Wednesday, May 4, 2016

Problem of plenty


"A day of worry is more exhausting than a week of work."
—John Lubbock (British, 1834-1913)
Word for the day
Woodnote (n)
A wild or natural musical tone, as that of a forest bird.
Malice towards none
Someone advised a PM aspirant that India has already had prime ministers from north, west and south. Only eastern India is so far unrepresented.
Did other leaders in eastern states also eavesdrop to the conversation?
First random thought this morning
Arvind Kejriwal led AAP has been successful in capturing some mind space of urban populace in the country, at public expense. In many areas, AAP might have an edge, whenever a need for an alternative to the established parties is felt by the citizens.
Paradoxically, the party has not been able to make much inroads in rural mind space where the quintessential Aam Aadmi lives.
Punjab villages, which are arguably most urbanized in the country, may show the way forward, to all - NDA, Congress, Socialists and of course AAP.

Problem of plenty

The summer this year is forecast to be longer and hotter than usual. Lower moisture level in soil due to two consecutive drought years and widespread forest fire in north Indian hills, is making the matter worse.
The consolation however is significantly better availability of electricity. Unlike past years, so far the availability of electricity is much better, both in terms of quality and quantity. This is despite much higher energy intensity of water, lower hydro power generation, and higher household demand due to hotter than usual weather.
The worst deficit states like Maharashtra, Tamil Nadu, UP & MP are reportedly not faring much better this year, despite high farm sector demand. As per government data FY16 saw power deficit shrinking to 2.1%, the lowest ever.
The improvement in power situation could be attributed to a variety of factors; for example-
(a)   Completion of many power projects adding to the generation capacity, including renewable projects.
(b)   Higher availability of fuel - cheaper global coal prices, higher local coal production, higher availability of LNG - augmenting plant load factor of conventional power producers.
(c)    Lower industrial demand due to - lower capacity utilization, better energy efficiency standards and cheaper diesel; and slow down in real estate sector growth.
(d)   Higher energy efficiency at household level due to rising use of LED based appliances and solar energy.
(e)    Improvement if health of SEBs, due to financial restructuring under UDAY scheme.
The market has rightly taken fancy for the electrical appliance manufacturers, assuming better power availability will boost demand for appliance. A visit to nearby electronics shop will confirm this.
While the consumers have a reason to be happy, investors, banks and entities engaged in power supply chain are a worried lot. Impending completion of 80GW of power generation capacity under construction is just adding to the jitters.
Coal India had to cut production and shipments of the fuel as sluggish demand caused stockpiles to swell.
Merchant power producers are struggling to sell their generation as despite peak summer, demand is benign and rates hovering around Rs2.7-2.9/kWh. A normal monsoon might further hit the demand.
While my bias against Coal India is well known, I am not too worried about the others. I believe this period of plenty is an opportunity to accumulate efficient power producers and distributors. In less than 5yrs, these could be easily expected to turn into a regular decent dividend paying utilities in true sense.

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