The lack of overall demand in the economy is putting a lot of financial stress on India’s power sector. The electricity generating companies are struggling to sell power even at Rs 2 per unit. With industrial demand collapsing, electricity prices have crashed down to below Rs 2/unit in spot market. The industrial segment consumes much of the total electricity produced in the country. India’s enhanced coal production has helped India to generate (about 10%) more electricity this year as compared to the previous year but such achievement is proving to be a big discouragement for power producers. Many fear that if the sluggish demand condition persists for long, it may discourage further investments into India’s power generating capacities. It seems that there is no “market demand” for electricity even at such low rates, though there is a desperate need of electricity in India with about 400 million Indians yet to have their first taste of it.
“It probably means that we have created excess power generating capacities in the country that currently looks unviable due to lower realizations,” says a New Delhi-based energy expert. It took India about 60 years (after independence) to install about 150 GW of power generating capacity, but only another six years to add the next 150 GW, with private sector playing a major role in such rapid expansion. About 10 years ago everyone thought that electricity would be purchased at any price in India. Especially the private players anticipated a huge lucrative demand “which is proving to be untrue now.” Currently, India has about 300 GW of installed power generating capacity much of which (about 65%) is coal-based. About half of India’s installed capacity is being currently used although a respectable rate should have been over 65%.
In a way, the lower electricity prices favour consumers but the economy seems to be losing a good amount of capital that had undergone to install the power generating capacities. The ongoing pain of power producers is likely to continue till enough demand for power appears, a hope that every stakeholder is nurturing these days. In the meantime, the lower electricity rates have given a golden opportunity to states to take power to un-electrified homes. But states may not embark upon such social objective given the un-viability (high transmission cost) involved in such charities. Incurring an additional loss on account of this objective would further bleed the State Electricity Boards (SEBs) which are already under debt.