The government is readying a slew of reforms for the power sector as it begins its new term, including a five-year roadmap for the sector. The plan is important given that it will define a strategic long-term vision for the power sector. Structural reforms in tariff policy can also be expected, besides a revamped Ujwal Discom Assurance Yojana (UDAY). These policy announcements, if implemented in time and effectively, would have a direct and significant impact on the sustainability of the sector, say experts. Power Line analyses these proposed policy initiatives in detail…
The big picture
The big picture of the power sector is not that rosy at present. Of immediate concern is the health of the distribution segment. While power supply has improved significantly and India has achieved universal electricity access, there are multiple challenges that continue to impede segment growth.
The ACS-ARR gap, which had come down from Re 0.60 per unit in 2015-16 to Re 0.17 per unit in 2017-18, has risen to Re 0.23 per unit, as per the latest data on the UDAY portal. AT&C losses are still high at 18 per cent, against the 15 per cent targeted by 2018-19. Outstanding receivables to gencos have increased to Rs 354.93 billion as of April 2019, from Rs 274.79 billion a year ago. Payable days are at an average of 90 days and for some states and generators, it has reached nine months. Meanwhile, regulatory assets stand at Rs 769.63 billion as of May 2019, according to an India Ratings report. To cope with mounting losses, many regulators had allowed for a gradual recovery of past losses via tariff increases by creating regulatory assets. Uttar Pradesh, Maharashtra and Jharkhand account for around 87 per cent of the current regulatory assets.
Other segments in the power sector have their own set of challenges. Low private sector PLFs continue to weigh down the generation segment. Private thermal PLFs remained flat in financial year 2018-19 at 55 per cent. In the transmission segment, a key challenge has been aligning transmission infrastructure capacity addition with renewable energy projects. Further, a lack of products and liquidity in the short-term markets is leading to high electricity prices despite the supply surplus in the country.
Recent measures
The government has begun its new term on a positive note with some important policy decisions. Key amongst these has been the approval of the letter of credit (LC) mechanism. The government has made it mandatory for discoms to offer an LC as part of the payment security mechanism in power purchase agreements (PPAs). Accordingly, the National Load Despatch Centre and the Regional Load Despatch Centres have been directed by the power ministry to “dispatch power only after it is intimated by the generating company and the distribution companies that a letter of credit for the desired quantum of power has been opened and copies made available to the concerned generating company”. The provision will be effective from August 1. The order adds that the electricity flow to discoms will stop once the quantum of electricity under the LC has been supplied. Further, the government has eased the norms pertaining to the flexible generation scheme, approved in April 2018, which gave thermal power generation companies the flexibility to use renewable energy sources to meet their contractual generation obligations. The power procured through this scheme would now qualify for meeting renewable purchase obligations (RPOs) even if the renewable generation units are not located near the thermal plants with which the buyers have signed PPAs.
Also, in order to fast-track renewable energy projects, the ministry has approved a proposal for early regulatory approval by the Central Electricity Regulatory Commission for transmission schemes identified for 66.5 GW of renewable energy projects, comprising around 28 GW of projects under Phase I and 38.5 GW of projects under Phase II. Accordingly, the identified transmission schemes have been accorded the status of projects of national importance.
What lies in store
Tariff reforms: The Budget 2019 announcements are an important milestone for the power sector and have set the tone for tariff reforms that could be expected in the next few months. The finance minister, in her maiden budget, noted that a power sector package is in the offing, along with a new tariff policy, to ensure uninterrupted power for all.
The power ministry has recently stated that the government is planning to shortly seek cabinet approval for the draft tariff policy. The policy is expected to provide penalties for load shedding, impose restrictions on allowing losses of more than 15 per cent as a pass-through in tariff, limit cross-subsidies, suspend licences in case of non-availability of adequate power supply arrangements, and provide the framework to separate the carriage and content operations of discoms. The government is also working on the issue of regulatory assets. The power ministry has reportedly written to the Appellate Tribunal for Electricity (APTEL) requesting the enforcement of its previous order of November 2011. The APTEL order issued to the state electricity regulators pertained to ensuring regular and timely revision of tariffs, including regular truing-up of tariffs, and non-creation of fresh regulatory assets, as well as allowing the carrying cost of past regulatory assets.
Vision 2024: For drafting the five-year vision document, called Vision 2024, a day-long brainstorming session, chaired by the power minister, was held with key stakeholders. A number of goals and policy actions have been proposed in the document. On the generation front specifically, it calls for reducing greenhouse gas emissions through adherence to environmental norms and increased use of washed coal. It also calls for modernising generation through the development of advanced ultra-supercritical technologies and the implementation of flexibilisation measures. Other policy actions proposed are fully monetising waste streams from conventional generation, increasing fuel availability through enhanced output from Coal India Limited, coordinated planning with the railways, radically reducing net water use in TPPs and addressing the issue of non-performing assets. For the transmission segment, the document envisages improving transmission capacity utilisation by removing key bottlenecks, modernising infrastructure through the induction of new technologies like FACTS and asset monitoring, enhancing private participation in hotspot states, improving the capabilities of the state load despatch centres, facilitating renewable energy build, rationalising transmission pricing for renewables, and deploying modern technologies for renewable energy management. It also calls for deepening physical interconnections in the BBIN (Bangladesh, Bhutan, India, Nepal) region for greater cross-border trade.
The goals identified for the distribution segment are improving financial viability through measures such as the implementation of analytical tools for power purchase cost optimisation, implementation of prepaid metering for high-risk consumers, encouraging digital payments, ensuring 100 per cent metering of all categories of consumers, increasing transparency in T&D losses through the implementation of internet of things (IoT) and smart meters. Another goal is to develop mechanisms for unbundling distribution companies into the wires and supply business. For consumer empowerment, the goal is to implement one-stop shop apps that cover all consumer touch-points with discoms. For improving reliability, the interventions suggested include the implementation of SCADA/DMS and ADMS for both cities and rural areas, as well as real-time feeder monitoring of all feeders using IoT. The plan also calls for developing viable business models to enable increased adoption of rooftop solar projects.
NEP for distribution: In a first-of-its-kind exercise, a national perspective plan at the distribution level is being prepared by the Central Electricity Authority (CEA). Till now, the central government had been preparing perspective plans for the generation and transmission segments under the National Electricity Plan (NEP). The distribution plan would keep the needs of consumers at the centre of its focus, the power ministry stated. The plan anticipates an increase in distribution substation capacity of 38 per cent and in distribution transformation capacity of 32 per cent as well as an increase in feeder lengths of 27-38 per cent till 2022. During a review of the plan, the power minister suggested that a core group of ministry officials should study the Power Reforms 2.0, which would be integrated with the distribution perspective plan before it is released.
Review of UDAY: The government is also examining the performance of UDAY with a view to improve it in line with the budget recommendations. Earlier this year, the government had indicated that UDAY 2.0 was being drafted and would look at interventions in terms of technology and enablement. Reportedly, the government is now considering revising targets and parameters for all states depending on their past performance. Funds are proposed to be extended to states that perform well on parameters like the installation of smart meters.
Other proposals: As announced by the finance minister, the recommendations of the High-Level Empowered Committee on the retirement of old and inefficient plants, and addressing the issue of low utilisation of gas plant capacity due to a paucity of natural gas will be taken up for implementation. The budget also added that the central government is going to work with the state governments to remove the undesirable duties on open access sales or captive generation for industrial and other bulk power consumers.
Conclusion
Net, net, a big booster dose could be in store for the power sector in the coming months. The industry is now keenly waiting for the proposed reforms to be implemented on the ground.
Reya Ramdev