Evaluating the Financial Future of Electric Utilities Using Scenarios Analysis: The Case of Tamil Nadu
This paper analyzes the impact of multiple scenarios on the utility’s financials using Revenue and Tariff Analysis for Electric Utilities (RATE) model. The RATE modeling tool can provide actionable insights into the impact of various decisions on overall demand–supply scenarios, the energy balance, and revenue gaps. The model was customized for application to Tamil Nadu (TN) by World Resources Institute (WRI) in collaboration with Prayas (Energy Group) as a knowledge partner.
TN’s state-owned electric utility is struggling with financial distress, with an accumulated debt of ₹1,25,200 crores as of FY 2022-23. With more than half of the state’s installed capacity currently coming from renewable energy (RE) sources (20.1 GW) such as wind, solar, hydro, and biomass, accommodating the increasing RE penetration and simultaneously managing the existing assets requires state-level intervention, which entails further costs.
Scenario-based analysis becomes useful for assessing the impact of multiple decisions, such as RE penetration and C&I consumer sales migration, on the utility’s financial health. The RATE model helps understand the interconnected nature of decisions and their cumulative effects on consumer tariffs. It can be a useful tool for policymakers, the State Electricity Regulatory Commission (SERC), the state energy department, and Tamil Nadu Generation and Distribution Corporation (TANGEDCO).
Executive Summary:
TN’s electric utility, TANGEDCO, faces a high level of financial debt. This financial distress is adversely impacting the utility’s loan borrowing capability, which is in turn affecting grid infrastructure upgrades and timely payments to RE generators.
Although TN has about a tenth of India’s installed electricity generation capacity, the state plans to increase its generation capacity by 33 GW by 2030, almost doubling its financial year 2022–23 capacity. Over 80 percent of this new capacity is expected to be RE, in keeping with the state’s goal of generating half its power from RE sources by 2030. RATE is a multi-year spreadsheet-based scenario-building tool that will help the utility assess its finances under different scenarios.
This research paper examines the impacts of four specific scenarios:
- High Sales Migration (HSM): A potential decline in consumer energy sales due to sales migration.
- High Renewable Purchase Obligation (RPO): An increase in the share of RE sources in the state’s energy mix.
- Impact of Coal Cost Inflation (ICCI): Rise in fuel costs due to increased coal imports.
- New Green Policy Initiatives (NGPI): Implementation of TN’s new green policies covering electric vehicle and green tariffs.
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