According to Mercom Capital Group’s latest report, India Solar Quarterly Market Update, the power deficit numbers in
India do not paint the full picture. Though low power deficit and even a
surplus situation is touted by a Central Electricity Authority (CEA) report,
large populations in India are still without electricity and power cuts are
still part of daily life in urban areas and more so in rural areas. The reduction
in the power deficit we are seeing is largely due to a combination of a drop in
power demand in the commercial and industrial sector, and the financial health
of DISCOMs. Falling demand has led to record low prices on the power exchanges.
download a copy of the report, visit: http://bit.ly/MercomIndiaAug2016Form
According to CEA, plant load
factors have fallen by 20 to 30 percent due to the drop in power usage from
commercial and industrial customers, a major source of revenue for DISCOMs.
These customers also usually end up subsidizing residential and rural customers
for whom DISCOMs refuse to increase tariffs in line with costs, leading to
massive losses year after year.
DISCOMs, which continue to
have financial struggles, are purchasing cheaper power from the exchanges,
which is resulting in curtailment issues for solar power. Some DISCOMs are
simply resorting to power cuts as they cannot afford to even purchase power at
low rates on the exchanges. Some states have surplus power but still don’t
supply power 24/7 for fear of losses due to low tariffs from residential and
"Total new renewable energy capacity
addition has increased to 30 percent as of calendar year July 2016 with intermittent
renewable energy capacity additions including wind and solar accounting for
almost 28 percent (solar accounted for 16 percent), a huge positive largely due to
government’s push for renewables," said Raj Prabhu, CEO of Mercom Capital Group. This increase in renewable energy addition
has caused some solar power curtailment issues in Rajasthan and Tamil Nadu
where DISCOMs have flouted the ‘must run’ status of solar power thereby negatively
affecting developers. However, based on our discussion with developers and
state agencies, curtailment is still not widespread, but the issue needs to be
addressed immediately before it starts to hurt investor sentiments in the
sector. The problem is more pronounced in Tamil Nadu, especially in high wind
energy density areas when wind and solar generation peak simultaneously. In
Tamil Nadu curtailment is mostly due to the utility opting to buy cheaper power
from the exchanges rather than paying Rs.7 (~$0.1045)/kWh for solar (the state has
signed PPAs for that rate).
While grid congestion due to
a lack of transmission capacity and integration of intermittent energy sources
is an issue, the more challenging issue right now is the lack of power demand
and the financial health of DISCOMs.
The UDAY program was set up
to fix the financial health of DISCOMs but turnaround has not been immediate.
Unless states increase power tariffs on residential and agricultural consumers
to reflect present costs it will not take much time for these DISCOMS to be back
in financial trouble again which will be bad news for renewables and especially
solar which is growing at the fastest pace.