A jolt to national energy security-THE HINDU-19-05-2020
If implemented, they will not only weaken the control of States over an industry supplying a basic human necessity such as electricity but also arm the Centre with a pincer-like weapon which could choke the distribution utilities/companies and jeopardise the country’s energy security.
These proposals have to be seen in the context of a continuing centralisation of control over the sector whose main impact in the last 25 years has been to drive up the cost of power purchase to 80% of the total costs of State DISCOMs.
Business including MSMEs
The PPAs signed by DISCOMs were based on over-optimistic projection of power demand estimated by the Central Electricity Authority , a central agency. The 18th Electric Power Survey overestimated peak electricity demand for 2019-2020 by 70 GW. In the event, DISCOMs locked into long-term contracts end up servicing perpetual fixed costs for power not drawn.
Factor of renewable energy:
In the absence of viable storage, every megawatt of renewable power requires twice as much spinning reserves to keep lights on after sunset. DISCOMs, especially in the southern region, have had to integrate large volumes of infirm power, mostly from solar and wind energy plants which enjoy must-run status irrespective of their high tariffs even as the demand growth envisaged in the 18th EPS failed to materialise. Third, in 2015 the Centre announced an ambitious target of 175 gigawatts of renewable power by 2022, offering a slew of concessions to renewable energy developers, and aggravating the burden of DISCOMs.
The fine print:
First, the amendment proposes sub-franchisees, presumably private, in an attempt to usher in markets through the back door. Going by past privatisation experiments, private sub-franchisees are likely to cherry-pick the more profitable segments of the DISCOM’s jurisdiction. The Electricity Bill 2020 containing the proposed amendments is silent on whether a private sub-franchisee would be required to buy the expensive power from the DISCOM or procure cheaper power directly from power exchanges.
Second, the amendment proposes even greater concessions to renewable power developers, with its cascading impact on idling fixed charges, impacting the viability of DISCOMs even more. Third, and the most controversial amendment proposed, seeks to eliminate in one stroke, the cross-subsidies in retail power tariff. Cross-subsidy is a fact of life in even private industries, soap, newspapers, or even utilities such as telecom. There is undoubtedly a case for reducing the steep cross-subsidies in electricity.
But eliminating them in one stroke when State governments are already struggling with direct power subsidies is bound to be ruinous to their finances, not to mention the myriad problems with Direct Benefit Transfer.
New horizons of growth:
Finally, the last claw in this multipronged pincer is the establishment of a centralised Electricity Contract Enforcement Authority whose members and chairman will again be selected by the same selection committee referred to above. The power to adjudicate upon disputes relating to contracts will be taken away from State Electricity Regulatory Commissions and vested in this new authority, ostensibly to protect and foster the sanctity of contracts.