For India’s Power Sector, A Simple Test To Evaluate The $266 billion Stimulus

Yesterday, Prime Minister Narendra Modi delivered yet another surprise, this time pleasant, in his 8 p.m address to the nation. The workaholic PM, whose evening addresses to the nation have achieved somewhat of a legendary status ever since the first big one delivered demonetisation in 2016, delivered one of his most enigmatic speeches, staying away from specifics, except for the big number, Rs 20 trillion ($266 billion) of stimulus announcement, and a high stress on going in for self reliance. Even specifics on Lockdown 4.0 were left to another day, as the PM allowed the scale of the stimulus to sink in.

The 20 trillion rupee has surprised, even shocked many people. It’s clearly seen as a high, and brave move by a government, that, in recent times was seen as too caught up in everyday firefighting to be able to look at the big picture. Not any more, apparently. As attention shifts now to Finance Minister Nirmala Sitharaman who will announce the fine print, expectations will be very high from the power and renewable energy sector.  What should be encouraging is the specific mention the Prime Minister made of the International Solar Alliance (ISA) in his speech, India’s biggest global multilateral intervention in recent decades, for solar energy. That might explain the warm welcome it received from people with a high stake in the energy sector.

For the power sector, and by extension, the renewable energy sector, the test to see the intelligence, and credibility of the stimulus should be simple. A comprehensive plan to clean up India’s discom mess, and a special focus, backed by incentives, to push renewable energy options even further, including storage. If you fail to spot either, then we can safely ignore the stimulus as yet another money shifting exercise with little real impact on the long term economy. Importantly, the renewable sector in particular has been plagued by issues in 3 of the four key structural issues highlighted by the PM. Land, Liquidity and Laws.

Why are these two issues critical?

The discom mess, for its sheer size, impact on the economy, and the future of the country’s energy transition.

In 2019-20, estimates on discom losses have pegged the figure at Rs 30,000 crores. Lower power demand and logistical constraints in revenue collections due to the lockdown is seen to increase the financial losses of state-run power distribution companies (discoms) to Rs 50,000 crore in FY21, up 66% y-o-y, according to rating agency Icra.

These  losses could be even higher as in many cases like Tamil Nadu, state power regulators have either refused to hike power tariffs, or made inadequate hikes, increasing the difference between the cost of supply and revenue realised (ACS-ARR gap).

Linked to the discom losses is the need to pass the amendments to the Electricity Act , which we highlighted yesterday.

The discom losses also deserve the one time attention because they meet the requirement of a critical sector, with structural issues  that prevent long term resolution of its problems, a classic case for the PM’s promise to make structural changes that tackle vital issues of land, labour, liquidity and laws. The losses keep recurring because of the failure to settle the underlying issues, be it delivery of subsidies, metering of power consumption, or even a clear plan to exit coal/thermal.

Incentives for accelerating renewable energy adoption and growth, are equally important. With the industry making huge improvements in productivity, and  by extension, its competitiveness vis a vis fossil fuel (coal) and even gas based power supply, the case for renewables has never been stronger. In addition, the extra flexibility it offers in terms of distributed power supply, mini-grids for remote areas and a rapidly falling cost of storage means that the country finally has an opportunity to lay down the specifics of its ambitions 450GW goal for 2030 and the country’s future energy trajectory. Within those specifics will lie the future of manufacturing in India, making our air less polluted, keeping power costs on a leash rather than an unending cycle of escalation, and finally, the push that can make India a supplier of products and services in the sector.

"Want to be featured here or have news to share? Write to info[at]saurenergy.com
Prasanna Singh

Prasanna Singh

Prasanna has been a media professional for over 20 years. He is the Group Editor of Saur Energy International

      SUBSCRIBE NEWS LETTER
Scroll