India faces rising power prices

• 11 years ago (2012-10-13)
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Indian domestic power producers are facing rising cost of fuel and finance, which has pushed up the cost of generation by as much as 50 per cent over last two years.

NTPC, the country's largest power producer, says the cost of generating 1 MWh have gone up by 20 per cent between 2010-11 and 2011-12. The rise has proved to be even steeper in the private sector, with increases of over 50 per cent for some generators.

Producers blame regulatory delay in approving new coal mining, which pushes them towards costly imports, for causing the increases.

"Costs have gone up by over 50 per cent. In the last two-three years, regulatory delay in domestic coalmining approvals has meant that coal is being procured from the market at higher costs," said KVB Reddy, executive director of Essar Power.

Two-thirds of the power generated in India is coal-fired, and despite having one of the largest global coal reserves India has had chronic undersupply problems with state miner Coal India, forcing power companies to buy expensive imports. Experts claim prolonged fuel shortage could cripple power generators whose tariffs are based on competitive bidding.

Rising interest rates and the depreciation of the Rupee are also factors contributing to rising generation costs, meaning the combined impact is a 25-30 per cent increase in unit costs.

While raising consumer tariffs could be a way out for power generators and distribution companies, utilities find this an awkward proposition in a country where small changes in the price of power is a politically sensitive issue.

The Delhi government has recently allowed distribution companies to increase tariffs by up to 24 per cent.

Delhi is among 23 states that have filed petitions seeking revision in power tariffs. An analysis of the tariff petitions shows that power rates are expected to rise by 20 per cent across the country.