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As India grapples with high fuel prices, a quiet crisis is brewing in the power sector. Electricity rates in the spot power market doubled in August from a year ago. Prices are up 70 percent from the peak summer month of May 2021. Volumes on the Indian Energy Exchange have also risen considerably this month, indicating higher purchases by power distribution companies (discoms), large buyers of electricity in India.
The government of India has stepped in to douse prices. Diversion of coal to power plants facing fuel constraints, raising nuclear power production and resumption of electricity generation at 6,000 megawatts of imported coal-based power plants are among the steps taken by the Ministry of Power. The measures have eased electricity rates in the day-ahead market a bit.
However, prices are still high. As we explained in our recent piece, the steep rise in international prices is having an inflationary effect. Also, the sharp recovery in demand from the second COVID-19 wave has caught most discoms and electricity producers off-guard.
Coal stocks at thermal power plants tracked by the Central Electricity Authority dropped from 22 days in August 2020 to levels that can last for just 7 days last Sunday.
Even so, the current spurt in prices cannot be explained by poor planning alone. Lack of transparent pricing is hurting the sector. Tata Power and Adani Power have reportedly curtailed production at their Mundra power plants due to non-revision of tariffs by the user states. Coal supply to certain power plants was curtailed either due to non-payment of dues (which can be traced to poor financial health of discoms) or lower than contracted shipments by Coal India, the largest producer of coal in India.
The government is trying to improve the scenario by cajoling the states to reduce discom losses, improve collection efficiency and encourage private sector participation in electricity distribution. Still, states have to do the heavy lifting and deep distribution reforms are vital to revive the sector.
Equity markets meanwhile are holding up at record highs. The NSE Nifty is up 0.29 percent at 12:05 pm. The gross domestic product (GDP) numbers for the March-June 2021 quarter will be released later in the day. Growth in the June quarter is expected to be optically high, thanks to a low base. But the numbers may not be that ebullient when compared to April-June 2019 quarter, as one of our pieces point out. You can read it here.
Investing insights from our research team:
This auto ancillary stock is worth adding to long-term portfolio
Page Industries: Can the innerwear giant re-rate from current levels?
Jyothy Labs: Can the underperformance end after 3 quarters of double-digit growth?
What else are we reading today?
Rising sugar prices should benefit mills, but policy changes could pose an obstacle
Economic Recovery Tracker | Unemployment rises, mobility improves
Fintechs threaten another banking bastion
COVID-19 – No ground for complacency
The e-Shram portal for unorganised workers is only a first step
Carbon offsets: a licence to pollute or a path to net-zero emissions? (Republished from the FT)
Picks from our technical analysts: TVS Motor, ICICI Bank, Axis Bank and ICICI Bank (These are published every trading day before markets open and can be read on the app)
R Sree RamMoneycontrol Pro
