Column : At an inflection point

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Summary“Inflection points: They represent, in my description of it, what happens to a business when a major change takes place in its competitive environment.

Apart from losses, discoms now face problems related to fuel availability, land acquisition and environment

“Inflection points: They represent, in my description of it, what happens to a business when a major change takes place in its competitive environment. A major change due to introduction of new technologies, a major change due to the introduction of a different regulatory environment. The major change can be simply a change in the customers’ values, a change in what customers prefer. Almost always it hits the corporation in such a way that those of us in decision making position are among the last ones to notice.”

—Andy Grove, former chairman & CEO, Intel

After nearly a decade of rapid growth marked by reform, buoyancy and investment, thoughts of pessimism in India’s power sector are nearly the same as they were a decade ago when the growth phase started. Questions about the financial health of distribution companies are not very different from what were asked a decade ago. This time, the additional survival questions have emerged on fronts of fuel availability, land acquisition and also on environmental issues.

The Economic Survey 2010-11 highlights that India currently has some of the lowest and most uneconomic average electricity tariffs at retail levels in the world, which are around 50-150% lower than the tariffs in the countries much better endowed with coal or gas energy. As per a study by Crisil, power tariffs in India in the five years ended FY10 grew at an annual rate that was virtually half the general inflation rate in this period. This caused the share of energy expenses in the total expenses of the Indian household to decline in this five-year period from about 10% to about 8%. This was the first time it happened in the last two decades.

Leave aside the crunch in getting fuel supplies that may come in future, India is stretched to meet its fuel requirements even today. Around 20,000 MW of capacity was lying idle because of scarcity of fuel. Average PLF at which gas plants are running is only around 45%. If India were able to manage its fuel supplies aptly, the peak deficit and energy shortage of around 10% to 12% that we talk about would not have been there at all.

Since 2005, more than 44,000 MW has been tied up through competitive bidding, majority of which is expected to face difficulty in meeting their supply obligations. The

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