India plans legal route for power sector reforms
New Delhi: After launching the Pradhan Mantri Sahaj Bijli Har Ghar Yojana for universalizing electricity access, the National Democratic Alliance (NDA) government is readying a raft of power sector structural reforms including legal provisions to drive electricity demand, promoting retail competition and tariff slab rationalization to drive manufacturing.
Speaking at the launch of the scheme on Monday evening, India’s newly appointed power and new and renewable energy minister Raj Kumar Singh said that going forward his ministry is readying a scheme to provide 24X7 reliable electricity.
Singh said the scheme that will ensure fines for a distribution firm for not supplying electricity will be taken to the prime minister for his approval.
Not only will this bring the NDA closer to delivering on its promise to improve energy access, it will also generate fresh demand for electricity in the country—the lack of which is weighing down the entire power sector. Around 304 million Indians live without access to electricity.
Singh’s Monday statement is part of the government’s larger agenda to reform India’s power sector and revive economic growth which has decelerated to a three-year low of 5.7% in the June quarter of 2017-18.
This comes at a time when states are reneging on their off-take commitments for projects. Also, with states unwilling to buy electricity, no new power purchase agreements (PPAs) are being inked, contributing to the uncertain outlook for the Indian power sector.
“Some things which needs correction, we are going to correct. One is about the PPAs. Making sure that the PPAs are signed and the PPAs are adhered to give confidence to those who invest,” said Singh at another event on Friday evening in New Delhi.
“We are going to change the law to provide that those PPAs are enforced. We are going to provide for PPAs to cover 100% of the annual average demand of a particular state or a discom,” Singh added.
The proposed regulation will also provide for interest payment in the event of electricity generators’ dues not being cleared in time.
The government’s strategy is aimed at improving India’s per capita power consumption of 1,010 kilowatt hour (kWh) which is among the lowest in the world. In comparison, China has a per capita consumption of around 4,000 kWh, with developed nations averaging around 15,000kWh per capita.
Last week Singh also talked about a radical plan to separate the so-called carriage and content operations of existing power distribution companies, which was earlier proposed by the United Progressive Alliance government.
Carriage refers to the distribution aspect and content to electricity itself. In industry parlance, these are known as “wire” and “supply”.
The separation will allow people and companies in India buy electricity from a power company of their choice, and have it supplied to them by the distribution network that services the neighbourhood in which they live. The result, apart from choice for consumers, would be lower tariffs because of the competition.
Any such proposed changes will require amendments in the Electricity Act of 2003. The government plans to move the legislative changes in the next session of the Parliament.
This comes at a time when the centre and states are working for electricity tariff slab rationalization to make them uniform across the country. This will help in reduction of cross-subsidies borne by the industry, and make tariffs more competitive for businesses thereby pushing the government’s ‘Make in India’ drive.
With an eye on better targeting of subsidies, the government is also exploring the use of direct benefits transfer (DBT) scheme in the electricity sector.
Government’s policy think-tank Niti Aayog has pitched for DBT in the electricity sector with its draft national energy policy recommending, “Our ultimate objective is to provide electricity at low prices to vulnerable customers and this can be done more efficiently by giving the subsidy to the latter through DBT.”
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