More power at what cost?

The nine-goal National Power Policy 2013 (NPP 2013) is now over four years old. It can claim to have achieved or come close to achieve not more than one and a half of the nine stated goals in over four years. Power generation capacity is being added with all the vigour, and on standalone basis, load shedding should soon be a thing of the past. Well done on that.

[caption id="attachment_383983" align="aligncenter" width="737"] Twilight photo of power plant[/caption]

Leave the yet-so-distant targets of minimizing financial losses, minimizing inefficiencies, creating a cutting edge transmission network, and aligning all ministries involved, for another day. Let’s talk about ensuring the generation of inexpensive and affordable electricity. Affordability has long been a bane in the power sector, and all studies point that expensive and unaffordable electricity does little good and more harm to the overall health of the power sector.

Not that the power generation fuel mix has not changed for the better. The reliance on furnace oil is all set to go away sooner than later. Yes, the replaced fuel is not the indigenous fuel source as envisioned in the NPP 2013, but is still cheaper. If only it could result in more affordable electricity for the consumers.

And that is not going to be the case. If anything, power tariffs will go up. If that does not happen, subsidies will go up. Given the financial and political condition, both of these are tough decisions. That could essentially mean circular debt will go up. Now, we have all been there before – right?

This column spoke about the missing affordability angle in the whole generation addition episode (see ‘Power affordability missing’, published on November 27, 2017). Leading brokers, Optimus Capital Management recently came up with a report on energy affairs, and amongst other issues, discussed the affordability aspect, backed by numbers.

The authors while, acknowledging the fuel saving from furnace oil to cheaper fuels such as RLNG and coal, have stated how the capacity payments will swiftly outweigh the fuel saving component. The net impact of energy saving and capacity payments, has been worked out to Rs174 billion, which translates into Rs1.8 per unit in terms of tariff.

By Optimus’ own admission, this impact only accounts for new capacity additions, and not the capacity payments that may arise from other projects of hydel, wind, etc, that are due to be commissioned. BR Research also opines that the tariff increase requirement could be much higher than Rs1.8 per unit. But even, Rs1.8 per unit surely is not going to make power anymore affordable.

And as long as the other goals of the NPP 2013 remain elusive, merely pumping more megawatts may actually backfire. The incumbents inherited and cleared a hefty circular debt bill. If the system inefficiencies continue, and the political will to increase tariffs close to elections goes missing (highly likely), the next government could well be looking at a circular debt bill way more than Rs480 billion. Try paying that in cash!