Tuesday, June 18, 2024

Discoms seek tariff hikes up to 40% as demand, costs soar

Power distribution utilities plan to raise tariffs ranging from single digits to as high as 40% across states if approved by the state electricity tariff regulators. Discoms in states such as Uttar Pradesh, Maharashtra, Madhya Pradesh, and Himachal Pradesh have already proposed increases in tariffs.

For instance, discoms in Madhya Pradesh have recommended a hike of 3.2% due to a projected revenue gap of 1,527 crore in FY24. In turn, state-owned Maharashtra State Electricity Distribution Co. Ltd has proposed a tariff hike in the range of 30-40% for residential and commercial consumers.

Graphic: Mint

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Graphic: Mint

Most state electricity regulatory commissions are yet to release their tariff orders or post the petitions from the discoms. The Bihar Electricity Regulatory Commission, for instance, has approved a 24% tariff hike starting 1 April, rather than the 54% increase recommended by the discom.

In contrast, the Andhra Pradesh government has opted not to increase tariffs for FY24 and has instead agreed to provide discoms with a subsidy to cover the revenue gap of 10,135 crore.

The increase in tariffs will help compensate for higher fuel expenses, the cost of power purchase agreements (PPAs) and the requirement to blend costly imported coal to meet peak power demand in April and May.

Vikram V., vice-president and sector head–corporate ratings, Icra said: “Gencos are still bearing the impact of the high cost of imports made last year and they have not been able to recover that cost. The continued burden along with imports this year are likely to impact the finances of the generation companies.” Further the regulatory mandate on discoms to cut their pending dues and reflect higher cost of power in tariffs may also lead to higher tariffs, he said.

To meet peak power demand—expected to reach 229 GW this year, against 211 GW recorded last year—the government has issued several directives recently to ensure sufficient coal supply. In January, the power ministry asked all power generation firms to blend up to 6% of their coal requirements with imports until September, as projections indicate a deficit of 24 million tonnes of coal in the first half of the next fiscal year.

Last month, it imposed Section 11 of the Electricity Act, directing all imported coal-based power plants to operate at full capacity and also allowing generators to pass on the higher cost of imported coal to discoms without the requirement to modify PPAs. The section came into effect on 16 March for three months.

To reduce dependence on railway rakes, a major cause of coal supply crunch during peak demand periods, the government has started transporting coal from the eastern coast to the west by the sea. This rail-sea-rail route is also expected to increase coal transportation.

In a recent interview, Union coal secretary Amrit Lal Meena said the price of domestic coal transported by sea would be around 7,400 per tonne, significantly higher than the 4,700 for the coal to be transported solely by rail. He, however, noted that given plants are already relying on imports, the coal transported by sea would still be cheaper than imported coal, which is priced at around 10,000-12,000 per tonne.

Rohit Bajaj, head of business development at India Energy Exchange (IEX), said power demand on the exchange been largely elevated throughout FY23. India recorded the hottest February since 1901. However, with rains cooling temperatures in March, demand on the exchanges eased. The weighted average price on IEX so far in FY23 has been 5.95 per unit, compared with 4.40 last fiscal, he said.

Bajaj, however, said the increase in prices at IEX may not be as steep as last year’s, given that adequate supplies are expected.

According to a CareEdge Ratings report, the base energy demand increased by 8.1% in FY22, and it is expected to grow 9.5% in FY23 owing to the rebound of economic activities after covid-19 lockdowns eased, leading to increased consumption. It noted that growth rate may moderate for FY24 and FY25 due to base effect, but the demand during the fiscals would surpass the Compound Annual Growth Rate (CAGR) seen in the 10 years to FY22, which was 3.9%.

It noted that the steps to boost supply during the peak demand season, including introducing electricity trading from plants with high input costs (including gas-based plants) in the recently introduced High Price Day Ahead Market, would help in providing the required power availability.

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