The issue of 34,000MW of financially-stressed assets continued to concern conventional generation sector in 2018.
By Sanjay Banga
The year gone by has been a really happening one for the Indian power sector, and it also managed to draw global attention. India jumped up to 77th position, up 23 notches, in the World Bank’s Ease of Doing Business report among 190 economies, and to be ranked 24th in Getting Electricity clearly demonstrated its improved performance in providing a conducive environment for businesses to operate. In 2018, some major milestones were achieved and a foundation was laid to build a robust future roadmap covering the entire value chain of the power sector—generation, transmission and distribution.
On the generation front, the issue of more than 34,000MW of financially-stressed assets continued to concern the conventional generation sector in 2018, especially with the RBI circular issued in February giving banks a six-month deadline to identify non-performing assets (NPAs), initiate resolution proceedings and start bankruptcy proceedings against the holders of NPAs. To address this issue, the government had initiated the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) to ensure coal linkage to power producers based on an auction and tariff-based bidding.
In April 2018, the government also started a pilot scheme to facilitate aggregation of procurement of power (2,500MW for three years) from commissioned coal-based power plants through competitive bidding, wherein the discovered tariff was Rs 4.24 per unit and projects with aggregate capacity of 1,900MW were declared as successful bidders.
While actions were taken to address the concern of stressed assets, 2018 also witnessed a continued focus towards addition of renewable energy—the year saw the addition of approximately 11GW of renewable generation mostly on account of solar (8GW) and wind (2GW).
The proposed Draft on Terms and Regulations issued last year by the Central Electricity Regulatory Commission (CERC) for the period 2019-24 attempts to minimise some of the inefficiencies in the value chain. The concept of quarterly availability linked to peak and off-peak availability for recovery of fixed charges also came as a welcome step to ensure availability of power during times of need.
In addition to the SHAKTI, far more is needed to transform the underutilised/stressed assets, including availability of domestic coal and its equitable distribution across plants. In addition, the government should consider the recommendations made by the High Level Empowered Committee regarding allowing existing fuel linkages to be used for short-term power purchase agreements (PPAs), giving flexibility to generators to terminate in case of default by distribution companies (discoms), and retiring old and inefficient generation plants and replacing PPAs with unutilised capacity of stranded assets.
Another critical ask for the future is a model where renewable sources can replace conventional sources of power, and provide 24×7 supply. For this, it is critical to explore hybrid models that can handle the infirm nature of solar and wind to provide consistent supply to the consumers. Storage systems, gas-based peaking plants offer such flexibility, and policies to harness their capabilities need to be put in place. The government also needs to finalise the hydropower policy for supporting projects that can provide immediate support to infirm power in times of need.
The CERC Draft Regulation for Tariff Determination failed to address the issue of grade slippage and the inefficiency observed in the transfer of coal from the mines to generating stations. There is an immediate need to specify normative gross calorific value (GCV) loss between “as billed” versus “as received” to prevent passing of inefficiencies in the supply value chain to end-consumers.
On the transmission front, the country is catching with the concept of ‘one nation, one grid’, as the disparity in prices of power purchase among regions is thinning, as is evident from spot exchange prices in 2018. India is also developing the Green Energy Corridor—to connect renewable-energy-rich states to states that lack renewable energy generation potential. The project is under implementation in eight states.
While the distribution sector still continues to be weakest link in the value chain, last year saw tremendous work done by the government in providing energy access to all the households in the country under the Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or the “Saubhagya” scheme. In fact, the Saubhagya dashboard stands testimony to the government’s efforts, with 25 states achieving 100% electrification, and only 10.48 lakh households across four states yet to be connected, as on December 31, 2018.
The year gone by also saw some forward-looking draft regulations and policies being issued, such as the Draft Amendments to Tariff Policy and amendments to the Electricity Act. The former proposed to cap the aggregate technical and commercial (AT&C) losses of discoms at 15%, while determining the average revenue realised (ARR) from the next financial year onwards. It also provided for movement to prepaid meters in the next three years, and the rationalisation of tariff categories and slab promotion of e-mobility and rationalisation of tariff slabs are welcome steps. The latter aimed at ushering in competition through segregation of carriage and content. The amendment also provided for 24×7 supply of power as an obligation. Further, generation and supply of renewable energy has been kept out of the ambit of licensing, and stiff penalties for non-compliance of renewable purchase obligations by discoms have been proposed. The amendment also provides for direct benefit transfer (DBT) of subsidy to the beneficiaries.
In December 2018, the government notified the guidelines and standards for electric vehicle charging infrastructure to ensure seamless adoption of electric vehicles by all. The power ministry has categorised charging batteries of electric vehicles as a service, removing the requirement of a licence.
While a lot has happened in 2018 in the power sector—which holds the potential to transform the sector in the coming years—there are some issues that need to be addressed while leapfrogging in 2019.
* The need for loss reduction in the wake of rural electrification in far flung areas assumes great significance. Also, 100% metering, auditing, billing and collection needs to be ensured from both urban and rural pockets to achieve the targets of 10% within the next three years by all discoms after the achievement of 15% levels. While the Draft Amendments to Tariff Policy has proposed conversion to smart prepaid meters for large consumers and normal prepaid meters for small consumers over the next three years, it may also consider implementation of smart meters across more customer segments as it will aid in remote metering and billing, implementation of peak and off-peak tariff, and demand-side management, all of which will surely make utilities more efficient.
* Separation of carriage and content has been deferred consistently so far, with no clear roadmap. The amendments to the Electricity Act should take cognisance of the same and provide an immediate timeline for the implementation of the same by all state electricity regulatory commissions (SERCs). Smart cities could be the first ones to go in for such separation. Areas such as Delhi, which already have multiple private players, can also be considered.
* Implementation of DBT and reduction of cross-subsidies is another lingering issue in the power sector. The Make-in-India initiative can only be successful if we allow our industries to be competitive in the global market, and free them from subsidising other consumer categories.
The role of the private sector needs to be enhanced in the distribution space to improve efficiencies in the last mile. If not through public-private partnership models that face resistance on multiple counts, the role of private players can be infused through outsourcing modes such as passport model in key elements such as revenue cycle management, operations and maintenance management, or technology deployment. With the increasing IT and OT convergence—information technology and operational technology—it is now possible to explore various remote servicing models as well for providing accurate reading and billing, data analytics for maintenance and commercial revenue enhancement.
While it seems that the government is on track to providing power 24×7 for all, the desired outcome lies in conversion of progressive regulations and Acts from the draft stage to implementation stage.
The author is CEO, Tata Power-DDL