A
Three Pronged Approach for Power Sector
Current
News:
Economic Times (08-07-2013): Power plants’ capacity utilisation at record low
Economic Times (05-07-2013): Coal Ministry agrees to sign fuel-supply pacts for 11
power projects, 122 power projects
waiting for clearances.
Business Standard
(15-06-2013): Discom
debt worth 6144 cr restructuring takes off with TN issuing bonds.
Business Today (27-06-2013): Govt approves doubling of natural gas
price.
Business Standard (27-04-2013): Avoid
exposure to power stocks.
With
an installed capacity of nearly 225GW, around 300 million Indians still do not
have an access to electricity. Moreover, the ones who have are marred by
blackouts and load shedding. It is evident that India has not been able to
reduce the deficit, rather the peak deficit hovers at around 11.5% whereby the
CAGR of power demand is more than 8%. In spite of the inherent demand, the
power utilities are bleeding.
The
govt. had displayed vision by enacting Electricity Act, 2003 and laying out a
promising Integrated Energy Policy. But many clauses of the act are still
difficult to implement even after 10 years. A three-pronged approach is devised
below to address the present situation.
Prong
I (Generation): Open sourcing
and grid charging can be encouraged if integrated grid connectivity with smart
meters is established. Grids and utilities should have realistic targets of
replacing the obsolete meters with smart ones. Privatize the Mining Sector so
that miners can extract coal by paying appropriate royalty. It will not only increase
the productivity but also put rest to the favoritism in arranging FSAs with
CIL as the market would become competitive. Also, distributing captive blocks
reduces the efficiency as many mines are operational simultaneously and
demarcated for some particular project for a long period. For example – demarcating
4 coal blocks for three power plants is inefficient when they can be catered by
a single block for next five years.
Majority
of the Indian contracts lack the clause regarding compensatory tariff. As the imported
coal prices have increased by nearly 80% in last three years, the power units
depending on foreign coal are unable to sell at present costs. Even under legal
purview of a Power Purchase Agreement (PPA), govt controlled power utilities do
not pay on time leading to cash flow crisis for the GENCOs (Generation
Companies). Also, regulations are lax when steel manufacturers shut down their
shops to sell electricity in the open market (as merchants). Practices like
these distort the market and can be done away with by introducing strict legal
measures by either CERC (Central Electricity Regulatory Commission).
Prong
II (Transmission):
Grid efficiency and resilience can be increased by connecting the Southern Grid
with the other five grids. Introducing higher voltage lines, like 1110KV and
replacing old 220/440KV with 765KV are essential for transmission efficiency.
Prong
III (Distribution): The root of all
the inefficiency is the distribution and theft losses that stem from undue
favour by politicians and slacking power utilities that are govt controlled.
Under Electricity Act, 2003, it was directed to unbundle the state Vidyut Boards. The states like Delhi,
Orissa, Gujarat, etc have been successful in doing so and have reduced their
aggregate technical and commercial (AT&C) losses by more than 30%. The
other states should be forced to follow the suit because the unpaid amount gets
restructured as a large loan that is paid off by the tax-payers’ money.
Fig1: Role of ESCOs in Power Sector Fig2: Incentive of DSM V/s Generation.
Efficiency in distribution can be increased by introducing:
Ø Legislative Measures
Ø Administrative Measures
Ø New Technology
Ø Awareness
Mandatory implementation of Energy Conservation and Building Code for new buildings, mandatory energy audits in six months for industrial customers and introduction of Energy Services Companies (ESCOs) by Bureau of Energy Efficiency (BEE) are some legislative measures that can improve the energy efficiency of a state. ESCOs are the allowed energy auditors that give implementable guidelines after the audit. (See the diagram below for functioning of ESCOs.) Administrative measures like Consumer Indexing System (CIS), implementation of Minimum Energy Performance Standards (MEPS) in industry, Solar Subsidies and Time of Day (ToD) metering using smart meters are implementable given some forethought by the DISCOMs (Distribution Companies). These measures backed by new technology like intelligent meters, AC Outage, Zero Energy Buildings, Star Rated appliances, etc can induce efficiency into the system. Also, rewards like “Golden Carrot” and “20-20” have been successful in USA that can be followed in India too.
Source: Bureau of Energy Efficiency
Hence,
the three pronged approach focuses on improving the fuel supplies and improving
government contracts (Generation), upgrading the grid for lower losses
(Transmission) and introducing a score of measures to improve Demand Side
Management (DSM) to reduce AT&C losses and curb inefficiency (Distribution).
Courtesy: Shivraj Singh Negi, PGP-2, IIMB.
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