Gujarat: Testing times for power sector

The Gujarat model is being replicated in many areas in the country, but quite ironically, power sector, one of the biggest successes of Narendra Modi as chief minister of Gujarat, is passing through a tough phase in his home state, which is hurting not just the power producers, but also the consumers. In fact, such uncertainty wasn’t there in the power sector for long.

At the end of October 2017, conventional power generation capacity in the state was 19,555 MW. This included GSECL’s 5,517 MW, state IPP’s 2,604 MW, private players’ 7,207 MW, and Central sector share of 4,227 MW.

Peak demand in the state touched 16,500 MW during summer, 2,000-2,500 MW more than usual, and to be fair to the state government, the state did not have to face power cuts or shortage. However, state’s over-reliance on private power producers has become a cause of concern, especially with two large players stopping supply.

In view of refusal of Adani Power and Essar Power to supply 2,000 MW and 1,000 MW respectively as per the power purchase agreements, the Gujarat Urja Vikas Nigam Limited (GUVNL) is being forced to meet demand by buying power from Indian Energy Exchange, Gujarat State Electricity Corporation Limited (GSECL), and other sources.

Rs 300-400 crore burden

While Adani and Essar are contracted to supply power at Rs2.35-2.89 per unit, peak price on IEX touched Rs10 per unit last month, and have fallen to Rs4-5 now. Estimates suggest that costlier electricity would put a burden of Rs300-400 crore per month on consumers.

“GUVNL was forced to buy power from any source and at any cost to meet demand and is still doing that since power demand remains near peak levels because of delay in the arrival of monsoon. This will lead to a huge burden on consumers going ahead when fuel surcharge is revised,” energy expert KK Bajaj, told DNA.

According to Bajaj’s estimates, the burden could go up by as much as 40-50 paise per unit, which would be recovered from consumers in the form of higher Fuel and Power Purchase Price Adjustment (FPPPA) charge in the coming months.

Non-availability of generation at Hydro-power plants due to water shortage has also added to the woes.

How the crisis started

The power crisis was triggered a few months ago when Adani and Essar stopped supplying 3,000 MW power to GUVNL. Last year, Tata Power had also cut the supply but started supplying the contracted quantity to GUVNL later.

The companies were hit by a levy of export duty on coal by Indonesia, which led to increasing in coal price for them. Adani and Tata sought compensatory tariff from consuming states like Gujarat citing the change in Indonesian laws, but at the end of a long legal battle, the Supreme Court struck down the demand last year.

Both Adani and Essar stopped supplying their quota of electricity to GUVNL a few months ago, stating that the tariff did not even cover the cost of generation. In other words, every single unit of power supplied, they would make losses, and hence stopping generation altogether was a better option.

Neither Adani nor Essar responded to DNA’s queries.

However, in a statement, while announcing Adani Power results last month, Adani Group chief Gautam Adani, had said, “We continue to be in discussion with key stakeholders to identify a solution for Mundra power plant, which has been impacted financially due to under-recovery of fuel costs.”

Official of another private company said that power generation had to be stopped because it became unviable due to a sharp rise in imported coal price.

COAL SHORTAGE

In addition to the dispute with the two large players, there are also other structural issues plaguing the power sector, and this is one of the reasons why no new power plants have come up in the state in the past few years. One of the issues is coal shortage being faced by power plants. Officials stress that the state’s power-surplus status could be in danger if the issue is not resolved at the earliest.

Few options for state

While Adani and other power producers are banking  on affected states like Gujarat and the Centre to come up with a solution to the vexing issue, a senior Gujarat government functionary said there was little they could do in this case. Energy minister Saurabh Patel said that a pragmatic solution was required to resolve the issue, but conceded that it would not be easy given the situation.

SEEKING ACTION

While the private players may have their own reasons, many see the move to stop supplying electricity as a pressure-building tactic and are demanding legal action against them for violating the power purchase agreements. “The government should not bow before the private producers. They should have taken all factors into consideration when they signed the power purchase agreements,” said Bajaj.

GUVNL BUYING COSTLY POWER

Along with the Energy Exchange, GUVNL also purchased large quantity of electricity from gas-based plants owned by different state government entities at an average cost of Rs 5.50 per unit. These units do not generally qualify to supply power as their generation cost is very steep due to high fuel price, and they lie idle most of the times. Energy minister Saurabh Patel said that gas-based power plants are lying idle across the country due to unavailability or high price of gas, and estimated the total idle capacity at 18-20,000 MW.