Low Demand and Financial Health of State DISCOM Forces MAHAGENCO to Shut Down Power Projects - Solar Not Affected

Maharashtra State Power Generation Company (MAHAGENCO) has been forced to shut down four of its thermal power projects in the state due to poor offtake by the state power distribution company (DISCOM), Maharashtra State Electricity Distribution Company (MSEDCL).

According to Mercom’s sources at MAHAGENCO, shutting down the thermal projects was due to various factors including aging power projects, remote area locations, high coal transportation costs and low demand by the state's DISCOM. Sources further confirmed that MAHAGENCO has a total generation capacity of about 13,137 MW comprising thermal - 9,700 MW, hydel - 2,585 MW, gas turbine - 672 MW, and solar - 180 MW. The shutting down of its four thermal projects has led to generation falling below 2,000 MW.

“As highlighted in our quarterly reports, low power demand is becoming a major issue all over India, negatively affecting DISCOM revenues,” said Raj Prabhu, CEO of Mercom Capital Group. “As more renewables are installed, the problems will be magnified as energy sources like solar tend to be more expensive and more prone to be discriminated against, especially when you take into consideration the dire financial health of DISCOMs and their ability to acquire cheaper power from other sources.”

MSEDCL was historically purchasing its power equally from MAHAGENCO, NTPC and private power producers to meet its power demand of 18,000 MW during peak seasons and 13,000 MW in the non-peak seasons. The DISCOM suffers from heavy financial losses and is not part of the Ujwal DISCOM Assurance Yojana (UDAY) program. According to Maharashtra Electricity Regulatory Commission’s (MERC) merit dispatch order, MSEDCL has to buy cheaper power first before purchasing more expensive power. Annual statements indicate MSEDCL purchases 90 percent of the power from conventional energy sources like thermal, oil, natural gas and nuclear.

Due to the DISCOM buying cheaper conventional power from NTPC and private players, MAHAGENCO has had to shut down its power projects with higher costs of production, like its thermal projects in the remote areas of Marathwada, Bhusawal and Parli, which have high costs of production as a result of location and coal transportation costs. These aging projects were built by MAHAGENCO for a purely social cause and are not financially viable with power costing Rs.0.50/kWh higher than what is sold by NTPC. However, power produced from other sources like hydel, gas turbine and solar are not affected.

According to Mercom’s India Solar Project Tracker, cumulative solar installations in the state is 389 MW to date and the RPO for financial year 2016-17 is 11 percent, one percent of which is solar. The state also has 972 MW of solar projects under construction with another 50 MW pending auctions.

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