Editorial May 2019

As the new government gets ready to take charge of its second term, industry watchers are taking stock of the challenges and issues that the power sector needs to address.

A big worry for the sector at present is discom health. A recent CRISIL report notes that as of December 2018, AT&C losses came down by only 400 basis points (bps) from pre-UDAY levels and the average tariff increase was a paltry 3 per cent per annum. As per the MoUs signed by the states in financial year 2016, the discoms were to initiate structural reforms by reducing AT&C losses by 900 bps to about 15 per cent in financial year 2019, and also implement regular tariff hikes of 5-6 per cent per annum.

Meanwhile, in the conventional power generation segment, while the challenges related to coal availability have now been considerably resolved, gas supply still remains an issue for 25,000 MW-odd power projects. Also, industry observers say that while attempts like SHAKTI and medium-term PPAs were important measures taken by the government in the first term, there is still considerable
capacity that remains stressed. Urgent action would thus be needed to implement the recommendations proposed by the High Level Committee in the near to medium term. Timely and adequate payments by off-takers (given that IPP dues have mounted to nearly Rs 139 billion) would also be key to alleviating
the stress in the sector.

For the renewable energy segment, there are significant headwinds as well. The sector faces a liquidity crunch. Financial institutions have been reluctant to lend to projects that have extremely low tariffs and precarious off-takers. Capacity additions in wind have slowed down as well. Industry estimates show that against a bidding of 17 GW of capacity, the actual installation has been only around 700 MW. Bioenergy and small-hydro are still far from meeting their 2022 targets.

For the transmission segment, a key issue has been the lack of a level playing field for private players in the allocation of projects. Further, improving the transmission infrastructure for renewables, addressing RoW issues for fast-tracking projects, as well as preparing for grid variability would be key priority areas.

Power Line’s special story on “Power Priorities” this month takes a look at the reforms that business leaders are looking forward to from the new government.

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