For the sixth month running, electricity generation went down year-on-year, as March 2024 generation was recorded 8.3 percent lower than a year ago at 7.8 billion units. Save for a three month break in 1QFY24 – this is very much in continuation of the trend that had stretched for an entire year leading to 1QFY24.
Context helps. Power generation in March 2023 had gone down by a then-record 16 percent year-on-year. So clearly there is nothing in it for the base effect hopefuls here either. In fact, it is rather scary that it continues to fall from an already low base. March 2024 generation is also 8 percent lower than March of six years ago and 23 percent lower from March of 2022.
The 9MFY24 net power generation is down 1.4 percent from last year at 89 billion units, and 9 percent from 9MFY22. On a 12-month moving average basis – the reading of 10.3 billion units is a 36-month low, down 5 percent year-on-year. The LSM decline for the corresponding decline partly explains the fall in demand. The mounting tariffs explain the other half as it has reduced the purchasing power to never-before-seen levels. Mind you, this is constrained demand as discos continue to flout rules and laws to adopt commercial load shedding across the country. For now, keep that for another day.
On the fuel price front – another Rs2.94/unit upward adjustment is sought in lieu of monthly FCA to be charged in May 2024 bills. Such has been the deviation from reference fuel cost, that Rs2.94/unit seems like a respite, as last 5-month allowed FCA averages Rs4.75/unit. True to its form, the government has attempted to put the month-on-month decline in FCA to “government efforts”. Rest assured; no government efforts were put in the first month in charge to still lead to a significant overrun from reference charges.
With the exchange rate stable throughout the period and international fuel prices largely in check for the best part of the year, the actual fuel costs are closer to the assumptions used for reference charges. The large deviation stems largely from the faulty assumptions adopted for fuel mix for FY24 in the approved Power Purchase Price.
At the risk of repeating for the umpteenth time in the past few months, the almost laughable assumption of LRNG based generation at 6.6 billion units for FY24 is at the heart of the deviation. The RLNG based power generation in 9MFY24 already stands at 16.4 billion units with an 18 percent share and is likely to surpass 22 billion units for FY24. The reference fuel cost for the entire year is estimated at Rs156 billion – which is likely to surpass Rs500 billion, having reached nearly Rs400 billion already in nine months.
The other significant deviation has been witnessed in coal based generation – where imported coal share so far been 4 percent versus the reference of 12 percent. The actual fuel cost is likely to be lower by around Rs200 billion than reference for the entire year. Imported coal based generation sits very low in the pecking order, and unless the demand shoots up the roof or commodity prices tremble – imported coal power plants are likely to stay largely idle in the near future. Imported coal plants have the second largest capacity payment component at Rs387 billion for FY24, and if the last quarter sees the overall demand trend continue – the capacity component per unit could be close to Rs90. Coal based generation in March 2024 was, at a 76-month low.
Solar too has been a major disappointment – with more than a billion lesser units than referenced expected to be generated during FY24 – at around Rs39/unit. Wind too, is hovering around Rs40/unit of production cost. Hydel and nuclear have been the saviors accounting for half the power generation during 9MFY24.
The only way out of the rut is to find ways to spur demand. Up to 16 hours of load shedding in nearly 20 percent of feeders across the country surely is not one way to spur demand. Sticking with high duties, surcharges, and taxes on electricity bills, is not one either.
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