[Answered] The concept of a centralized electricity market sounds sensible in theory but is likely to be unworkable in practice. Discuss in the light of the One Nation, One Grid initiative.

Introduction: Contextual introduction.

Body: Explain some significance of One Nation, One Grid initiative.  Also write some issues.

Conclusion: Write a way forward.

The One Nation, One Grid initiative is based on the market-based economic dispatch (MBED) mechanism. It is part of the National Electricity Policy of 2021 which proposes to double the penetration of short-term power markets by 2023-24. Under this mechanism the power ministry is planning to set up a central scheduling and pooling system.

Significance:

  • This system will allocate power at a favourable price by prioritizing the least-cost and most efficient generators and removing more expensive ones.
  • This system will reduce consumers’ power-purchase cost initially by 5 percent and will help in the distribution of cheap power across the country.
  • This system will also replace the existing decentralised and voluntary system which operates through a network of load dispatch centres.
  • It will lead to a “uniform clearing price”. Sellers and buyers will be able to bid for the day ahead of the market leading to market clearing price. This in turn will help to generate savings for consumers.

Issues:

  • Generators use their capacity under long-term power-purchase agreements (PPAs) up to 25 years with state distribution companies (discoms) at negotiated prices. Therefore, it is unclear how MBED will work in these long-term PPAs in its “lowest-cost” pricing.
  • The inclination of states to offer power to politically sensitive groups below actual cost will impose burden on discoms. This has already made the financial conditions of discoms bad and their dues on states stand at Rs 1.3 trillion.
  • As per a recent study by the RBI, a bailout of discoms in 18 large states is likely to impose a burden equivalent to around 2.3 per cent of the GSDP of these states.
  • Regulatory issues in the eastern part of India have halted the progress of the project.
  • Small companieswere given the project they could not complete. The Petroleum and Natural Gas Regulatory Board (PNGRB) was also writing off the contracts and seek new bids.
  • The matter regarding various statutory approvals for laying natural gas pipelines is under the purview of the state governments or other central ministries.

Power lies in the concurrent list of the Constitution and centralising pricing and supply decisions can take away the autonomy of states. The ministry should evolve a project monitoring mechanism in which all stakeholders may be brought, and the project can be monitored and implemented in a time-bound manner.

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