Interview with G.B. Pradhan

“The CERC has played an important role in creating a market structure for the sector”

For a sector that was unused to regulation, a major turning point was the passing of the Electricity Regulatory Commissions Act, 1998, which paved the way for the establishment of the country’s apex regulatory body, the Central Electricity Regulatory Commission (CERC), in August 1998. Chairperson Gireesh B. Pradhan talks about CERC’s key regulatory initiatives and the future course of the power sector…

How do you assess the progress made by the power sector over the past two decades?

It has been more than two decades since reforms were initiated in the power sector. There are a number of positive outcomes of the reforms process. Generation capacity addition has been phenomenal, touching 304.76 GW as on July 31, 2016. Ultra mega power projects of 4,000 MW each have become a reality, and the operating efficiency and availability of power plants have improved substantially. Renewable energy has witnessed significant growth with 44.24 GW of capacity as on July 31, 2016. A short-term market has evolved and constitutes about 9 per cent of the country’s total generation. Two power exchanges are in operation and as many as 40 traders are in existence. This market segment has enabled optimum utilisation of assets and transfer of power from surplus to deficit regions. Open access in the interstate transmission system has guaranteed market access to generators and buyers, and encouraged competition. The share of the private sector has increased to 41.5 per cent of the total generation capacity, or about 126.61 GW. The transmission segment too has witnessed growth in terms of size and transformation capacity.

How has the CERC evolved over this period?

The CERC was conceived and constituted in 1998. Over the years, the role of the CERC has expanded from being a tariff commission to an authority responsible for holistic development of the power market. It has played an important role in creating a market structure for the power sector. Recognising the fact that market access is critical to competition, the CERC concentrated its efforts on facilitating access through its regulations to enable market players to seamlessly exchange power. The emerging need for reliable power supply has also called upon the commission to be more vigilant in strengthening the regulatory framework for grid operations through the grid code and the deviation settlement mechanism. Promoting green energy is another important step in the process of evolution of the role of the central commission. The CERC has focused its energy on understanding international experiences and other best practices to evolve a regulatory framework for the integration of intermittent renewable energy sources that suit the existing market design in the Indian power sector. Given the mandate and dynamic nature of regulation, the central commission has evolved over the years and responded to the demands of the time.

What are the biggest challenges facing the power sector at present and how can these be addressed?

The distribution segment remains the weakest link in the power sector. The financial health of the distribution companies has been a major concern. Further, low demand has had a cascading effect on other segments of the sector, namely, generation, transmission and the short-term power market. This has led to generation assets getting stranded. The distribution segment is also suffering from high levels of technical and commercial losses. In order to improve the situation, discoms would need to carry out proper demand estimations. There is also an urgent need to establish procedures for proper energy accounting to accurately identify energy losses. Moreover, tariff rationalisation needs to be carried out to improve the financial health of the distribution segment.

How do you rate the performance of the regulatory bodies at the state level over the years?

The regulatory bodies at the state level, that is, the state electricity regulatory commissions (SERCs) and the joint electricity regulatory commissions (JERCs), have been performing as per the mandate of the Electricity Act, 2003. The state regulators have put in place a framework for tariff regulation. They have facilitated the institutionalisation of consumer grievance redressal forums and the electricity ombudsman. Regulations on the performance standards of discoms have also been notified. Further, the government has launched the Ujwal Discom Assurance Yojana (UDAY) to revive the financial health of discoms. The state regulators are facilitating effective implementation of the scheme by establishing procedures for close monitoring of progress. In order to promote green energy and bring small consumers into the fold, the SERCs have notified net metering regulations, thereby helping consumers set up rooftop solar units. However, a lot still needs to be done on tariff rationalisation. Also, the success rate is not significant in open access. Given the socio-political climate specific to each state, the management of the distribution segment remains a challenge. The regulatory process is evolving and, going forward, I believe it will be strengthened further.

What are some of the short- and medium-term priorities for the CERC?

The short-term priorities before the commission include a review of the grid reliability status and the effectiveness of the deviation settlement mechanism. A performance review of the short-term electricity market, tariff regulations for power from renewable energy sources, the renewable energy certificate framework and ancillary service operations are some of the commission’s other priorities in the near future. As regards long-term priorities, the commission would like to work on connectivity and long-term access and medium-term open access, as well as on the design for further development of the electricity markets and frameworks for integration of renewable energy with the grid.

What additional steps can be taken at the regulatory level to strengthen the open access framework?

The Electricity Act, 2003 has provided for open access, which implies non-discriminatory sale/purchase of electric power/ energy between two parties utilising the transmission or distribution system or associated facilities thereof. In the process of implementing open access, some state utilities reportedly experienced misuse of the provisions for captive generation to avoid payment of the cross-subsidy surcharge and other charges by some open access consumers. At the same time, open access consumers often complain about various tariff and non-tariff barriers, which include inter alia  high cross-subsidy surcharges, denial of open access citing non-availability of a transmission corridor and administrative reasons. Relevant rules defining captive generation need to be amended to remove any ambiguity. Further, issues related to possible standby charges and current cross-subsidy surcharge need careful examination in order to ensure a level playing field for all stakeholders. In addition, urgent measures to address the manpower needs of state load despatch centres (SLDCs) and ring-fencing of SLDCs need to be taken.

With the central government increasing its renewable purchase obligation (RPO) commitments to 17 per cent by 2022, how can its enforcement be strengthened?

Renewable energy generation has witnessed significant capacity growth, from  less than 5,000 MW in 2002-03 to 44.24 GW at present. Still, India has a huge untapped renewable energy potential. However, the demand for renewable power has not been adequate. The act mandates the SERCs to specify the RPO. Therefore, the responsibility of RPO enforcement on obligated entities rests with the respective SERCs. Accordingly, most SERCs have specified minimum RPO targets for the obligated entities in their states. However, it has been often observed that compliance with the RPO targets is not taken seriously by discoms. Some SERCs have also allowed carry forward of the RPO target compliance. The SERCs need to ensure strict compliance of RPO targets by distribution utilities. To this end, the SERCs may consider creating a separate fund as part of the annual revenue requirement of the discom to meet the expenditure on RPO compliance in an effective manner.

What is your outlook for the power sector for the next few years?

We have several issues to deal with in the power sector. What we need is commitment and determination to address these effectively. As regards the current problem of the financial ill-health of discoms, UDAY has the potential to make a difference and needs to be implemented in right earnest. The scheme not only provides financial support, it is also linked to a mutually agreed and doable performance trajectory. Currently, we are experiencing low demand for power, resulting in stranded generation capacities. The market design needs a relook in order to revive growth in demand. The transmission segment is experiencing problems, mainly owing to right-of-way issues. Appropriate policy prescriptions need to be put in place to mitigate transmission congestion. Increasing generation capacities based on renewable sources is critical to achieving energy security for the nation. Therefore, setting up a robust regulatory framework for seamless integration of renewable energy is another critical segment to focus on.

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