The developments in the power sector over the past year or so clearly point to the energy transition that is under way in the sector. Renewable energy capacity additions have significantly outpaced those in the thermal power segment in the last few years. Round-the-clock (RTC) power and battery energy storage systems (BESS) are receiving greater attention to tackle intermittency issues. The increased thrust to renewables is also driven by the country’s commitment at the COP26 summit to achieve net zero emissions by 2070 and to augment non-fossil fuel power capacity to 500 GW by 2030.
Another pertinent trend this year has been the increase in power demand since the beginning of 2022-23. This has been on the back of the opening up of the economy post the pandemic and more intense heatwaves in several parts of the country. The peak demand met touched an all-time high of 211 GW in June 2022.
Meanwhile, the distribution segment continues to be a major concern in the sector, with high aggregate technical and commercial (AT&C) losses and poor financial performance. The outstanding dues of the discoms (amounting to nearly Rs 1 trillion as of July 2022) to power generation and transmission companies have impacted the financial liquidity of the entire power sector. In a bid to tackle this, the government has launched the Rs 3 trillion Revamped Distribution Sector Scheme (RDSS), the biggest ever scheme for the distribution segment, which aims to instill payment discipline among the discoms, provide performance-linked grants and revive the segment through smart metering and loss reduction initiatives.
Power Line analyses the performance of the power sector, the key trends and major developments in the past one year…
Power demand surges: During financial year 2022, power demand grew by over 8 per cent on a year-on-year basis to reach 1,379 BUs. In 2022-23 (April to July), energy demand grew by 14 per cent. The increase in power demand is attributed mainly to post-pandemic demand recovery, heatwaves witnessed in several parts of country, and expanding economic activity. India’s peak demand met touched an all-time high of 211.86 GW on June 10, 2022.
Thermal PLFs improve: Thermal power plants (TPPs) have been required to step up to meet the country’s growing power demand. Reversing the declining trend in the plant load factor (PLF) witnessed in the past few years, in FY2022, the PLF of TPPs was recorded at 58.87 per cent as against 54.57 per cent in previous years. Taking this further, in FY2023 (April-August), thermal PLF stood at 65.26 per cent as against 58.64 per cent in the corresponding period of the previous year.
Coal production grows to meet increased demand, coal blending measures introduced: Amidst the increase in power demand, the demand for coal has surged, which has led to an increase in domestic coal production as well as implementation of several measures to improve coal availability at TPPs. During 2022-23 (April-September 2022), coal production reached 382.02 mt, marking an increase of 21.01 per cent over the corresponding period of the previous year. During 2021-22, the coal requirement by TPPs was 723.2 mt, around 5 per cent higher than the previous year.
In a significant measure to ease the situation, in April 2022, the Ministry of Power (MoP) issued an advisory to gencos to use imported coal for blending purposes to meet 10 per cent of the total requirement till October 31, 2022. More recently, in August 2022, the MoP decided that going forward, states/independent power producers (IPPs) and the Ministry of Coal may decide the blending percentage after assessing the availability of domestic coal supplies. The government also revised the coal stocking norms, wherein power plants are now required to maintain coal stocks at a daily requirement of 85 per cent PLF for 12-17 days in the case of pithead plants and 20-26 days in the case of non-pithead plants, with seasonal variation based on the despatch/consumption pattern during the year.
Renewables dominate capacity additions: The sector added a total of 17.35 GW of capacity in FY2022, as against 12.04 GW added in the previous year. The majority of the capacity added (around 90 per cent) during FY2022 was in the renewable energy segment. The renewables segment added 15 GW of capacity in FY2022, against 7 GW added in the previous year. Meanwhile, capacity additions in the coal-based power segment declined from 4.1 GW in FY2021 to 1.4 GW in FY2022. In line with the country’s clean energy goals and targets, renewable energy capacity additions are expected to gain further traction, with capacity additions in the thermal power segment remaining subdued.
Discom performance slides: As per the 10th Integrated Rating of Power Distribution Utilities released in August 2022, over FY2019-FY2021, the absolute cash-adjusted gap in the power distribution segment averaged nearly Rs 1.04 trillion. On an average, in FY2021, the cash-adjusted gap per unit was Re 0.93 per kWh input compared to Re 0.83 per kWh input in FY2019. The gap between the average cost of supply (ACS) and the average revenue realised (ARR) has increased during the period FY2019-FY2021 because the CAGR of the cash-adjusted revenue (1 per cent) has lagged the overall increment in expenses (1.6 per cent). The sector’s total liquidity gap is nearly Rs 3.04 trillion. The discoms’ current liabilities of Rs 6.56 trillion exceed their overall current assets of Rs 5.27 trillion and amount to almost twice the value of their current liquid assets of Rs 3.52 trillion. Persistent losses have affected the overall power sector, with outstanding dues to central power generation stations, IPPs and renewable energy generators mounting to Rs 1.1 trillion as on July 12, 2022.
Solar tariffs rise: While the solar power segment continues to witness large and successful auctions, tariffs have increased significantly, especially as compared to the record low bids of Rs 1.99 per unit discovered in December 2020. The most recent auction, concluded in September 2022, by Gujarat Urja Vikas Nigam Limited (GUVNL) for 750 MW of solar projects (Phase XVI), saw a winning tariff of Rs 2.49 per unit. In the past 12 months, the lowest tariffs discovered in solar power auctions have been in the range of Rs 2.17 to Rs 3.21 per unit. Solar power costs have been impacted by the global disruption in supply chains, high prices of many essential commodities as well as the basic customs duty on the import of solar cells and modules April 2022 onwards. It remains to be seen whether these factors will together lead to a further uptick in solar power tariffs or will they stay comfortably below the Rs 2.50 per unit mark.
RTC power and BESS get attention: A key initiative to resolve the intermittency of renewable energy and promote grid stability has been to shift from vanilla solar or wind projects to hybrid, assured peak power and eventually RTC tenders. While two RTC auctions have already been concluded, after a gap of around two and a half years, the Solar Energy Corporation of India (SECI) released its RTC-3 tender in September 2022 with an aggregate capacity of 2,250 MW.
In the BESS space, several transformational measures have been undertaken. These include legal status to energy storage systems, waiver of interstate transmission system (ISTS) charges on BESS charging, and guidelines for the procurement and utilisation of BESS as a part of generation, transmission and distribution assets, along with ancillary services. Moreover, in the bids called by SECI for a pilot project of 500 MW/1,000 MWh BESS as a combination of grid support and peaking product on a commercial basis under tariff-based global competitive bidding, JSW Renew Energy Five won the entire capacity with a bid of Rs 1.08 million per MW.
Transmission network expansion continues: The need to evacuate the increasing renewable energy capacity is driving the expansion and strengthening of transmission networks at all levels – ISTS, intra-state transmission as well as sub-transmission networks. Government programmes and initiatives, including the Transmission Scheme for Renewable Energy Zones and Green Energy Corridors (GECs), are leading the developments in these areas. Several cross-border interconnections are also being planned with the neighbouring countries including Bangladesh, Nepal and Sri Lanka. Private participation in the segment is continuing to grow. As of August 2022, 63 ISTS projects have been bid out to public and private players through the TBCB route since 2009. Industry estimates suggest an investment opportunity of around Rs 2,280 billion for private players in the transmission segment.
CERC imposes a price cap across all segments on the exchanges: In April 2022, the market clearing prices on the power exchanges frequently touched Rs 20 per unit on the back of a rise in temperature and increase in economic activity with the lifting of Covid-related restrictions. Subsequently, the Central Electricity Regulatory Commission (CERC) imposed a price ceiling of Rs 12 per unit across all segments till June 2022, which was later extended till September 2022 and has now been further extended to December 2022. Against this background, the MoP has proposed to introduce a high-price market segment for the day-ahead market (HP-DAM) within the existing integrated-DAM. Sellers with a variable cost greater than the price cap of Rs 12 per unit will be allowed to sell power in this market.
Domestic solar module manufacturing gets a push: In order to boost domestic manufacturing of key components such as solar cells, modules and solar inverters, the Ministry of New and Renewable Energy (MNRE) is implementing the Production-linked incentive (PLI) scheme for high efficiency solar PV modules. In September 2022, the union cabinet approved the MNRE’s proposal to implement Tranche II of the PLI scheme on “National Programme on High Efficiency Solar PV Modules”, with an outlay of Rs 195 billion for achieving GW-scale manufacturing capacity in high efficiency solar PV modules. It is estimated that about 65,000 MW per annum of manufacturing capacity of fully and partially integrated solar PV modules would be installed. The scheme will bring in direct investments of around Rs 940 billion and import substitution of approximately Rs 1.37 trillion. Earlier, under the first phase of the PLI scheme for solar PV modules, the MNRE had extended support of Rs 45 billion for integrated manufacturing units of high efficiency modules.
Uptick in smart metering: Distribution utilities are revamping their metering infrastructure in a big way with the adoption of smart meters to improve their operational and financial performance. In the last 12 months (October 2021 to September 2022), about 2 billion smart meters have been installed. The pace of smart meter installation is expected to continue and gain further momentum on the back of the MoP’s RDSS initiative, which envisages the deployment of 250 million smart prepaid meters for all domestic consumers by March 2025. As of September 2022, about 5 billion smart meters have been installed across the country. State-wise, the top three states in terms of smart meter installations are Uttar Pradesh, Bihar and Rajasthan.
To conclude, there are exciting times ahead as the country levels up its decarbonisation and energy transition initiatives. A host of policy and regulatory measures have been taken to increase renewable energy capacity, augment domestic manufacturing and promote e-mobility. Their implementation and outcomes will be closely watched in the coming months. Alongside, maintaining a stable and robust electricity grid as renewable energy capacity grows, and improving the operational and financial performance of discoms remain critical for the sector going forward.