Power sector opening up for new players: DG AIDA

The government has released draft amendments to the Electricity Act that propose opening up electricity distribution to private companies and refined regulatory mechanism. How different is it from the existing regulations and norms?

You have to understand the difference between privatisation and opening up the segment for new players. In privatisation, it is at the discretion of the present owner — the State government — whenever they want to rope in private sector into the business. What the draft Bill is attempting, in my understanding, is that it is allowing more than one player to operate in an area, and it can be a private player or a government company. The law itself provides for what we normally call a parallel licence, or second or subsequent licence.

In Section 14 of the Act, it provides that any person who fulfils the conditions laid down by the government can apply to the Regulatory Commission for a second or a new licence in the same area in which there is already a licence. Earlier, the new entrant was mandated to build their own distribution network. But now it will not be mandated under the proposed draft. The entrant can use the network of the existing licensee. As regards the proposed electricity authority, in simple terms, it will work to build consensus on reforms on the lines of the GST Council.

Recently, the apex court ordered clear-cut guidelines on the creation and amortisation of regulatory assets. It has mandated the clearance of accumulated regulatory assets (past dues) within four years, with new assets to be liquidated within three years. What is your take on this?

Rules and Tariff Policy already provide for this. The Court has ordered time-bound compliance. If this is followed, it will make tariffs cost reflective. The tariff policy made an exception in some cases — in case there is a natural calamity or something else, it is not possible to immediately raise the tariffs. You can create a regulatory asset, but it has to be very expeditiously liquidated. However, there are State regulators who have not liquidated these regulatory assets for very long. We must acknowledge that non-compliance increases interest cost on consumers, and the subsequent political regime will never like to raise tariff to clear past regulatory assets.

The Supreme Court has only affirmed the situation, and has directed the regulatory commissions to follow the law. It is a very good development. I know some have gone to the Supreme Court, asking for some time. Meanwhile, Rajasthan has already taken a step forward to liquidate regulatory assets.

Is capacity-swapping a doable solution for bettering continued availability? How does it work for discom health?

Traditionally, in our Power Purchase Agreements, three aspects were bundled — you buy capacity, you also buy your right on energy, and you also buy ancillary services required. But now, the penetration of renewable energy is creating mismatch in demand and supply. So, in that context, you must have sufficient capacity to meet the demand in any scenario — more than expected demand or less than expected generation. So, that available capacity can be swapped as per the need of the players. Energy can be purchased from such capacity through markets. There is a urgent requirement to have a separate capacity market framework, and the utilities must be bound to enter into contracts for adequate capacity. This will minimise stranded fixed costs.

Is the grid ready to take the energy mix. What is your take on it?

We have robust grid and reached a stage where General Network means once you are connected, you can sell your electricity anywhere in India. However, now the energy mix is changing because of the increased penetration of variable generation sources. So, we need more flexible resources like battery storage or pump storage capacity to take care of variations in demand and supply. In addition, we need digitisation to make the grid work because we need a lot of data in near real time or for operations and for future forecasts.

Is there a mechanism to work on a comfortable tariff that is suitable to all stakeholders?

The word comfortable is not appropriate. What we should aim at is a tariff based on efficient costs. Efficient cost of generation, efficient cost of transmission, efficient cost of distribution. So, if these activities are taken efficiently, whatever is the cost, that has to be reflected into the tariff. There is no other way to sustain this power sector. For example, if you keep on adding generation plants, it is not efficient cost. Some of the very peak demand can be met through demand response at a much lesser cost using digital technologies and efficient market. 

So, tariffs should be based on efficiency in generation, transmission and distribution, and in markets. Whatever is the efficient cost, it should be passed through tariff. More importantly, the tariff is an outcome of a process of allocation of cost to different consumers. There is a pool of cost which you have incurred. Allocation happens in two stages. First, the determination of the demand charges and energy charges. And then you give some cross subsidies to the different consumer categories. So, my take is the allocation of cost should be very fair and transparent.

To make tariff comfortable, the State government already have a discretion by giving subsidy the needy consumers.