Financial health of Discoms- Maharashtra case study

Recently Niti Aayog released a new portal named as “India Energy Dashboards”. This is a great initiative by the government to put data access in the public domain. Though the present regulatory data related to Discoms is available for Maharashtra only. Also the data is available up to 2018. here are some of the observations from the available data.

1. The average cost of electricity supply is about Rs. 6.67/kWh, while Agriculture consumers are charged about Rs. 2.80/kWh, and the highest tariff is for the HT consumers (Commercial) at about Rs. 13.22/kWh. It is the commercial and INdustrial consumers who are subsidizing the domestic and agriculture consumers to a lower tariff. As this tariff increases further, there will be a shift of these C&I consumers towards open access or on-site solar power and will leave the Discom with the low-paying consumers i.e residential and agriculture consumers. This vicious cycle will further increase the electricity tariffs to the end consumers.
2. Over the last decade, the electricity tariffs are consciously increasing and it puts pressure on the Discoms to keep the tariffs low. While there is a shift towards low-cost electricity from solar and wind, however, it has not yet yielded to reduce the average cost of power supply from Discoms. It is the long-term PPAs by the Discoms with coal and gas power plants for which the Discoms has to pay the fixed charges even if they reduce the thermal power consumption. the high tariff is also due to the high T&D losses of the order of 24%, and Discom operational inefficiencies.
3. On an annual basis, the revenue requirement of Maharashtra Discom is about INR 68201 Cr., however, the revenue realization is about INR 61283 Cr. in the year 2018. Over the years the Discoms have become revenue deficit and leading to losses, and the cascading effect is non-payment of dues to the generators, affecting the quality of power supply. The cost of subsidized power is to be paid by the state government, however in a year the typical subsidy requirement is over INR 12000 Cr, and the subsidy paid is about INR 6000 Cr.  The revenue deficiency of Discoms makes the off-taker credibility in RED. The poor off-taker credit ratings make the financing cost higher and lead to a vicious cycle where the cost of power procurement also increases to Discoms.
4. Though in states such Maharashtra, there is an increasing share of renewables, which is cheaper as compared to conventional thermal electricity, the average cost of electricity supply is on an increasing path. The average cost of power supply is mainly dependent on two factors, which include the average cost of distribution (about Rs. 1.42/kWh) and the average cost of power procurement (about Rs. 3.79/kWh). The distribution losses account for about 24%, which can be brought down to about 10-12%. This requires investments in smart grids, implementation of underground distribution networks, pre-paid meters, and many other initiatives. In some of the private Discoms such as BSES Rajdhani, the distribution losses are less than 10%.
5. If the end consumers are to be provided reliable electricity, the Discoms needs to work on reducing the distribution losses, as well as improving the operational efficiencies. The privatization of Discoms is at a slow pace and it requires the political will to move aggressively to reduce the losses in these Discoms.