Interview with Alok Kumar: “We have to transform the electricity markets”

“We have to transform the electricity markets”

Alok KumarThe top priorities for the power ministry are to implement the newly launched Revamped Distribution Sector Scheme (RDSS) in letter and spirit, to ingrain payment discipline in the system and to deepen the electricity market through the implementation of market-based economic despatch and the launch of other new products. Alok Kumar, secretary, Ministry of Power (MoP), recently spoke to Alok Brara, publisher, Power Line and Priyanka Kwatra, associate director, Power Line about the current state of the power sector, its recent achievements and the top priorities for the power ministry going forward. Excerpts…

What is your perspective on the current state of the power sector? How do you rate its performance in the past one year?

The power sector has come a long way. Access to electricity is now universal and the availability of power supply has gone up significantly. This has been made possible by accelerated capacity addition and strengthening of our na­tional grid.  We have also done very well in our en­ergy transition targets, in terms of the share of non-fossil fuels in our installed power capacity. We have achieved 40 per cent of the non-fossil fuel capacity nine years ahead of the target. As for emissions intensity, the target is to achieve 33 per cent reduction by 2030 (over the 2005 emissions level), and we are alrea­dy close to 28 per cent reduction.

The first task before us is to improve the quality and reliability of power supply. In the rural areas, we are currently at close to 22 ho­urs of power supply; we have to ma­ke it 24 ho­urs. For this, we need a tu­rnaround of our dis­coms as well as timely investments in the sector. We will also have to continuously augment our gene­ration and transmission ca­pacities. The second big task is to achieve our Na­tio­nally Determined Contributions. We have deeper energy efficiency targets of achieving an emissions intensity reduction of 45 per cent and a 50 per cent sh­are of non-fossil fuels in the gro­wi­ng ins­talled capacity by 2030.

One of the flagship achievements in the past one year has been the launch of the RDSS. I am very happy that every state has come forward to commit to reforms under the scheme. There is very wide support from the state governments for reforming the power sector. The biggest achievement is the onboarding of all states for the second-generation reforms envisaged under the RDSS for the turnaround of the discoms.

The notification and implementation of the LPS rules are another flagship intervention by the MoP. This is expected to enforce payment dis­cipline by the state governments. Discoms have fewer problems with respect to operatio­nal efficiency but more with regard to delayed payments of subsidies and dues by state governments. The states have understood in a very positive and constructive manner that there is no way out except payment discipline. Once there is payment discipline, everything will be add­re­ssed in terms of timely payment of subsidies and government dues. There is a need for better targeting of subsidies. States have limited fiscal space and they do not have infinite capacity for providing subsidies. It will be in the interests of our environment, water resourc­es and energy efficiency to target subsidies in a better manner.

Another big intervention in the power sector is the amendment of the Energy Co­nserva­tion Act. Firstly, the amendment bill allows the central government to introduce carbon trading schemes in the country. Secondly, it imposes an ob­ligation of non-fossil fuel consumption on designated consumers, in terms of both energy and feedstock. Thirdly, the amendment bill extends the Energy Con­servation Building Code to large re­si­dential buildings, which could be a ga­me changing initiative for the energy effi­ciency segment.

Another big initiative pertains to the amendment of the Electricity Act, 2003. This amendment entails softer second-generation re­forms for the power sector. These reforms have been formulated after wide consultation with all stake­hol­ders, specifically the state govern­me­nts, regulators, industry, academia, think tan­ks and research bodies. One of the biggest industry concerns pertained to cherry-picking by new players in the distribution segment. This has been addressed in a very detail­ed manner with a foolproof mechanism in the bill. We have put in place several safeguards against cherry-picking. Firstly, every licensee is covered by the universal service obligation (USO). It would be wro­ng to say that new licen­sees will not be covered under the purview of the USO. Se­condly, every licensee in the same area will have to include the cross-subsidy surcharge in its tariff, whatever has been settled by the state electricity regulatory commissions. Thirdly, the sharing of the power purchase cost of the incumbent licensee is a big safeguard. Fourthly, the central government has a role to play in identifying a minimum area for which a second distribution licensee can be allowed.

There are some myths about the electricity amendment bill. I would like to clar­ify that the­re is not an iota of mention of privatisation, and there will be no chan­ge in the ownership of any asset. There is no­thing that says that state governments will not be able to give subsidies. The sta­te governments will continue to have the right to give subsidies as they have been giving at present. There is also no provision for direct benefit transfer. Be­si­des this, the discussions regarding minimum tariff must be seen in the proper context. The minimum/ ma­xi­mum tariff is to avoid predatory pricing by new players. The state government can give subsidy of any amount even in a minimum tariff scenario.

Are you seeing signs that the implementation of the RDSS will be better than the previous schemes?

Yes. In the earlier schemes, the investment was in the expansion of the system. The Deen­dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) aimed at village electrification while Saubhag­ya focus­ed on household electrification. Under the RDSS, in the first part, we are sanctioning only works related to loss reduction, and network augmentation will be done in the second part only. Under loss reduction works, one of the key focus areas is smart metering infrastructure.

Under earlier schemes, it was seen that capital investments were made towards assets that were not put to use. Under the RDSS, we are adopting the totex  mode, which will en­sure that these ass­ets are put to use. Under the Accelerated Power Development and Re­forms Prog­ramme and the Integrated Power De­ve­lopment Scheme, the focus was more on network expansion with the addition of new substations and feeders. While network expansion is a part of the RDSS to some exte­nt, the major focus is on loss reduction. Apart from this, under the earlier schemes, the grant flow was not linked to the actions taken by the discoms on the promises made by them. This has completely changed now. Alth­ou­gh it will be slightly painful, under the RDSS the flow of grant will stop if the discoms do not implement the action plan or do not continue to meet the pre-qualification criteria.

Renewable energy integration has been inc­reasing steadily, despite initial concerns. Are you satisfied with how things have panned out in the renewable energy segment?

The investments in the renewable energy spa­ce are a way of preparing for the future.  So far, the share of renewable en­­ergy in gene­ra­tion has been around 24-25 per cent, including large hydro. How­­ever, if you exclude large hy­dro, the contribution of renewable en­ergy stan­ds at 10-11 per cent. The share of renewable gene­ration in the grid is going to inc­re­ase very rapidly. Hence, the challenge of integrating renewables will be far gre­ater in the fu­ture. Till now, flexing coal-based thermal pow­er plants was not a huge problem given the limited co­n­­tribution of renewable energy. But with its sha­re increasing, it may well pro­­ve to be a problem without energy storage. India has a huge natio­nal grid; hence we need to empower the Natio­nal Load Despatch Centre and the state load despatch centres. In my opinion, these are some of the things that need to be implemented, otherwise achieving 500 GW of non-fossil fuel installed ca­pacity will be pro­ble­matic. In the coming years, intermittent re­ne­wable power sources such as solar and wind will grow rapidly. As of now, so­lar and wind po­w­er have a combined installed capacity of ar­ou­nd 90 GW in India. When both grow rapidly by over 300 GW in the coming years, integration of variable renewable energy capacity will be a far greater cha­llenge given that baseload power will not grow to a similar extent.

What are your expectations from the hydro­power segment going forward?

The hydro segment is going to be on an upward trajectory, with more hydroelectric plants (HEPs) being installed. In the past two years, the central government has sanctioned many projects, especi­ally in Jammu & Kashmir. The government has approved the construction of the Sawa­la­kote HEP, Ratle HEP, Kiru HEP and Kawar HEP. Moreover, the central gov­er­nment is in discussion with the Ar­una­chal Pra­de­sh government for the development of about 10,000 MW of potential HEP capacity through allocations to CPSUs.

Pumped storage will be a success story as the MoP is looking at incentivising in­vestment in them and developing them. Pumped storage hydro (PSH) ca­pa­city will especially rise in states such as Ma­ha­rashtra, Andhra Pradesh and Tamil Nadu, as these states have come up with a quick way of deploying this technology. The central government has, via the Mi­ni­stry of Finance, given in-principle appro­val for viability gap funding (VGF) equal to 20 per cent to PSH plants. More­­over, many PSH plants will be commissioned regardless of VGF because they are very viable and useful in light of the transformation of power markets. In my opinion, the growth rate of PSH plants will be much higher than the growth rate of conventional hydropower plants.

What are your expectations from nuclear po­wer going forward?

We had a number of discussions with the De­part­ment of Atomic Energy. It is working on aug­menting India’s nuclear capacity to 15,000 MW by 2030 from ab­out 7,000 MW at present. Another favou­rable development is that NTPC Limited and Nuclear Power Corpo­ration of India Limited (NPCIL) have agreed to revive their joint venture and have identified two nuclear projects for development. I am sure it will pave the way for more investments in nuclear energy, as seen in the case of renewable energy where CPSEs paved the way for attracting in­vestme­n­ts from private players. Nucl­ear power will play a big role in ensuring a successful transition to net zero emissions by 2070; hence the joint venture between NTPC and NPCIL is a very significant development.

What are the biggest challenges and issues for the sector?

The biggest challenge for the power sector is restoration of the financial viability of the discoms. Secondly, the functio­ning of the power system at the state level has to be modernised and opened up in terms of open access and consu­mer engagement, and become more forward-looking. Modernisation of the power systems involves increasing the penetration of smart grid technologies so that discoms can provide world-class supply and reliable power to consumers with an increasing share of renewable energy. Thirdly, the discoms have to re­invent themselves and become comm­er­cial orga­nisations. Till now, they have focused on expanding electricity supply to smaller towns and rural areas. Going forward, discoms have to restructure themselves to be commercially oriented. The technical functions will continue to be im­portant; however, comm­er­cial co­n­siderations will become equally or more important. Fourth­ly, tariff re­forms and subsidy targeting will play a very vital role in the coming years as they are the key to ensuring the competitiveness of the industrial sector and raising energy efficiency to a high level.

What are your top priorities in the medium term? What is your outlook going forward?

The medium-term top priority is to take the RDSS forward and ensure that it is implemented in the same letter and spirit as the one with which we have de­signed it. Next is to ensure that payment discip­line becomes embedded and ingrained in the system. My next pri­ority will be to transform the electricity markets in India with the implementation of market-bas­ed economic des­pat­ch and arrangements like Contract for Di­ff­erence. Many disco­ms have a lot of fixed costs, which adver­sely impact their cost structure. To add­ress this, we have to transform the electricity markets so as to channelise all surplus capacity throughout the year.