While there are positive reforms in the proposed bill, including promotion of renewable energy, improved governance, and provisions of a universal service obligation fund, there are remaining issues that need to be addressed.
New Delhi: Over the past two decades, India has pushed for significant reforms in the power sector, which have helped the country transition from a power deficit to a power surplus nation. The establishment of The Electricity Act (the “Act”) of 2003 laid the groundwork for this progress, as India attempted to reform all aspects of the power sector, including generation, distribution, transmission, trading, and consumption During this period, India pursued an aggressive capacity expansion strategy in the power sector with a focus on “Power for All”: successfully achieving a 100 percent household electrification rate. While sustained economic growth will drive electricity demand, necessitating further capacity additions, India’s power sector strategy will prioritise efficiency, decarbonization, modernization, and reliability of power sector assets. Investments from foreign and domestic investors in the power sector will be the key to achieve these objectives, especially in realizing Prime Minister Modi’s ambition of raising the deployment of renewable energy capacity by five-fold to 50 GW by 2030. This investment into energy is also reflected in realignment of India’s diplomatic outreach. A case in point is India’s growing energy security cooperation with the United States, which recently saw the relaunch of the US-India Strategic Clean Energy Partnership, which will aid in the acceleration of the deployment of affordable, reliable, and sustainable energy solutions.
In light of recent reforms, The Electricity (Amendment) Bill (the “Bill), 2021 can open up the power sector for additional investments by incorporating structural changes, in addition to the existing liberal foreign direct investment (FDI) policies One of the key proposals of The Electricity (Amendment) Bill, 2021, is to bring in revisions to the Act to end the monopoly of state-run power distribution utilities (DISCOMs) and to delicense power distribution Distribution of electricity is sacrosanct to the power industry. The proposed reforms appear significant and timely, given that despite two decades of power sector reforms, many electricity distribution companies finances are still in poor shape, as the majority of DISCOMs are unable to pay generation and transmission companies, as well as banks and financial institutions. Furthermore, while efficiency improvement efforts aimed at reducing technical and commercial losses have yielded results, with overall AT&C losses in India’s DISCOMs hovering around 22 percent, significant reforms are required to be considered on par with better-run utilities elsewhere in the world.
The bill envisages to increase the private sector participation in the distribution sector introducing competition and creating a framework that allows the power consumer to select their own supplier. This will lead to fresh investments into the sector, increased adoption of cutting-edge technologies and a more resilient network infrastructure. It is significant to note that the current outstanding dues owed to generator by DISCOMs on a pan-India basis total Rs 98,450 crore (as of Sept 2021, PRAPTI portal), which jeopardises the power sector’s financial sustainability and erodes investor sentiment significantly. The poor financial health of the DISCOMs has also prevented investors from funding infrastructure needed to improve the supply quality and to integrate renewable energy coming online. The various proposals of the bill, such as Direct Benefits Transfer to deposit power subsidies to end beneficiaries account and introduction of time limit for adoption of tariff determination, aim to relieve DISCOMs financial burden. Payment security for power generators, as proposed in the bill, is key to a stable investment climate and the ability to attract greater FDI into the sector.
While there are other positive reforms in the proposed bill, including promotion of renewable energy, improved governance, and provisions of a universal service obligation fund, there are remaining issues that need to be addressed.
Fears of Centralization:
While the bill empowers the National Load Dispatch Centre (NLDC) with the responsibility of ensuring the safety and stability of the pan-india grid, the Regional Load Dispatch Centres (RLDCs) and State Load Dispatch Centres (SLDCs) also need to be strengthened. The regional and state system operators can be made responsible for monitoring payments to all generating entities, ensuring the establishment of payment security and uploading curtailment data of the grid and its constituents. This will facilitate the Bill’s robust implementation. given the concurrent structure of the power sector, and will empower system operators at all levels to act transparently.
Need for strengthening the RE Framework:
All entities defined in the Act should be bound by the provisions of the National Renewable Energy Policy (NREP), the National Tariff Policy, and the National Electricity Policy, which have historically been regarded as merely guiding documents, diluting their true intent. Additionally, generation of electricity from renewable energy sources should be enshrined as a must-run provision in the Bill, as these sources are reliant on environmental resources that are beyond human control. The Bill should include stringent penalties for non-compliance and curtailment for non-grid security-related reasons.
Clarity on delicensing of distribution:
The Bill should clarify the distribution sub-licensee’s roles and responsibilities, as well as the way they are intended to operate within their operational and contractual framework.
Demarcation of Powers:
A clear division of authority between the Electricity Regulatory Commissions (ERCS) and the Electricity Contract Enforcement Authority (ECEA) is necessary for contract performance issues. Disputes such as extensions of Scheduled Commercial Operation Dates (SCOD), Change in Law relief, and Force Majeure claims, while purely contractual in nature, have the potential to affect the tariff and may result in contract termination.
The Indian power sector continues to be one of the most attractive investment opportunities globally, as evidenced by India’s remarkable progress in renewable energy deployment, with 136 GW of installed renewable capacity now accounting for 38 percent of its installed electricity generation. However, COVID-19 has had a negative impact on investment inflows, with FDI inflows into the Indian power sector falling to 61 percent in 2019-20 and 34 per cent in 2020-21, respectively. from 2018-19 levels. With rising power demand over the last few months indicating that India’s economy has entered a strong recovery, the situation is expected to reverse soon.
A new wave of inclusive and holistic power sector reforms is necessary to transform DISCOMs and the electricity grid. This is in order to sustain India’s economic recovery, maintain the country’s transition to sustainable forms of renewable energy, and attract the FDI required to meet the country’s ambitious energy and climate targets. Through the recently launched U.S.-India Climate and Clean Energy Agenda 2030 Partnership, President Biden and Prime Minister Modi announced several priority areas of collaboration that would help modernize the power sector to support large-scale integration of renewables and facilitate investment to accelerate India’s clean energy transition. If the proposed amendments to The Electricity (Amendment) Bill, 2021 are implemented by addressing the issues raised above, they will go a long way toward achieving these goals by improving the investment climate in the renewable sector. As COP 26 nears in Glasgow, Scotland, these collective efforts will help develop a cleaner energy roadmap with additional low carbon routes.