Saturday, August 13, 2022


Privitisation no solution for power reforms

August 08, 2018 06:13 PM

By Vinod  Kumar Gupta
The  reform in power sector remains a pipe dream and benefits of surplus power generation capacity are negated by power distribution companies facing cash crunch. Now elections are round the corner and every political party is planning to promise  more subsidies to all sections of consumers.

The reform process in the country started with Electricity Act 2003 by replacing the Electricity (supply) Act 1948 which trifurcated the state electricity boards in three separate companies for generation transmission and distribution.  The World Bank model allowed the entry of private companies into the safer and profitable zones.

The relicensing in power generation opened the floodgates of private thermal generation capacity across the states. The private  developers setting up thermal power plants took undue advantage of the  situation and  forced the state power utilities  sign power purchase agreements for a period of 25 years  with a deemed generation clause.

Power purchase agreements with private companies with a "deemed generation" clause that forces the power distribution companies (Discoms) to pay for the power that they may not consume during the lean periods. The fixed cost payment for backing down of units varies from 50% to 100% of the subsidy amount paid by the state government to the Discoms. This has also crippled the state sector thermal units which have been put on forced outage. The plant load factor of thermal plants which used to be 80% has now come down to around 60%.

Another problem to the aggressive capacity increase especially in thermal sector is the stressed situation as far as the funding is concerned. Non-availability of regular fuel supply arrangements, lack of Power Purchase Agreements (PPA), inability of the promoters to infuse equity and working capital and other regulatory and contractual issues were some of the reasons for rising stress in the power sector. Private power producers are at the government’s doorsteps crying out for a cash injection and bailout for private sector. Now the government has setup a committee headed by cabinet secretary to look into the matter.

Bailouts have been made a recurrent feature for the power sector which is marred by shortages, operational inefficiencies, high interest costs and cross-subsidies for political gains.

The government must review and discuss publically the plus and minus points of Electricity Act 2003 but not in a way the government envisages in the form of Electricity (Amendment) bill 2014.

Now the government has planned to further bifurcate power distribution into carriage (the distribution infrastructure carrying the electricity to consumers) and supply (for the sale of electricity to consumers). That means between the pillar posts outside your house, to which power is brought by the distribution company, into your house there would be a licensee in the name of competition. The motive is very simple to nationalize the losses and to privatise the profits.

The power sector may collapse once the privatization of power sector begins as proposed in the Electricity (Amendment) Bill 2014 becomes a reality. With the passage of this  bill the Discoms in the future will become the main   supplier to  domestic consumers who gets subsidized power   and  agriculture sector where either it is free power or is  heavily subsidized .

Consequence of enactment of this bill will boost the cost of supply for domestic and agriculture sector as cross subsidies will disappear.   The Discoms will be stranded with excess capacities and huge losses and sufferers of this fallout will be mostly small and rural consumers with serious implications for state level politics. These consumers will have to pay higher tariffs and poor supply quality.

Electricity Act 2003 made a concurrent subject more central governments centric, thus curtailing the powers of the State Governments. Regulation is through an independent regulator bypassing the Government and the legislator on a subject, so vital to every citizen. Experience has shown that the regulators, far from being independent are regulated by powerful interests. Now the envisaged Electricity (Amendment) bill further erodes the powers of the states.

The country has a generation capacity of 3, 43, 899 MW while the maximum power demand this year was 1, 70, 121 MW. The installed power capacity in the country is about double the capacity of power generated yet the power utilities are not able to supply round the clock power supply.

Power surplus India may be a major step towards reliable electricity supply and universal access but the power sector is facing several serious challenges as well. In the urban areas the average power cuts are to the tune of 25 hours in a month whereas in rural areas the supply rarely exceeds 12 hours in a day. The main reasons are financial constraints of power utilities which prohibits them from purchasing power as per demand and transmission constraints. Bailouts have been a recurrent feature as the sector is marred by shortages, operational inefficiencies, high interest costs and cross-subsidies for political gains.

The total thermal capacity is 2, 22693 MW (64.8%), Hydro capacity 45403MW (13.2%) and renewable power capacity is 69022 MW. Solar energy capacity is 22000 MW and wind energy capacity is 34000 MW.

As part of the Paris Climate agreement, India had committed to produce 40% of its installed electricity capacity from non-fossil fuel sources by 2030.  India has set itself a target of adding 175 GW renewable energy capacity by 2022, but union Minister of state is hopeful of adding 227 GW within the same timeline. Government’s overzealous approach towards solar power generation appears to be unsustainable.

 In the case of renewable, -solar and wind - prices have comedown but old power purchase agreements entered into several times the present cost have to be honored for the next one or two decades. Also, very large mega solar parks that would have installed capacity in thousands of megawatts are to be set up. There is serious concern relating to the evacuation of power since the investment in transmission would be used for about 6 to 8 hours in 24 hours. There would be problems in load balancing during non-sunny hours when this amount of energy is suddenly not available. The renewable energy is available on must run conditions for a part of day and this is a zero variable cost with fixed charges only.

The solar power installed to cater to the need of a captive industrial consumer with the tariff of say Rs. 3.40 per unit and with the weekly off the average tariff will increase to Rs. 4 per unit. Further if 70 % supply is directly fed to the industries and remaining 30 % through storage batteries the tariff would be around Rs. 7.50 per unit. The other constraint for setting up solar units is the cheap space availability.

Today more than 25, 000 mw of thermal power generation capacity is on sale and buyers are hard to find. This idle capacity is one of the major contributors to the huge Rs 10 lakh crore bad debts of commercial banks. Further creation of excess capacity in solar power will add to the economic woes.

The mix of thermal and solar needed to be balanced; analysts said adding huge investments would have to be made in grid connectivity and distribution. A recent power ministry study on optimal energy mix has virtually concluded that the present solar and wind power target is more than adequate to achieve the optimal mix of renewable and non-renewable sources of energy. It has suggested renewable energy should not be more than 40% of energy requirement.

Power transmission is another critical area because often the place of power generation and the place of power consumption are located far apart. Coal rich states or states with run of rivers can generate a lot of power, but they may not be rich enough to consume this power. The eastern and northern states have more generation capacity while the western and southern states cannot use this power because of transmission constraints.

The current challenges are far too strong as power utilities are seeking re-negotiation of old and expensive solar and wind power purchase agreements (PPAs) and delaying signing of new PPAs. The power utilities which are already struggling with stranded thermal units will find it difficult to sign new PPAs.

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