Electricity Act 2020: Analysis and Perspectives

The industrial consumer who consumes in bulk should be cross subsidized rather than the present practice of they cross subsidizing the urban consumers

Electricity act
Electricity act

Preamble-An Electricity act was required historically to consolidate the laws relating to the electricity sector and allow the private sector participation. Today after 75 years of independence and almost 20 years of enactment of EA 2003 do we still require an imperial colonialist control mechanism in free India? This attempted draft is nothing but tweak of the old act. We could have done better to think on a fresh and virgin board at the Electricity sector as it is, today. Generation and reaching power to the last consumer is no more an issue, as proclaimed by us in various national and international platforms. Transmission also to a great extent has become free from any requirement of hand holding because of the central and private transmission set ups. Distribution, theft and financial health remains a major concern. These are state subject and must be left to states to sort out their specific state problems. The central generators and the electricity exchanges can transparently declare the tariff at which these states have purchased power and then the consumer themselves dictate the electricity tariff and force the states to clean up their act.

There are new areas where the policy makers need to look at and if they feel a hand holding is required introduce an Act that too with a limited shelf life of the Commissions. Solar power is one such area which needs to be specially treated in this Act. Almost 80% of our solar cells are imported. Using various financial modeling price quoted, needs to be checked and re checked. The life of large solar generating units which are now being treated at par with Thermal units. Life availability of 25 years is yet to be seen for solar stations where as we have several Thermal Power stations which are running in our own country for 40 years plus. The loss of generation and our capability of operations and maintenance of this huge areas of solar cell are yet to be seen. The new Act should seriously look at encouraging unit’s set up with indigenously manufactured solar cells even if they have to be allowed to be bundled with cheaper conventional power as a hand holding mechanism. Govt. can provide some subsidy to lower their power cost for them for some time and they could operate their units during “no peak” hours. This will increase domestic manufacturing capacity and also reduce cost due to economy of scale.

For Hydro this Act must look at how to encourage building the entire potential of our country. An empowered body of cross representation from Security, Environment etc. working under the Home Ministry (if possible PMO) is a possible solution. Bhakra Nangal should be our bench mark for Hydro projects. Many Hydro projects were abandoned after substantial investment more due to individual and political reasons. Post Covid the environmental assessment may yield positive results.

Across our country Bio mass and other type of small generators will have to be encouraged specially to consume the farm waste and crop stubble / residual. These have to be given a special platform encouraging NGO’s and other Village Panchyats with “off grid” option for sale of their generation. Here again the strong role of the District Administration is required.

The Authorities created for hand holding these sector must be headed by a person who has been fully involved with the sector and should have technical knowledge to understand the intricacies and can understand and meet the wave length the engineers from state and central organizations who frame the demands before allowing any relief. Adequate amendment have to be made to ensure that these are not made mandatory positions for retired Judges or bureaucrats. Then only they would be able to see through the hidden agenda and counter the demands made on the tariff. Ultimately any cost allowed by them will get loaded on the consumer of electricity who are at the bottom of the pyramid. They should also have commercial knowledge to understand that the aim is to increase consumption and drive the economy. The industrial consumer who consume in Bulk should be cross subsidized rather than present practice of they cross subsidizing the urban consumers. Rules must be made to see how rural consumer can be encouraged. Those setting up economic units and generate employment for rural people. This will create growth centers in Villages encouraging population to find employment in their own villages rather than running to towns and creating slums where theft of electricity is rampant. The provision of “time of the day” metering/ tariff should encourage these manufacturing units to run at night thus consuming cheaper power and reducing the price of domestic produce which are unable to compete internationally one of the reason being our huge production cost.

Retrospect Did Electricity act 2003 achieve what it set out to achieve? The act was enacted to consolidate laws relating to generation, transmission, and distribution and trading of electricity with following objectives:

1. supply of electricity to all areas by adding generating capacity ,

2. rationalization of electricity tariff i.e. provide cheap and affordable power to the consumer,

3. protecting interest of consumer by providing reliable and cheap power

4. Open out electricity to create competition and transparency in pricing

In terms of adding generation capacity in the country and reaching it to the last mile, we could say the goal has been achieved, especially when from being a country where generation capacity was less than the demand; to an electricity surplus situation when we are able to export to neighboring countries, even if our own per capital consumption remains a third of China.

However, after 17 years of EA 2003, we failed in providing the cheapest / affordable electricity to the ultimate consumer. Thus failing to protect the interest of the customer and justifying the poor per capita consumption and our inability as a nation to convert electricity to drive our GDP growth.

The Generation sector has been opened up to transparency and competition by establishing exchanges but the tariff fixation of a sizeable number of generating plants through Central and State regulator makes the competitive tariff a mockery. Often these rates are also not very transparently fixed.

To rectify the situation it has been thought necessary to have an amendment with a new act EA 2020. In my opening for Generators, this not required at all because electricity act 2003 already provided for competitive tariff through a transparent bidding process through it section 62 & 63 and generation should migrate totally to 63. Hand holding beyond 17 years is not required. All the generators would be required to bid for or to go through the competitive bidding and thus will emerged the cheapest electricity price for the consumer.

However, it is strongly recommend here that a coal regulator is put in position in our country. To make the power cost competitive, transparent and cheap cost of coal should be free on inefficiencies, theft better mining technique to provide clean washed coal for the power plants. The cost and transportation of coal is a sizeable component of the price of power and hence could be in the preview of the Coal regulator.

The fact that India remains one of the largest coal bearing country in the world and Coal is an energy resource which is freely and domestically available in our own country, is reason enough for not moving away from coal generation. Any other source of fuel like Oil or gas have to be imported and increases our forex expenditure and is also subject international price variation is better avoided when as a nation we are moving towards self-reliance. The effect of Coal on environment is an issue which needs to be tackled separately by a task force and there are methods available to address the concerns. The coal regulator will therefore fix the price of the coal at each of their plants across the nation and the variable cost (fuel cost) of generation can be known transparently. (since the heat rate of the generators and the calorific value of the coal will be in public domain). The fix cost of insulation of plants has already been well established. (the maximum fixed cost of electricity would be declared by the CEA). Clause 62 (1) of EA 2003 has already mandated the “fixing of maximum ceiling of tariff” as a bench mark.

Power portability Power portability is it the same as “carrier and content”

Unlike mobile phone here we need cables which historically belong to the Govt Discoms. These lines are all overhead and obsolete requires replacement by underground cable network. New Act can look at encouraging entrepreneurs in this area that will greatly complement the Power Portability and Pre paid metering of Power.

For industrial supply it can be adapted straight away.

CRUX of my response to proposed EA 2020 As a country we cannot ignore that Coal is the only energy which we have in abundance (large reserves are burning underground) in our country. Post Corona all countries are realizing the virtue to look inwards for basic needs. Power is the driver of economy and must grow at a faster rate than GDP in the interest of prosperity of the Nation. We have somehow bungled to harness our huge potential of Hydro Power and we must now make amends of our mistakes and create a separate the National Hydro Policy separating it from National Renewable Policy. Initial investment are high, gestation period is more and terrain is treacherous and over time has developed fear of insurgency. We cannot handle these in separate silo’s and create a National Body to give comfort for NHPC & private sector to open up more project sites simultaneously so that we can have 1,50,000 MW of Hydro generation by 2030.

For Coal Based Plants Regulator in the generating sector has to be disbanded and no further regulation authority must be created. This will reduce a lot of overhead cost ultimately loaded on the tariff paid by the consumer. EA 2003 through sections 62 &specifically 63 has clearly specified that tariff arrived through competitive process of bidding will be in the best interest of the consumer. Hence all procurement of electricity should be through the exchanges which have now stabilized and matured in the country. This would seem like a bohemian approach but if regulator is needed beyond 20 years, the sector will never be off “crutches” .

The leadership of our country is propagating that there should be no role of Govt. in business, we are unable to break out.

How will it works: a. The generating company would sell their power at the switch yard / bus bar of the beneficiary (Transco central or state) based on schedule received from the load dispatch center and bill on the competitive tariff arrived through transparent tender at the exchange.

b. Before giving the schedule the Load dispatch Centre will check that the beneficiary has a valid LC which can be charged by the generator immediately 80% and rest 20% before next dispatch. This will give some comfort to buyer and will also meet the input cost of the generator immediately. Without checking valid LC the dispatch center will not give the schedule and thus this will work as the payment security mechanism.

c. Based on the average cost data on installation of power plants through transparent (open tender with reverse auction provision) and audited(CAG) procurement system, the CEA will declare maximum the fixed in tariff and hence reduce the chance of Gold/ Platinum plating. At today’s prices Rs.1.50 per unit is a fair price.

d. The Coal price should be fixed by regulator for each mine. Infact gradually each mine should be made free of any Govt. control on linkage and allowed to bid for any generator.

Considering all these variables the power generator would offer their price to the exchange like a commodity. Their commercial ingenuity and financial reengineering could increase their profitability and market price at stock exchange for these generating companies.

For Central Generator NTPC and State Generators, they could be allowed to pool their prices and probably would offset high tariff in units set up a non-viable areas due to political or other geographical compulsions since they will earn more profits from their depreciated but efficiently maintained plants. This will compensate them for having made investments at a time when private investors were hesitant to make large investments in Power. Ultimately the efficient and well run private plants would catch up and run a profitable business. For those who have misused the EA 2003 and colluded with states to Gold/Platinum plate their plants would have to sell, in distress, and unscrupulous lenders will have to face heavy hair cuts. They would however come under purview of the ECEA.

The Coal Generating units would have thus complied with the Statement of Objects & Reasons of any Electricity Act 2020 i.e. promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff i.e. provide cheap and affordable power to the consumer.

Dr. Arup Roy Choudhury is the Chief Commissioner, Right to Public Service Commission, West Bengal. He has served as the Chairman and Managing Director of National Thermal Power Corporation (NTPC), India’s biggest power generation utility. Choudhury has also served as the Chairman of National Buildings Construction Corporation (NBCC).