India to face power surplus, 300 million people may not be able to afford

KOLKATA: India may be heading for a huge surplus of generation capacity because the 300 million people who don’t have access to electricity also don’t have the means to buy power from new plants that are being set up to meet Prime Minister Narendra Modi’s vision of power for all, experts said.

The government said it intends to expand power generation capacity about three-fold to 800 gigawatts by 2030 and to fuel this, it is targeting coal production of 1.5 billion tonnes a year by 2020.

Early signs of an impending demandsupply mismatch have already started to appear, according to experts.

Distribution companies saddled with losses are not buying electricity generated by new plants. Capacity utilisation at thermal power plants dropped to 59% in June, according to the Central Electricity Authority, and coal is piling up.

In the past two years, the country added about 40,000 MW of generation capacity, while the demand increased by about 10,000 MW only.

“We feel a large chunk of the population without access to power don’t have the financial capability of buying electricity,” said Anish De, partner, infrastructure and government services, at KPMG India. “The cost of supplying power to remote rural areas, inclusive of infrastructure expenditure, is estimated at around Rs 10 per unit and this is too costly for them,” he added.
Utilities receive between Rs 4 and Rs 6 per unit of electricity sold compared with the supply cost of Rs 10 per unit. At Rs 10 per unit, affordability will come down, De said. Such a model is unsustainable unless the power utilities are compensated by the state.

Even with adequate availability of power, distribution companies may not be keen on supplying electricity at the current tariffs. “At present, a large number of beleaguered utilities tries to restrict supply of power for areas where selling electricity is a loss-making proposition,” said Salil Garg, director India Ratings & Research. “They do not have the financial capability to supply power to match the demand in view of losses on supply of power,” Garg added.

Power utilities would need the support of the state governments if cheap power has to be supplied to a loss-making consumer category. However, officials from the Indian Energy Exchange, a platform for power trading, said people without access to electricity would buy power if it was made available to them.

“At present, a large chunk of this population is using energy, say kerosene, and are incurring a cost in procuring them. If power becomes available, they can stop using kerosene for lighting lamps and use electricity instead,” said a senior official with IEX .

KPMG’s De, however, said kerosene is subsidised and even if people in rural areas want to buy electricity, utilities would not find it profitable to supply to them because actual costs can’t be recovered. However, the IEX official said because of the vast geographical spread, demand for power will rise at a slow pace and there is bound to be a temporary demand-supply mismatch.

A senior official from one of the Big Four consultancy companies said the incremental cost of supplying power to the underprivileged population may not be very large and could easily be borne by the state government. Alternatively, utilities could come up with better models of supplying power to rural areas.

“A large number of Indian utilities is financially very sick and they are bound to be reluctant to supply to a segment which increases the possibility of increased losses,” said De.