“Independent power producers that have a low fixed cost component in their tariff (rate), will take a huge hit due to this low demand-related backdown,” said Debasish Mishra, partner at consultancy Deloitte Touche Tohmatsu. The supply rate at thermal power plants has two components — fixed cost and variable cost or fuel cost. Under a long-term power purchase agreement with generation companies, buyers are obliged to pay the fixed cost even if they do not procure power during a period.
Mishra says the drastic fall in consumption in the industrial and commercial categories due to lockdown
will also have a severe impact on the financials of state-owned power distribution companies and their cash flow. In Gujarat, among the more industrialised states, demand in the past 28 days has fallen by 44 per cent. In Maharashtra, the demand fall was 30 per cent during the period. Low commercial demand translates to less revenue for state power utilities.
Discoms in Maharashtra are now looking to buy cheaper power and burn less coal. “Our demand right now is 14,500 to 15,000 Mw; the peak was 21,000 Mw in February. We are going by the merit order dispatch and closing down the costly government-run plants to reduce generating capacity.
We are backing down more of thermal, to not burn coal,” said an official of the Maharashtra State Electricity Distribution Company. Maharashtra has also shifted its loyalties to short-term power purchase. The official said, “We opened our portal on Thursday to buy short-term (one to three months) from the market, as it is cheaper today and our demand is lower. We are also buying from the exchanges, as it is reasonable at this point of time.”
In the current month, the price of power at the day-ahead market of the Indian Energy Exchange (IEX) has come down to 2.4 a unit. The total volume cleared is 77 billion units in March till date, against 147 billion in February at an average Rs 2.9 a unit.
An IEX executive says while prices are going down, the purchase volume is not increasing. “As states reduced purchase from several power plants, a lot of sellers became active on the merchant (or open market) sale. However, when the prices crashed, many buyers exited,” he said.
Analysts do not see this short-term purchase as good news
for merchant power producers. “They will take a hit, as it is not viable to generate and sell power at the existing low rates at these exchanges,” said Rupesh Sankhe, vice-president at Elara Capital.
The central government has also allowed deferment of payment by states to power generating stations. It also asked government-owned generators to maintain seamless supply, despite low or delayed payment.
Sector experts say this means financial trouble for power producers. “Three months of moratorium on payments from discoms to gencos will put more financial stress on the gencos, already struggling with low capacity utilisation and outstanding payments from discoms,” said Mishra.
As of January 2020, power discoms owed a cumulative Rs 86,813 crore to generating companies. The largest share is owed to central government-owned gencos, Rs 30,941 crore. These are the same units which would have to continue to supply with no payment, by the recent directive.