Electricity generation in January 2023 went down 3 percent year-on-year to 7.9 billion units – marking a fourth straight month of year-on-year decrease. The fiscal year to date 7MFY24 generation stands virtually unchanged from last year at 74.7 billion units. It was a little over 80 billion units in the same period two years ago. On a 12-month moving average basis, power generation at 10.47 billion units is an 8-month low. The trend that started in January 2023 has now stretched a full year – 13th consecutive month since 12 month-moving average started to return negative year-on-year growth.
The drop in generation is a mix of both an organic dip in demand owing to higher tariffs and economic downturn, and also transmission constraints. The system constraints remain at the core, limiting the grid’s capacity to evacuate optimal electricity from South to North. Domestic consumers have responded with consumption per connection at a two decade low – adding more complexities on the revenue equation as more and more enter the lower consumption slabs.
In terms of the mix, furnace oil made a return as expected. When hydel generation drops, furnace oil steps up to make up for it every January. The transmission constraints owing to a variety of technical reasons also ensure furnace oil plants are run, even without merit. For 750 million units generated on furnace oil, Rs26.5 billion were added in lieu of fuel charges.
The overall fuel cost of generation at Rs116 billion is more than twice the reference fuel cost for January 2024. This comes at the back of an overrun of 93 percent in fuel charges over reference in December 2023. January’s deviation owes completely to significantly altered actual generation fuel mix than the one given as reference, as actual generation stayed well within the reference range at 75 billion units for 7MFY24.
The fuel charge component for 7MFY24 at Rs 731 billion is a massive 39 percent higher than the reference cost at Rs524 billion. At actual and reference generation numbers, this translates into Rs2.76/unit upward adjustment for the first seven months of the fiscal year, at Rs9.8/unit. Capacity cost component at Rs15.6/unit is already there for 7MFY24 with Rs1.1 trillion excluding K-Electric.
Deviation from reference charges is nothing new, but the quantum this time around is significant. What is worrying is that it comes at the back of an exercise of base tariff revision, that took into account currency adjustment, fuel price changes, and inflation. Ever since the base tariff revision, the variables have by and large stayed in control – ye the deviation on FCA is massive.
That is solely because of the rather absurd and unrealistic generation mix forecast while determining the Power Purchase Pirce (PPP) for FY24. Consider that the reference Power Purchase Price (PPP) for FY24 envisages 6.6 billion units generated on RLNG or 5 percent of the total. The actual RLNG based power generation for seven months has already surpassed the reference – at 13.3 billion units. With five more months to go, and RLNG likely to be used more towards the last quarter – the actual RLNG based generation is likely to surpass 25 billion units at 18-20 percent of total mix.
The reference fuel cost for RLNG at Rs156 billion for the entire FY24 has already been more than doubled in just seven months at Rs323 billion. The RLNG absurdity accounts for more than 80 percent of the deviation from reference fuel charges. The same is expected to continue for the rest of the year – with monthly FCA sought by the CPPA likely to be consistently on the higher side. Mind you, the monthly adjustment sought for the last four months has averaged Rs5.24/unit.
Expect another significant round of base tariff revision on the expiry of this one. One hopes more realistic grounds of assumptions are taken for the next PPP, because abnormally high FCA applies in retrospect – leaving consumers at a significant disadvantage.
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