The all-important legislative measure that can strengthen the sector is the Electricity (Amendment) Bill.
By Vipul Tuli
India is the world’s third-largest electricity consumer. National power demand has already set new records twice this year, even crossing 200,000MW mark. Consumption is gaining momentum, necessitating massive investment in generation, storage, transmission, and distribution—an estimated Rs 34 lakh crore over the next 10 years.
But this investment will need to materialise in a never-before world. Renewables, with their intermittency, are already ~10% of India’s electricity supply, and will grow towards 15-20%. For renewables to thrive, conventional generation, no longer a magnet for capital, will also need to invest in capacity even as its share declines, to ensure reliability for India’s soon-to-be-300,000MW grid.
For a highly regulated sector like power, robust regulations are critical, and they must meet five objectives discussed below. The all-important legislative measure that can strengthen the sector is the Electricity (Amendment) Bill.
- Strong, independent regulatory oversight: Despite Electricity Regulatory Commissions (ERCs) in every state, the sector is mired in disputes and overdue payments. Discoms faltering on contractual obligations and appealing against ERC orders are the primary reason. The proposed amendments—adding new members in central, state and appellate regulatory benches; giving ERC judgments the power of court decrees; and allowing the national grid operator to instruct regional and state grid operators, as a final fallback in case of undue local political interference—can improve fiscal discipline, compliance and quicker dispute resolution. The proposal on eligibility of members for the regulatory commissions can be reviewed with an aim to further strengthen regulatory independence.
- Timely and cost-reflective tariff determination: The financial distress in the sector stems from the inability of discoms to recover sufficient revenue, largely due to lack of cost-reflective tariffs and delays in subsidy payments from state governments. Harmonisation of policies and Acts and clear directions to states to implement cost-reflective and affordable tariffs, backed by actual payment of promised subsidies is urgently required. Mandating ERCs to initiate tariff revision in case discoms do not apply for it in a specified time, and the timeframe of 90 days for ERCs to finalise or adopt tariffs can greatly help in improving the financial viability of discoms as well as generators.
- Clearing long-standing generator dues: Approximately Rs 90,000 crore of payments is overdue from discoms to private generators alone, despite several rounds of liquidity injection. These are a crippling ball-and-chain on the industry. Rules to enforce timely payments have been recently enacted. However, effective and timely enforcement of these rules will require the proposed amendments that link payment security to grid stability and empower the central grid operator to intervene if even state grid connected plants are denied their dues.
- Promoting renewables and enforcing RPO compliance: India’s RE capacity addition is driven by state-wise renewable energy purchase obligations (RPOs) set at the national level. RPO compliance remains low across most states when compared to the goal of 175,000 MW by 2022. The proposed amendment to prescribe higher RPOs and attach higher penalty in case of continued non-compliance augurs well for the national commitment to grow renewables and attract investments.
- Demonopolising distribution: Competition catalyses change. Delicensing of distribution and supply will enable competition, unlocking several benefits. It will give consumers choice, improve access to power, discom efficiency, and encourage innovation for emerging consumer-needs. For delicensing to succeed, adequate reform of rules would be needed ahead of implementation. Here, Tariff Policy and Rules will be key, thereby paving the way for implementation of provisions related to delicensing in the Amendment.
A key pillar for India’s progress is a viable electricity sector. A strong, enforceable Electricity (Amendment) Bill is the foundation for this.
The author is Chairperson, FICCI Power Committee