The government has launched the Saubhagya scheme with a projected outlay of `160 billion and with an objective of providing household electrification, especially in rural areas.
By- Sabyasachi Majumdar
The government has launched the Saubhagya scheme with a projected outlay of `160 billion and with an objective of providing household electrification, especially in rural areas. The scheme aims to fund all rural and urban electricity connections, estimated to be above 40 million, which are currently without any access to power. The scheme outlay is estimated to be funded by 60% government grant, 10% by respective states and 30% through loans (for special category states, it is 85%, 5%, 10%, respectively). The Rural Electrification Corporation is the nodal agency for operationalisation of the scheme throughout the country.
The implementation of the Saubhagya scheme will positively impact the power sector as its execution is likely to improve energy demand. Even assuming the consumption of 50 units per person per month for 40 million households, the incremental demand rise is estimated at about 24 billion units, which, after adjusting for distribution losses, correspond to 3% increase in energy requirement on all-India basis. In addition, the capital goods industry, especially players in the distribution segment, too will benefit. The thrust of the scheme is on the rural sector, and from a socio-economic perspective, it will lead to better energy demand and improve the quality of life for rural households. It is, however, important that this is implemented in a time-bound manner. On a much larger perspective, the fact remains that higher significant power consumption from the relatively high-tariff industrial and commercial segments will critically drive the overall demand growth and thereby the viability of discoms.
In the five months of FY18, energy demand grew by 5.2% year-on-year, but a sustained demand recovery from industrial and commercial segments is still a far cry and so is the improvement in the financial status of state-owned discoms. The recent upward tendency in electricity demand growth has marginally improved in the all-India thermal plant load factor (PLF) to 59.9% during the period (reported PLF of 59% in the corresponding period of the previous year). State-wise, the improvement in demand growth is visible and led by the states of Uttar Pradesh, Telangana, Maharashtra, Andhra Pradesh and Karnataka. This, coupled with the decline in generation from hydro, nuclear and wind sources, resulted in a sharp jump in power tariffs on the Indian Energy Exchange during August-September 2017. However, the spike in spot/short-term tariff has been temporary and will not sustain, given the surplus thermal capacity available.
The energy deficit at the all-India level declined to 0.6% (3.3 billion units, or BU) in 5M FY18 from 0.7% (3.5 BU) in 5M FY17. Also, the peak deficit at the all-India level declined to 1.6% (2,562 MW) in 5M FY18 from 2% (3,003 MW) in 5M FY17. The deficit levels have been on a declining trend over the past seven years, with energy deficit declining from 8.5% in FY12 to 0.7% in FY17, and peak deficit declining from 9% in FY12 to 1.6% in FY17. This is following the large thermal capacity additions during this period, and on the contrary, an increase in energy demand remained modest.
Despite the various policy-level initiatives undertaken by the government, the stressed thermal power capacity in the private IPP segment remains sizeable. This capacity is affected by several issues such as lack of progress in signing of fresh long-term power purchase agreements (PPAs) by discoms, non-availability of domestic gas and unviable tariffs in PPAs due to capital cost escalation and fuel pricing issues for imported coal.
On the positive side, the improved domestic coal availability since FY16 and the implementation of the new coal allocation policy—SHAKTI—is likely to benefit coal-based power generation capacity of 28 GW, which had been hitherto adversely affected by lack of fuel supply agreements. Nonetheless, worries about unviable tariff, domestic gas shortfall and subdued short-term power tariffs for the affected thermal capacity remain, in particular for those without any long-term PPAs.
On the distribution front, the issuance of tariff orders by State Electricity Regulatory Commissions for FY18 has been delayed in a number of states. As per the regulations, only 12 states have issued tariff orders within the timeline of March 31, 2017, so far. Moreover, the extent of average tariff hike, based on tariff orders issued in 21 states, is at a modest 4% and is not in conformity with the proposed tariff hike under the UDAY MoUs in some key states. There is no doubt that the progress on implementation of UDAY has improved the liquidity profile of discoms to an extent, following refinancing and part takeover of debt by respective state governments. But the same is not true about the improvement on the operating efficiency front, which, given the AT&C loss level in many states, is still slow and continues to significantly exceed the targeted loss level agreed in UDAY MoUs. With reduction in interest cost due to debt takeover and refinancing, overall book loss level for discoms is estimated to decrease to about `350 billion in FY18 compared with `600 billion in FY16. However, the subsidy dependence for discoms at the all-India level would continue to remain high, given the continuation of free/subsidised power scheme to agriculture consumers and some categories of domestic consumers.