Streamlining distribution

| Updated on: Dec 19, 2021
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Delicensing of power distribution needs to be thought through carefully

The Draft Electricity Bill (Amendment) Bill, which proposes to delicence the power distribution business to promote competition, is fine in principle. Competition can enhance accountability and quality of supply to the consumer. But it needs to be done alongside an overhaul of the discoms’ business model, taking into account the emergence of open access. The point is to reform discom finances and align them to the emerging market realities so that all stakeholders benefit. The commercial consumer is already exercising a choice thanks to open access, which is estimated to account for about 12 per cent of power traded, a figure that is rising with the growth of power exchanges. But the point is that the domestic user also deserves affordable, quality power.

As Power Secretary Alok Kumar noted in a recent interview to this newspaper, the States are responsible for the mess in which discoms find themselves in, with their accumulated losses at about ₹4.5-lakh crore. They have put off tariff revisions and announced free power, never mind that farmers do not benefit when discoms are deprived of the resources to supply quality power. Two other factors have played havoc with discoms’ viability: the cost of power purchase, which accounts for over 70 per cent of discoms’ total cost, and the loss of big ticket commercial consumers with the advent of open access and cheap renewable power. The first has come into being essentially as a result of skewed PPAs for thermal projects that came up between 2007-17, as pointed out by Prayas Energy Group and other analysts, which overestimated capacity utilisation and underplayed fuel costs. The flight of large consumers has upset the cost-subsidisation model. Discoms should look at the possibility of exiting bleeding PPAs by paying liquidation charges. Open access consumers should be asked to lock in their exit options for at least a year, so that discoms and suppliers can plan ahead. Discoms need to get into the business of managing the wires. Grid integrity assumes great importance in the context of renewables. Rural subsidy costs will come down as utility solar plants come up at the sub-station level. State discoms can be the key supplier for domestic consumers, and for industrial and agriculture users who will require it as a back-up. In the absence of storage technologies, baseload thermal will be the mainstay.

While undertaking discom reforms, it is important to realise that transmission and USO issues in liberalising discoms’ operations can be managed. Going by the experience of Mumbai, which has two or more suppliers in the same supply areas, it is possible to roll out this model, with the consumer buying power from one company and sourcing it through the wires of another, paying the latter a cross-subsidy and wheeling charge. But unleashing the Mumbai model across the country will not be easy. Infra and maintenance costs need to be evenly shared. Yet, the future holds promise.

Published on December 19, 2021

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