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State Overview: Andhra Pradesh

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When Telangana state was carved out of the united Andhra Pradesh in 2014, the smaller residual state of Andhra Pradesh (AP) was formed. This note briefly captures the development of the electricity sector, with special focus on distribution, from FY15 to FY20 in AP. It provides a brief sector overview and covers trends in power purchase, electricity demand, quality of supply and distribution company finances, and major developments in regulatory oversight.

From a situation of power shortage, the sector has moved to high surplus. There has been significant increase in centralised wind and solar capacity and marginal increase in state owned thermal capacity. Contribution of power purchase from renewable sources went up from 3% in FY15 to 18% in FY20. Generation capacity addition was largely driven by the Power For All agreement of 2014. This had projected ambitions sector growth, but the actual demand has been much less. After the government change in 2019, there has been many changes in the sector policies. These include a reluctance to purchase power from existing projects, while pursuing market power purchase and addition of more centralised solar and pumped hydro capacity.

Demand growth has been significant in domestic and high-tension agriculture, but moderate in industrial and commercial categories. Agriculture consumption is more than one-fourth of the total and is free, leading to high state subsidy, especially to the Southern distribution company.  

There has been improvement in the quality of supply and service, especially in urban and semi-urban areas. Power supply to agriculture was increased from seven hours to nine hours in multiple spells to nine-hour day time supply. With support from Energy Efficiency Services Limited, AP implemented energy efficiency programs in LEDs, fans, street lights and agriculture pumpsets.  

Modest tariff revisions were carried out in the initial years, but not from 2019. Tariff orders were issued on time, but there has been delays in the true-up of supply as well as distribution business. Subsidy payments were below the committed amount from FY17 onwards and arrears from consumers are high. Power purchase cost from many renewable projects as well as state owned thermal projects are high. Due to all these reasons, financial losses of the distribution companies have been increasing over the years. This challenge is tough to overcome, considering the poor financial situation of the State, with high debts and many welfare programs.

 State Electricity Regulatory Commission was set up with full strength after state formation and continues so, even after the formation of a new Commission in 2019-20. Staff strength has been low, but the Commission managed to bring out tariff orders and few regulations. But it could not effectively prevent costly power purchase and increasing financial losses of the distribution companies.  

AP has recently carved out a third distribution company, set up a corporation to provide solar power for agriculture, set up a new institution - AP Judicial Preview - to approve all major infrastructure projects and announced the plan to implement Direct Benefit Transfer of subsidy to agriculture. These recent developments are not analysed in this note. The full overview can be read here.