Here's a shocker: power is available but no one is buying it

Think we don’t have enough power supplies in the country to cope with demand? Think again.

In an interview with Business Standard, Arup Roy Chowdhury, chairman and managing director, NTPC, revealed that the power generating company actually could not sell 13 billion units of power last year. This year too, it has not sold 10 billion units of power, he said.

It’s a shocker of a revelation. So why has the company not been able to sell power? Well, because it wasbeing produced at a steep Rs 5 per unit, which was unaffordable for cash-strapped, debt-burdened power distribution companies.

[caption id=“attachment_134561” align=“alignleft” width=“380” caption=“Several private power generating companies have landed in trouble for bidding too low for projects and then later realising that the cost of raw materials has gone up. Reuters”]  [/caption]

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It was the main reason why NTPC did not pick up coal allocated for e-auction in October, which, he explained, was of poor quality and expensive, and would therefore, drive up the price of power production.

In the interview, Roy Chowdhury also slammed private players for bidding too aggressively for ultra mega power plants (UMPP) and later complaining about escalating costs. “People laughed at us when we did not bid low for Sasan and Tilaiya, but with our average cost of power at Rs 2.7 a unit, how can I [even] think of putting up a plant at Rs 1.2!” he told the newspaper.

Indeed, several private power generating companies have landed in trouble for bidding too low for projects and then later realising that the cost of raw materials has gone up.

For instance, Reliance Power has stopped work at its Krishnapatnam UMPP, while Tata Power might also have to face heavy losses in its Mundra plant after it gets commissioned.

JSW Energy is also headed for financial trouble after the Maharashtra Electricity Regulatory Commission rejected its plea to increase tariffs after its cost of procuring coal from Indonesia increased.

Coal imports, once viewed as the great escape route for power merchants struggling to cope with local coal shortages, are increasingly failing to become a meaningful solution, as they are at least two to three times more expensive than what is provided by Coal India. Consequently, they also push up the cost of producing electricity.

That’s no good for cash-needy SEBs, who are the main buyers of power, because they cannot afford to buy expensive power when the price at which they sell it is fixed.

The only hope is that Coal India ramps up production, and offer a way to power projects to still remain financially viable.

In the end, however, aligning power tariffs by raising them to match the cost of power is the only long term solution to untangle the mess the Indian power sector finds itself in.