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India’s light bulb moment: Not using this crisis for meaningful energy sector reform would be a waste
What has happened? The proposed Electricity Amendment Bill, 2020 is an ambitious step towards solving the problem of India’s power sector. Therefore, the crisis like COVID-19 shall be used as an opportunity for meaningful energy sector reforms.
India’s power sector has been facing a huge financial crisis. India’s Power Distribution Sector needs further reform, as power distribution sector is the weakest link in the entire value chain of the Indian power sector. The precarious financial health of discoms coupled with lack of competition is undermining India’s power distribution and generation sectors and hindering much needed new renewable energy investment.
This brings us to the question of considering the event of 9-minute lights-off on April 5 as an opportunity to take a step back and to address key issues of power sector and plan for a more sustainable future. Therefore, in this article we will discuss the following:
- What are the key issues in India’s power sector?
- What is Electricity Amendment Bill, 2020?
- What are the issues in the bill?
- Way Forward
What are the key issues in India’s power sector?
- India is committed to have 175GW of renewable energy (RE) generation by 2022 keeping with climate change goals and energy security. For this, a market-based, automatic mechanism for integration of infirm renewable power into the grid is non-negotiable.
- Frequency and voltage are two important parameters that ensure stable operation of the power grid. Currently, majority of RE systems do not participate in system frequency and voltage regulation functions. This is mainly due to the facts that RE in general is highly intermittent and fluctuating.
- The standard practice generally followed with renewable resources is to disconnect them during contingencies and reconnect when normalcy is restored. This is acceptable as long as RE share is low. However, with the increasing share of RE, they must also contribute to frequency and voltage regulations exactly like traditional units.
- The past decade has seen a steady decline in energy generation from fossil fuels—plant load factors for the 2019-20 period are at 56%, down from 78% a decade ago. Hence, there are many idle, old, and inefficient coal plants. Many of these plants were to install air pollution equipment, as part of the country’s commitment to COP21
- The plan was to retrofit 440 power units aggregating to 166.5GW with flue gas desulphurization (FGD) systems by December 2022, which is way behind schedule. For example, only two out of 33 plants in the highly-polluted NCR have met their FGD targets.
- High industrial power tariffs in India. Industrial power in Vietnam is, for example, 40% cheaper than in India; this is the case across ASEAN.
- Lowering industrial power tariff is an opportunity for ‘Make in India’ to bring in fresh Covid-influenced industrial investment from Korea and Japan, which are diversifying away from China.
- The financial health of the distribution companies (Discoms) is not good. Discoms now owe over Rs 8.8 billion to generators. The current industrial lockdown has hit finances even harder with discoms left catering to low-paying households and loss-making agriculture.
What is Electricity Amendment Bill, 2020?
- Supply of quality power at affordable prices is essential for sustained growth of the economy of the country. For further development of the power sector, Ministry of Power has issued draft proposal for amendment of Electricity Act, 2003 in the form of draft Electricity Act (Amendment) Bill, 2020 on 17th April 2020.
- Major amendments proposed in the Electricity Act are as follows:
- Viability of Electricity Distribution companies (Discoms):
- Cost reflective Tariff: To eliminate the tendency of some Commissions to provide for regulatory assets, it is being provided that the Commissions shall determine tariffs that are reflective of cost so as to enable Discoms to recover their costs.
- Direct Benefit Transfer: It is proposed that tariff be determined by Commissions without taking into account the subsidy, which will be given directly by the government to the consumers.
- Sanctity of Contracts:
- Establishment of Electricity Contract Enforcement Authority (ECEA): A Central Enforcement Authority headed by a retired Judge of the High Court is proposed to be set-up with powers of the Civil Court to enforce performance of contracts related to purchase or sale or transmission of power between a generating, distribution or transmission companies.
- Establishment of adequate Payment Security Mechanism for scheduling of electricity – It is proposed to empower Load Dispatch Centers to oversee the establishment of adequate payment security mechanism before scheduling dispatch of electricity, as per contracts.
- Strengthening the regulatory regime:
- Strengthening of the Appellate Tribunal (APTEL): It is proposed to increase the strength of APTEL to seven apart from the Chairperson so that multiple benches can be set-up to facilitate quick disposal of cases. It is also proposed to further empower the APTEL to enforce its decisions. APTEL is proposed to have the powers of a High Court to deal with willful disobedience of persons and entities under the Contempt of Courts Act, 1971.
- Doing away with multiple Selection Committees: It is proposed to have one Selection Committee for selection of Chairpersons and Members of the Central and State Commissions and uniform qualifications for appointments of Chairperson and Members of Central and State Electricity Regulatory Commissions.
- Penalties: In order to ensure compliance of the provisions of the Electricity Act and orders of the Commission, section 142 and section 146 of the Electricity Act are proposed to be amended to provide for higher penalties.
- Renewable and Hydro Energy:
- National Renewable Energy Policy: It is proposed to provide for a policy document for the development and promotion of generation of electricity from renewable sources of energy.
- It is also proposed that a minimum percentage of purchase of electricity from hydro sources of energy is to be specified by the Commissions.
- Penalties: It is being further proposed to levy penalties for non-fulfillment of obligation to buy electricity from renewable and/or hydro sources of energy.
- Cross border trade in Electricity: Provisions have been added to facilitate and develop trade in electricity with other countries.
- Franchisees and Distribution sub licensees: Many States Distribution Companies have been assigning the task of distribution of electricity in a particular area or city to Franchisees / Sub-Distribution Licensees. However, there was a lack of clarity regarding the legal provisions related to this. It is proposed to provide that the Distribution Companies, if they so desire, may engage Franchisees or Sub-Distribution Licensees to distribute electricity on its behalf in a particular area within its area of supply, however, it will be the DISCOM which shall be the licensee, and therefore, ultimately responsible for ensuring quality distribution of electricity in its area of supply.
What are the issues in the bill?
- All India Power Engineer’s Federation (AIPEF) condemns the bill mainly due to the following reasons.
- The draft bill defined distribution sub-licensee as a person recognized as such and authorized by the distribution licensee to distribute electricity on its behalf in a particular area within its area of supply, with the permission of the appropriate state commission.
- The government was pushing for privatization, with this draft bill aimed in the same direction.
- It is, however, established that the franchisee model has not worked in India so far, according to experts.
- The government tried its hand in several states, with a majority of such experiments failing. The cities where the government tried to establish a franchisee model included Bhiwandi, Nagpur and Sagar among many others.
- The removal of subsidies and cross-subsidies was another big concern, as the draft bill said consumers will not get subsidized electricity.
- There are two concerns with the Centre’s move to allow for a transfer of subsidies through DBT. Farmers will have to pay first from their own pocket, after which they will get subsidies. But, the country’s farmers are not in a position to pay Rs 4,000-5,000 in advance and wait for the transfer from their government later.
- The franchisee will cut off the connection of the consumer if subsidy is not paid on time, with the burden of arranging for a large sum going to the consumer. The consumer will have to approach the franchisee again to restart the connection if the connection is cut off, resulting in unprecedented chaos.
- The other issue is increasing centralized control through the formation of the ECEA, with states bearing the burden and also the regulators will also be appointed by a central committee. The ECEA will dis-empower not only regulatory commissions in the states, but also people who will fight legal battles
The key issues prevailing in the Indian Power Sector can be solved through measures like:
- The 9-minute event demonstrated the technical capacity for managing grid flexibility. But, one must also remember that this was a planned event—grids had time to slowly back down supply. The ability to manage power spikes associated with the 175GW of RE can be augmented with the use of Li-ion battery storage. Approximately 25MW of such is needed per 1,000MW of capacity generated in each grid.
- The old and polluting thermal plants could be restructured and shut down, based on their generation costs, remaining plant life, and the economics of installing FGDs. This will increase the Plant load factor of larger, newer, more efficient thermal plants, including those of NTPC, and also help mitigate the country’s now permanent problems with air pollution.
- India must lower industrial power tariffs to meet the competition and to attract investments from other countries.Lowering industrial tariffs obliges the unraveling of the cross-subsidy regime. The key issue of agricultural tariffs needs a permanent solution. The political consensus seems to be veering towards a DBT subsidy and freeing up all tariffs thereafter, with no scope for unfunded subsidies.
While the provisions of the Amendment are of a permanent nature, with long term planning and large-scale impact, it will be interesting to see the strategy of the Ministry of Power in terms of implementation of the new regime.
It is said that India reforms only when there is a crisis. At present, we have a monster of a crisis and to not use this crisis for meaningful reform would be a waste of talent, leadership, and this rare light-bulb moment at every level. The power sector needs immediate attention before the country becomes “powerless”.
Source: Financial Express