UDAY is a game changer: Piyush Goyal
New Delhi: Minister for power, coal, new and renewable energy Piyush Goyal has scripted the Ujwal Discom Assurance Yojana (UDAY) to turn around highly indebted state power distribution companies, the weakest link in the entire electricity value chain. Efficient and healthy power distributors will be able to purchase more power from generators, while keeping consumer’s power bills to the minimum.
In an interview with Mint, Goyal explains how the government is capitalizing on improved efficiency in the entire power sector value chain to deliver affordable and uninterrupted power, and in the process, create globally competitive manufacturers in India.
How is UDAY a game changer for the power sector?
It is. Never before in the history of India has such a comprehensive power sector reform, which has the potential to completely transform the sector into a vibrant, efficient and well-oiled state machinery, been undertaken. I call it comprehensive because of its salient features. One, it covers the entire value chain in the power sector from fuel, to generation, transmission, renewables, distribution and consumers. It has a very vast canvas determined through a bottom-up approach.
The central government has no role to play except as a catalyst, bringing together the best of ideas on the table and re-calibrating them continuously. It took us eight to nine months of extensive consultation with all stakeholders including state governments, different ministries in the central government, lenders, investors, equipment suppliers, consumer organizations, power utilities, generators, electricity authorities, coal suppliers, international gas exporters and energy-efficient equipment makers. I myself have chaired more than 200 meetings, and the power ministry, over a thousand. I talked to the finance secretaries of most of the states as they have to be on board. For consumers, including farmers, the end outcome is availability of quality, affordable power 24x7.
Secondly, businesses will come to India only in a power-surplus situation. UDAY will bring down the cost in the entire eco-system of power, coal, and renewable energy by about Rs.1.8 trillion every year by 2019 against a business-as-usual scenario. This will make distribution companies financially much better without stressing the consumer with tariff increases. Distributors will be able to buy more power to supply to consumers. Very often, state utilities do not buy electricity even if they need it, as every unit purchased increases their losses. We are changing this scenario to one where cost of power purchase is reduced and distributors are incentivized to buy more electricity and serve their consumers better. Also, the savings will enable distributors to invest in smart meters and other infrastructure. UDAY not only resolves the past mess in the sector that I inherited, but also sets a very strong deterrent against discoms slipping back to losses in the future.
Is the government monetizing efficiency when you say energy saved is energy generated?
Yes. Energy saved is actually 1.33 times energy generated, considering the 20-25% (transmission) losses today. We also cut down carbon emissions by saving electricity. UDAY offers both financial and operational gains for distributors and states. Under the scheme, the cost of servicing discom debt comes down from about 12% to about 8% for three-fourth of the loans taken over by the state, and to about 9% on the remaining loans for which state-guaranteed discom bonds will be issued. The savings could be about Rs.33,000 crore a year (discoms had an outstanding debt of Rs.4.3 trillion as on 30 September 2015).
Secondly, we have allowed swapping of coal between less efficient thermal plants and more efficient ones. Allocating coal linkage to a generating company, rather than to a specific plant gives companies the freedom to use the fuel in the most efficient way. Use of energy efficient LEDs, pumps, fans and air-conditioners will save power consumption and reduces the peak load. We expect huge savings every year from these measures at the consumer level.
Under the efficient lighting programme launched on 5 January 2015, Energy Efficiency Services Ltd (EESL), a central government firm, alone has sold 80 million LED bulbs as on today. This output growth is phenomenal when we compare it with the 600,000 units the company had sold in 2013-14. EESL will cross 90 million LED sales by the end of this March.
The strength of the public sector is tremendous. It only needs to be unleashed with vision and leadership. Now, we are planning to replace archaic agricultural pumps with energy efficient ones. India has more than 20 million old agricultural pumps that breaks down often, causing immense distress to farmers. Efficient pumps with a five-year warranty, will spare the farmer of cost of repair and maintenance during the warranty period. This, along with the energy saved will help pay for these pumps in say, five or seven years.
Will this scale of demand create the enabling environment to manufacture in India or they will be met through imports?
There is no condition that investors have to manufacture components in India, but considering the scale and the cost of production, many will opt for manufacturing in India. For example, our LED production cost is $0.9 per unit, compared to $1.1 in China and the global average of $3. Considering the scale of production that we have, we can actually emerge as a world supplier. We have started a pilot project on supplying energy efficient fans across Andhra Pradesh, replicating the LED model. The feedback is very good. We got 32% more savings than we anticipated and the defect rates are extremely low. The idea is that if consumers are able to save a particular amount of money because of the energy efficient instrument, they are able to recover what they pay for the product over a period of time.
You are leveraging India’s market base to create scale that creates efficiency and savings.
Yes. It will create globally competitive companies from India. You will see global scale producers in India that will serve global customers. This is a way of making in India without enforcing it.
Have you quantified the employment generation potential of the overall reforms in the sector?
There is an indirect employment generation potential of about 2.5 million jobs from the impact of all the measures that we are taking as part of UDAY. Our solar energy programme alone has the potential of generating one million jobs. Also, the emphasis on using domestic coal will add more jobs in the mining sector.
How are states managing to keep politics out of UDAY?
States are the architects of UDAY, not the central government. In fact, the financial impact on central government because of this scheme is zero. When Uttar Pradesh signed up for UDAY, chief minister Akhilesh Yadav sent me a text message saying that he was happy to adopt the scheme as he wanted its benefits to reach the people of the state. The Bihar government too, days after the 2015 state polls, adopted the scheme.
From the very beginning, states were part of the discussions on UDAY. One of the successful ideas implemented by states and adopted in UDAY is to mobilize public participation in containing power theft. Consequently, tackling power theft has become a public movement in many places. Today, in terms of in-principle approvals and state cabinet approvals, except for the signing of the memorandum of understanding, UDAY scheme has covered 90% of the Rs.4.3 trillion discom debt. Jammu and Kashmir is the ninth state to sign on.
Are the low solar tariffs (Rs.4.34 a unit as per latest NTPC project in Rajasthan) sustainable?
The companies that made the attractive tariff are reputed ones. The lowest tariff was bid by a leading European solar energy company (Fortum Finnsurya Energy). There are a few factors that have led to the tariff reduction. Equipment procurement cost has come down and global majors are able to take advantage of this. If we take the global tariff for solar power and take into account the cost of capital in India, solar tariff could still come down.
How are you addressing fuel shortage of gas-based power plants? We don’t have enough domestic gas supplies.
About 24 gigawatt of gas-based power capacity was lying idle earlier. We are now auctioning imported liquefied natural gas (LNG) so that they are able to utilize a part of their capacity, which will enable them to service their debt and service the grid. We have been able to revive about 11,000 MW of capacity because of previous two rounds of LNG auction. We need to find long-term solutions for our domestic gas short supply. One way is to have vertical integration of the global gas supply chain in which an overseas gas well owner puts up a regasification terminal in India, gas transportation pipelines, a gas power plant, and a transmission network. This could be in the form of joint ventures with Indian companies.
Is the national power grid operational?
On 29 December 2015, and on three days in January this year, we did not have congestion in the transmission network. Generally, even if we are able to sync the grid to a single frequency, there will be pieces of the grid which will face congestion and prevent accessing the desired level of power by customers. By removing congestion, we are able to have the same price for electricity across the country. Since there is no cost-effective way of storing electricity at the moment, we need to schedule the use of renewable power in a sophisticated manner. One of the things that we do to complement the growing use of renewable energy and stabilize the grid, is to use hydropower.
Several successful bidders at the coal auctions claim that they can’t mine commercially at the rates they committed?
Coal block auctions through competitive bids were very transparent. I trust that all bidders came to the auction with their eyes open. The government has demonstrated what a public sector company (EESL) can do in achieving efficiency and scale. It is for the businesses to make sure that they measure up to the commitments they made to their stake holders and to the people at large.