India may produce surplus power this fiscal: Fitch Ratings

Subdued demand growth, consistent capacity additions and better networks may result in India producing surplus power in the current fiscal, although sporadic outages continue and 24 per cent households are yet to be electrified, according to the latest report by Fitch Ratings.

The American agency said in its newsletter “India Power Watch” that India could actually produce a power surplus in this fiscal, with an energy deficit of just 0.6 per cent in the first quarter ended March, which is a period of high seasonal electricity demand.

“However, in reality, sporadic outages continue to plague the country. At the same time, about 24 per cent of households are yet to be electrified in India,” it said.

Fitch said the inability of hugely indebted power distribution companies (discoms) to purchase power, along with the absence of adequate transmission network coverage, exerts significant pressure on India’s thermal power utilisation.

The cost-revenue gap remains at Re 0.42 per kilowatt hour (kWh) along with aggregate technical and commercial (AT&C) losses of 20.6 per cent overall.

“Improving these operational inefficiencies will drive any sustainable improvement,” it said.

The report noted that electricity prices at power exchanges dropped by 11 per cent to Rs 2.4 per kWh in 2016-17.

“Tariffs are taking a hit mainly from the prevailing electricity demand-supply dynamics, lower coal costs and a decline in renewable tariffs,” it said.

According to the credit rating agency, discoms are hesitating to tie-up new long-term power purchase agreements (PPAs) for both thermal and wind capacity as they await more clarity on the auction route for wind power, supported by the availability of cheaper spot electricity.

From the perspective of discoms in Delhi, for instance, the primary reason behind the national capital getting expensive power is that they are bound by long-term PPAs that run for 25-35 years, which were signed with generators well before privatisation in 2002.

From the perspective of the generators, with electricity demand growth in India not keeping pace with the excess capacity addition and with tariffs falling, producers are facing offtake issues on power that they have not already tied up for sale through long-term PPAs.

JSW Energy Chief Executive Prashant Jain told a news channel recently that while the company had tied up for the offtake of about 65 per cent of its power generation through long-term PPAs, it is facing challenges about disposal of its remaining “untied capacity”.

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