Powering open access

The Power Ministry’s Green Open Access Rules (GOAR) introduced in June 2022, have created a buzz in the renewable energy sector.

With several States, including Karnataka, Haryana, Madhya Pradesh, Punjab, and West Bengal embracing the Green Open Access Regulations, these rules have the potential to bring competition and choice, fostering the necessary creative destruction essential for decarbonisation of the industrial sector.

However, implementing these Rules falls entirely on the State regulators and discoms, which can be daunting.

Centre’s stake

The Centre holds significant stakes in ensuring the financial viability of the power sector. By fostering a unified power market across the country, it achieves its goal of providing energy access to all citizens. However, regulations pertaining to retail tariffs, green tariffs, open access, among other important matters, are primarily governed by the States. This creates a complex dynamic between the central government and the states.

The Centre is directly affected by the financial health of power generators and discoms, as their debts, are often owed to central government-owned public sector banks. So the Centre bears the brunt of the collateral damage stemming from inefficient discoms.

The differing priorities of the States and the Centre has led to economic balkanisation, Centre-State contestation, resulting in welfare losses, and impediments to the pace of reforms.

Cross subsidies

Commercial and industrial (C&I) consumers continue to face higher electricity tariffs, on average 25 per cent higher than in other countries, due to inefficiencies and cross-subsidisation aimed at helping the poor and agricultural consumers. The best solution is to rationalise or even eliminate cross-subsidy surcharges. The GOAR provides a capping and long-term visibility on these surcharges, while completely removing the additional surcharge. The capping of cross-subsidy surcharge doesn’t address the root cause for prevalent higher cross-subsidy surcharges.

Excessively high surcharges discourage open access, while excessively low surcharges harm the financial health of discoms. Achieving economic viability for open access while simultaneously protecting discoms is not an easy solution.

Therefore, the second-best solution is to significantly simplify the consumer tariff schedules. The Tariff Policy of 2016 mandates the state electricity regulatory commissions to establish a roadmap for reducing cross-subsidies and bringing consumer tariffs within +/- 20 per cent of their average cost of supply of discoms. It also prohibits cross-subsidy surcharge from exceeding 20 per cent of the consumer tariffs.

For the effective implementation of GOAR, both provisions must be balanced and implemented simultaneously. Additionally, the cross-subsidy surcharge should be phased out gradually and replaced with a system of direct subsidies for agricultural and residential consumers. This would enable C&I consumers to access cheaper renewable energy, benefiting the Indian economy as a whole.

Furthermore, banking mechanisms play a crucial role in supporting the growth of open access transactions. It is crucial that States define banking charges appropriately to provide long-term certainty. Cost-reflective and equitable banking charges that do not burden discoms or discourage open access are necessary for sustained growth in the sector.

India’s clean energy transition is an imminent reality. The GOAR provides the creative destruction required to enhance competition, boost investor confidence, safeguard interests of small consumers and financial health of discoms. To ensure successful implementation, negotiations, consensus, and States’ consent are essential.

The writer is Managing Director, Apraava Energy and Co-Chair, CII National Committee on Power

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