India’s thermal power sector faces bleak post-Covid-19 scenario

Covid-19 may have served a lethal blow to India’s stressed private thermal power generation sector, accounting for 37 per cent of 198-gigawatt coal-based generation capacity. Dominated by independent power producers (IPP), who do not have distribution rights; the sector tops the chart on loan defaults.

The situation may complicate further post-Covid; unless the Centre takes a fresh look at the coal-energy value chain. Energy analysts recommend the centre should take a fresh look at coal-energy value chain as the sector tops the chart on loan defaults.

Stung by a series of policy failures, IPPs were suffering from huge payment backlog by stressed State distribution utilities (DISCOM) as well as weak offtake scenario vis-à-vis capacity, for many years now. The power ministry just initiated measures to regularize DISCOM payments, when India went under lockdown.

Faced with the dramatic decline in demand from the profitable commercial and industrial consumers vis-à-vis drop in a collection from the vast, non-profitable residential sector; DISCOMs deferred payments to generation utilities.

Over the last few days, nearly one-third of the DISCOMs – including the ruling and Opposition ruled States – invoked force majeure against IPPs. Some States asked IPPs to pull shutters and not expect payment for the period. Some others said they would regulate deliveries according to demand in future. Some want a waiver of fixed costs that accounts for the capital cost of generation units.

Over the last decade, India became a capacity surplus in power, which is prerequisite for assured supply. In such a situation, utilisation is bound to be low, and subscribers must pay the fixed charge.

Further, states are giving preference to their archaic generation units – which consume more fuel to generate the same quantity of electricity – over the efficient IPPs. This is partly to take advantage of the low fixed cost of old units and somewhat to live on deferred payment. It is not easy for CIL to stop supply to state power generating companies of either U.P. or Odisha.

Shekhar Ghosh is a communications consultant and and former journalist, who has edited and written for publications such as like Business India, Business Standard, Business Today and Outlook.

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