Power Price and Consumption.

Power consumption in India has been seeing many ups and downs in the last few months. And so did the power price on the exchange as well as off the exchange in bilateral markets.

 

While Covid wreaked havoc in the social fabric, the economic was not far behind. The second wave was a relentless attack on all walks of life. The poor, the rich and middle class; all fell victim to the virus.

 

It was thought that the youth had a protective gear installed in them against these viruses. But to the dismay of everyone, they too fell victim to the crushing second wave. While the parents vented out their helplessness crying and shouting, the silent government imposed a stronger lock down, planned for the vaccine to reach every corner of the country and from the beginning kept telling people, to stay away from crowds, wear masks and maintain social distance.

 

Anyway, the virus blew with fury stronger than the Yaas cyclone and slowly cooled itself down as any storm would. As I write, India is seeing light at the end of this long tunnel.

 

Power industry was an essential commodity! But most policemen did not know it! They cross checked with their seniors to confirm it is so.

 

Leaving behind the micro issues faced by the power industry, they did have large macro size problems. Already the industry was reeling under a heavy debt crisis, surplus crisis and environmental crisis even before the Covid started by end 2019. More than 14 of the 25 companies listed by RBI for major defaulters were from the power industry, back in 2017. Mind you, not as willful defaulters.

 

Today, with the second wave and lockdowns still continuing, the power consumption which was growing rapidly in the last few months took a dip. Year on year power consumption saw a continuous growth. In March, it grew by 23% over the same period previous year. In April 2021 it grew by 41% while in the month of May, the first two weeks saw a growth of about 19% over the previous year! It continued to slow down in the coming weeks as well.

 

When the consumption goes up, prices go up as well. Opposite is also true. January 2020, consumption started falling and power prices too started taking a nose dive. So is the case in the month of Jan 2021, the power requirement was better than the previous year consumption, and it continued to grow. The prices literally, sky rocketed.

 

From Rs.2.82 per kWh on an average in the month of Dec 2020, the prices started rising with the consumption in the month of Jan 2021. Consumption and price hit a peak in the month of March, reaching a price level of Rs.4.23 as the monthly average. Consumption hit a peak as well of a daily average of nearly 4000 Million Units of power!

 

With the turn of March the consumption as well as the prices started falling. By mid-May, the number of units consumed hit a daily total of 3000 million units nearly. Almost down by a billion units.

The price on the other hand, fell from its peak of Rs.4.23 per kWh to Rs.2.80 per kWh by mid May.

 

Courtesy: Crisil ACMA report

 

 

Most of us, expect a spiralling down of the power prices as it happened three years back when it reached a very low average daily price of less than Rs.2.00 per kWh. As a matter of fact, that was one of the major factors that pushed the power companies to the brink of extinction!

 

Thanks: IEX for data

 

 

It is also important to note that some basic price is needed for these power companies to operate. It is not wise to kill the goose when it is laying its eggs however pushy we might feel to reduce the price.

 

Of course, the generator has to take care of his interests. But there are a few who could be desperate to survive and could help in bringing down the price of the power.

Consumer Rights and Electricity

 

When it comes to electricity, somehow, the rights of the consumers were the same as what happens with the rights of the tax payers!

NO RIGHTS!

Despite the fact that there were many rules laid out in the Supply and Distribution code of almost all the State Regulations as well as in the Central Regulations, none of these were ever implemented. For instance, there is a penalty for not supplying power for more than one hour without announcement. Or, stated in a different way, an unannounced power cut will have to be compensated by the Distribution Company!

Please show me one distribution company that paid this compensation to the consumer when they cut the power, without making a prior announcement.

Well, in the last year, they have been pulling themselves up and trying to abide by the rules that were laid down by the regulatory bodies.

Now, the new Rule Book! Electricity (Rights of Consumers) Rules 2020!

Most of the points raised in it are welcome. Post Paid and Pre-paid, transparent simple and time bound processes and many other interesting points laid out for the distribution company to follow!

Just look at this on the reliability of supply. 24x7 uninterrupted supply of power by the discom. What if, if they do not do it? The state regulatory commission should announce a penalty on the DisCom. There is a penalising clause on the Discom if they do not give a new connection within a time frame specified by the state commission!

Many many things that the consumer would love to have finds mention. Of course there are one or two negatives too! If the consumer has a roof top, he will sell the excess to the discom and not get it back for his consumption! Units will not be adjusted if the solar roof top is over 5 kW. Why only solar roof top? Why not a wind turbine on the roof top? I think the drafting people forgot that technology is changing and we could have small turbines on top of the buildings sooner than later.

Leaving out, the one or two negatives in the Rules, by and large, this is a welcome step. Please lay down the rules to implement the Rules. Particularly, with these DisComs who have had the privilege of being pulled up by High Courts and the Supreme Court for contempt, not once, but many times.

Electricity Business in Tamil Nadu - The Thaw.

 If we have to trace the long history of electricity in Tamil Nadu then we need to start possibly at or around 1980s.

With the political upheavals of the 1980s the economic stature of India took a complete slowdown.  The GDP growth rate fell to one of the lowest in the history of independent India by 1990. More important events happened in the end of 1980s. The economy spiralled down so much that the country ran into major economic crisis.

Economic Trend

Country stared down a very large balance of payment issue. 

With a new government stepping in, 1992 became a watershed year for Indian politics as well as economy. 

Power was and is the driving force behind economic growth, particularly, for third world developing nations. A struggling India, initiated many reforms in the market, including the power sector. 

With the dearth of capital that bogged the 1960s long behind us, the country accepted the shift to capitalistic economy. Power industry now saw the birth of new private power companies, particularly, in generation. 

Government encouraged industrial houses to invest in coal based thermal power plants which were the mainstay of the power economy. In a span of five years, power industry grew by leaps and bounds. Huge investments were done in the sector to take the total installed capacity to 4GW, a 200% increase in five years. 

Next ten years will see the power sector shift from a public sector stronghold to a private sector opportunity. By end of the millennium, India was ready to move to the next level in electricity business. 1997 say the birth of two major reforms. One, the telecom, the other the electricity. 

In 1997, Telecom Regulatory Authority Act was passed. In 1998, Electricity Regulatory Authority Act was passed in the parliament. Telecom grew by leaps and bounds while Power industry was beset with ongoing problems that are yet to be solved, even after 20 years!

Let me quote from the Electricity Regulatory Commissions Act 1998.

‘India's power sector is beset by problems that impede its capacity to respond to the rapidly growing demand for energy brought about by economic liberalisation.’

This is the first line of the Act mentioning the purpose and the objective. It goes on further to say,

‘It also aims at improving the financial health of the State Electricity Boards (SEBS) which are loosing heavily on account of irrational tariffs and lack of budgetary support from the State Governments as a result of which, the SEBs have become incapable of even proper maintenance, leave alone purposive investment. ‘

This is the statement of purpose of the first of a series of legislations that were brought in by the Central Government on Power Industry. The status continues to this day!

Power industry though started well, hit a wall when it came to discom restructuring.

When the Electricity Act became a law in 2005, state governments could not help towing the Central governments dictum. All states reorganized their distribution companies soon after the law came in. Tamil Nadu was one of the last to sign in, after much cajoling!

Even then, the structure adopted by Tamil Nadu was very ingenious and a prescription for sure problem. Designed to be opaque, the DisCom was a cash cow for the people in power and a drain for the exchequer. Nowhere in the history can anyone find a monopoly making losses and tending towards bankruptcy every four to five years.

Well, then, it is an accepted fact that governments and government organizations can never ever go bankrupt. Simply because the tax payers would pull them out at all costs. 

Tamil Nadu Generation and Distribution Corporation (TANGEDCO) was formed after much delay in the year 2010 along with Tamil Nadu Transmission Corporation (TANTRANSCO). 

A closer analysis of the company would show very clearly that the company was formed after careful scheming to escape any kind of monitoring. Transparency was the biggest casualty. What was generated and what was delivered could not be properly monitored because they were done by the same company and therefore, hiding information could easily be done.

This was a clear prescription for frauds and therefore, it was no surprise that the company went into a loss from the very second year, after the much-touted restructuring.

Another important factor to note is that TNERC in the early days of its formation, stuck to the neutral role that it had to play in an open electricity market. Some of the earlier orders were in line with opening of the market and that of TANGEDCO / TANTRANSCO.

TNERC passed an order in 2008 that TNEB should open itself for third party audit and ordered them to be ISO compliant. TNEB submitted in 2010 that two companies are being formed and once the process is completed, they will turn ISO compliant!

Ten years have passed. New Companies are in operation for a long time. They continue to stay away from any third party audit and therefore, ISO.

Let us jump back to 2003 when the Electricity Act was placed in the Parliament for the first time. It is worth looking into the debates that took place at that time.

Madurai Bench of Madras HC says that TANGEDCO should allow wind generators to leave EPA

 Wind Generation companies have seen lots of ups and downs in Tamil Nadu!

A long overdue order from the Madurai bench of the Madras High Court has at last come in. With this, the stand taken by TANGEDCO has been proved wrong, once again. 

 

The wind generators who had contracted to supply power to TANGEDCO had to be paid by TANGEDCO as per their Energy Purchase Agreement. Invariably TANGEDCO does not pay for over 12 months from the supply month or more in most cases. It even runs to two to three years in a few cases where they could spot some excuse.

 

Under such circumstances, many wind generating companies and their assets were declared Non Performing Assets by their banks. The companies had repayment issues with the banks for continuously violating the repayment plans. While the private companies were taken to the court by their bankers, the main culprit was  scot free!

 

Wind companies approached TANGEDCO whose Energy Purchase Agreement allowed the wind companies to break the contract if they do not pay on time. TANGEDCO smartly did not allow any of these contracts to be broken either.

 

Imagine a situation where TANGEDCO will take your power, supply to its consumers and get paid in advance by them but will not pay for it to the generators on one side. On the other will not allow them to leave and supply directly to the consumers as well!

 

With all escape routes blocked, the generators had no option but go running to the court. After a long battle which had no legal points to debate but just ‘vaidha points’ for postponing hearings, the court finally gave a verdict that said, TANGEDCO has to allow people who want to go out, to exit the contract.

 

Now, what do you think TANGEDCO would do?

 

They have said, if anyone approaches them for exit of the EPA, please get an order in your name. Court has repeatedly said that if an order is given, it pertains to all similar cases and every such issue should not be brought to the court! But then, these people want every one of the generators to approach the court and get an order in their favour to process their application for exit.

 

It would only increase the litigation and cause a time delay. Is that what TANGEDCO wants?