Energy News Monitor

Power News Commentary: November 2016

India

One of the interesting developments in the Indian power sector this month was the observation from ICRA that power bills for households consuming between 300-500 kWh/month would increase by Rs500-1300/year from 2017. According to ICRA, meeting new emission norms for power generation would require spending of over Rs1 trillion in the next 2-3 years. As this cost is expected to be passed on to rate payers their bills will go up by Rs0.13-0.22/kWh.  This is because there is provision for increase in tariff on account of ‘change of law’. The MOEF&CC issued new emission norms for power plants depending on their vintage. The newer the plant the more stringent the emission norm. According to ICRA 187 GW of operational power generation capacity and 74 GW of capacity under development will come under these regulations. ICRA calculations say that this is likely to increase capital cost by about Rs10 million/MW which is roughly an increase of 20 percent. This is an interesting development as it opens the door for gas to compete with domestic coal as fuel for power generation. Power generators have not been able to use cleaner fuels such as natural gas for power generation as it was believed that the consequent increase in tariff cannot be passed through to final consumers particularly households.

Main emissions from coal and lignite based thermal power plants in India are CO2, NOX and SOX and air-borne inorganic particles such as fly ash, carbonaceous material (soot), SPM and other trace gas species. Thermal power plants are among the LPS accounting for 50 percent of CO2 and SOX and about 20 percent of NOX emissions in 2013.

It is not clear how the issue of increase in tariff will play out when it moves to the context of political economy.  People, particularly the urban, affluent and articulate people have been clamouring for clean air but perhaps under the inaccurate assumption that clean air if free.

Clearly clean air is not free. Only time will tell if the urban elite that has been clamouring for clean air will endorse its stand with its purse.

Staying with power tariff, the observation by the CEO of Niti Aayog that Indian discoms must either reform or perish at a conference organised by the India Energy Forum is interesting. Death of discoms or increase in power tariff may to be easy to state from a conference platform but not so easy to carry out in India’s political and social platform. Many brave politicians have tried in the past but they have succumbed at the altar of electoral politics.

However there appears to be a silver lining. The ratings agency Fitch expects the persistent problem of low power generation capacity utilisation to continue in 2017 which means that tariff levels will be low and so a small increase in tariff could be accommodated. For inadequate capacity utilisation, new generation capacity coming online is listed as part of the problem but slow recovery of discoms is also among reasons noted by Fitch.  Fitch expects most of the investments in the next few years to come under the traditional cost­plus model, providing companies with greater security on returns. Overall Fitch does not appear to be very optimistic on big changes in the power sector in the near term.

Coming to the power problems of the poor, the call by the CM of Delhi to provide power connections to unauthorised colonies in Delhi to discourage use of diesel generators is not unreasonable. Out of over 600 unauthorised colonies in Delhi, many have been electrified but some in the fringes remain un-electrified. The households in these colonies either resort to theft or to diesel sets. While the CM had reportedly remarked that connecting these households to the grid would not amount to authorisation of the colony, a similar situation in Brazil suggests otherwise. Unauthorised settlers in Urban Brazil were apparently offered bottled propane cooking gas at a discount, an unexpected positive outcome after the Hindenburg tragedy. This not only increased the penetration of cooking gas use in poor Brazilian households but also gave them a document on consumption of cooking gas which doubled as proof of address.

There was news of e-rickshaws, emerging as illegal or informal consumers of electricity according to an internal assessment by a private power distribution company. As per the claims of the company, this results in a loss of Rs2 billion every year.  This would mean a loss of revenue for just under 2 percent of electricity consumption in Delhi. As per media reports, a fully charged e-rickshaw, operating on four 900 V batteries is expected to run for 80 km to 100 km per charge. Rather than going after the poor owners of e-rickshaws, the discom should set up charging stations at convenient locations and increase consumption of electricity.

Rest of the World

Reports on problems with Chinese power plants are not new. The latest is Botswana which was apparently wanting to sell a 600 MW Chinese-built power plant after persistent technical problems since it was commissioned in 2012.  Botswana’s Morupule B coal-fired power station, built by the China National Electric Equipment Corporation at a cost of $970 million, was reported to have broken down often, leading to a reliance on diesel generators and imports from South Africa. According to the BPC, Morupule B has proven to be costly to maintain and operate due to construction defects rendering the plant unreliable. A joint venture between Japan’s Marubeni Corp and South Korea’s Posco Energy won an $800 million tender earlier this year to expand the Morupule B plant by 300 MW. BPC has been running at a loss for 8 years and is implementing a turnaround strategy after posting a $180 million operating loss this year. It also received over $200 million in government subsidies. The other country from which a similar problem was reported is Sri Lanka. This is an opportunity for Indian power generators who have an impeccable record in building and operating affordable power plants.

Renewable energy appears to be generating cracks in the European power market. According to international news reports, Austrian electricity utility Verbund and customer industries were reported to be seeking compensation from European energy watchdog ACER if it allows the Austrian and German power markets to be separated as this is expected to increase power tariff.   The reason for the split is an oversupply from northern German wind parks, whose power flows into the Austrian, Polish and Czech grids in a development known as loop flows that destabilises the grids of these countries.

Closer to home, Saudi Arabia is reported to be on the verge of privatising the first of four companies to be created from Saudi Electricity Company’s generating business. The Saudi Electricity Company is dividing this business into four separate companies – each of which will be privatised and compete for customers across the kingdom. Existing capacity of about 60 GW is expected to be split into four with 15-20 GW in each.  Although Saudi Electricity Company is expected to retain control over electricity transmission and distribution, it is expected that once the four generating companies have been brought to market, there could be some private sector involvement in distribution in the future. Electricity supply in Saudi Arabia has been growing at a rate of about 7 percent a year and demand currently stands at about 62 GW. Demand is expected to increase to more than 120 GW by 2030. Population growth is said to be adding 500,000 new customers per year and that per capita growth is increasing because of demand from industry.