Rewiring the National Electricity Policy

Richa Mishra | Updated on: May 28, 2021
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Generating competition among Gencos to ensure cheap power for consumers is laudable. But States need to be on board

Half-hearted reforms and half-baked responses don’t work, and who would know that better than Power Minister RK Singh, who has made ambitious attempts to overhaul the sector. But for any reforms in the power sector to work, it is important to ensure that States are on board.

Empowered with the existing Electricity Act 2003 that enables the Centre to review and revise the National Electricity Policy, Singh and his team have been working on the National Electricity Policy 2021.

The objectives of the Policy are clear — to promote clean and sustainable generation of electricity, development of adequate and efficient transmission system, revitalisation of distribution companies (Discoms), development of efficient electricity markets, supply of reliable and quality power of specified standards efficiently, move towards light touch regulation and promote local manufacturing in the generation, transmission and distribution segments of the power sector.

What is new here? Many of these objectives have been addressed or at least attempts have been made to address them over the years. In fact, the last National Electricity Policy 2005 also has similar objectives. But, Singh’s team believes, for over a decade now there has been no change in policy, while the sector itself has undergone a transition — particularly regarding green energy, so there is a need to revisit the policy and make enabling provisions.

Point well taken, but as Anil Razdan, former Power Secretary, puts it, “Before any Zero Emission/Carbon Neutral date is prescribed for the country, the following should be addressed: attainment of a minimum per capita energy consumption, an Investment plan with funding prescription at a designated lending rate, a skill development and employment plan for the work force till the age of 50, state wise, prescribed expenditure on research and development for the government and private sectors.”

“A comprehensive energy efficiency and conservation plan, consistent with the principal requirements of industry, building and construction, raw material and minerals extraction, climate control, and transportation sectors, is what is needed which is specific to the country’s need,” he added.

Basically a road map for the energy sector, which addresses also the issues of all stakeholders — the governments (Centre and States), producers, distributors as well as consumers, among others — and the investment plans should have the endorsement of the RBI, NITI Aayog and the Centre.

Arguably, yes, it will be an ideal situation.

According to the National Solar Energy Federation of India, “the National Electricity Policy should be treated mandatory among all the stockholders. If left to the States, there is a danger of non-compliance and may lead to the objectives of the policy remaining unfulfilled. Also the policy should include a section on green hydrogen.”

There also is a need for legal provisions and monetary measures to be made available to developers in the event of a unilateral re-opening of power purchase agreements by Discoms or off takers, according NSEFI. “On transmission policy there should be enough visibility in terms of planning and pricing of transmission for long-term,” it believes.

Promoting competition

A focus area for Singh has been making the electricity sector more accessible for the end consumer. A feature in the proposed National Electricity Policy, which is common to the 2005 policy, is open access in transmission to promote competition amongst the generating companies who now sell to different distribution licensees across the country. This is meant to lead to availability of cheaper power.

The Electricity Act mandates non-discriminatory open access in transmission from the very beginning. According to it, when open access to distribution networks is introduced by the respective State Commissions for enabling bulk consumers to buy directly from competing generators, competition in the market would increase the availability of cheaper and reliable power supply.

And another key provision of the Act on competition in distribution is the concept of multiple licensees in the same area of supply through their independent distribution systems. Here, the State governments have full flexibility in carving out distribution zones while restructuring government utilities.

But the concept of multiple licences has not really taken off, except in Mumbai. This is because, according to players, it involved lot of issues including wheeling charges, and acceptance by the State government.

Theoretically it sounds good but practically, it was not easy. Setting up of a parallel network is difficult. It also results in a turf war between players, leading to waste of resources. Distribution is one segment where everyone wants to have a monopoly in their areas. Then there are issues over cross subsidy. Cherry picking is not easy.

Also Somesh Kumar, Partner & Leader - Power & Utilities, EY, points out, “Having parallel network licenses will require separation of supply from network. This would have a big impact on the way distribution business is run today. Besides, being a natural monopoly, having multiple network licenses could also have several operational issues which are preventing States from moving ahead. This may be good for competition and end consumers as long as the overall costs do not go up and various operational issues are taken care of.”

Echoing similar thoughts Vipul Tuli, Chairman, FICCI Power Committee, said, “A few different factors support the introduction of retail delicensing today. First is the availability of sufficient power generation capacity. Introducing retail competition in an under-supplied market would not be prudent, but it could be possible in today's balanced supply-demand market. Second, the past few attempts at improving Discom performance have yielded limited results especially in terms of improving financial viability of Discoms, barring a few notable exceptions. This indicates the need for more competitive pressure to restore the financial health of the crucial distribution segment, especially in enabling arms-length tariff and commercial arrangements with State governments.”

“To ensure successful delicensing, rules for universal service obligations and non-discriminatory access to wires need to be very clear, and backed up by unbundling of wires from Discoms; these would need to be thoughtfully framed and enacted. Eventually consumers, incumbent Discoms and new private sector entrants would all benefit from clearer rules on cost-reflective tariff, and enforceable performance standards,” he added.

According to the Power Ministry, the idea behind putting out the draft National Electricity Policy 2021 was to generate a debate. The Ministry had extended the deadline for submissions of comments till May 25, but in likelihood it has been further extended given the pandemic situation. As the debate continues , the key player will be the States and how successful Singh and his team are in building a consensus.

Published on May 28, 2021

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