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Electricity Act 2020: An Overview

There are new areas where the policymakers need to look at and if they feel a hand-holding is required to introduce an Act that too, with a limited shelf life of the Commissions.

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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 a tweak of the old Act. We could have done better to think on a new and virgin board in 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. The transmission also, to a great extent, has become free from any requirement of hand-holding because of the central and private transmission setups. Distribution, theft and financial health remain a significant 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. Then the consumers dictate the electricity tariff and force the states to clean up their Act.

There are new areas where the policymakers need to look at and if they feel a hand-holding is required to 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 rechecked. The life of large solar generating units is now being treated at par with Thermal units. Life availability of 25 years is yet to be seen for solar stations whereas 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 these vast areas of the 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 viable solution. Bhakra Nangal should be our benchmark 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, Biomass and other types of small generators will have to be encouraged especially to consume the farm waste and crop stubble / residual. These have to be given a special platform assisting NGO’s and other Village Panchayats with “off grid” option for the sale of their generation. Here again, the influential role of the District Administration is required.

The Authorities created for hand-holding these sectors must be headed by a person who has been fully involved with the industry and should have the technical knowledge to understand the intricacies. They should also be able to understand and meet the wavelength the engineers from state and central organizations who frame the demands before allowing any relief. An adequate amendment has 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 is 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 consumes in Bulk should be cross subsidizes rather than the 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 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 reasons being our vast production cost.

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

supply of electricity to all areas by adding generating capacity, rationalization of electricity tariff, i.e. provide cheap and affordable Power to the consumer, protecting the interest of consumer by providing reliable and economical Power

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 can export to neighboring countries, even if our own per capita 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. Still, 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 emerge the cheapest electricity price for the consumer.  

However, it is strongly recommended 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 countries 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 has 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 the 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 with therefore fix the price of 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 the public domain). The fixed 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 the maximum ceiling of tariff” as a benchmark.

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 (vast reserves are burning underground) in our country. Post Corona, all countries realize the virtue to look inwards for basic needs. Power is the driver of the 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 massive 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. The initial investment is high, the gestation period is more, and the terrain is treacherous and over time has developed a 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 
The regulator in the generating sector has to be disbanded, and no further regulatory authority must be created. This will reduce a lot of overhead costs ultimately loaded on the tariff paid by the consumer. EA 2003, through sections 62 &specifically 63 has specified that tariff arrived through a 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 an unconventional approach, but if the 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 work:
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 centre, and bill on the competitive tariff arrived through a transparent tender at the exchange.

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 the buyer and will also meet the input cost of the generator immediately. Without checking valid LC, the dispatch centre will not give the schedule, and thus this will work as the payment security mechanism.

Based on the average cost data on the 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.

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

Considering these variables, the power generator would offer their price to the exchange like a commodity. Their commercial ingenuity and financial re-engineering could increase their profitability and market price at the 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 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 substantial haircuts. They would, however, come under the 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 the interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, i.e. provide cheap and affordable Power to the consumer.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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power sector

Dr. Arup Roy Choudhury

The author is Chief Commissioner, Right to Public Service Commission, West Bengal

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