for several hours a day in peak summer. The state SEB, it may be noted, report aggregate technical and commercial losses of over 40%.

“The state of Uttar Pradesh has inexplicably been very tardy in utilising the opportunity presented by the exchanges. This could be for variety of reason including financial distress and lack of distribution network in power starved areas,” said Rajesh Kumar Mediratta, director of business development, Indian Energy Exchange (IEX).

Trading of spot power on the exchanges began in 2008, but even now, only 3% of the electricity produced in the country is traded on this platfor m.

Karnataka, another state with a high power deficit (drought has hit its hydro power plants) too buys just 5 mu of power a month via exchanges even as its average deficit is 239 mu per month. However, Bihar seems to have taken a liking for spot power as it bought an average of 309 mu a month since January against a monthly deficit of just 21 mu. States like Bihar find it remunerative to pay the mandatory capacity charges to PPA sellers and buy cheaper power from the spot market. Madhya Pradesh, Gujarat and Punjab also have availed themselves of spot power trading facilities on the IEX despite declaring zero deficit in the January-May period.

As FE had reported earlier, the UP electricity regulator had persistently asked the SEB to explain why it wasn’t buying cheaper power from the exchanges to bridge the energy deficit. After the SEB officials failed to turn up for the commission’s hearings, the regulator invoked penal provisions against them.

According to Praveer Sinha, CEO, Tata Power Delhi Distribution, many discoms would want to buy power from the spot market but are locked into in long-term PPAs. He added that discoms should be allowed to opt out of an expensive PPA if the plant’s capital cost has been recovered.

Mediratta is of the opinion that the technical arm of the power ministry’s central electricity authority should abolish “deficit” figures and instead call it “unserved demand” as paucity of energy was not always due to lack of generation; instead, it is mostly related to issues at the state level including sub-par transmission, distribution network and unviable subsidy regime. “Focus needs to shift to tackling issues that keep demand unserved,” he said.

At the same time, although several states have reported zero deficit in the January-May period, they have been unable to avoid power outages to prominent cities. Earlier this year, the Union power ministry launched a portal called “Vidyut Pravaah” that provides realtime data on availability, price and deficit of energy in each state. The data, sourced primarily from IEX, was intended to put pressure on states to wipe out deficit through spot purchases. However, this has had only limited impact.

On the portal, the government said: “The shortage figures for the State are as per the infor mation received from the respective States. Only the respective State can state the reason for the same. It may be due to network constraint in the State transmission or distribution network, obligation to supply to a particular group of consumers etc.”