Odisha's New Power Policy: A Game Changer for Investment Opportunities

Investment Surge Expected in Odisha's Power Sector

Bhubaneswar: Odisha is poised to attract investments ranging from Rs 25,000 to 30,000 crore in its power sector within the next six to twelve months. This follows the state's decision to align with the central government's policy regarding concessional power allocation from thermal power plants, as stated by an official from an industry body.

The state government plans to enforce a new requirement mandating that 5% of the capacity from newly established thermal power plants be supplied at variable charges. This marks a shift from the previous policy, which required developers to allocate 12-14% of their capacity at concessional rates for state consumption.

Industry leaders have indicated that the former policy had been a deterrent for new investments, despite Odisha's rich coal reserves and strategic advantages such as port access and a skilled workforce.

Inder Keshari, Director General of the Association of Power Producers, noted that while Odisha possesses all the necessary elements for power sector expansion, the previous higher mandatory allocation at variable costs had negatively impacted project feasibility.

Historically, Odisha maintained a 14% allocation norm established in 2008-09, which was later reduced to 12% for projects linked to local coal. In contrast, many states have adopted the Central Electricity Authority's recommendation for a 5% allocation framework.

Keshari emphasized that Odisha has the potential for power sector growth, citing its abundant raw materials, port facilities, a burgeoning economy, and skilled labor. However, the previous higher allocation requirements had discouraged developers. In comparison, Chhattisgarh's adoption of a 5% quota has led to investments exceeding Rs 1.5 lakh crore and an addition of over 16 GW in capacity, while Odisha has seen less than 4 GW of new capacity, resulting in investments below Rs 40,000 crore.

Interest in Odisha is now on the rise, with companies like Jindal Power, Vedanta, and Adani exploring investment opportunities in the state.

The divergence in policy has led investors to prefer neighboring Chhattisgarh, which has attracted substantial thermal power investments and significantly increased its capacity over the last decade. In contrast, Odisha's new capacity additions have been minimal.

Keshari pointed out that rising project costs have made the previous concessional supply obligations increasingly burdensome. The costs for thermal power projects have surged to approximately Rs 15 crore per MW from around Rs 5 crore, pushing fixed costs to nearly Rs 4 per unit from about Re 1.

Consequently, the tariff impact on other consumers due to concessional supply obligations has risen to about 55 paise per unit from roughly 14 paise, adversely affecting project economics.

Keshari argued that concerns regarding potential revenue losses for the state from reducing allocation requirements are largely theoretical, asserting that increased investment inflows would compensate for any lost revenue.

A typical 1,600 MW thermal project could generate around Rs 2,000 crore in state GST during its construction phase and approximately Rs 100 crore annually during its operational phase, in addition to creating numerous jobs.

India's power demand has surpassed 270 GW this month amid extreme heat, with late-night demand remaining high at 240-250 GW due to increased cooling needs.

Keshari noted that Odisha has also experienced power shortages in certain areas as infrastructure development has not kept pace with rising industrial and cooling demands, prompting the state to invoke the Essential Services Maintenance Act (ESMA) in parts of the sector.

The revised policy framework is anticipated to significantly enhance investor confidence and solidify Odisha's status as a prime destination for power investments.

Keshari elaborated on the financial implications of the previous policy, highlighting that thermal power project costs have escalated sharply, leading to increased fixed costs and a substantial tariff impact on consumers.

He addressed concerns about potential revenue loss due to the shift to a 5% allocation, describing such fears as largely unfounded.

Keshari emphasized that without investment, there is no revenue loss, and even with the transition to a 5% allocation, the state's actual receivables remain largely unchanged due to rising fixed costs.

He further underscored the broader economic advantages of the policy reform, stating that a typical 1,600 MW project could yield significant economic benefits during both construction and operational phases.

Keshari concluded by noting that the country is experiencing unprecedented power demand, exceeding 270 GW this month, with late-night demand remaining elevated due to extreme heat. Even a resource-rich state like Odisha has faced power outages in some regions as infrastructure and generation have not kept pace with the growing demand for cooling and industrial load, necessitating the invocation of ESMA.

This revised policy is expected to play a crucial role in attracting investments to Odisha's power sector, ensuring the state remains a leader in the industry in the future.