Electricity sector reforms need fresh look
The woes of power sector in India need out of the box thinking. There is a need to take a step back from the details of issues that plague the sector so that a strategic blue print emerges. The reforms need to start off afresh but this time from the distribution sector. The last wave of reforms spearheaded by the Electricity Act 2003 precariously left the distribution sector nearly untouched. It is here that the new wave needs to have its epicentre. There is a need to recognize that for electricity, as with any other infrastructure asset, either the consumers or the taxpayers pay. It is always prudent to let the consumer pay for what they consume, and it is precisely here that market distortions have happened. There is no denying that some sections of the society need to be subsidized or cross-subsidized but the extent of these have telling impact on the distribution economics and all the way up streams. Making electricity distribution economically viable has to the first and foremost objective for the government. States need to be apprised of the fact that in long run the populist measures are self-defeating. The distribution sector is likely to face threatening questions from open access and distributed generation, and improvement of efficiencies through distribution franchises and privatization is inevitable. States must be encouraged to bite the bullet and allow for these reformative forces to take charge otherwise the generation capacities will be idle on one hand and the consumer groups will continue to ignite their DG sets on the other, which will create no favourable investment environment across the electricity supply value chain.
Transmission sector has done reasonably well even though capacity constraints have led to regional imbalances in the past. There is a need to continue in the direction of asset creation through public private partnerships.
Generation sector needs to receive the focus after distribution. The power capacity additions have been rising but they still fall short of the demand, even while the latent demand escapes attention from the planning process. Availability of capacities is likely to create their own demand. One of the key in power generation sector is to consider that generation is better done at coal pit-heads. This because the cost of transportation of coal, the mainstay of electricity in India, is far more challenging, expensive and environmentally challenging than transmission of electricity. The Indian Railways have not been able to keep pace with the demand for their services for coal transport and there are route optimization issues as well. Focus on pit-head generation can take the burden off. However, pit-head generation cannot be supported by State sector if the State generation utilities focus on building capacities in their own States. There is a need to un-shackle State generation utilities and allow them to acquire and merge with other State utilities or IPPs such that their capacity addition plans are commercially prudent, and based on their strengths and strategic foci. Some of the healthy State generation companies may acquire the poorer cousins from the States that may be closer to the coalfields. Synergies may be established by allowing acquisitions or investments of and by the State utilities of the private assets with captive coal mines with potential mining capacity expansions. The fuel and financing challenges for the generation sector that in any other circumstances would propel consolidation will take its course and allow market forces to mould the sector for better. Allowing the generation sector – Central, States, and IPPs – to realign and prepare a vibrant new landscape will also help move towards achieving the goals of unbundling of monolithic utilities that existed earlier.
Risks associated with market forces that sprint towards excesses in absence of regulatory oversight may be mitigated effectively only by allowing regulatory commissions to work independently. Legislative framework for electricity regulatory commissions appear robust but the implementation faces political interference leading to compromises on commercial principles. There is a need to move towards cost reflective tariffs. ERCs also need to be strengthened to look into issues pertaining to fuel procurements and ensure the fairness of cost pass through such that regulatory assets are not created along the supply chain.
Electricity sector in India faces challenges to meeting the demands of an aspiring nation. New ideas and thoughts need to be considered so that our past and liabilities created therefrom need not bog down the sector even in future.
Transmission sector has done reasonably well even though capacity constraints have led to regional imbalances in the past. There is a need to continue in the direction of asset creation through public private partnerships.
Generation sector needs to receive the focus after distribution. The power capacity additions have been rising but they still fall short of the demand, even while the latent demand escapes attention from the planning process. Availability of capacities is likely to create their own demand. One of the key in power generation sector is to consider that generation is better done at coal pit-heads. This because the cost of transportation of coal, the mainstay of electricity in India, is far more challenging, expensive and environmentally challenging than transmission of electricity. The Indian Railways have not been able to keep pace with the demand for their services for coal transport and there are route optimization issues as well. Focus on pit-head generation can take the burden off. However, pit-head generation cannot be supported by State sector if the State generation utilities focus on building capacities in their own States. There is a need to un-shackle State generation utilities and allow them to acquire and merge with other State utilities or IPPs such that their capacity addition plans are commercially prudent, and based on their strengths and strategic foci. Some of the healthy State generation companies may acquire the poorer cousins from the States that may be closer to the coalfields. Synergies may be established by allowing acquisitions or investments of and by the State utilities of the private assets with captive coal mines with potential mining capacity expansions. The fuel and financing challenges for the generation sector that in any other circumstances would propel consolidation will take its course and allow market forces to mould the sector for better. Allowing the generation sector – Central, States, and IPPs – to realign and prepare a vibrant new landscape will also help move towards achieving the goals of unbundling of monolithic utilities that existed earlier.
Risks associated with market forces that sprint towards excesses in absence of regulatory oversight may be mitigated effectively only by allowing regulatory commissions to work independently. Legislative framework for electricity regulatory commissions appear robust but the implementation faces political interference leading to compromises on commercial principles. There is a need to move towards cost reflective tariffs. ERCs also need to be strengthened to look into issues pertaining to fuel procurements and ensure the fairness of cost pass through such that regulatory assets are not created along the supply chain.
Electricity sector in India faces challenges to meeting the demands of an aspiring nation. New ideas and thoughts need to be considered so that our past and liabilities created therefrom need not bog down the sector even in future.
@ dipeshconsults@gmail.com
posted by Dipesh Dipu @ 10:58 PM
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