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Private investors looking more at power trading

— FILE PHOTO

TIDING OVER CRISIS: Power Grid’s high voltage transmission lines.

Many States have learnt to live with a power shortage every summer. But the demand from a sensitive agriculture sector and the influential industrial consumers has forced many of them to buy power from other States or through the power trading arrangement to tide over a crisis. Over the years, the States and their electricity boards have learnt a lesson the hard way. While they continue to subsidise the domestic sector and offer free power to farmers, the boards often buy power at anywhere between Rs. 7 and Rs. 8 a unit during the crisis period.

Quite often, power is not available even at that cost. As a result, State governments are now busy clearing private power projects and even encouraging merchant power projects in a desperate bid to increase generation capacity. There is the rub. The State electricity boards (SEBs) may be aware of the pitfalls and may even succeed to hammering out an attractive power purchase agreement with the private investors. But the governments may miss the woods for the trees. A senior Power Ministry official warns that the States should look at the fine print before clearing private projects, however essential they are to improve the electricity scenario in the States.

He says some of the proposals with the governments in Karnataka and Chhattisgarh, for instance, may offer just 30 per cent of the generation to the host State, at a ‘very reasonable’ rate. But the private players hope to ‘trade’ 70 per cent of their capacity to the deficit States at the going rate of Rs. 7 to Rs. 8 a unit. “What we need to understand is that even if these investors are willing to sell power at Rs. 2 or less a unit to the host State, it will be for a limited extent. The bulk of the energy will go to power trading at those high rates. Obviously, the private players will be looking at profits, not augmenting capacity. At an early stage, they could not be guaranteed 14 to 16 per cent return on investment because of the power purchase agreements. Now they can make much more. So, if they go in for a 210 MW project, only 70 MW will be for the host State. The remaining 140 MW will be traded at a much higher tariff,” the official explains.

Taking the example of Tamil Nadu for instance, its Electricity Board’s cost of power purchase (from various sources) has doubled in the past four years — from Rs. 6,638.82 crore in 2003-04 to Rs. 12,493.80 crore last year. Its net purchase grew from 25,384 million units to 40,692 million units during the same period.

As of now, about 78,000 MW of power capacity addition has been cleared for the XI Plan . Firm orders for equipment for these projects have been placed for nearly 70,000 MW. So, the Union Power Ministry appears confident of achieving its target for the Five-year Plan, perhaps for the first time. The slippages in the targets for successive plans have resulted in the current power crisis situation across the country. Now that the infrastructure to evacuate power from a surplus to a deficit region is taking shape, the private investors may also be gearing to cash in on this mismatch between demand and supply through power trading.

It may be up to the States to secure the best deal possible with the private investors. Even if they have to enhance the tariff, it becomes essential to secure the bulk of the power generated in that State for local consumption. Perhaps, they could reverse the deal to seek a two-thirds share of the generation to the host State, with an attractive agreement on price. Only then can they offset the deficit. To the extent possible, the State electricity boards and the Central undertakings may prove more beneficial — from the SEB, they will get 100 per cent, while the Centre has a fixed formula for sharing the power among the States in the region.

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