'Fuel a big risk to Indian power sector'

Lack of fuel availability and weak finances of distribution utilities are crippling the growth of Indian power sector, according to a report by global accounting and consultancy firm Deloitte Touche Tohmatsu.

Coal linkages awarded to projects under construction had actually less reserves compared to estimates, increasing risk of inadequacies in supply, said the report “Empowering Ideas 2011- A Look at Ten of the Emerging Issues in the Power and Utilities Sector”.

 “Even if the plants begin to increasingly depend on imported coal, the increased cost may not always be a pass-through in tariffs determined through competitive bidding,” the study noted.

Weak finances of distribution utilities and the widening gap between their average rate and cost of supply are big risk factors. “Non-approval of expenses by state regulators due to non-achievement of efficiency targets and lack of investment by utilities due to poor financial health have become a vicious cycle,” the report stated. The issues, experts fear, could lead to a bailout of the power utilities by the government.

“At least a restructuring of finances is certainly round the corner. This will largely impact the Central government in particular and the state governments partly, as they have accumulated liabilities of payments,” said Shubhranshu Patnaik, senior director, Deloitte.

The report commended the progress in the wind and solar power sectors, but said the growth of small hydro projects, with installations of a mere 307 Mw in the last financial year, had been slow.

On nuclear energy, the report identified calls for enhanced safety standards in the post-Fukushima scenario another emerging issue globally. In the Indian context, the report noted the proposed 10,000-Mw Jaitapur and 6,000-Mw Bhavnagar plants were seeing increased opposition.

The report said while the growth of gas-fired generation had remained slow since 1990s, it was likely to continue on a solid growth trajectory through 2035. However, constraints in domestic gas availability and the relative cost of regassified-liquefied natural gas make it difficult for India to convert to gas at a faster pace.