DISCOM’s in India

Distribution is a critical link in power sector. The distribution segment of India is in bleak condition. There is a huge pile of losses in this segment. Mostly in India there are majorly state discoms. Private discoms are still meager in number as compare with public discoms. The main reason of discoms inefficiency is high AT&C losses. In India there are approximately 23.5% of AT&C losses. The gap between cost of supply and the revenue is increasing i.e. cost is higher than revenue .AT&C losses is increasing due to many technical and commercial reasons.

In technical part, there are not much of investments in replacing old conductors, distribution transformers, etc. Commercial losses are due to unmetering, power theft, etc. Power theft is a big issue in power sector. To curb this issue government initiated many programs but it was not successful in many parts of India. So, the issue is big but it can be solved. Distribution franchisee is one of the solutions for improving the situation. 

Distribution franchisee is a PPP(Public private partnership) model. In this distribution licensee will give part of its work to any private firm to improve the efficiency of the area. There are different models of distribution franchisee in which Input based franchisee model is quite common. The ideal example of distribution franchisee is Bhiwandi in Maharasthra. In Bhiwandi the AT&C losses were about 60% before giving it to Torrent Power Limited( Distribution Franchisee).

After 3 years of completion of TPL in bhiwandi the losses came below 20%. In India 250 towns are selected for Distribution franchisee. However there are some failures like Nagpur where the franchisee was not able to pay the money to distribution licensee. Recently amendments in electricity act 2003 came into talk which is still under progress. In amendments there is a talk about segregation of carriage and content in distribution. If this amendment will pass, there will be a carriage part which is natural monopoly and content part in which lot of competition will come. Due to this factor competition will arise and efficiency of distribution segment will increase. 

IT is playing pivotal role in distribution segment. Call centers, smart meters, SCADA are some of the initiatives which are playing major role. There are many private distribution licensees such as reliance Infra, Tata taking part in major cities of India. NDPL in Delhi proved that private licensee can also gain profit in distribution segment. It’s a saying that “Nothing Is Impossible”. There are many success stories from which each and every distribution licensee should take lessons. Innovative ideas in distribution segment can add helping hand to the cash starved utilities. I read one article in which it was written that distribution sector in India is like a leaking bucket. Government should concentrate more on distribution sector. The allocation of funds to distribution sector is quite less as compare to generation and transmission sector. In 2015-16 budget, government thought of adding 175 GW of renewable energy, 5 UMPP’s. In my point of view if you have to improve the power scenario of India then first agenda/target should be on distribution segment.

If you have any innovative ideas / suggestion please comment below.

LIGHTS ON A LAST HOUSE

Light is something which we can’t live without. “Lights on” leads to development, happiness, entertainment and many more. On the Contrary part, “Lights off” leads to in dark. Without light there is no life. So it is necessary to have electricity to all. In India there are still 280 million peoples not having accessible to electricity. You can imagine that in the world where we are talking about new innovation, technologies, smart phones, etc. and there are some people who don’t have electricity in their home. 

Therefore to provide light to last home is necessary. Rural areas in India don’t have regular access to electricity, which lead to decrease in productivity. The Government of India is also initiating many schemes to provide electricity to all. Initiatives such as Deendayal Upadaya Jyoti Gram Yojana and may more. One of the major innovations in power sector is Distributed renewable generation. There are many places which are very far from cities. So, connecting this place through transmission links is not a viable option. So to electrify all the villages in India there is a need of distributed generation. 

Thus generating through renewable sources such as wind, solar, hydro, etc. can be a good option for such areas. The Government is also implementing the plan of feeder separation. In feeder separation, there will be a segregation of agriculture and domestic feeder. There are states like Gujarat, Madhya Pradesh already started implementing the feeder separation scheme way before. This scheme will ensure 24*7 of uninterrupted power to domestic homes while there will be a sufficient power to agriculture areas. The main problem in lighting rural areas is that investors are not sure about the return. Due to this, the funds are not flowing for electrifying rural areas. There should be some innovative finance techniques so that private investors will be interested to go for it. There are companies like DESI power which are working on electrifying rural areas. One good example of electrification is there is a village in India where there was no electricity, so peoples from village participated in generating electricity through hydro then the village got electrified.

 In my point of view electricity is basic thing which living being needs. There is also a lot of migration from rural areas to urban due to the non-availability of the basic infrastructure. There is a need of proper planning and implementation so that there will be a situation where everyone will get power.

Power distribution sector reforms need of the hour

The issues plaguing the Power Sector are 1) fuel security, 2) fuel scarcity and 3) poor health of the distribution sector. Over the last 10 months, the government seems to have been addressed the concern of fuel security with a transparent mechanism for allocating coal blocks via e-auction. The aggressive bids for operational and near operational mines by the power and non-power players highlighted the urgency to secure fuel for the long term. Further, CARE Research believes that the subsequent coal block auction of non-operational mines is likely to solve the issue of fuel scarcity to large extent in the medium term. Additionally, addressing the fuel scarcity for the end users (i.e. ramping up of coal production) would require sustained efforts from various state governments, environment ministry (state and central), miners (PSU and captive) and transporters (mainly the railways). In our view, funding required for ramp up of coal production was never (and will never be) a challenge. The solution lies in smart co-ordination and execution among various stakeholders with time bound outcome. However, till date not much progress has been made in terms evacuation of coal (progress on the three critical railway lines1 which when operational can evacuate upto ~300MTPA of additional coal).


The third and the most critical issue is the poor health of distribution utilities (losses of ~Rs.700 bn in FY13). Aggregate bank funding to DISCOMs was ~Rs3.4tn as on 31st March, 2014. It is widely known that distribution segment is the weakest link in the entire power sector value chain. Unless structural reforms take place in this segment, long term prospects for the overall sector would be in jeopardy. High AT&C losses, unsustainable cross subsidy levels and pile up of regulatory assets have been a bane for the sector for a long time.


CARE Research is of the opinion that the introduction of competition in retail power supply could be limited to commercial and industrial consumers (HV/EHV).Currently these consumers have to pay open access charges for sourcing power directly from generators. Over a period of time, with reduction in cross subsidy, open access charges could be minimised to create a level playing field for all the consumers. At this stage, it is very critical to establish 1) adequate and matching transmission capacity to optimise flow of electricity across regions, 2) vibrant short term power market, 3) accurate baseline data for voltage-wise consumers and 4) regulatory compulsions for ownership separation of wire and retail supply business. The last step is transfer of PPAs to these supply Licensees (present DISCOMs). Subsequently, the state government would invite competitive bids/purchase power from the power market for various distribution circles to ensure healthy competition in retail power supply segment across the country.

Renewable Energy Certificate

What is REC?

The Electricity Act, 2003, the policies framed under the Act, as also the National Action Plan on Climate Change (NAPCC) provide for a roadmap for increasing the share of renewable in the total generation capacity in the country.

However, Renewable Energy (RE) sources are not evenly spread across different parts of the country. On the one hand there are States (like Delhi) where the potential of RE sources is not that significant. This inhibits SERCs in these States from specifying higher Renewable Purchase Obligation (RPO).

On the other hand there are States (like Rajasthan and Tamil Nadu) where there is very high potential of RE sources. In such States there are avenues for harnessing the RE potential beyond the RPO level fixed by the SERCs. However, the high cost of generation from RE sources discourages the local distribution licensees from purchasing RE generation beyond the RPO level mandated by the State Commission.

It is in this context that the concept of Renewable Energy Certificates (REC) assumes significance. This concept seeks to address the mismatch between availability of RE sources and the requirement of the obligated entities to meet their RPO. It is also expected to encourage the RE capacity addition in the States where there is potential for RE generation as the REC framework seeks to create a national level market for such generators to recover their cost.

Central Electricity Regulatory Commission (CERC) has notified Regulation on Renewable Energy Certificate (REC) in fulfillment of its mandate to promote renewable sources of energy and development of market in electricity. The framework of REC is expected to give push to RE capacity addition in the country.

Salient Features of the REC Framework

1-There will be a central level agency to be designated by the Central Commission for registration of RE generators participating in the scheme.

2-The RE generators will have two options - either to sell the renewable energy at preferential tariff fixed by the concerned Electricity Regulatory Commission or to sell the electricity generation and environmental attributes associated with RE generation separately.

3-On choosing the second option, the environmental attributes can be exchanged in the form of REC. Price of electricity component would be equivalent to weighted average power purchase cost of the distribution company including short-term power purchase but excluding renewable power purchase cost.

4-The Central Agency will issue the REC to RE generators.

5-The value of REC will be equivalent to 1 MWh of electricity injected into the grid from renewable energy sources.

6-The REC will be exchanged only in the Power Exchanges approved by CERC within the band of a floor price and a forbearance (ceiling) price to be determined by CERC from time to time.

7-The distribution companies, Open Access consumer, Captive Power Plants (CPPs) will have option of purchasing the REC to meet their Renewable Purchase Obligations (RPO). Pertinently, RPO is the obligation mandated by the State Electricity Regulatory Commission (SERC) under the Act, to purchase minimum level of renewable energy out of the total consumption in the area of a distribution licensee.

8-There will also be compliance auditors to ensure compliance of the requirement of the REC by the participants of the scheme.

Viability Gap Funding

What is viability gap funding?
There are many projects with high economic returns, but the financial returns may not be adequate for a profit-seeking investor. For instance, a rural road connecting several villages to the nearby town. This would yield huge economic benefits by integrating these villages with the market economy, but because of low incomes it may not be possible to charge user fee. In such a situation, the project is unlikely to get private investment. In such cases, the government can pitch in and meet a portion of the cost, making the project viable. This method is known as viability gap funding.

How does the scheme work?
VGF is typically provided in competitively bid projects. Under VGF, the central government meets up to 20% of capital cost of a project being implemented in public private partnership (PPP) mode by a central ministry, state government, statutory entity or a local body. The state government, sponsoring ministry or the project authority can pitch in with another 20% of the project cost to make the projects even more attractive for the investors. Potential investors bid for these projects on the basis of VGF needed. Those needing the least VGF support will be awarded the project. The scheme is administered by the ministry of finance.

Which are the eligible sectors?
Projects in a number of sectors such as roads, ports, airports, railways, inland waterways, urban transport, power, water supply, other physical infrastructure in urban areas, infrastructure projects in special economic zones, tourism infrastructure projects are generally eligible for viability gap funding. The government now proposes to add social sectors such as education and health to the list.

How does the government benefit?
The government has limited resources. It can use those funds to build everything on its own, but such public funding will take years to create the infrastructure that is needed to achieve higher growth. Through viability gap funding, the same amount of funds can be used to execute many more projects through private participation. VGF is in that sense a force multiplier, enabling government to leverage its re-sources more effectively.

Amendment Bill in The Electricity Act-2003

The amendment to electricity Act 2003 was presented in the parliament on 19th December 2014. It is expected that the amendment will bring the desired reforms in the Indian electricity sector. The Government had earlier expressed its interest of bringing amendment in the Electricity Act 2003 along with the introduction of the Renewable Energy Act, which mandates RPO compliance to 10%.

The Electricity (Amendment) Act Bill has been presented in the parliament by the government. The main highlights of the proposed bill are as below:

1. The Concept of multiple distribution licensee should be introduced, meaning that a consumer will have multiple options in regard to choosing its electricity supplier.
2. The amendment proposes separation of the carriage and content business. Some companies will own the wire business while the other electricity suppliers or distributors will pay a specific fees to them.
3. The regular and timely revision of electricity tariff will be made mandatory under the proposed amendment bill. If the electricity suppliers do not approach the Regulatory Commissions seeking revision in tariff, the Commission shall reserve the rights to do so at its discretion.
4. The Bill also proposes the concept of Inter-state Open Access, meaning that any power generator can sell the surplus power generated within a state to entities outside the generating state.
5. The amendment proposes that the Regulatory Commissions can initiate Suo-motu proceedings to determine the rate in case a utility/generating company doesn’t file its petition on time. This will empower the Regulatory Commissions to take action on tariff determination and revisions at the right time.
6. The amendment also proposes that the central government will be vested with power of imposing penalties of up to Rs. 1 Crore on entities violating norms under the Electricity Act, which was previously Rs. 01 Lakh.

The proposed changes is expected to not only promote competition among various stakeholders, but also improve efficiency in operations and quality of supply of electricity, as private electricity suppliers will focus on higher efficiency. Such models have already been implemented in cities like New Delhi and Mumbai, with considerable improvement in quality and reliability of supply.

Promotion of Open Access will induce more competition resulting in Consumer-oriented market and lowering of electricity tariffs, unless the Commission decides otherwise at the state level. The regular and timely revision of Discom tariffs has been a major concern of correction, since losses or gains are linked with it to a great extent. This amendment proposes to address the issue on a stringent note. Defining timelines for tariff petitions and tariff revisions will significantly reduce political influence on electricity tariffs, especially when elections are near.

In contrast to the points mentioned above, the amendment bill may entail a lot more reforms to address current issues in the Indian Power sector, not undermining the Renewable Energy Sector, which has been a major focus area of the newly formed government. Grid operations, Scheduling of Renewable Power, Grid Connectivity, 100% Rural Electrification, Incentives for clean energy, may also find a mention in the amendment.

A big slice of market, including the power and the banking sector, looks forward to see how the amendments, when they come into effect, impacts the sector, as all stakeholders want to reap the benefits of the much awaited change in the Power arena.


Analysis:

The amendment bill in the electricity act-2003 will boost the power sector in India.Presently,in distribution segment there is not much of competition.If the amendment bill will pass from both(Lok sabha and Rajya sabha) then there will be a seperate carraige and content type.Many players will take part in content business.Due to this consumers will have many choices.Then there comes Inter-state open access.Open access was introduced in electricity act 2003.But proper policies for open access is not there.At last when we talk about tariff revision in India,then it is said that many states are not implementing properly.So from my point of view,I have lots of expectation from amendment bill of EA-2003