Financial deficit in India’s power distribution sector increased in FY23, driven by significant increase in Power Purchase cost during the year.

ACS-ARR Gap, which captures the cash-adjusted gap per unit energy, deteriorated from 33 paise in FY22, to 55 paise in FY23. Coupled with 8% growth in gross input energy, the total financial losses in the sector widened from INR 44,000 Crore in FY22 to INR 79,000 Crore in FY23.

Increase in ACS-ARR gap in the sector While the sector faced sharp increase in Power purchase costs, it also witnessed higher subsidy disbursal from states and noticeable increase in Revenues.

Power purchase cost increased 24% from INR 636,000 Crore in FY22 to INR 791,000 Crore in FY23 reflecting a 71 paise increase on per unit energy basis. Other expenses also increased by INR 31,000 Crore during the same period, reflecting a 10 paise increase on per unit basis. Many utilities were able to pass through the increase in costs. Further, states governments maintained discipline in disbursing tariff subsidy (108% disbursal rate in FY23) and some states even provided grants for loss funding (INR 44,000 Crore in FY23). As a result, the revenue and subsidies increased by INR 151,000 Crore or 60 paise per unit in FY23.

25 of the 55 DISCOMS rated showed a 2 year improving trajectory despite the adversities of the current year. These DISCOMS together held 65% of the debt and 56% of the trade payables. This is a significant shift from the 10th Integrated Ratings, where only 15 utilities, holding 22 percent of sector’s payables and 29 percent of sector’s debt, showed an improving trajectory.

27 utilities exhibited a declining ACS-ARR trajectory in FY23 driven by the power purchase costs. These together held 32 percent of the sector’s debt and 43 percent of sector’s payables to GenCos & TransCos. In comparison, 21 utilities, together holding 61 percent of sector’s payables and 53 percent of sectors’ debt exhibited a declining trajectory in FY21 in the 10th Integrated Ratings.