To reduce financial and operational inefficiencies across India’s power distribution sector, the old thermal power plant should be retired on priority. It will help distribution companies (Discoms) to trim their debt burden, as recommended by the Institute for Energy Economics and Financial Analysis (IEEFA) in its report.
As of May 2020, Discoms had accumulated massive overdue payment liabilities of Rs 116,340 crore to generation companies (Gencos) while already carrying a total outstanding debt of Rs 478,000 crore in FY2018/19.
On the latest recommendations, Vibhuti Garg, Author of the IEEFA report, said that “we suggest state-based Discoms sit down with state generation utilities and review what old thermal power plants they can retire, given the state of surplus capacity. As many thermal power stations are old and operating at well under half their capacity, yet the states are bound by contracts to continue to pay hefty capacity charges.”
She further added “we understand that retiring power plants won’t be easy as the proponents will want to make money for the life of the contract period. But in order to move forward and start to reduce the massive Discom debt while enabling the states and the nation as a whole to transition to a cleaner, cheaper energy economy, the states will have to jump this hurdle.”
The report also suggested, by taking steps to retire end-of-life, expensive legacy thermal power contracts, states will reduce their loses and be in more of a position to contract cleaner cheaper renewable power and invest in new technologies to further reduce losses such as smart meters.
Notable for a long time, Discoms have been unable to improve their operational performance even after receiving multiple bailout packages from the government in the last decade.
Another co-author of the report, Kashish Shah pointed out that “there is no point in bailing out state Discoms again and again without a locking in a systemic improvement. Absent a sustained resolution of the Discom sector losses, India’s overall power sector reform will be stilted and ineffective.”
Shah also added that, “the government of India should consider implementing these recommendations and if state government lending and guarantees and Discom subsidies are still required, they should be tied to the performance of the states in implementing reform in their distribution sectors.”
Vibhuti Garg commented that the extreme financial mess in the distribution sector is unsustainable and requires bold policy choices and government expenditure to create an economically sustainable national electricity system.
“New private competition can bring new capital and more innovation,” Garg added.
She also suggested that “the central government should also prioritise a green stimulus to recover the economic growth smothered by COVID-19. Such growth coupled with the reform measures proposed could help to extract the distribution companies from their current predicament.”
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