Jul, 2011, Soma Banerjee & Mitul ThakkarSoma Banerjee & Mitul Thakkar,ET Bureau
Power Paradox: 50,000 mw extra supply means power outages and costlier bills for consumers
Story

This summer, when Indian consumers were again reeling under a spate of electricity outages, private power companies in the country were in the middle of a breakneck investment binge. Their total investment commitment, Rs 2.25 lakh crore, is aimed at creating 50,000 mw of new generation capacity by 2014. A large part of the committed amount has already been spent. The additional power would suffice to light up ten cities like Delhi.

Normally, the news should also light up the faces of consumers. In energy-starved India, any move to increase power capacity, however small, is good news. Power bills in India have been ballooning in recent years. And there seems be no respite in sight. Electricity charges are expected to escalate by up to 40% over the next three years.

So the move to bump up capacity through a barrage of investments is welcome news. Wouldn't it keep a lid on the electricity charges and check, if not end, power outages? Sadly, that is hardly the case.

Running on Empty

The reason is another story, a sobering one, that has been playing out elsewhere, in the commodity sector. The prices of commodities such as coal, nearly 70% of the electricity consumed in India is generated by thermal power plants and more than 50% of the commercial energy demand is met through coal, have been hardening over the past few months globally.

Geopolitical conditions in West Asia, particularly Libya, have impacted supplies of oil, fuelling higher prices. There is no letup in the prices of other commodities like steel and coal. Coal-rich countries like Indonesia haven't helped, changing norms and triggering price escalations. Tata Power, for instance, is buying coal from other companies despite owning a mine in the country.

India has vast reserves of coal, but the availability is far from easy. "The availability of domestic coal is directly influenced by Go/No-Go decision of the environment ministry on various coal mines which in turn effects the coal production/mining capacity of Coal India as well as other captive producers," says Ravi Sharma, CEO, Adani Power .

The availability of domestic coal and losses that distribution companies generate are a big concern, he says.
An energy report by CLSA has estimated that as much as 30% of the additional coal requirement for power projects will have to depend on imported coal that would raise costs further.

Average imported coal prices have moved to $120 a tonne from $99 a tonne. Indian power companies have already started feeling the pressure on the fuel front. State-owned Coal India has indicated that it will not be in a position to meet the demands of the upcoming coal-based plants fully.