The Indian power the sector is undergoing a major transformation thanks to the widespread production of energy from sustainable energy sources such as solar and wind energy and the introduction of newer market mechanisms such as the real-time market, which provide the opportunity to trade energy within half an hour windows. However, there are challenges that hinder the development of the sector into a sustainable model. These include the poor financial health of electricity distribution companies (DISCOMs), the slow momentum to achieve renewable energy targets and the desynchronized functioning of various stakeholders. To resolve them, the Ministry of Force presented the project Electricity Act (Amendment) Bill 2020 (Electricity Act 2003). Let’s review some of the main amendments proposed in the bill.
Improving the functioning of DISCOM
The amendment introducing a cost-reflective tariff obliges DISCOM to define any parameter related to distribution costs when designing tariffs. The final distribution costs are approved by the State / Central Electricity Regulatory Commission (CERC).
The proposed amendment to the Direct Profit Transfer Scheme (DBT) will ensure that subsidies are distributed directly to beneficiaries. SERC should not take the subsidy into account when setting tariffs. Currently, the cross-subsidization decision requires the involvement of state regulators, but the amendment states that cross-subsidization must be strictly followed, as set out in the National Electricity Tariff Policy (NETP).
The amendment of adequate payment security mechanisms provides for national or regional freight forwarding centers to develop secure payment mechanisms and to ensure transactions before capacity planning. Therefore, the power supply cannot be sent until the advance payment has passed.
Reforming regulatory institutions
Like civil courts, it is proposed to set up an electricity contract enforcement body (ECEA), headed by a retired judge of the Supreme Court. Disputes relating to contracts for the purchase, sale or transfer of energy between energy sector stakeholders will be included in the competence of IKEA.
In addition, it is proposed to strengthen the Court of Appeal (APTEL) with the construction of multiple benches to resolve long pending cases. The amendment also proposes the creation of a new single selection board. The Committee will be responsible for the election of the Chair and members of APTEL, CERC, SERC and ECEA.
Increasing trade in renewable energy
The amendment to the National Renewable Energy Policy (NREP) aims to establish the trajectories for renewable energy purchase obligations (RPOs) and hydropower purchase obligations (HPOs) for each country. It proposes to DISCOM to purchase a minimum percentage of electricity from renewable energy generators, as specified in the NREP. Failure to do so will result in severe penalties.
Concerns and stakeholder decisions
The Federation of Energy Engineers from across India (AIPEF) and engineers from many countries oppose specific changes, including the DBT scheme, as state subsidy payments are unreliable. In addition, identifying beneficiaries is difficult, as many of the subsidized consumers, including agricultural users, are not measured and pay bills based on an approximate load requirement. The lack of measurement challenges the distribution of subsidies based on consumption.
It is therefore necessary to develop small and medium-sized pilot projects in different countries in order to understand the operational viability of DBT schemes and their financial impact on beneficiaries and DISCOM. In order to identify the worst-case scenarios, these projects must be implemented in the areas of electricity distribution that agricultural consumers have. A framework for reporting grant payments and monitoring the implementation of DBT schemes also needs to be developed.
SERC’s powers are also limited with respect to cross-subsidization decisions in the United States, as NETP will determine the specific trajectory for cross-subsidization each year. Furthermore, the amendment does not specify the dependence of cross-subsidization on the transfer of the subsidy to the beneficiaries. The amendment, while talking about the transfer of benefits from the subsidy, also mentions the need to reduce cross-subsidization. The difference in the refund of the subsidy must be balanced by an increase in government spending; therefore an increase in other tariff segments, such as electricity tariffs, would be needed. This means that cross-subsidization will continue to exist in other forms and the goal of reducing it will remain unrealized. Therefore, SERC should be consulted when deciding on cross-subsidization.
The formation of a single selection board also raises questions about the transparency and balanced participation of state and central governments. The Committee will have general secretaries from any two countries at the same time; the appointees are rotated alphabetically. There may be enough cases of a selection committee for a SERC member who does not have the relevant state representative. This may deprive states of their power to appoint a representative. The election of an APTEL member by the selection committee also presents a similar challenge affecting the independence of the tribunal’s courts. It would therefore be ideal to ensure the compulsory participation of at least one Secretary-General from the country being elected.
As regards electricity purchase obligations, the NREP must include data from government regulators for the relevant purposes for RPO and HPO. As countries have previously regulated RPOs, it would be prudent to consider their contributions to the issue. NREP must also take into account the availability of natural resources, development plans and the financial strength of DISCOM. In addition, the amount of the penalty for non-compliance with RPO / HPOs should be fixed after lengthy consultations
with energy sector stakeholders, especially DISCOM.
However, the clauses in the proposed amendments need to be widely discussed in order to be able to buy-in from different stakeholders. This will ensure that coordinated governance between state and central ministries is not adversely affected when these amendments become laws.
[This piece was authored by Aniket Baregama, Research Engineer, and Abhishek Nath, Sector Head, Energy and Power, at the Center for Study of Science, Technology and Policy (CSTEP), a research-based think tank]
[DISCLAIMER: The views expressed are solely of the author and ETEnergyworld.com does not necessarily subscribe to it. ETEnergyworld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly]