IT may feel good to learn that the country will soon have excess electricity generation capacity, beyond what is needed, but it is worth bearing in mind that this comes at a price. Whether or not the power from a plant is being utilised, the payments still need to be made. It is, therefore, critical when engaged in a power-sector expansion plan that accurate demand forecasts are drawn up, and that the government contracts only as much power as will be required, with perhaps a small margin to be held in reserve. The prime minister has now taken note of the fact that the projected surplus in the next four months will range between 2,400 MW and 3,400 MW, and has ordered that some of the less efficient plants that are of older design be shut down during this time.

But if we already have a surplus, why are more power plants continuing to be commissioned? Earlier this year, this debate took place within the water and power ministry, which has since been renamed the energy ministry. Two senior officials, the then water and power secretary and managing director of the National Transmission and Despatch Company, had both warned about the dangers of contracting overcapacity, because the capacity payments will place a massive burden on government finances. Both were removed from their position, and a new argument was floated that the power demand projections under which the capacity expansion plan has been drawn up did not take ‘latent demand’ into consideration. Both these officers had argued for a cap on contracting more generation capacity beyond what was already in the pipeline, and as a result, had run afoul of powerful vested interests whose investment plans were adversely impacted by the cap. The vested interests won, and the officials lost. But now the situation we were warned about is coming to pass, and from here onwards the amount that the government has to pay as capacity charges will rise very sharply. There are no reliable estimates put out by the government on the amounts that will have to be paid, but we do know that it will be in tens of billions of rupees per annum. Excess capacity in the power sector is not something to be proud of. It is a sign of poor planning, or worse still, of caving in to vested interests.

Published in Dawn, October 30th, 2017

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