Broke Indian discoms and GoI power production plans pose questions on Bhutan’s unlimited hydropower market pitch

Bhutanese officials say no reason to worry

The financial viability and sustainability of Bhutan’s 10,000 MW hydro project construction plans and other additional projects all depend on selling surplus power to India. The main economic argument  so far is that demand for power in the Indian market is close to being unlimited.

However, recent developments in the Indian power market pose questions on if the Indian market is really unlimited or even financially viable in the long term.

This paper, after accessing some power sector reports from India and separate Indian media reports has found that India currently has  surplus power in the power market. This is mainly due to the poor economic health of most of the state Discoms which as a result are unable to buy or afford the power produced by power producers in India.

In a statement to the Indian Parliament on 30th April 2015 the Indian Power Minister Piyush Goyal said that most parts of India has surplus power but that the states are not buying the power to supply to their residents.

Data from India’s energy trading market for April 2015 show that power suppliers had outstripped power buyers. One example is the National Thermal Power Corporation (NTPC) of India, which supplies about 20 percent of India’s power, was unable to sell 100 million units of electricity equivalent to a 3,500 MW thermal project.

Most of the power discoms of the 29 states and union territories of India are under huge losses. In 2012-2013 the total losses of these discoms were INR 251,000 crores or Nu 2,510 bn. These losses have increased significantly by 2015 making their financial health even worse. Rather than buy power they cannot afford, states have opted to go for load shedding and blackouts.

An average fall in the power tariff price in the power market has also shown the downward slide.

Another indicator is that in response to lack of buyers Indian power plants are only operating at around 65 percent of their capacity which is the lowest in the last 15 years.

The discoms are at a loss due to a poor capacity to collect dues, power theft, populist free power schemes by politicians, under pricing, inefficient systems and poor power distribution infrastructure.

To add to the uncertainty India has been rapidly improving its power generation capacity with many projects coming in line and many others getting the green signal.

India’s peak power demand in March, 2012 was 130,006 MW with a deficit of 15,773 MW or 12.1 percent deficit. Peak power demand is the demand of electricity at its highest.

However, total peak demand of India during December 2014 was 139,479 MW, of which 134,940 MW was met leaving a shortfall of 4,539 MW or just 3.3 percent deficit. This was mainly possible due to new projects coming online, better supply of coal and better national grid transmission connectivity.

If this was not enough India’s power minister reassuring foreign investors in February 2015 announced that India would become completely power surplus by 2019. He said that various existing power plants were being augmented to produce higher amount of electricity and he also said that around 40,000 MW of projects stuck at various levels were being given a policy push.

This is also in line with one of the main election pledges of the new Modi government to provide ‘24 by 7’ electricity. In an indication of sorts one of the main achievements of Narendra Modi as Chief Minister of Gujarat is that Gujarat is a power surplus state with 19,000 million units of power it does not need.

A reason for cheer for Bhutan is given the rapid pace of development and rural electrification schemes India’s power demand is expected to increase to 283,470 MW by 2021.

However, there are also huge investments planned and being made in the Indian Thermal (coal) power sector which takes a much shorter time to build, is considered more reliable and also cheaper. India is also on course to achieve 100,000 MW of power from solar power in the next five years. It has also recently concluded an important nuclear deal with the USA to ramp up electricity production through new nuclear plants.

The reason to worry for Bhutan is that if India ever achieves self sufficiency in power or is not in a condition to buy additional power then Bhutan’s entire hydro project sector could be hit either in the form of power not being needed or through lower tariff rates. The increasing projects costs beyond a certain point could also make Bhutanese power very expensive since tariff is calculated by taking into account the project cost.

Though both countries agreed to 10,000 MW by 2020 in 2008, the Indian government is already changing track and so far has agreed to only 6,476 MW by 2022 of which four projects will be joint venture projects.

One additional reason being given in India for the power surplus in the power market is an economic slowdown. This also raises questions for Bhutan’s power sector in the future if there is major slowdown in the Indian economy.

Bhutan has signed a Power Purchase Agreement (PPA) for Tala (1020 MW) and Chukha (336 MW) with the Power Trading Corporation (PTC) which is an Indian government owned company that trades in power. The PPA for Chukha ends on 31st March 2017 while that for Tala is a 35 year one starting from 2006.  PTC in turn sells the power to various Indian states mainly in Eastern India.

However, both the PPAs are not binding as there are exit clauses whereby any side can bring an end to the PPA.

It is expected that there will be similar PPAs signed for upcoming bilateral projects like Punatsangchu I (1200 MW), Punatsangchu II (1020 MW), Mangdechu (720 MW) and other potential ones.

For joint venture projects the Druk Green Power Corporation and its Indian partners will have to make their own arrangements like in the case of Dagachu.

However, Bhutanese and hydro project officials claim that there is no reason to worry as India would buy all the power Bhutan can supply.

Ministry of Economic Affairs Secretary Dasho Yeshi Wangdi said, “There is a protocol to the 2006 agreement whereby the Indian government has agreed to support Bhutan in building 10,000 MW and also buy all the surplus power.” He said the bilateral agreements on the individual projects also covered this area.

Dasho said that Indian state discoms going through economic troubles was a temporary phenomena and India still had an overall power shortage.

He also pointed out that the annual payments for export of power from PTC was not dependant on the internal market conditions of India.

The secretary said that India would always need additional power given the rate of its economic progress. He said that India’s power generation capacity would not exceed its demand.

The Managing Director of the Punatsangchu Hydroelectric Project Authority R.N Khazanchi also shared the same views.  He also said given the bilateral agreements Indian would purchase all surplus power from Bhutan.

The Druk Green Power Corporation Managing Director (DGPC), Dasho Chhewang Rinzin also said that he did not believe India would have excess energy as the demand would continue to grow even with broke discoms. He said that even if Bhutan’s produces all 10,000 MW and also 20,000 MW plus then it would still be a drop in the ocean. The MD pointed out that there would also be additional demand from other SAARC countries once the SAARC energy market is established.

In case Bhutan’s power is not needed it has the option of trying to use its power to power its own industry but here again the options are limited due to the seasonal nature of most of Bhutan’s hydro projects that depend on seasonal rainfalls for optimum power production. This would mean that industries would face problems in the winter.

Though the Indian market is huge and growing and will easily consume Bhutan’s power supply there are also some risks to Bhutan through domestic economic developments in India, additional capacity, new technologies, tariff competitiveness, diplomatic changes etc.

More market studies will also be required before committing more projects which have huge loan components.

Currently Bhutan’s sells power from Tala (1020 MW), Chukha (336 MW), Kurichu (60 MW) and Basochu (64 MW) along with the recent addition of Dagachu (126 MW) project. Bhutan in 2014 earned around Nu 10.63 bn in gross revenue before deducting the loans. After loan deduction it comes to around Nu 7 bn but even then was the highest revenue earner for the government. In 2015 mainly because of Dagachu this gross revenue is expected to go up to Nu 12 bn.

 

 

 

 

 

 

 

Check Also

The story of Khandu Wangmo’s victims in the sedition case

While the Thimphu District Court has convicted Khandu Wangmo for sedition, for planting seditious documents …

Leave a Reply

Your email address will not be published. Required fields are marked *