Power deficit to surge to 16% in 2012: Icra

Average merchant tariff to remain between Rs 4-6/kwh (kilo watt hour)

Peak power deficit in India would be 16 per cent by the end of eleventh plan period in 2012 as against 12 per cent in financial year 2009, according to estimates by rating agency Icra.

Despite the large capacity additions being pla-nned, including in the private sector, the power de-ficit situation may continue across the country in the medium-term, while independent power producers (IPPs) ar-e exposed to a slew of challenges, it said in a report.

The domestic power industry has witnessed large supply-demand mismatches with the peak power deficit levels ranging from 12 to 16 per cent in the last five years on account of demand growth and shortfall in capacity additions.

According to the report, energy deficits have resulted in a significant upward movement in average price of traded power, which increased from around Rs 2.32 per unit in FY05 to Rs 7.31unit in FY09.

Despite power deficits, Icra expects average merchant tariff to remain between Rs 4-6/kwh (kilo watt hour) in the medium-term driven by high level of regulatory watch.

“The sustainability of these merchant tariffs in the long-term would depend upon the extent of power deficit levels, the ability and willingness of state utilities to off take the higher cost power at times of peak deficit and the level of regulatory intervention in the future,” it added.

The demand-supply mismatch and favorable regulatory environment ha-ve led to the emergence of IPPS. However, despite a positive demand outlook they face a lot of challenges including management of cost and managing shortfall in domestic supply of coal.

“As large numbers of ongoing projects are essentially designed for use of domestic coal, any shortfall in domestic coal availability will affect power generation from these stations, as there are limitations over the use of imported coal in the case of such thermal stations,” it added.

The report also said they need to cope up with funding risks, given that sourcing of long-term funding at competitive rates in markets remains a challenge.