Some Thoughts on the Peculiar Nature of Punjab’s Power Sector Problems

Akali Dal-BSP 'Pankhi' Protest Against Power Cuts in Punjab (courtesy: The Tribune)

It is election season in Punjab, and as usual, the power cuts stretching for hours in a day are becoming a source of much-heated debate among political parties. From claims of most expensive power to faulty agreements signed by previous governments and some innovative methods of protest, everything is up for grabs. However, lost in the din are several peculiarities and problems of the state’s ailing power sector that are not being resolved in the right manner.

Peculiar Demand Curve

Punjab has an extremely varied demand curve through the year. Power demand of the state in the summers is exactly double the winter’s power demand. As Bhupinder Singh and Malkit Singh pointed out in 2017:

One of the reasons for the low utilisation of state plants is the peculiar load curve of Punjab, which varies from 5000-6000 MW in the winter to 10000-11500 MW in the summer. The state plants come into operation only when power demand crosses 9000 MW which occurs only for small periods during the year. Due to lower demand of power in winter, fixed charges are paid to private plants for surrendered power.

The operation of pump sets for paddy farming in Punjab is the key driver in the spike of the power demand. This is clearly seen in peak demand data of the state as per the Load Generation Balance Reports for successive reports for the period 2014-15 to 2019-20 as well.

Source: Central Electricity Authority's Load Generation Balance Reports

Focus on Short Term Purchase of Power

Funnily though, one sees that the forecasted power demand in 2019-20 is significantly lower than the previous years. This is in complete contrast to the power purchased in the previous years and the anticipated power purchases that the state discom put forward in their petitions to the Punjab State Electricity Regulatory Commission for various years. The one odd drop is due to the COVID pandemic leading to significant drop of power demand as economic activity had come to a grinding halt for most parts of the year. Clearly, the government has been forecasting less power. This is against the standing generation capacity of over 5,000MW operational within the state.

Source: PSERC Tariff Orders

A major reason behind this is the fact that the state has been buying short term power from the energy exchange, as the spot price is clearly deemed cheaper than the generation costs. This often happens with respect to the variable cost. This is no surprise – the biggest component of variable cost is the fuel transportation cost for its power stations. Punjab, having no coal of its own locally, has even the closest coal mines at least 400 km for any power station, state owned or private.

Legacy PPAs Hurting State Financially

Another factor complicating the problem is the fixed cost component that has to be mandatorily paid to private power stations, which make up 3,083 MW of the state’s generation capacity today. Going by MERIT India site’s data on the fixed cost, even a 10% surrender against the private stations would imply a ₹1.06 crore per day being paid despite no power being purchased. However, it must be pointed out that this is not unique to Punjab – this happens to all states with long term power purchase agreements.

Table 1: Per Day Money Being Paid Out by Punjab in Different Scenarios Still Hurts the State

Power Station	10% surrender	20% surrender	30% surrender
Nabha	48,37,248	96,74,496	1,45,11,744
Talwandi Sabo	35,12,760	70,25,520	1,05,38,280
Goindwal	22,99,788	45,99,576	68,99,364
TOTAL FIXED COST	1,06,49,796	2,12,99,592	3,19,49,388

Again, another aspect interestingly is the average pooled power purchase cost (APPC) for non-RE based power generation for Punjab. This is higher than states like Odisha, Himachal Pradesh but significantly lower than Rajasthan and neighbouring Haryana and Delhi, contrary to what certain political parties vying for power in the state are claiming right now. However, the overall APPC increases when RE is included. A reason behind it is the compliance necessity forcing RE certificates to be purchased mandatorily to make for shortfall of direct renewable energy purchases along with legacy renewable tariffs before the deluge of low tariffs had come.

Source: Central Electricity Regulatory Commission

Source: CERC and PSERC

T&D Losses Remain Stubbornly in the 15% Range, Subsidy Hurts Government Coffers

Transmission and Distribution (T&D) Losses is funnily one area that never gets highlighted. As PSERC was informed in a tariff hearing session by the Confederation of Indian Industry (CII), T&D losses are high in west Punjab area at about 40% against 15% on an average at State level. This situation has persisted for two years in a row as per CII, as T&D losses remain high (50%-97%) in border and other areas, even as T&D losses refuse to come down further.

The problem with this number is that it becomes a moniker to hide theft of power and non-recovery of arrears and bills. Power theft remains a long standing problem in India as in Punjab, and barring one discom in Andhra Pradesh, hardly any discom brought it down to less than 10%. However, a big reason behind this also remains the non-implementation of the National Smart Meter Programme in the state to switch to smart pre-paid metering for the longest time, which could easily be the game changer. The government in fact is caught up in an imbroglio, having been accused of recovering ₹ 7, 000 from the consumers on the pretext of installing electricity smart meters by the state government.

Subsidy in the form of free power for agriculture and for ‘backward communities’ hurts the state finances substantially, a problem that has been festering for years now. Combined with ‘arrears’, Punjab’s power subsidy bill has steadily risen to ₹17,796 crore, which is more than 10% of Punjab’s total budget. As worked out by the PSERC, this comprises ₹6,735 crore for agriculture pump set consumers, ₹1,627 crore for scheduled caste, backward class and below poverty line domestic consumers and ₹2,266 crore for industrial consumers. Despite the seriousness of the issue though, The state government has told the Commission that it will continue to provide subsidy to industry, agriculture and domestic consumers amounting to ₹10,621 crore, and it has been provided for in the state budget. This comprises ₹7,180 crore for agriculture, ₹1,928 crore for industry and ₹1,513 crore for domestic consumers.

It is not that the state government has not acknowledged it. The first report prepared by the Group of Experts (GoE) that was set up to prepare a strategy for Punjab’s economic revival called free farm power a major burden on the state’s finances. The report had pointed out that subsidy amounts to almost 1.9 per cent of GSDP and limits Punjab’s ability to incur other expenditures essential for state’s development, reflected by the fact that total capital expenditure in the budget is only about 1.6 per cent of GSDP. Interestingly, the group recommended to the government to pursue a switch to solar pumps and Direct Benefit Transfer electricity scheme in over-exploited blocks. While the former exists in the form of PM-KUSUM, the latter is being worked out under the new Electricity Act, which is still in draft mode.

These are not problems necessarily restricted to Punjab alone. In some form or the other, the problems are visible across several states in India. However, the cocktail of issues is something that many other states are clearly headed towards right now, given the populist nature of politics surrounding electricity. Sadly, this is one problem that will perhaps persist despite the best of intentions of any government to resolve it for a plethora of reasons.