Electricity is a key enabler of any country’s economic and social development. Its uninterrupted availability can determine whether a country progresses on the world stage or falls behind. In independent India, electricity has always been a contentious issue due to power generation challenges, demand-supply mismatches, rising prices and electricity being concurrent subject
The good news is that in 2019, India achieved an almost-impossible dream – near-universal household access to electricity. This was the year when more than 900 million citizens gained an electrical connection in their homes. The not-so-good news is that supply still remains an ongoing challenge for many states, particularly from the standpoints of reliable availability and affordability.
Another problem is that the pandemic affected investments in the sector and exacerbated the financial struggles of Indian electricity distribution companies. In 2020, for example, investments fell by 15%. These factors partly explain why India’s energy use on a per capita basis remains under 50% of the global average, and why the quality of service varies between rural and urban areas. To address these issues, comprehensive policy reforms are needed in both the policy and technology landscapes.
Fortunately, we are seeing good progress in both. In recent years, many states have stepped up efforts to leverage cutting-edge technologies for renewable energy generation, power distribution, and peer-to-peer (P2P) energy trading – all aimed at democratising power availability for Indian citizens. The government has also implemented multiple policies and proposed policy amendments to scale up power generation, improve power availability, and ultimately realise a secure and sustainable energy future for India. The Electricity (Amendment) Bill 2022 is part of this effort.
The Background: The Electricity Act, 2003
The Ministry of Law and Justice describes The Electricity Act, 2003 (“Act”) as “An Act to consolidate the laws relating to the generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to the development of electricity industry.”
The Act, which extends to the whole of India except Jammu and Kashmir, covers major areas and laws involving the generation, distribution, transmission, trading, and use of electricity. It was aimed at reforming the country’s electricity sector by promoting competition through the increased participation of the private sector. It also included measures to:
- Protect consumers’ interest
- Improve electricity supply to all areas
- Increase transparency for subsidy measures
- Promote environmental and climate benign policies
- Improve assessments of the electricity tariff
All in all, the Act was meant to support the development of the electricity industry and benefit electricity consumers through improved power supply and more transparent tariffs.
The Need for Electricity (Amendment) Bill 2022
Since it became law, The Electricity Act, 2003 has transformed India’s power sector, particularly in the area of power generation. It has also resulted in increased private sector investments in new power plant capacity, which has helped to increase India’s installed capacity four-fold from about 100 GW to around 400+ GW.
But despite these positives, the Act’s focus on the generation part of the power industry created or exacerbated gaps in the distribution part. In particular, there were limited safeguards to curtail the sector’s financial health, esp for distribution companies (which have accumulated losses of over Rs 5 lakh crore as of May 2022) Further with evolving landscape of the sector in the country it was pertinent for the policy to evolve alongside in order on ensure on the ground developments as well
The other catalysts driving the need for reforms are:
- Increase competition in the supply part of the power industry (sourcing-metering-billing) by allowing greater private sector participation
- Allow multiple discoms to operate in the same area of supply to boost competitiveness, increase electricity supply reliability and democratize electricity market for all
- Encourage greater innovation in the sector, especially in renewable energy generation
- Increase accountability and transparency at every level
- Increase the focus on customer/consumer satisfaction
The Electricity Act, 2003 vs. The Electricity (Amendment) Bill 2022
Introduced in the Lok Sabha in August 2022, The Electricity (Amendment) Bill 2022 proposes several amendments to The Electricity Act, 2003. It aims to bring much-needed reforms in India’s power sector by:
- Delicensing power distribution
- Instill financial discipline throughout the electricity ecosystem
- Allow more private sector companies to compete with state-owned firms for the last mile
The BJP-led central government hopes that these reforms will boost retail supply competition and strengthen the role of regulators and generate benefits for both sector participants and consumers. The Bill proposes that multiple distribution licensees on the same network should be allowed to function in an area, thus creating a positive competitive landscape and giving consumers the right to choose their electricity provider.
The Bill will allow graded revisions in tariffs and give Central and State Electricity Regulatory Commissions (CERC and SERCs) the power to fix the maximum ceiling and minimum tariff. It also proposes the formation of the Electricity Contract Enforcement Authority (ECEA) to approve licenses for multiple state suppliers and deal with contract-related disputes in the sector. The Bill further enforces the RPO targets that requires all discoms must purchase – or produce – a certain minimum specific quantity from renewable energy sources as a percentage of their total electricity consumption.
The Bill also strengthens the role of the National Load Dispatch Centre (NLDC) in terms of:
- Dictating national-level scheduling and dispatch to improve the efficiency of grid operations
- Controlling power flows only when payment security mechanisms are in place in order to solve the generator’s “payment outstanding” issues and bring down power costs
In sum, some of the key amendments under the Bill are:
- Multiple discoms can operate in the same area
- Discoms can use each others’ distribution networks under the provisions of non-discriminatory “open access” for consumers
- Regulators can impose penalties on discoms that fail to provide open access through their distribution system to other discoms
- Discoms will share power and associated costs as per the existing power purchase agreements (PPAs)
- Regulators will fix the minimum and maximum ceiling tariff to promote competition among discoms and keep costs under control for consumers
- Renewable purchase obligations (RPO) and non-compliance penalties will be strictly enforced to encourage the use of renewable energy sources for electricity generation
Expected Benefits of The Electricity (Amendment) Bill 2022
The Electricity (Amendment) Bill 2022 will create a more open power market and enable greater competition, which will:
- Create new generation capacity to address power shortage problems
- Enable open access for consumers and give them the freedom to choose their own provider
- Help to bring power costs down for all entities in the power ecosystem
Bringing in private sector suppliers could also reduce the losses due to faulty billing and collection, ultimately strengthen the payment security mechanism, ensure stricter payment discipline, and improve the financial health of discoms. It will also encourage cost-sharing between discoms licensed to operate in the same area and bring in greater operational efficiency in sourcing and distributing cheaper power.
Since the Bill will allow multiple discoms to operate in the same area of supply, they will be required to provide non-discriminatory open access to their network to all other discoms operating in that same area, thus helping to optimise usage of the distribution network and remove the need to set up/maintain multiple parallel networks.
Another expected benefit of the Bill is that the CERC and SERCs will bring help to greater transparency into electricity tariffs and greater consistency in how these tariffs are implemented.
The SERCs will also be empowered to specify the renewable purchase obligations (RPO) for discoms and impose penalties if discoms fail to meet their RPOs (25-50 paise per kilowatt of the shortfall). This could increase the share of electricity procured from renewable sources, and, hopefully, help India meet its target of adding 500 GW renewable energy sources by 2030.
The Future of The Electricity (Amendment) Bill 2022
The proposed Bill has met opposition from several entities. For example, the All India Power Engineers Federation (AIPEF) opposes the Bill because it fears that it will privatise electricity distribution and make electricity unaffordable for consumers. This fear is likely unfounded because the Bill is not actually a full-fledged privatisation exercise but an effort to boost competition and energy sufficiency through some privatisation.
The entry of more private sector players will also help to add new generation capacity, which the country needs to resolve existing supply shortages and control cost surges. And despite the presence of the private sector, government regulators will play a part in regulating all entities and ensuring that consumers are not adversely affected.
India’s booming population and developing economy both create the need for vast amounts of energy throughout the country. However, global price pressures on fuel, political unrest, and recessionary scares have all curtailed India’s electricity generation capabilities and affected power tariffs.
In this landscape, India needs to reform its energy generation infrastructure and scale up investments in clean energy. It also needs to improve the efficiency of its energy distribution infrastructure and resolve its ongoing payments crisis.
Only when these challenges are resolved can we ensure domestic energy security and self-sufficiency in every state and union territory. The Electricity (Amendment) Bill, 2022, is aimed at bringing all these proposed reforms into the realm of reality. And while there are some gaps in the Bill, no Bill at all would be a greater blow to the country’s electricity ecosystem and consumers.
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