The power sector regulator, Nepra has issued the much-awaited State of Industry Report 2024, which expectedly reads more like a sequel to the horror tale from a year or five ago. Just when one thought the state of affairs in the power sector – across verticals from generation to transmission and from planning to distribution – could not get any worse than 2023, FY24 made a new low. The gains over the course of 12 months are petty, the problems not so.
None of the problems have surfaced overnight – the report just quantifies the magnitude. The overinvestment in meeting peak demand capacity continues to haunt the sector’s economy. Against a maximum demand of 30,150 MW, the national grid could only serve a maximum load of 25,516 MW, that too, for a limited duration. The regulator has rightly flagged the excess generation capacity as a key contributor to high electricity costs and financial burden on the sector, as the imbalance between generation capacity and actual demand, and inadequate transmission and distribution capacity, keeps growing.
The mother of all ills remains the harrowing neglect of all discos and KE when it comes to handling the Aggregate Technical & Commercial (AT&C) losses. The AT&C losses worsened 100 basis points from a year ago in FY24 to 23.4 percent, staying close to the highest recorded losses in a decade. Inadequate billing collection mechanisms and widespread theft owing to governance failures often lead to excessive and indiscriminate load shedding. This has led to negative sales growth in times when excess capacity already inflates cost as it limits the utilization of surplus generation capacity.
The unreliability of the grid has also prompted a sizeable migration towards off-grid solutions, further impacting sales growth. The financial impact of AT&C’s losses runs close to a massive Rs1 trillion. Both, the T&D losses and recovery ratio have turned for the worse in FY24, despite countless donor-funded programs over the years to arrest the slide.
Skyrocketing consumer end tariffs at a time when solar power solutions are getting cheaper by the clock have also meant the use case for grid power has not been built positively. At 47 billion units consumed in FY24, domestic sector consumption is still lower than the Covid-hit FY20. Industrial grid power consumption at 22.5 billion units is lower than in FY18, whereas agriculture sector consumption 14 years ago was higher than in FY24. There is an element of organic decline in demand as a consequence of economic slowdown and inflated tariffs. This is also clearly a reflection of increased solarization, particularly in the last 12 to 18 months – metered or otherwise.
Electricity consumption per connection in the domestic sector at 1,479 units a year is the lowest since at least FY07. That for the industrial sector at 59,380 units a year is also the lowest (excluding FY20) since at least FY07. Plenty of factors could be at play here, but as average consumption per connection goes down, particularly in the domestic segment, there is an added burden on subsidy – as more consumers enter the lower consumption slabs.
Supplementary charges, not part of electricity cost, continue to be a big drag on the final consumer end bill and the regulator has touched upon the topic in some detail for the first time. As the growth of electricity sales is linked directly to the cost, not addressing supplementary charges which range from surcharges and duties to income tax and further tax – will never lead to optimal utilization of grid generation capacity.
Problems are aplenty with the power sector. Price adjustment alone never has and never will fix it. The authorities must come up with a plan to increase electricity consumption – more so at the industrial and commercial levels. The menace of AT&C losses needs to be tackled at war footing. Privatization cannot happen sooner.
The report merits more commentary on the technical aspects and recommendations. More on which, later.
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