Who will buy 88,000 MW of power?

India's power minister Sushilkumar Shinde announced that the country will add another 88,000 mw of power generation over the next five years. But the moot question is who is going to buy it?

A report in the Financial Express says that the state of Uttar Pradesh is unable to buy power due to lack of funds.

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The state has a generation capacity of 9,975 mw but is able to consume power of only 3,563 mw of capacity.

The state's electricity board has unpaid bills amounting to Rs 4,500 crore (Rs 45 billion), which are due for over 60 days.

The news report says that it does not have enough money to buy power from generating units.

UP is not the only state that is unable to purchase power despite having capacity to do so. Electricity boards across the country are sitting on Rs 2 lakh crore (Rs 2 trillion) of losses, thus limiting their ability to purchase power.

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The reason these distribution companies are not making profit is because they have to sell power at prices lower than their purchase price.

This is because residential and agriculture segments, the two main retail consumers of power, have been pampered by politicians who do not want to raise power tariffs to realistic levels on fears of a backlash.

Subsidised coal to power plants is the main reason that the sector is still functioning.

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Power generated through imported coal has few takers as has been the case with Reliance's Rosa plant in Uttar Pradesh.

The company sells power at Rs 5.34 per unit as it uses imported coal, while other players in the state, especially public sector ones are selling power at Rs 4 per unit.

The company has an installed capacity of 1200 mw but is generating only 546 mw.

A sudden surge in power demand during working hours is met by the state overdrawing power from neighbouring states which charge as much as Rs 6 per unit.

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On the other hand, the average rate charged to the consumer in UP is Rs 3.77 per unit. There's little doubt then that the state electricity board is sitting on Rs 13,000 crore (Rs 130 billion) of losses.

More than unavailability of coal which can be temporarily solved by importing coal, it is the flexibility to change tariffs that has resulted in the woes of the power sector.

With 37,000 mw of existing power capacity lying unutilised, the additional 88,000 mw announced by the minister will also go the same way unless the core issue of tariffs is resolved.