Top

India's Spot Power Tariffs Decline, Discom Finances Strained

Spot power tariffs drop to Rs 5/unit, discoms face challenges with high PPC and ACS-ARR gap, need reform measures

Chennai: Average spot power tariffs in the day-ahead market (DAM) of the Indian Energy Exchange (IEX) remained high at Rs. 5 per unit in 5M FY2025, though declining from the Rs. 5.4 per unit observed in 5M FY2024. Spot power tariffs are likely to moderate in FY2025 given the decline in open market coal prices, including imported coal, moderation in demand growth and rise in installed power generation capacity.

All-India electricity demand increased by 9.9 per cent in the first four months of FY2025 on a year-on-year basis, supported by a favourable base and healthy economic activity. While the demand growth moderated in July 2024 and turned negative in the first 27 days of August 2024 from the double-digit growth seen in the first two months, the full year demand growth is expected to remain healthy at 6-6.5 per cent in FY2025.

Meanwhile, coal imports by power utilities were up by 137 per cent in Q1 FY2025, mainly led by imported coal-based projects, amid the moderation in international coal prices. Higher imports were driven by the government’s directive to blend imported coal to the extent of 6 per cent for domestic coal-based projects and to run imported projects under Section 11. Imported coal accounted for 7.5 per cent of overall consumption by the power sector in FY2024 and is expected to remain 7-7.5 per cent in FY2025.

The power purchase cost (PPC) approved for FY2025 in the tariff orders is lower than the actual PPC for discoms in FY2023. The cost for FY2023 increased due to a higher dependence on costlier imported coal and a rise in short-term market tariffs. While coal prices have moderated from their peak in FY2023, short-term tariffs remain elevated, maintaining upward pressure on the PPC for discoms. Overall, the median 5-year CAGR for PPC in the key states was over 5 per cent, while the increase in tariffs was lower.

The gap between average cost of supply (ACS) and the average revenue realisation (ARR) per unit of power sold by the state owned discoms was high at 73 paise per unit in FY2023, with the gap being well above the national average in Uttar Pradesh, Maharashtra, Telangana and Tamil Nadu. The hike required to reduce this gap to zero varies from 12 to 25 per cent in these four states. Overall, the discom finances can be improved through a mix of measures such as graded tariff hikes, reduction in AT&C losses and optimisation of PPC. The timely implementation of reform measures is crucial for improving the financial performance of discoms.

( Source : Deccan Chronicle )
Next Story