Climate change mitigation and decarbonisation are the key focus areas in the power sector, and rightly so. India has announced goals to increase its reliance on renewables and reduce the carbon intensity of the economy at the 26th Conference of Parties (COP26) of the UN Framework Convention on Climate Change. The year also saw key developments in the distribution segment with the roll-out of the Revamped Distribution Sector Scheme (RDSS) and the Late Payment Surcharge Rules, both aimed at overhauling the ailing segment. Power Line invited industry experts to assess the sector’s progress over the past year, and share their views on the challenges and the way forward…
What is your assessment of the power sector’s progress during the past year?
India’s power sector is transforming rapidly on all fronts, including generation, energy mix, transmission capacity and demand growth. We have witnessed significant electricity demand growth with the revival of economic activity and this is expected to continue as the GDP is expected to grow at 7-8 per cent in the next few years. This has been especially proven in the last year (2021-22) when power demand soared to new highs registering a 7.8 per cent year-on-year growth, after two years of slowdown.
India is the third-largest producer and consumer of electricity in the world. Even today, India consumes about 1,400 BUs of electricity on an annual basis. The short-term power market covers 12-13 per cent of India’s power sector, accounting for over 180 BUs. As of June 30, 2022, the total installed power generation capacity in India stood at 404 GW. The renewable capacity at 161 GW contributes approximately 40 per cent to the installed capacity. The growing green power capacity is a precedent of the mass-energy transition that is under way, driven by the commitments made by the prime minister at the COP26 summit last year in Glasgow. Due to the increased industrial activity and a heatwave across the country, India witnessed the national peak demand for electricity growing to 212 GW, which is an 11 per cent year-on-year increase.
Given this trend, we are expecting that the power demand will see an increase of 7-8 per cent this year and a significant portion of that additional demand will come to the market. Further, a net zero emissions aspiration by the year 2070 sets the tone for the continued pursuit of sustainability- and renewables-led energy transition in the long term.
The Indian power sector has been growing progressively. The electrical energy requirement increased from 1,275 BUs in 2020-21 to 1,380 BUs in 2021-22, a rise of 8 per cent, and peak demand increased from 190 GW in 2020-21 to 203 GW in 2021-22, a growth of 7 per cent. Demand further increased to 216 GW in April 2022 (from 183 GW in April 2021, a phenomenal rise of 23 per cent), which could not be met and a shortage of 4 per cent ensued. The electrical energy requirement in April 2022 stood at 135 BUs (up from 117 BUs in April 2021, a rise of 15 per cent), with a shortage of 2 per cent. This, of course, was from a low base due to the Covid-19 pandemic last year, and possibly a change in weather from rains in April 2021 to very scanty rainfall in April 2022. The peak demand dropped in May 2022 to 206 GW, increased again to 212 GW in June 2022, and declined to 192 GW in July 2022.
The Electricity Amendment Bill was sent to Parliament in August 2022. The bill has provisions that have the potential to radically change the power sector, if approved. One of the major reforms is in the distribution segment.
New policies have been taken out to deal with the situation at hand. New rules and regulations also keep on being made, in accordance with the requirements. For example, imported coal prices and gas prices increased two to three times after the Ukraine war, after which distribution companies stopped buying power from imported power plants, resulting in shortages, which were made worse due to the increased demand in April 2022. A directive under Section 11 of the Electricity Act (emergency situation) was then given to all power stations in May 2022 that all coal-based stations would have to blend 10 per cent imported coal with domestic coal to make up for the power shortage and be allowed to pass on the same in the tariff. This helped reduce shortages to close to zero. The directive was withdrawn in August 2022 when there were sufficient stocks of coal in the coal yards of coal companies as well as at power stations.
The Central Electricity Regulatory Commission (CERC) took out the final regulations on market-based ancillary services in January 2022, which include generating stations, energy storage and demand response, for balancing intermittencies of wind and solar power, as well as fluctuations in demand. These regulations will promote the cheapest way of balancing these. The CERC also released the connectivity and general network access regulations in June 2022, to promote renewables connectivity, as well as deal with merchant power plants. Some other rules deal with increasing penalty for delay in payment by distribution companies.
India’s power sector has witnessed significant growth during the past few years, inter alia in generation capacity addition and transmission system augmentation, enabling transmission access and introduction of new and innovative power market products. The most notable progress has been in promoting renewable energy. As of March 31, 2022, India’s installed renewable energy capacity including large hydro stood at 160 GW, which is about 40 per cent of the country’s total installed capacity. At present, India stands at the fourth position in the world in terms of installed renewable energy capacity, fifth in solar generation capacity and fourth in wind capacity. However, due to Covid stress, in the past one year the progress has been incremental in renewable energy and transmission capacity addition.
One of the major developments during the past year has been the introduction of the Electricity (Amendment) Bill, 2022 in the Lok Sabha in August 2022, and its submission to the Standing Committee on Energy for further examination and scrutiny. The bill inter alia aims at reforming the distribution sector by permitting multiple discoms in the same area of supply.
The past one year also saw the putting together of an enabling framework of general network access (GNA) and allocation of transmission charges and losses based on access/usage has been created at the national level. Several new and innovative products such as green day-ahead market (GDAM), green term-ahead market (GTAM), and longer-duration contracts have also been introduced in the power market.
It has become imperative to change our consumption and production patterns in order to mitigate the climate crisis, accelerating our transition from thermal energy to renewable sources of energy, despite their attendant costs and stranded asset implications. For a coal-dependent sector (with coal accounting for nearly 70 per cent of its electricity output), India is now decisively fast-tracking the transition of its energy sources to renewables, seeking to have renewables account for over 40 per cent (500 GW) of the installed capacity by 2030. The transition to a lower-carbon energy system is likely to lead to a fundamental restructuring to a sector with a more sustainable energy mix, greater consumer choice, more localised energy markets, and increasing levels of integration and competition.
The Government of India has taken a series of policy initiatives to strengthen the Indian power sector and facilitate the ambitious energy transition. These include the Deen Dayal Upadhyay Gram Jyoti Yojana, the Ujwal DISCOM Assurance Yojana (UDAY), the Integrated Power Development Scheme, and now the Revamped Distribution Sector Scheme (RDSS). About 24 per cent of India’s project investments under the $1.4 trillion National Infrastructure Pipeline are in the power sector.
A “Mission 500GW” action plan will be drawn up soon by the government, anchored by a joint committee comprising the Ministry of Power (MoP) and the Ministry of New and Renewable Energy, to increase India’s renewable energy capacity to 500GW by 2030. This will hopefully address the attendant issues of transmission, choice of technology, picking the correct energy mix (primarily solar and wind) for the 500GW target, storage requirements, and creating an investor-friendly regulatory framework. India’s power sector is projected to attract investments of around $125 billion to $140 billion between financial years 2019 and 2023.
A good first step is initiating steps to establish an umbrella legislative framework for a market-based carbon credit trading scheme by seeking to amend the Energy Conservation Act, 2001. Much work needs to be done to develop and define a diverse mechanism for the carbon market including (i) building a robust basis for recognising and valuing carbon credits, (ii) identifying the greenhouse gases and industries, which would be first the focus of the mandated emission budgets with requirements to get offset with credits backstopped by enforceable penalties, (iii) laying out the roadmap for a gradual, steady shift from voluntary to mandated emission reduction for various industries and GHGs, (iv) defining participants on the buy and sell side as well as rules governing the platforms and bilateral trades, and (v) establishing a mechanism that will enable the Indian industry and segments of the economy to harness the revenue potential of carbon credits linked to international markets. This would go a long way in attracting sustainable finance and technology to India.
Meanwhile, in the face of recent power shortages and the critical shortage of coal, NTPC has announced that it is reversing its much-lauded 2017 decision to phase out old, inefficient thermal plants. Simultaneously, with the Russia- Ukraine conflict and the resultant energy situation (vis-a-vis gas availability and price), several European countries are also reviving coal-fired plants, derailing their nationally determined contributions and energy transition plans. This is also likely to put an inflationary pressure on the import bill to meet India’s energy needs.
Professor S.L. Rao
It is very difficult to identify any single major element of progress in the past one year. There has been considerable improvement in the availability of power, but there are major weaknesses in the distribution and pricing of power, and these need to be dealt with.
Over the years, the government has done a few things that might make the situation of energy suppliers a little better in terms of payment, etc. However, coal has not benefited a great deal from this. I am not too happy with the existing situation. It has something to do with the fundamentals of the system. The most important part of the system is the fact that India is a federation. Electricity is a concurrent subject and thus states have their own policies. My problem has been that there is no compulsion on state-owned electricity distribution companies to produce a surplus in their operations and this has been a problem for the past so many years. This is due to the fact that the state governments, to get close to the voting population, are inclined to offer subsidies. These subsidies are not reimbursed in time and sometimes not at all, leaving electricity distribution companies in bad shape in terms of their ability to pay.
There must be a compulsion for the state electricity regulatory commissions to oversee that the distribution companies are run either with a surplus, or are reimbursed without any delay with respect to any action that they undertake due to government directives, which results in them losing money. The situation has not changed. Unfortunately, the appellate tribunal created in 2003 also does not seem to have the authority to change this situation.
Prabhajit Kumar Sarkar
The power sector’s performance acts as a leading indicator of the state of the economy. From an initial dip in demand in March/April 2020 to continuous highs, whether in terms of peak demand met and energy transacted, the power sector has shown positive signs of recovery and is on the path of continuous growth.
As the war in Ukraine and other geopolitical issues impacted the imported coal segment, there was a period when coal supplies got affected, leading to a scenario of high prices for a short while. However, that was successfully overcome in a matter of days with the coordinated efforts of the MoP along with coal and railway ministries as well as by immediate action by distribution companies and power generators spread across the country.
We have had the benefit of a highly dynamic and progressive policy environment where multiple issues related to payment security mechanisms, payment delays, coal availability, power transactions and development of markets have been quickly redressed.
Longer-term initiatives related to sectoral efficiencies such as the Electricity Amendment Act and the Energy Conservation Amendment Act have been taken up, with the latter already being notified.
In addition, the regulatory framework in our country has continued to evolve at a rapid pace with several key regulations being updated in the past one year. These modifications are comprehensive in nature and have accommodated the changes in the modes of transactions as well as a significant evolution that has taken place in the power sector. These include the power market regulations, the GNA, the grid code, regulations related to ancillary services and deviation settlement mechanism (DSM), etc.
During the year, PXIL enabled transactions in renewable energy by introducing GDAM and GTAM contracts. The green contracts have created market-based avenues for transaction in solar, wind, hydro and small-hydro power. This has expanded the role of the exchanges in providing signals for future capacity additions in the renewable space as well.
Dr Rahul Tongia
Mitigating climate change is a heavy factor through the power sector, more so for India. But this last one year has emphasised that there are multiple criteria and objectives when it comes to energy and electricity policy, not just climate change. The Ukraine crisis has brought energy security to the fore, not to mention concerns over affordability. Planning and policy always cycle between multiple objectives – it is only the emphasis and urgency that shift around.
Prime Minister Narendra Modi’s Glasgow COP26 declarations emphasised not just net zero but also a shorter-term focus on the power sector. While the ambitions announced spoke of much higher renewable energy capacity targets, technically listed as non-fossil, the actual filing of India’s international commitments, the Nationally Determined Contribution, was for 50 per cent non-fossil capacity. This still means a high renewable energy growth.
What are the biggest unresolved issues and challenges in the sector?
The government has the intention to supply 24×7 electricity to all consumers, and to attain this target, the country needs to ensure last-mile connectivity of power.
There was a significant surge in power prices across the country in the last few months due to unprecedented demand for power and very high international coal and gas prices. The monthly average day-ahead price has increased significantly in this financial year due to this energy crisis. The government has taken appropriate measures to address this issue and coal companies have increased production. With improved domestic coal availability, we expect the prices to come down significantly.
The financial and operational health of discoms has been a matter of concern for some time now. While there has been an improvement in the past few years, there is a lot left to be achieved on the operational, collection and financial efficiencies. The current average AT&C losses of discoms are at 20-21 per cent. The aim is to reduce these losses to pan-India levels of 12-15 per cent by 2024-25, by improving their operational efficiencies and financial sustainability. Power procurement costs comprise almost 80 per cent of the total costs of supply incurred by a discom. This cost can be optimised by leveraging various product segments offered by the exchanges, particularly day-ahead and real-time markets, to replace costlier power by taking advantage of competitive prices.
The biggest unresolved issues and challenges in the power sector, are, without doubt, the loss-making distribution companies, and the reasons for this are free power to farmers as a populist measure and keeping the tariff lower than the cost of supply. The state-owned distribution companies are not professionally managed. There is no incentive for the personnel to perform, as their salary is unaffected, whether they perform or not. It is true that electricity is an essential commodity and must be available to all at a price that the respective consumers can pay. This may as well be done through direct subsidy rather than cross-subsidy. This would also give a big boost to industries to become competitive globally, and thus support the Make in India initiative.
The financial health and performance of power distribution companies continues to be one of the biggest challenges for the Indian power sector. Most distribution companies have been facing the challenges of inflexible long-term power purchase agreements (PPAs), relatively higher AT&C losses, poor infrastructure and inefficient operations. The poor financial health of distribution companies prevents them from making the required investments to improve the quality of the power supply and prepare them for the wider penetration of renewable energy.
Over the past couple of years, several reports by the Parliamentary Standing Committee for Energy, the Reserve Bank of India and the MoP have acknowledged the poor financial health of the power sector and its impact on national finances. This remains an abiding concern for me. Consider the following:
- RBI’s article titled “State Finances: A Risk Analysis”, dated June 2022, which highlights the impact of state subsidies and freebies, including up to 40 per cent of all contingent liabilities being related to power sector guarantees and prolonged debt, as well as the over-dues owed by discoms posing the highest fiscal risk to state finances.
- RBI’s report on state finances, dated November 2021, which notes that states’ gross fiscal deficit overshot the fiscal responsibility and budget management (FRBM) threshold of 3 per cent of the GDP in 2015-16 and 2016- 17, primarily due to implementation of UDAY. The medium-term improvements in the fiscal position of state governments will be contingent upon reforms in the power sector as recommended by the 15th Finance Commission and specified by the Centre.
- The MoP’s 10th Annual Integrated Rating and Ranking of Power Distribution Utilities report, dated August 2022, which notes the following realities:
- Fiscal deficit in the sector is larger than previously recorded. In financial year 2021, absolute cash-adjusted gaps or losses amounted to Rs 1,130 billion – having grown annually at 5 per cent.
- In the same year, discoms, on an average, were making a loss of 0.93 paise per unit input on absolute cash- adjusted basis (which would convert to Rs 1.125 per unit sold based on aggregate technical and commercial losses of 21 per cent) without providing for returns on equity.
- In the same year, subsidy receivables for discoms from state governments rose 85 per cent from the previous year to Rs 795.77 billion.
- In financial year 2021, regulatory assets (acknowledged over-dues not paid) rose by 16 per cent to Rs 908.32 billion.
- In the same year, outstanding dues owed to generation and transmission companies rose to Rs 2,730 billion or 174 days of payables.
4. A press release dated July 30, 2022 issued by the Office of the Prime Minister, in which it was noted that Rs 2,500 billion was trapped in the power sector, of which the distribution companies owed more than Rs 1,000 billion as outstanding dues towards the generating companies. Further, the power distribution companies were owed more than Rs 600 billion from many government departments and local bodies.
This financial situation needs to be resolved with a great sense of urgency lest it becomes insurmountable and comes in the way of India emerging an engine of growth and stability for the global economy.
Professor S.L. Rao
One of the important challenges in my view is the selection of regulators. I think we do not have a proper system where the people who are selected as regulators are truly independent of the government and are able function in a clear, autonomous and independent manner. This is important and must be done. I do not know how this can be ensured by the state governments and whether the central government has any authority to decide that regulators must be selected by independent bodies.
I would also say that we need a review mechanism to assess the performance of the regulatory bodies. The matter has been left to each local government and this is quite unsatisfactory because there is a much closer relationship between the selected regulators and the concerned state governments.
The next thing we need is coordination between regulatory bodies in different sectors. I hoped to achieve this in my time many years ago as the central regulator by creating a body called the Forum of Indian Regulators (FOIR). While FOIR has introduced some important changes within the electricity sector, I think it has not been able to successfully coordinate between regulatory bodies on several issues. For example, I would like to see a much greater degree of coordination between the Securities and Exchange Board of India and electricity regulatory bodies to ensure that electricity companies, whether private or public, function in an effective manner as far as their financial health is concerned.
Prabhajit Kumar Sarkar
The power sector needs to undertake two major transitions in the near future so as to act as a driver of India’s growth through the coming years.
The first is the transition towards a more environmentally sustainable future with a greater integration of renewable energy into the grid. We now have a nationally declared contribution that we will achieve about 50 per cent cumulative installed electric power capacity from non-fossil fuel-based energy resources by 2030.
This would require a lot more effort towards the integration of renewables into the grid while at the same time ensuring grid stability and continued availability of electricity even during periods when generation from renewable capacities diminishes, namely, evenings and nights.
Renewable energy generation capacity is being enhanced through policy support on all fronts including long-term auctions for supporting capacity additions, support to ensure timely payments for electricity supply, development of domestic capabilities in high efficiency solar modules as well as introduction of various market mechanisms through power exchanges to enable the sale of power on a larger scale.
With the emergence of commercially feasible battery energy storage systems and green hydrogen as well as a resurgence in hydro pumped storage, the issue of renewable energy availability during evening and night hours can also be solved. This would require substantial investments and policy support to achieve scale over the next few years.
The second transition that we need to successfully navigate is towards a commercially viable power distribution sector in the states.
Power distribution continues to be the weakest link in the supply chain of the power sector. Most distribution utilities are financially distressed due to a high-cost rigid structure of long-term PPAs, poor distribution network and leakages in metering, billing and collection (MBC), leading to high commercial losses and an inability to recover the cost of power supply and service.
Such constraints prevent them from making the investments required to improve the quality of power supply and prepare for the wider penetration of renewable energy. The discoms’ inability to pay for purchased power endangers the financial health of the generators and their lenders, causing a negative domino effect on the economy.
Appropriate cost-reflective tariffs, payment of subsidies directly to consumers, and a substantial improvement in MBC and overall operations are some of the essential next steps for the distribution segment.
In the power exchange space, in the foreseeable future, we expect a significant increase in digital transactions and the introduction of many new products with the deepening of power markets. The power exchanges would be introducing new contracts related to ancillary services markets, capacity contracts and market-based economic despatch, adding diversity and scale to their existing offerings. The expanding role of power markets will go a long way in addressing the issues of clean, reliable and quality supply to consumers at affordable costs.
Dr Rahul Tongia
The previous year has also sharpened India’s domestic management priorities for its coal power plants where concerns over supply adequacy were driven not by the lack of power plant capacity but by insufficient coal stockpiles at the power plants. Addressing this challenge will become increasingly important since India’s grid requires both renewable energy and coal in the near to mid-term. Renewable energy scarcely addresses the evening peak demand, at least not without storage, which is expensive. Today, managing the evening peak is heavily dependent on coal and hydro, but coal capacity is scarcely rising, and even hydro growth is very low.
Going forward, the key need is for India to figure out a proper balancing act across fuel types, one that is not just about costs per se but also other trade-offs including energy security, domestic manufacturing, employment, supply chain, etc.
To meet these short-term and long-term needs, we will need to address three things, which should be viewed as necessary but are not always sufficient. These three also happen to be intertwined, which is both bad and good. The bad news is we may not get all the benefits until complementary steps are taken, but the good news is any single step taken can have outsized positive impacts spread across multiple dimensions.
First, we will have to update how we calculate costs. The levellised cost of energy should be viewed as an indicative measure for comparing costs of generation, but these are averaged out costs that assume a normative performance like plant load factor (PLF); ignore time-of-day issues; ignore system costs such as for transmission or implications for other generators that may have to back down or flex down, hurting their efficiency and overall economics. We need to devise mechanisms for examining the portfolio costs for both capacity expansion and transmission.
Second, we have to improve how we signal incentives and how we manage risk in an evolving power system. PPAs cut down the risk for a generator but they only pass it through downstream. As we move towards greater use of markets and larger despatch (balancing) areas, this will become even more critical. A top-down push via capacity targets gives direction, but these need to align with true least-cost options. The good news is that studies, including our own at CSEP, have shown that large renewable energy generation is cost effective. The bad news is that it does not always appear economical to every stakeholder in the chain, at least under current regulatory mechanisms.
It is also insufficient to meet our rising demand, more so during time periods when variable renewable energy cannot generate electricity.
Lastly, we need to revamp how we collect, share and harness data. This is not just about putting up smart meters (which also need smart pricing), but collecting granular data that includes time of day and location of power demand. Proper data is needed for integrated planning. Too often, we hear that we do not need so much coal, and that the PLF of a particular plant is very low – so shut it down. But if that plant operates seasonally or at the peak, it really does have disproportional value that simple Rs per kWh ignores.
There are many other things we need to focus on, including smarter and more efficient end-use of electricity. We are aware of what we need to do but the challenge has been in implementation and scaling.
The modern power grid is complex, a technological marvel, dubbed the greatest achievement of the 20th century. For a number of reasons, it is evolving and adapting, including through changes driven by digitalisation, decarbonisation and decentralisation. But it would be naïve to expect overnight or rapid changes. This is not a speedboat we can spin around quickly. It is more a barge or battleship, which takes time to steer but carries immense inertia. The changes will happen – they just need integrated planning, finance, and political support (including managing winners and los-ers). Figuring out these three are actually the real needs going forward. So let us make it 3+3 things we need to focus on.
What is your outlook for the power sector in the near to medium term?
Power sector expansion will be driven by the government’s focus on renewables. India has ambitious targets to reduce its emissions intensity by 45 per cent and achieve about 50 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. The power markets will play a critical role in supporting the accelerated growth of this renewable energy capacity addition and transforming India’s power sector. Realising the importance of power markets in deepening India’s power sector, the draft National Electricity Policy, 2021 aims to expand power markets to represent a 25 per cent share by the year 2025. The exchanges offer various products under the green market, which is helping the states in achieving their renewable purchase obligation and providing pan-India market access to the generators to sell renewable energy at the most competitive prices. Further, renewable energy capacity addition through market-based models is being considered in similar lines as done by many European countries.
New products from the exchange, such as derivatives, capacity market, market-based ancillary services, will help in deepening the markets. Industry estimates are projecting an 8 per cent growth of electricity demand in the country, opening several avenues for power exchanges to grow.
My outlook for the power sector is very bright for the short term to medium term. Renewable plus storage now has a levellised tariff lower than the cheapest fossil fuel-based plant, that is, that of a new pithead-based coal power plant. So, I foresee a lot of cheaper renewables plus storage power coming up in the future. Combined with higher interconnections with neighbouring South Asian countries, the requirement of storage would become even less. What is required is rules and regulations to be put in place.
Another balancing source that is being put in place is demand response. This is the cheapest yet untapped balancing source for balancing the intermittencies of wind and solar power. Automated response will become a reality, once smart meters are in place. Rooftop solar PV, including capacity set up by the industries, is increasing at a fast rate. In the January-March 2022 period, it increased 34 per cent over the same period in the previous year in all segments. It increased 45 per cent in the industrial segment. The total rooftop solar PV capacity has reached 7.6 GW as of March 2022.
At present, we have about 404 GW of installed generation capacity in India. The share of fossil fuel-based installed capacity is about 60 per cent and the remaining 40 per cent is non-fossil fuel based. It is projected that the installed capacity will increase to more than 800 GW over the next 10 years. Thus, we are going to add more generation capacity in the next 10 years than what we have added in the past 70 years and most of this capacity will come from renewable energy. Aggressive transition to renewable energy sources would also require faster expansion and upgradation of transmission systems as well as faster exploitation of energy storage opportunities to support grid stability and demand-supply management. As we chase aggressive renewable energy targets, retiring existing inefficient thermal plants would also be a challenge in light of the opposition from different stakeholders. Power markets and regulations will also be required to be tailored to support access to newer technologies and made flexible enough to accommodate emerging technologies as they reach maturity. The role of the distribution companies will also diversify from providers of a bulk commodity to providers of services, including demand-side response and new end-use services such as EV charging.
Building up from a stakeholders consultation on a discussion paper issued in 2021, the MoP is seeking to introduce a system of market-based economic despatch (MBED) for power generated from renewable sources as a part of the One Nation, One Grid, One Frequency, One Price mantra. If and when implemented, MBED would mark a paradigm shift in the structure of the Indian power market. It is time for market mechanisms and market design in the power sector to evolve in order to manage the variability of supply and demand, optimally utilising the existing resources and seeking a larger share than 9 per cent of the industry.
It is expected that centralised market- based scheduling and dispatch will broaden the balancing area beyond states to the country as a whole, securing the desired flexibility for reliable deployment of much higher levels of renewables. The MBED is expected to bring about cost-savings to the tune of several billion rupees, given that this mechanism’s efficiency and competitiveness would ensure lower power purchase costs. This in turn would improve the financial condition of distribution utilities by moderating their liquidity requirements. MBED can potentially lead to the introduction of a capacity market and the bundling of ancillary services with electricity.
Professor S.L. Rao
The sector is fundamental to the whole economy and there is no way it could be allowed to collapse or to do too badly. So, circumstances will compel the state governments to function in such a manner that the electricity sector performs well financially. What is required is a much more clear-headed way in which the regulatory bodies regulate power distribution and other companies under them. I do not think we have any satisfactory and clearly agreed method by which the governments can regulate these bodies. In summary, I would argue that all distribution companies should be left free to function effectively so that they are financially sound at all times. For this, the regulator must be truly independent of the concerned government and take informed decisions for the health of the sector.
Prabhajit Kumar Sarkar
I think we are at a very interesting time right now, with significant policy initiatives being taken to drive forward the power sector in the country.
In addition to the series of steps being taken to drive the power sector forward as we mentioned earlier, there is also a focused drive to enhance the efficiencies of the sector by utilising the market frameworks. The power markets, especially the power exchanges, are an important instrument in this drive towards enhancing the efficiency of all consumers in the country.
Many power sector reforms are being introduced by the government to bring efficiency, promote decarbonisation, and ensure a 24×7 reliable and affordable power supply.
In order to move towards a greener economy, the proposal for a national carbon market was announced in October 2021 with an objective to involve the corporate and private sectors in energy saving and carbon emission reductions. The carbon market will pave the way for a large-scale promotion of clean energy technologies in India, leading to de-carbonisation of the Indian economy through active participation by various stakeholders. With the successful operation of the renewable energy certificate and energy saving certificate markets by the power exchanges over the past 12 years, the exchanges are poised to play a significant role in the development of the carbon market.
We have a highly supportive policy and regulatory environment today and a lot of opportunities to serve the marketplace through a wide variety of contracts of various tenures and various segments of the market. Furthermore, there are regulatory provisions such as market coupling, which once implemented would further enhance the competitive efficiencies of the power market.
Ultimately, the exchanges are marketplaces, where the buyer and the seller can efficiently and transparently manage their portfolios better and we from PXIL continue to strive to make that experience better for all participants every day.