Editorial December 2018

A newly released report by NITI Aayog has set forth a slew of recommendations on what more the power sector needs to do by 2022.

The report, “Strategy for New India@75”, prepared with consultations and inputs from the state governments and the industry, summarises a number of ideas to overcome the binding constraints that prevail in the sector. It states that the state power utilities are unable to invest in system improvements due to their poor financial health. Further, as the revenue gap still persists, discoms resort to load shedding in order to minimise losses. Although legally independent, the electricity regulatory commissions are unable to fully regulate discoms and fix rational tariffs, notes the report.

The report recommends privatising state discoms and/or using the franchise model, which will help reduce AT&C losses. It adds that discoms may adopt the franchise model for its retail business in rural areas and stipulate a minimum level of performance parameters. Further, it notes that discoms may be fined for load shedding. Effective enforcement of a cap on cross-subsidy and open access and removal of high open access charges are required. Also, the regulatory bodies need to be strengthened and made truly independent, says the report.

For the renewables sector, a key issue, according to the report, is that high energy costs result in reneging on old power purchase agreements and erode their sanctity. This leads to uncertainty regarding power offtake and adversely impacts further investments. Also, flexibility in generation and balance requirements for the integration of renewable energy are emerging as major issues.

The report suggests enforcing the renewable purchase obligations strictly and facilitating the inter-state sale of renewable energy. Further, NITI Aayog recommends that central-level agencies like the Central Electricity Regulatory Commission or the National Load Despatch Centre should socialise the costs of balancing interstate transmission systems connected power plants, over the entire system, on the lines of the point of connection or a similar mechanism.

In sum, the recommendations are aligned with several other policy prescriptions and statements as the ones issued earlier, including the High Level Empowered Committee’s recommendations on reviving stressed assets or the draft National Energy Policy issued by NITI Aayog released last year. The current document is an attempt by the government to provide an inventory of readily implementable measures for the central and state governments to action.

Just how these policy developments pan out in the near term is something industry watchers will keep a close eye on in 2019.

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