National Tariff Policy: It’s a holistic prescription

Published: February 3, 2016 12:14:03 AM

India is the 3rd largest producer of electricity in the world, yet India’s power supply remains inadequate and unreliable. The power sector is plagued with bottlenecks such as grid connectivity, financial distress of the Discoms, higher Transmission & Distribution losses. These bottlenecks call for structural reforms.

India is the 3rd largest producer of electricity in the world, yet India’s power supply remains inadequate and unreliable. The power sector is plagued with bottlenecks such as grid connectivity, financial distress of the Discoms, higher Transmission & Distribution losses. These bottlenecks call for structural reforms.

On 20th January 2016, the Union Cabinet approved comprehensive amendments in the Tariff Policy 2006. The intent of the amendments is to take a holistic view of the power sector, with a focus on the 4 E’s: Electricity for all, Efficiency to ensure affordable tariffs, Environment for a sustainable future, Ease of doing business to attract investments.

The policy aims to create a win-win situation for the consumer, producer and distributor. The intent is to make power available 24×7 to all consumers, while addressing other aspects including say, time-of-the-day, net-metering and tariff to mainstreaming of renewable energy projects.

As a relief to the discoms, the policy allows power producers to sell power that states or state utilities fail to procure through exchanges which would also help reduce the burden of distribution companies to pay fixed cost for failing to procure power.

The policy allows expansion of existing power projects to ensure optimum utilisation of land and other resources. This augurs well for capacity addition.

On Transmission, the aim is to expand capacity and enable easy access across the nation by developing projects through a competitive bidding process and is expected to reduce power tariff and project turnaround time.

One of the most innovative amendments is Smart metering, which is a well developed concept in Developed countries. Their use would permit consumers to save on electricity bills during non-peak hours. Smart metering would not only facilitate reduction in power losses and power theft but also allow improved energy accounting. However, to execute the policy effectively there is requirement of good data analytics.

To promote clean energy, the policy seeks to exempt solar and wind power from inter-state transmission charges and losses. It also proposes to make it mandatory for coal and lignite-based power plants to purchase renewable energy for their use. These policy initiatives towards compulsory generation and procurement clearly point to the focus on renewables. Thus, we can expect capacity addition, especially in solar energy. Other forms of renewable energy like tidal, biomass might also witness renewed focus.

The policy also mandates power distribution companies to compulsorily purchase the entire power produced from waste-to-energy plants in tandem with the Swachh Bharat Mission. However, considering the current situation of the discoms, the policy shall be difficult to implement unless the discoms are incentivised.

With an effort to boost investment the policy enables automatic pass-through of levies, duties and cess. This will tighten the discretion currently allowed to regulators while setting power tariffs. It is expected to protect the generators from losses due to market uncertainties and ensure a steady source of revenue. However, the actual passing on of increased costs or statutory levies or retail tariff revisions is a political call that States would have to take depending on their financial health and risk appetite.

The amendments in the Tariff Policy establish the Government’s long term motive of ensuring availability of power at a competitive rate, boosting investment and enabling transparency, consistency and predictability in regulatory approaches across jurisdictions.

Kalpana Jain:
The author is Senior Director with Deloitte Touche Tohmastu India LLP

 

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1France pitches for naval version of Rafale
2Modi government’s PAN rule on gold buying backfires, boosts unofficial gold trade
3RBI policy broadly in line with market expectation: Finance Ministry