Maharashtra allows open access for CPPs

Open access is now open for Fossil fuel-based captive power plants (CPPs) with power demand of 1 MVA and above in Maharashtra.An article of The Business Standard mentioned about the new announcement by the Maharashtra State Electricity Distribution Company (MahaVitaran).

The following important points were highlighted:

  1. It would be the responsibility of the generator to supply the generation data. In case of non-cooperation or non-submission of generation data in 15-minute time block by the relevant authority like the state-level despatch centre, the consumer would be required to pay the monthly bill as per its tariff without any credit adjustment.
  2. The open access consumer and the generator would have to comply with MahaVitaran’s metering requirement in totality.
  3. In case if the net energy received at the drawal point every 15 minutes time block is less than the net energy actually consumed during the corresponding 15 minutes time block, the excess energy consumed by the open access consumer during the said 15 minutes time block would be considered as overdrawl from MahaVitaran’s grid and would be billed at the rate applicable from time to time.
  4. In case of distribution open access, transmission loss would be deducted and transmission charges at Rs 0.29 per unit would be recovered by MahaVitaran.
  5. The open access consumer would also have to apply for transmission open access, if the injection point or the drawal point is connected to an EHV (more than 33 kV) network.

REC Trading Report – June 2012

REC trading for June was conducted today (June 27, 2012). Compared to last month, there were a few surprises:

  • Supply exceeded demand for Non-Solar RECs for the first time since start of trading
  • Demand for Solar RECs grew significantly

Detailed analysis of Non-solar REC trading:

Price on IEX remained the same as in May (Rs 2,402), while on PXIL it increased from Rs 2,150 to Rs 2,460 (increase of 14%). Aggregate demand reduced to 349,000 RECs from 365,000 last month (-4%). At the same time, supply of RECs increased from 275,000 to 361,000 (increase of 31%). Of these, 236,000 RECs were sold.

As mentioned above, this was the very first time that supply of RECs exceeded demand. Given the mismatch, it was good to see prices hold/ increase slightly. However, if the situation persists, the peak pricing has probably been reached until stronger enforcement signals emerge from the regulators.

Detailed analysis of Solar REC trading:

June was the second month when solar RECs were traded. Demand has grown significantly since last month (from 1,642 to 9,619; approximately a 6X growth). Available RECs increased to 563 from 249 last month (2.2X). Pricing fell marginally from the high of Rs 13,000 last month to Rs 12,750 on IEX and Rs 12, 506 on PXIL. 342 Solar RECs were sold, up from 10 RECs last month.

Total market value exceeded Rs 57 crore, of which Rs 44 lakhs were from Solar RECs.

The Hindu quoted Vishal Pandya of REConnect which covered the June trading news:
“The overall market growth in both solar as well non-solar space seems good. However, with the first quarter of the financial year getting almost over, it would be highly desirable now to see state regulators and nodal agencies acting strictly on the RPO compliance,” says Mr Vishal Pandya, Director, REConnect.

Other links which covered the trading news :

Rs.1.5 lakh crore loan recast for Discoms

In a recent article covered by The Times of India , it mentioned that the centre has agreed to provide loan to power distribution companies as their status at present is very low financially . In this restructuring exercise the centre has planned that state governments and the utilities take over the entire burden of Rs 1.5 lakh crore, instead of banks taking over half the liability.

The decision to restructure the power sector liabilities was taken at a meeting at the Prime Minister’s Office.The state governments will issue bonds of about Rs 1.5 lakh crore along with the discoms.

The package was approved after the finance ministry agreed to a staggered restructuring under which state governments, which will bear 50% of the burden, will issue bonds to banks in line with the dues. These bonds will fetch banks interest of 9-10% and will have a maximum 10-year term, said sources. In the process, short-term loans extended to the discoms will become longer tenure loans.

The restructuring was necessary as the discoms were under financial crunch and they are finding it difficult to pay their dues to the lenders. The state governments are not allowing to increase the electricity prices whereas the cost on the other side has gone up resulting in stagnant revenues and losses.

Tariff increases offer a ray of hope for Discom’s

Two recent articles highlight the changes taking place in Discom’s. The article in Business Standard mentioned that last year, some Disocm’s were able to raise tariffs to an extent that was not seen in the past.

 

Tariff increase for FY11
States Tariff increase in %
Gujarat

<5

HP, MP, Punjab, Karnataka

41039.00

Mizoram, Manipur, Chattisgarh, Maharashtra

>10-15

AP, Orissa, Bihar, Jharkhand, J&K

>15-20

Nagaland, Delhi, Rajasthan

>20

Source: CRISIL report

 

This is very encouraging for many reasons – a healthy Discom will be able to work towards providing adequate and quality power – a simple change that we believe will have a knock-on effect on the economy of the state. This is also very good news for the REC markets – we have always said that the key stumbling block in enforcing RPO regulations will be the financially troubled Discoms. If that situation were to be remedied, it will be very good for the renewable energy sector in general and REC markets in particular.

The article also provides some interesting data:

According to data from the power ministry, the average cost of supply (ACS) for all power companies has clearly far exceeded the average revenue realised on a subsidy basis. In 2008-09, the average costs stood at Rs 3.41/kwh versus revenues of Rs 2.91/kwh; in 2007-8, costs were Rs 2.93/kwh versus revenues of Rs 2.65/kwh; and in 2006-07, costs were Rs 2.75/kwh compared to revenues of Rs 2.49/kwh

A note of caution is needed here – these increases are just a beginning and it’s a long way before Discoms turn back into the black. This has been mentioned by CERC in the past, and also by the Business Standard in the article:

However, it’s not as if the struggle for financial viability is over just yet. These kinds of tariff increases need to happen for the next two-three years continuously in order to make a substantial improvement in the financial position of the discoms, REC’s director of finance, H D Khunteta, tells Business Standard.

And:

On account of the cost increases, the tariff would be required to increase at a CAGR of six per cent over the next five years, according to a report by CRISIL.

The second article ran in the Times of India. It mentions a recent restructuring of the loan to Discom’s. The center has approved a scheme of restructuring that will require the state governments to take on the entire burden of Rs 1.5 lakh crore. According to the article:

Instead, the finance ministry is insisting that states, which are responsible for the mess, do their bit by infusing equity and taking over the liabilities. In addition, they have to agree to reducing losses due to theft and raise tariffs to reflect the real cost of electricity. For states, this is a second lifeline in less than a decade as they had earlier issued bonds to power generation companies and promised reforms. Given their track record, the Centre is not keen that banks be forced to take a haircut.

The restructuring was necessitated as discoms were under financial strain and unable to pay their dues to the lenders. State governments have not been permitting an increase in electricity tariffs, while cost has gone up, resulting in stagnant revenues and losses.

We hope that it works. As the article in the Business Standard points out, this approach has been tried in the past with only limited success:

This bleak situation existed even as far back as a decade ago. So much so that in 2001-02, a committee headed by Montek Singh Ahluwalia had to bail out utilities by issuing long-term bonds to be discharged by the state governments. Some experts believe that if the government does not take action on a continuous basis to improve the financial health of discoms, the situation that arose in 2001-02 may recur.

Power trading prices shoot up 20-25%

In this scorching heat as the power demand across the country keeps on increasing the power trading prices have also gone up . In an article of the Business Standard the cause of rising trading prices was highlighted. Short-term power prices have seen an increase of 20-25 %. The highest price at which the power was traded rose to Rs 5 per unit.

In an article of the Business Standard , Rajesh Mendiratta, Indian Energy Exchange’s Senior VP for Business Development said that “Due to mismatch in demand and supply, the prices are expected to increase further but it will not reach too high a level,” . The average for power trading was Rs 3.5-4 per unit where last year the average rates were 2.9 per unit in the same period.

Due to inadequate coal supply the power industry is unable to meet the rising need of power in the country.Demand for coal in India has grown at an annual rate exceeding 8.4 per cent over the past five years.

With the increasing demand of power and shortage of coal supply it seems that the our electricity bills will keep going up. Lets hope that the monsoon comes soon which will bring some relief to our regular power cuts.

Contributed by Rahul Tyagi

Power Distribution Utilities to be rated by Ministry of Power

In an interesting article of The Hindu Business Line, a new rating methodology developed by the ministry of power was highlighted. In this methodology all utilities will be rated on the basis of their performance and their ability to sustain commercially viable operations in the long run. The methodology focuses on rewarding efforts of distribution utilities and therefore stimulating and improving operational and financial performance of distribution entities. One of the criteria for ranking of the distribution companies will also be the level of their Renewable Purchase Obligation fulfillment. A system of negative marks has also been introduced in the rating methodology. The first ranking expected to be issued in March 2013.

This integrated rating methodology is expected to facilitate realistic assessment by Banks/FIs of the risks associated with lending exposures to various state distribution utilities. It would enable funding with appropriate loan covenants for improving operational, financial and managerial performance.

For Ex: Gujarat has improved its position by ICRA & CRISIL ratings because of improved performance in optimization of power purchase costs, overall improvement in operational efficiency, savings in interest costs because of debt restructuring and significant improvement in cash collections. Whereas utilities in States which have lower ranking like MP, UP & Tamil Nadu will have no proper debt restructuring & unbundling, no proper power purchase costs etc.
Therefore, financial institutions or investors will decide in which state to locate their projects based on the rankings similarly in the case of banks, as they will choose to finance or provide loans to those utilities which have a good ranking and a proper debt structuring.

Contributed by Chetan Adhikari

Go to top