Power paradox

Power paradox

Maharashtra, the country's leading industrial state, is confronted with a power surplus. This is totally unexpected. This is one state where supply should create demand. But defying Say's law, Maharashtra's SEB is spurning cheap power (Rs 1.80 per unit) from the Tatas who have consequently reduced generation at the Trombay unit by 200 MW in the peak period and 400 MW in the off-peak period. Clearly, the SEB is not able to absorb the spurt in power availability in the wake of Enron's 740 MW generation at Dhabol. Maharashtra is buying all the power offered by Dhabol -- costing between Rs 3 and Rs 5 per unit -- because it is contractually bound to do so. It is under no such obligation to the Tatas. Whether or not the SEB buys Dhabol power, it must pay for all power offered by Dhabol. So, expensive power replaces cheap power in Maharashtra. This paradoxical result had been anticipated by the critics of the deal with Enron. They were brushed aside. Maharashtra could sell the excess power to Gujarat or MadhyaPradesh. But it will be difficult to sell power at Dhabol rates. Selling at lower rates makes little sense to the SEB; evening out the surplus is ruled out. So,the Tatas have to reduce generation. The point will not be missed that Dhabol generation has added just 10 per cent to power availability in Maharashtra. Absorbing the new power would not have posed a problem had industrial expansion proceeded along expected lines. Sooner or later, power availability will boost industrial investment. Besides, hydel generation in the state will slip from the seasonal peak in the coming months. Power surplus in Maharashtra is but a temporary blip.

India is power-short on a countrywide basis: the shortage is far more in relation to peak demand than off-peak demand. Aggressive addition to power capacity (10,000 MW a year as demanded by Assocham) will see Maharashtra-type blips in many other states. (Currently, a blip in West Bengal, where there is no industrial drive, forces CESC to hold down its generation belowcapacity). The solution lies in building up transmission facilities across grids and sorting out the tariff implications of new power, which costs more than the historical average. Even so, power surpluses will recur. In the planning era, rising public investment pushed aggregate investment on a rising curve; consequently, the demand for power seemed insatiable. Under reform, however, aggregate investment has become cyclical: accelerating for a few years and slowing down thereafter. Investment in new power capacity will not exactly match demand, but it is better to have excess power during a downturn in the business cycle than let a power shortage throttle an upswing.

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