Delicensing Indian power distribution

August 11, 2021 5:20 AM

There are many potential benefits, but challenges, from strengthening of SERCs/CERC to negotiating subsidies, need to be addressed

The ‘Praapti’ portal shows overdues of renewable energy players from MP discoms to have spiralled to Rs 1,323 crore as of end-July from Rs 537 crore a year ago.The ‘Praapti’ portal shows overdues of renewable energy players from MP discoms to have spiralled to Rs 1,323 crore as of end-July from Rs 537 crore a year ago.

By Sambitosh Mohapatra

The Indian energy sector landscape has transformed significantly over the past few years with reforms around encouraging clean-generation technologies, improving utility-level operational excellence programmes, enhancing consumer access, etc. It is on the threshold of the next level of reforms that focus on providing consumer-choice, competition in the supply segment and unleashing enormous potential spin-offs while driving convergence across adjacent sectors.

Delicensing of the distribution business is proposed in the latest amendment to the Electricity Act, 2003. As per the proposed amendments, an entity has to register with the SERC for distribution of power in a particular state instead of obtaining a distribution licence. An entity must register with the CERC if it plans to distribute power in multiple states. The SERC/CERC would be required to process the application within 60 days of receipt. The eligibility criteria for qualification as a discom will be notified by the Centre separately. Delicensing would also enable competition in the retail-supply business, allowing multiple retailers to operate in the same geographical area by either utilising an existing network through non-discriminatory access or laying their own network. Consumers will be allowed to avail power supply from any discom registered to supply in their area.

This will enable access to service-based models and allow newer market entrants with capabilities in services or technology across value segments. With the Smart Meter National Programme (SMNP) already gathering pace, a preference for pay-per-use and leasing models is already being observed. Companies across mobility, digital media and entertainment, home automation, telecom and retail will explore sectoral play; along with other utility services players like gas and water.

The separation of roles in network management and consumer service would give rise to new institutions emerging across the adjacencies, and enhance accountability and transparency.

Poor financial health in distribution had impacted the sectoral value-chain and impacted the ability to innovate, attracting talent and limiting technology infusion. Reforms in the last leg will support sector investments and efficiencies around digitilisation, decarbonisation, and decentralisation.

The segregation will drive capital allocation more judiciously and efficiencies will positively influence retail tariffs. With the CERC already working on creating a more dynamic and efficient wholesale market mechanism, discoms would be able to source cheaper and more efficient power, thereby benefiting retail consumers. Innovations around convergence and bundling will impact capital allocation and the sharing of common costs. This can also aid the acceleration of other businesses that the utility might venture into like such as home automation, data monetisation, sale of energy-efficient appliances and energy-management services, amongst several others.

While the proposition has massive potential for improving the current state of energy distribution, critical considerations for laying down the operational framework would be imperative to ensure the following challenges are resolved: strengthening of the ERCs to enable them in setting correct baselines and monitoring the quality of supply and consumer services; developing an accountability framework delineating clear roles and responsibilities between various network, trading and retail-supply participants to minimise disputes; designing institutions, processes and systems under State Load Dispatch Centres to implement a transparent and fair energy-accounting system to account for all retail customers across voltage levels; strengthening tariff determination and management of cross-subsidy surcharges through the Universal Service Obligation (USO) fund; developing a mechanism for vetting and understanding customers and their profiles to address their specific needs, including subsidies; setting up a clear mechanism for consumer switching along with policy and regulatory oversight; developing a transparent mechanism for capturing, storing and sharing of customer and metering information amongst the multiple retail licences considering the concerns of customers around data privacy and usage; achieving a balance between the procurement of efficient and clean green power, and entering into long-term power purchase agreements (PPAs) with inefficient plants along with developing innovative solutions for repurposing older power plants; and forming guidelines for the development of ‘other business regulations’ to provide incentives for leveraging underlying assets and creating additional revenue streams for participants.

States would need lead-time to prepare for this significant change. India has always planned well but the pace of execution has often been delayed. We sincerely hope that’s not the case with the delicensing of power distribution.

Leader, ESG, energy utilities & resources, PwC India
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