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Problems of Power Sector in India

December 06, 2017 12:20 PM

Punjab News Express/Vinod Kumar Gupta
CHANDIGARH : There is a need for an introspection and course correction before taking up further amendments in the Electricity Act 2003. Electricity (Amendment) Bill 2014 which envisages segregation of carriage and content has far reaching implications not only for the industry, but also the consumer.

A misguided analogy is being made with consumer choice in mobile phones. Whereas the mobile tariff is based on cost to serve and the tariff is the same for all class of consumers but that is not applicable for the electricity supply industry. Also mobile is a wireless system, whereas electricity is a wired system.

The main justification for enacting Electricity Act 2003 Act was reduction of financial and line losses. The main purpose of the change in legislation was to privatize a public utility. This was done by unbundling of generation, transmission and distribution, that is, making them all separate entities. Even a decade after the Act coming into force the financial crisis has worsened. UDAY and the NPAs of Banks and financial institutions indicate the gravity and urgency of the financial crisis. There is nothing to indicate that change in legislation resulted in reduction of line losses. Line losses have reduced due to improvement in both technology and investment.

This present Electricity (Amendment) Bill further divides the unbundled electricity industry. The distribution sector is proposed to be split into wire and content. This means that like transmission, even distribution licensee will only deal with the physical flow of electricity and another organization – the supply licensee– will deal with the sale of electricity in an area.

The Electricity (Amendment) Bill recognizes the need for a Government licensee, so that the loss making sector of the supply industry can be served by the tax payer’s company, while the private licensees cream of the high paying sections. The burden of serving the unviable power purchase agreements (PPAs) would be the responsibility of the intermediary company, while exempting the private licensee. This would ensure that the intermediate company is born and survives as a sick unit.

Long-term "deemed generation" and / or “capacity charges” clauses incorporated in the PPAs not only for coal and gas-based private thermal power plants but also for private centralized solar power developers. The provision of fixed cost payment enforced by the power purchase agreements (PPAs) has proved not only very costly but also counter-productive. State after State are annually paying private independent power producers thousands of crore of rupees only as capacity charges, even when not a single unit is consumed by the state. There is a need to re-examine the PPA and ensure that such payments are not made.
Even the present open access has worsened the financial health of power companies and made it difficult for Discoms to serve the agricultural and domestic consumers. To overcome this, in any states, additional surcharge has been levied, making electricity more costly.
The creation of multiple companies in a State, has not improved the service, but instead it has added to the overhead costs and lack of clear policy for the States as a whole. Partial measures like UDAY only reduce the intensity of the financial and technical crisis but do not resolve it.
Experience has shown that as consequence of removal of approval by Central Electricity Authority (CEA) has resulted in unplanned growth and capacity addition, particularly the thermal capacity by the private sector has accentuated the already acute hydro-thermal mix of generation. This has a steep decline in the thermal PLF resulting in stressed assets. In addition, the State Electricity Boards have been forced to back down and even shut down their stations, just to provide load against load guarantees given in the PPAs through regressive deemed generation clauses thereby losing revenue.
There is poor progress in Hydro power. In the absence of adequate hydro, the thermal units would have to back down, which is detrimental to the longevity of the units as well as cost of generation. Hydro plays a vital role in balancing the load curve. On the other hand, solar and nuclear plants are "must run” stations.
Very large solar plants would require transmission lines and the investment on the line would have poor returns on investment since solar power is available only for 20 %, or at best 30% of time in a 24 hour cycle. The long term PPAs of high cost renewable power that do not reflect the current reduction in solar energy prices need to be reviewed.
At a time when even advanced developed countries are withdrawing from nuclear power, the government is pursuing a policy based on imported reactors and imported fuels threatening energy security and escalating the cost of nuclear electricity. Coal cannot and should not be written off as a vital source of primary energy for India.
State Governments’ autonomy is being eroded and the Constitutional provision of electricity being a concurrent subject is being subverted with systematic centralization. A point has already reached where the state can no longer bear the losses.

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