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Discoms in India face higher penalty for overdrawing

According to reports, the government proposes to increase penalties on distribution utilities for overdrawing electricity from the grid, a move that is expected to raise demand and prices in the short-term open market and help merchant power plants run by private firms such as Adani Power, Lanco and Monnet Power.

The move would also prevent grid collapse and and force utilities to shed load. While power-selling companies have hailed the proposal, cash-strapped distribution utilities have questioned the timing of the move as their losses have reached Rs 75,000 crore.

Power prices in the short-term market are closely linked to penalties imposed by the regulator. Distribution utilities prefer purchasing from the open market if charges for overdrawing from grid are high.

Power sector regulator Central Electricity Regulatory Commission (CERC) has proposed to levy penalties on distribution utilities if grid frequency falls below 49.5 Hz against the earlier limit of 49.2 Hz. Grid frequency falls when demand is greater than generation.

The penalties, called unscheduled interchange rates, are levied on state distribution utilities when they do not draw power as per agreed schedules. The power generators are also charged when they inject less or more power than their declared schedules.

“The commission is of the view that the utilities should plan for procurement of power on long-term, medium-term and short-term basis instead of resorting to overdrawal through unscheduled interchange,” CERC said in its draft regulations.

A Maharashtra energy department official said the proposal was untimely as most distribution utilities are facing a severe cash crunch. An official in Andhra Pradesh Transmission Corporation said the utility was not in favour of the proposal that would force it to resort to load shedding as power would become costly.

Mumbai-based consultant D Radhakrishna said if the proposal comes into effect, power surplus states may resort to selling power at much higher rates in short-term markets. “Financial condition of state utilities is unstable with more than Rs 80,000 outstanding debt. The proposed regulations would jeopardize their financial health while short-term players like Adanis and Jindal Power will make good fortune,” he said.

An Adani Power official, however, said the move was required as margins of most power generators have decreased due to increase in coal and gas prices.

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