1. Power cost could be cut through equitable risk sharing

Power cost could be cut through equitable risk sharing

Tweaking regulation in generation & transmission sector may lead to saving of nearly 70 paise per unit, says Association of Power Producers

By: | New Delhi | Updated: September 7, 2015 11:28 AM

Outdated norms in the transmission sector add another 20-30 paise to power tariff as transmission planning and regulations are still based on pre-determined current flows, APP said.(Reuters)

The government could provide more headroom to electricity distribution companies and ease the pressure on them to increase tariff steeply by tweaking existing regulation in the generation and transmission sector to enable more equitable risk-sharing, which could lead to a saving of nearly 70 paise per unit of power, or half of the gap between average cost of supply and average realisation that currently exists in the country, according to Association of Power Producers (APP), a group of independent power developers.

The distribution companies, with their massive outstanding debt and accumulated losses, have garnered the attention of policymakers and industry but the inefficiency plaguing the other two sectors — generation and transmission — are adding avoidable cost to the downstream segment of distribution. APP has written to Crisil Research in response to their recent report on the power sector to highlight the inefficiency embedded in upstream sectors as well.

APP says that developers bidding under Case-1 norms are required to keep 20% of the capacity untied that can be sold in the market. However, the developer can’t use the linkage coal for running this capacity and must arrange for separate linkage. Given the lack of appetite among consumers and the falling utilisation of plants across the country, the developers tend to hedge the risk of low offtake by citing higher tariff.

Additionally, in a sector where developers deal with monopolies like Coal India, Power Grid and the railways for important functions, part of their performance is dependent on these government-owned entities not particularly known for their operational efficiency. For instance, a developer is eligible to charge fixed cost if coal availability is 85% but the availability of coal is entirely dependent on Coal India and the railways. Coal India is responsible for providing the stipulated grade or quality of coal but it has been accused of grade slippage in the past even by PSU NTPC.


Further, bidding guidelines make generators responsible for the availability of transmission network, which has been suffering from chronic congestion due to poor planning and foresight. This is made worse by the increase in statutory levies (custom/excise/clean coal cess) not getting automatic pass-through. The developers have to wait for months for regulatory orders to recover such cost.

“Due to these reasons, if you see the price discovery in the latest Case-1 bids, you will see a loading of 30-40 paise per unit from all these risk factors, which can be eliminated if risk is apportioned equally among the generation, transmission and distribution sector,” Ashok Khurana, director-general, APP, told FE.

Outdated norms in the transmission sector add another 20-30 paise to power tariff as transmission planning and regulations are still based on pre-determined current flows, APP said. It added that high relinquished line capacity charges weigh heavy on the developers along with the very high and impractical reliability margins.

Reliability margin refers to the current carrying capacity in a transmission line that must remain idle to ensure interconnected transmission network remains secure. “In some lines, the reliability margin is as high as 70%, a result of delays and paucity of capex on protection measure as highlighted by R V Shahi report on transmission congestion,” APP said.

As a case in point, the two Delhi discoms run by Reliance Infra — BSES Yamuna (BYPL) and BSES Rajdhani (BRPL) — charge about Rs 1.5/per unit to wheel power from the discoms’ periphery, where it receives power from the generator, to the consumer periphery. Even a steep reduction in AT&C losses and improved efficiency of say 20% will only bring down the cost by 30 paise per unit, less than half of the potential savings in the generation and transmission segment.

“Discoms are responsible for collecting revenue for both the generators and transmission corridor operators as it delivers power to the consumers. The losses accumulate at discoms’ end but substantial savings can be made in the two upstream segments of the entire value chain,” Khurana, told FE.

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