The risk of electricity grid code failure is increasing in India despite the Central Electricity Regulatory Commission?s (CERC) continued efforts to tighten the electricity grid code. With majority of state-owned power distribution companies cash-strapped and unable to buy power from the short-term market to meet their electricity shortfalls, they are recklessly overdrawing power at the cost of grid stability.
Though the cause for the reported failure of the northern grid is yet to be ascertained by authorities, there is suspicion that overdrawl of power by member states may have led to the collapse of the northern grid.
Suspicion points at Uttar Pradesh which is facing power shortfall of 1,500 mw and where discoms do not have the cash to pay for power purchase from the market. The state’s discoms are unable to clear outstanding dues for power purchased from traders like PTC India and NTPC Vidyut Vyapar Nigam. Pending payment of outstanding dues, the latter have suspended power supply.
Power distribution companies’ debts are estimated to have crossed R2 lakh crore in the financial year 2011-12 due to increasing gap between revenue and expenditure of discoms in the absence of timely revision of tariffs. The power ministry is preparing debt recast package for these discoms.
Electricity tariff increase has lagged behind the rise in per capita income and the growth in household expenditure during the second half of the past decade. For example, power tariffs grew at 5% annually during the period while per capita income and household expenditure increased by 13.4% and 10.6% a year, according to Crisil, a credit rating agency.
There was a revenue gap of R0.38 a unit in the power distribution sector in 2009-10 due to non-revision of tariff by discoms. For example, between 2005-10, Uttar Pradesh revised electricity tariff only twice ? 13.99% in 2008-09 and 13.22% in the 2009-10. The state’s accumulated losses are estimated to have shot up to R35,142 crore in 2009-10. Similarly, Tamil Nadu’s accumulated losses are estimated at R27,094 crore in 2009-10.
The rise in discoms’ losses is being aggravated by the increase in power purchase cost.
For example, the discoms’ average cost of power purcahse has shot up to R3.77 a unit in 2011-12 from R2.58 a unit in 2005-06.
Had power tariffs been hiked to keep pace with other household expenses, power utilities would have earned additional revenue of R950 billion in this period. Instead of making aggregate losses of R870 billion, they would have made an aggregate profit of R80 billion, according to Crisil.
As per the debt restructuring plan being prepared by the Union power ministry for discoms, about 50% of the debt would be converted into bonds, that would be issued by the state governments. The rest of the liabilities would be restructured. Discoms would be provided a three-year moratorium and during that period, they would not have to repay the principle amount on the loans taken. Further, discoms would have to repay the whole debt within seven years. In return, states will have to commit to undertake key power sector reforms.
However, such a bailout may change the ground situation in the power distribution sector. It can only defer the problem. The Centre needs to come out with an out-of-the-box solution if it wants to prevent incidents like Monday’s collapse of the northern grid.