A staggering $20 billion worth of debt split roughly equally between operational and under-construction power projects reportedly at risk and other roundups
Power News Commentary: October 2016
India
2011 paper for the Brookings Institute co-authored by the current governor of the RBI asked whether the exuberance of the Indian power sector had legs. The answer suggested by the paper was ‘no’. News emerging this week appeared to confirm the answer. A staggering $20 billion worth of debt split roughly equally between operational and under-construction power projects were reportedly at risk according to news items that cited a report by ratings agency Crisil. As per the Crisil report, around 17 GW of operational power projects with a debt of about $10 billion and another 24 GW of under-construction projects with roughly equal debt exposure were reported to be ‘high risk’. Cost-overruns, aggressive bidding at coal block auctions, issues over gas supply are among the reasons given but lack of demand for power was not mentioned.
While the Crisil report expected credit growth to the power sector to moderate to 5 per cent over the next three years compared to an average of 18 per cent in the last five years on account of the UDAY scheme (that shifts bank debt to the government balance sheets), it expected NPAs of the sector to increase from 1.3 per cent to 4.4 per cent in FY16. The quick and easy take on this is that once UDAY wipes out debt from the long suffering discoms, the Indian power sector would sprint into a cheap, clean and profitable future with solar power. To a pessimistic minority this may sound like irrational exuberance or exuberance that lacks legs as the RBI governor eloquently put it. The physics and economics of energy is on their side as both continue to favour centralised supply of uninterrupted energy generated by energy dense fossil fuels. A recent MIT report on solar power confirms this position as it observes that even if solar panels were given away free, coal based power will be cheaper for an industrial economy.
Among the more entertaining news on electricity was the item that claimed that nearly 500 Samajwadi Party workers in a village of poll bound UP joined the ruling Bharatiya Janta party citing lack of electricity in their villages. The question that comes to mind is, if people can convert from one party to another for electricity should they also not be given the freedom to convert from one religion to another or one caste to another for similar economic or social benefits? Staying with entertaining news, it was reported that the Power Minister continued his attack on the Planning Commission for its approach of setting targets for power generation that supposedly led power companies to invest ‘irrationally’. Once again the question that comes to mind is, if targets lead companies to invest irrationally, why then is his government setting targets for almost every form of energy? Will not the exuberant targets for coal, nuclear and solar energy set by his government lead to irrational investment?
Rest of the World
The proposed coal based power plant in Rampal in Bangladesh continued to remain in the news. A joint Indo-Bangla forum has apparently written to Indian Prime Minister demanding that the 1320 MW Rampal power plant be scrapped as it has potential to cause ‘irreparable damage’ to Sundarbans, the world’s largest mangrove forest. The power plant is located 14 kilometres upstream of the Sundarbans Reserve Forest in Bangladesh, a world heritage site declared by UNESCO. The selection of the site by the Bangladesh government was said to be based on the fact that it was not densely populated (which would mean relatively lower number of re-locations) and close to the port for importing coal. As it is often the case with environmental protests, it is probably the articulate urban dweller enjoying the benefits of industrial development such as life in a well-connected city in Bangladesh with access to electricity, air-conditioning, motorised vehicles and other comforts of modern housing funded by well paid jobs (presumably in the non-government sector with the mandate to oppose the very fuels that underwrite his or her life style) who is marching against the plant. The people living in abject poverty in the area surrounding the Sundarban forests may actually want the power plant for it may offer better job prospects and also possibly electricity. One cannot imagine many in these areas wanting to continue their wretched life as fishermen or subsistence farmers in mud huts that are routinely destroyed by storms. Rarely are these people consulted when such projects are debated. Organisations who supposedly represent them often assume that the poor in the Sundarban want the same outcomes as themselves.
The blackout across South Australia after a series of severe storms and lighting strikes was widely reported in the international press. An independent review has been proposed to resolve the political divisions over the cause persisted. Australia’s Prime Minister who supports traditional coal and natural gas based power generation has blamed South Australia’s high dependence on renewables for the outage. Naturally his assessment is being criticised by other political leaders who accuse him of letting ideology drive his comments.
The World Energy Council’s 2016 report declared that smarter people and machines would enable smart grids, smart buildings, smart homes and offices, and smart cities to become the norm by 2060. The report expected advanced manufacturing, automation, telecommuting, and other technologies are expected to disrupt traditional energy systems. The report predicted that demand for electricity would double by 2060 on account of the growth of the middle class, rising incomes, and more electricity-enabled appliances and machines. Overall the report takes the popular position of being exuberant on both, the extent of renewable penetration and the death of coal and oil.
NATIONAL: OIL
Subsidised LPG rate hiked by Rs 2 a cylinder
November 1, 2016. The price of subsidised cooking gas (LPG) was hiked by over Rs 2 per cylinder, the sixth increase in rates in five months, while that of jet fuel was raised by a steep 7.3 percent in step with global trends. A subsidised 14.2-kg cylinder will now cost Rs 430.64 in Delhi as against Rs 428.59 previously, according to state-owned oil firms. Also, the aviation turbine fuel (ATF) price was hiked Rs 3,434.25 per kilolitre (kl), or 7.33 percent, to Rs 50,260.63 per kl in Delhi. This is the second straight increase in rates, coming on the back of 3.11 percent rise in October 1. In case of subsidised LPG, this is the sixth increase in price since July when the government decided to go in for a small hikes of up to Rs 2 per bottle every month to cut down its subsidy outgo. LPG rates were last hiked on October 28 by Rs 1.5 per cylinder on account of hike in commission paid to dealers. In the last monthly hike, rates went up by Rs 2.03 per cylinder on October 1 to Rs 427.09. Prior to that rates were hiked by Rs 1.97 per cylinder on September 1, Rs 1.93 on August 16 and by Rs 1.98 per 14.2-kg cylinder on July 1. The government had decided to take the diesel route for eliminating subsidies on LPG and kerosene. Diesel price was deregulated in November 2014 after the previous UPA government effected 50 paise hikes every month to eliminate subsidies. The near Rs 2 per cylinder hike in LPG every month is also aimed at doing the same thing. In case of kerosene, the government has allowed state-owned oil companies to raise the price by 25 paise a litre every fortnight for 10 months. The 8th hike in kerosene, since July, was effected. A litre of kerosene now costs Rs 17.17 in Mumbai. Delhi has been declared a kerosene free state and no subsidised PDS kerosene is sold in the national capital. The price of non-subsidised cooking gas (LPG), which consumers buy after exhausting their quota of 12 bottles of 14.2-kg each per household in a year, was hiked by Rs 37.5 to Rs 529.50. Oil firms revise rates of ATF and cooking gas on 1st of every month based on oil price and foreign exchange rate in the preceding month.
Source: The Financial Express
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