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Retire old thermal power plants to reduce discoms' debt: IEEFA
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SME Times News Bureau | 06 Aug, 2020
Reduce financial and operational inefficiencies across India's power
distribution sector, which as of May had accumulated massive overdue
payment liabilities of Rs 1,16,340 crore to generation companies, by
retiring old and expensive thermal power plants, a report by IEEFA said
on Thursday.
Written by Vibhuti Garg and Kashish Shah from the
Institute for Energy Economics and Financial Analysis (IEEFA), the
report recommends, among other strategies, that discoms work with state
governments to retire their inefficient and expensive thermal power
plants as a key pathway to reducing their average cost of power
procurement.
Discoms carry a total outstanding debt of Rs 4,78,000 crore or $66bn in FY2018/19.
"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," Garg told IANS.
"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.
"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."
By taking steps to retire end-of-life,
expensive legacy thermal power contracts, states will reduce their
losses 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.
Discoms have been unable to improve their
operational performance even after receiving multiple bailout packages
from the government in the last decade.
While there is no silver
bullet to improve discoms' financial sustainability and viability, the
report analyses three state-based case studies with respective
recommendations on Maharashtra, Rajasthan and Madhya Pradesh, while also
focusing on action the government can take now to reduce the discoms'
financial burden.
These include resolving legacy contracts issues
and closing inefficient plants which will result in significant savings
from fixed charge payments while reducing pollution and carbon
footprints.
Also, reducing cross-subsidies to decrease the burden
on commercial and industrial customers and increase healthy competition
while allowing for the implementation of direct benefit transfers,
solar irrigation pumps, and the adoption of policies favouring the
uptake of solar rooftop systems.
"There is no point in bailing out state discoms again and again without locking in a systemic improvement," said Shah.
"Absent a sustained resolution of the discom sector losses, India's overall power sector reform will be stilted and ineffective.
"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."
Garg said 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," added Garg.
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