Power: Fuel mix improves, cost does not

Having stayed flat for three straight years at 122 billion electricity units till FY20, the new fiscal year has stated on a slightly more promising note. There is nothing exemplary in year-on-year power generation going up by 4 percent for July 2020, but given the recent context amid the pandemic, this also shows the demand is back to the optimum, which should also ease a few nerves.

The best bit is the generation mix, which is in sharp contrast to two or three years ago. The hydel based generation in July was the second highest monthly number ever. Hydel power generation has contributed 37 percent to the total pie for three consecutive months, first-time ever. Power generation peaks in July and August, and good water availability in reservoirs indicate, the hydel contribution will remain higher in the near future as well.

RLNG based generation has crossed 3 billion monthly units for the first time in nearly a year, whereas coal-based generation continues to outpace growth in all others. Coal based generation at 2.6 billion units in July 2020 is the highest ever monthly number. Natural gas-based generation has slowly and gradually been on a decline, as RLNG takes over. The furnace oil has again made a comeback for the second straight month, which is a concern, given that RLNG plants ran nowhere near full throttle.

The average fuel generation cost has been estimated at Rs4.38per unit for July, which is nearly a rupee lower than the same period last year. Surely, the improved generation mix is at play, but one must not forget that the same has also been accounted for in reference tariffs by the regulator. The fuel cost component even at Rs4.4 per unit is 24 percent higher than the reference fuel cost at Rs3.5 per unit.

The long pending monthly FPAs were only very recently decided and were done in a way to minimize the impact on consumers. But if the fuel cost continues to stay higher than reference, no amount of delaying the inevitable will serve the purpose. The bigger concern of capacity payment remains and without adequate increase in consumption, the added capacity will continue to be a drag on the final tariffs.