A solar disruptor for SEB revival plan

As solar gets cheaper and thermal power turns expensive, the viability for moving to their own renewable energy source gets better


Photo: Bloomberg
Photo: Bloomberg

The doubling of the coal cess may end up undermining the revival plan for state power distribution companies (discoms). That’s because the cess will further diminish the competitiveness of coal-based electricity at a time when renewable sources of power are getting cheaper.

To be sure, thermal tariff is still lower. NTPC Ltd’s average rate stood at Rs.3.21 per unit in the first nine months of this fiscal year, a good rupee less than the cheapest solar power rates. But when state discoms pass on the additional cess to end-consumers, the tariff would rise by 3-7% or 9-13 paise per unit, estimates Nomura.

Now, note that this will be added aggravation for industrial and commercial consumers. This set of consumers is already paying high tariffs—as much as three times the average NTPC rate and double the solar rates in some states.

As solar gets cheaper and thermal power turns expensive, the viability for moving to their own renewable energy source gets better. The decentralized nature of solar capacity—you can put panels on rooftops—and the government’s own push to step up renewable energy are key drivers.

As this shift gains momentum, it could spell trouble for state discoms. Industrial and commercial consumers bear the brunt of discom inefficiencies and subsidize agricultural consumers. According to Power Finance Corp. Ltd, industrial and non-domestic customers together consume a little less than 40% of electricity, but generate 55% of SEB (state electricity boards’) revenues.

“Once solar power storage becomes economical, it may see an accelerated adoption. Ind-Ra (India Ratings) believes this may disrupt the operations of the discoms as these industrial consumers are the highest tariff consumers which subsidize the retail tariffs,” India Ratings said in a note. “Once this cross subsidy decreases as industrial load reduces, the discoms would then opt to increase tariffs for retail consumers, at which point even the retail consumers may switch to rooftop solar power. This over a period of time could become a self-feeding loop.”

One of the large discom customers, Indian Railways, is already bypassing them by purchasing electricity directly from producers. The flexibility of solar (in terms of installation) can also drive other commercial and industrial consumers down a similar path.

Of course, the shift may not happen overnight and all industrial customers cannot afford to build solar capacities. But if the government continues to load thermal tariffs with taxes, the shift may gather pace.

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