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The Price of Plenty: Insights from 'surplus' power in Indian States

Author(s): Ann Josey, Manabika Mandal, Shantanu Dixit Publication Date: June, 2017

With significant capacity addition in the past decade, many states in India have transitioned from having chronic power shortages to having sustained power surplus. The growing volume of surplus capacity in various states is a matter of concern as it implies rising fixed-cost payments for the non-requisitioned or backed down power. This scenario may continue for a few more years with less than anticipated growth in demand, significant capacity in the pipeline, the decreasing costs and increasing addition of renewable capacity, as well as migration of DISCOM consumers due to increased open access and captive options. In this context, the report traces the status of surplus power at the state level and capacity addition planning across states. This is to understand causes for such surplus capacity and various efforts to manage the situation. The analysis also presents suggestions for a way forward to prevent such a predicament in the future. The report covers insights from states such as Madhya Pradesh, Gujarat, Punjab, Haryana, Rajasthan, Maharashtra, Andhra Pradesh and Telangana. The study shows that with the given capacity addition planned, DISCOMs will be facing sustained surplus and backing down in foreseeable future.

For over two decades, the sector has been struggling to address the two crucial issues of excessive transmission and distribution losses (including commercial losses) and excessive cross-subsidy in tariffs. This has severely affected financial viability of the entire sector. Unless urgent attention is given to the management of surplus power and more importantly, preventing build-up of more surplus capacity, this would become an equally significant challenge to the financial viability of the sector. The issue of surplus capacity would be more difficult to address as it involves huge capital investments, lock-in of scarce resources and long term legal contracts, often with private sector developers.

In the same context, two articles were published in The one published on 31st May 2017, discusses the financial impact of surplus power and the other, published on 2nd June 2017, discusses capacity addition in the context of surplus power.

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