Editorial December 2017

The year 2017 was a tough one for the power sector. Demand remained subdued while supply exceeded demand. PLFs remained in the below 65-70 per cent range. More private players (owning conventional plants) opted for various debt restructuring schemes. The government is, however, looking at ways to salvage the beleaguered plants, including auctioning stressed assets after acquisition by the lender, creation of a stressed asset fund, acquisition by CPSUs, and modification of PPA norms. Meanwhile, some of the thermal plants were decommissioned during the year due to their inability to implement the new environmental norms.

In the renewable sector, there was a slowdown in capacity addition and allocation was accompanied by a crash in tariffs for both solar (Rs 2.44 per unit) and wind power (Rs 2.64 per unit), thereby raising concerns over the viability of projects set up at these tariffs. After the discovery of such low tariffs, state discoms, with support from their respective state regulators, started renegotiating tariffs for already-signed PPAs and those discovered through the auction route. The MNRE, however, wrote to the wind energy-producing states to ensure that PPAs signed at higher tariffs were approved and duly honoured by their regulators and discoms.

But it was not all bleak times for the sector. On the positive side, there was an improvement in discom finances, facilitated by the UDAY scheme, which led to a significant reduction in debt and in interest costs. Going forward, the government focus on last-mile connectivity through the Saubhagya scheme is expected to improve the demand for power. The government’s ambitious targets for e-mobility will also boost demand significantly. A five-year extension given to 25 thermal power projects aggregating 32 GW to avail of the benefits of the mega power policy will help in maintaining the viability of these projects while ensuring that that the cost of power to consumers does not increase.

An important policy stand has been ensuring the efficient use of fossil fuels. The new coal linkage policy, Shakti, ushers in an auction-based approach to granting long-term linkages. The first auction successfully took place during the year and helped some projects that were stressed due to lack of coal linkages. More such projects can receive some respite under future auctions. Also, an e-bidding portal was launched for states to select IPPs for power procurement by transferring their domestic coal under the scheme for flexibility in the utilisation of domestic coal.

In the renewable sector, the government notified tariff-based competitive bidding guidelines for long-term power procurement by discoms from grid-connected solar PV and wind projects. It also extended the waiver of ISTS transmission charges and losses for solar projects till end-2019. To prepare the grid for the changing energy mix, the regulator, in consultation with the stakeholders, came out with draft regulations on general network access (the new transmission planning approach) and approved the pilot for secondary reserves through automatic generation control during 2017.

Net, net, things are looking up, largely piggybacking on government policies and initiatives. The recent “stable” outlook for the sector for the next 12-18 months by Moody’s and ICRA affirms this. According to Moody’s, government policies will lead to improvements in the financial position of the state discoms, tilt the country’s energy mix towards renewables and cause limited incremental stress in the conventional power sector. This certainly gives hope to the sector that has been under stress for the last couple of years.

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