The Electricity Act 2003 has given bulk power consumers the freedom to switch from the local distribution licensee to any other competing supplier. Such customers are called open access customers. Open access is an important framework that seeks to promote competition in the power market. However, implementation of these provisions remains tardy.
The regulations on open access in inter-state transmission, together with the regulations on inter-state trading, is issued by the Central Electricity Regulatory Commission. The responsibility for introducing open access at the distribution level rests with the State Electricity Regulatory Commissions. Open access in inter-state transmission is fully operational. Open access transactions at inter-state transmissions have increased from 778 in 2004-05 to 5,933 in 2006-07. The number rose to 9,560 in 2007-08 and 9,347 in 2008-09. To date, applications seeking open access for over 17,000 MW have been submitted, but implementation has been as low as 1,600 MW. That, too, largely for captive power, according to data from the Central Electricity Regulatory Commission.
The best system would be one in which the consumer has a choice that comes out of competition. Establishment of rule-based markets, actively monitored by regulators, will give acceptable results for consumers and investors alike. Competition and markets do not have to wait for shortages in supplies to be overcome. Trading is a bridge even in shortage situations and regulators can rightly be expected to look after the interests of the less powerful.
However, lessons from around the would indicate that adequate availability of power, its unrestricted flow across geographical boundaries, strong commercial mechanism that determine market operations and the paying ability of consumers are vital elements of a sustainable competitive market.
Rules and regulations are to be formulated for inter-state, inter-regional and international transactions, with the rules having built-in relaxations that encourage trading and makes transfer of power easier. Streamlining the levy of transmission charges, wheeling charges and losses on power to be traded are important, otherwise trading will not remain competitive. Incidental use of the transmission system has to be priced on incremental cost basis. Transmission losses should also be charged on actual, rather than on a normative basis.
There is an immediate need for strengthening the upstream and downstream transmission networks to better utilise the existing inter-regional transmission capacity. Also, better reactive power management would lead to significant additions to existing transmission capacity utilisation.
Bottled-up capacities of the independent power producers and captive generators as well as underutilised capacities of utilities need to be tapped urgently through a more commercial approach. Trading of such capacities would mean availability of extra energy at the variable cost, thus bringing down the average cost of power for both bulk and ordinary consumers.
India is already on its way to establishing a competitive power market. This requires considerable and continuous efforts, starting from strengthening of inter-regional power transmission links, open access to transmission and later to distribution links, releasing the underutilised captive capacities, to the designing of an effective market mechanism suited to the country’s needs.
The author is former dean, Management Development Institute, Gurgaon