Renewables in limelight in 2015; Discoms' debt remain a worry

New Delhi: Renewables emerged as the light at the end of the tunnel for the power sector, which continued to be bogged down by the debt worries of discoms during 2015 and all eyes are on the ambitious UDAY scheme on whether it can prove to be the much-needed elixir in the New Year. 

Revival of electricity distribution companies or discoms holds the key to bring back the power sector back on track and to ensure optimum utilisation of the installed capacities of electricity generators particularly thermal projects. 

"Focus on renewables is undeniably a welcome move by the government. But for making such initiatives work, we have to resolve very fundamental problems of making discoms profitable by reducing commercial losses and rationalising tariffs with all seriousness," Indian Energy Exchange Director (Business Development) Rajesh K Mediratta said. 

The government has rolled out an ambitious programme to push clean energy and making discoms profitable in next three years. According to the Power Ministry data, the overall plant load factor (or the proportion of capacity utilisation) was 66.31 percent this fiscal till November. 

The PLF is low because discoms are not able to buy power and generators are running their plants at lower PLF because power cannot be stored. "The cumulative loss of discoms has impacted the offtake of power, both in the merchant market and also through long-term PPAs. Discoms are reluctant to purchase additional power due to their poor financial health, and consequently there are very few Case I bids coming up," Lanco Infratech Executive Chairman L Madhusudhan Rao said. 

Burdened with huge debts, discoms are suffering losses to the tune of over Rs 60,000 crore every year. 

They do not have sufficient cash to buy electricity even at the lower rates of Rs 2-3 per unit at energy exchanges. Elaborating further, Mediratta said, "For making renewables grow, we will also have to solve problem of its integration in the grid and evolve right framework to handle its intermittency. Government should incentivise all types of power resources to sell through competitive markets rather than forcing them to sell under 25-year long-term PPAs." 

Last month, the government launched Ujwal Discom Assurance Yojna or UDAY to ease the financial crunch faced by power distribution companies. The scheme is being presented as a game-changer after a dozen of states communicated their in-principal approval for signing MoUs under this programme.

 The scheme will effectively help reducing discoms' debts only after the states, discoms and the Centre ink MoUs for availing benefits under the programme as it is optional. Government is expecting that by March 2016, the states would issue bonds worth Rs 70,000-1,00,000 crore to write off the discoms debts. 

The scheme was launched to tackle debt of Rs 4.3 lakh crore on discoms along with other measures to cut power thefts and align consumer tariff with cost of generating electricity. 

The UDAY scheme envisages the discoms reaching break-even in the next 2-3 years through four initiatives – improving operational efficiencies, reducing power costs, decreasing interest cost of DISCOMs and enforcing financial discipline on DISCOMs through alignment with state finances. 

The states having supported the scheme so far include Andhra Pradesh, Madhya Pradesh, Jharkhand, Rajasthan, Gujarat, Haryana ,Punjab, Jammu & Kashmir, Uttar Pradesh, Himachal Pradesh, Chhattisgarh and Uttarakhand.