Higher coal prices, clean energy cess wiped out UDAY gains: Analysts
Power procurement costs have risen as higher coal prices and clean energy cess have wiped out gains from government moves to reduce costs under the Ujwal Discom Assurance Yojana (UDAY) scheme, analysts said.
“As part of the government’s initiative, availability of coal and utilisation rates have improved, resulting in savings for power firms along with rejigging of sources of coal that has also resulted in reduction in transport costs for coal,” Sudip Sural, senior director, Ratings said.
“On the other hand extraneous factors outside the control of ministry of power, like increases in clean energy cess, domestic and international coal prices rise and hiked railways tariffs have outweighed generation cost reducing measures,” he said.
Coal India BSE -0.05 % raised production and sales by 8 per cent, railways improved rakes availability helping some power plants become flush with stocks. However, this increased availability was not enough for all thermal power plants, industry executives said.
“In fact, plants that have been put up after 2009 have been running at less than 50 per cent capacity utilisation levels,” he said. At lower capacity utilisation cost of generation tends to rise,” said a senior power sector official.
If cost of procurement rises, state utilities will have to take hike in power tariffs and in 2016 it was estimated that for every unit of power sold to utilities a fraction of the cost does not get collected. According to UDAY this gap needs to be zero by 2019.
Nevertheless, fresh power generation project to the tune of 24,000 MW are at risk. Of these 13,000 MW of projects according to CRISIL are facing commissioning risks because of weak sponsors. These projects have faced significant delays leading to cost overrun. In fact some 10,500 MW projects have not seen 50 per cent progress.
The situation has exacerbated as some of these projects do not have power purchase agreements.
Raise Tariffs It is time the consumer starts paying the actual cost of buying power. Power costs are on the rise due to an increase in the cost of generation. The coal cess is a meant to account for externalities —such as the cost of dirty air on account of coal mining. And the Uday scheme too is geared only to help state utilities become financially viable, not to bring down the cost of power. For the poor, the government can work out a subsidy scheme, and make direct transfers to the consumer.