Power Sector Reforms

21 Jun Power Sector Reforms

(GS PAPER-3, Industrial Policy, Industrial Growth

Source- The Hindu)

Context-

• Amid the Covid pandemic last year, the union government proposed a rescue package for the power sector under the Atma Nirbhar Bharat scheme.
• This complete rescue package was managed to prevent the entire power sector chain from suffering because of the DISCOM inefficiency to meet their obligations.
• This is not the first time (UDAY SCHEME) that the Centre government has come in to help DISCOM and tackle the problems plaguing the distribution segment.
• However, even after the government’s repeated efforts, the result has been cash-strapped DISCOM looking for another management package.
• This shows the major structural problems happening in the power sector, which must be corrected for a sustainable power sector in India.

Associated Challenges:

• AT&C Losses: Aggregate technical and commercial (AT&C) losses emerge from poor or inadequate infrastructure or on account of theft or bills not being generated or honored on time. The UDAY scheme had envisioned bringing down these losses to 15 percent by the year 2019. However, as per data on the UDAYcontrol panel, the AT&C losses currently stand at 21.7 percent at the all-India level.
• Cost-Revenue Gap: The difference between DISCOM costs (average cost of supply) and revenues (average revenue realized) is still very high. This is because of the absence of regular and revision in electricity tariffs.
• Magnifying Effect: It’s contradictory, the government’s push for ensuring electrification of all has contributed to greater impotence. As household connections are increasing, to support higher levels of electrification, cost structures need to be revamped, and the distribution network (transformers, wires, etc) would need to be amplified. In the absence of all this, losses are bound to increase.
• Economic Fallout of the Pandemic: Amid pandemic, with demand from industrial and commercial users falling, revenue from this stream, which is used to cross-subsidize other consumers, are decreasing, exacerbating the stress on DISCOM finances.
• Low Investment: Owing to the poor financial health of these companies, there are fewer new investments in the electricity sector (particularly in the private sector).
• Fossil Fuel Dominated Energy Generation: Thermal power based on fossil fuels such as coal, natural gas, and diesel accounts for 80% of the country’s electricity generation. Furthermore, the majority of plants in India are old and inefficient.

Way Forward:

• Eliminate Cross Subsidization: High industrial/commercial tariff and the cross-subsidy regime have grandiose the competitiveness of the industrial and commercial sectors. Thus, there is an urgency to ensure effective fulfillment of rationalization of cross-subsidy.
• Covering up AT&C Losses: To administer the power demand, it is necessary to introduce 100% metering-net metering, smart meters, and metering of electricity supplied to agriculture. There is also a need to institute performance-based incentives in the tariff structure.
• Greening The Grid: The KUSUM SCHEME provides an acceptable alternative to the power subsidy model in agriculture. The scheme proposes to promote the use of solar pumps for agriculture and equip local DISCOM to buy surplus power from the farmer.

• Cross-Border Trade: The government requires to actively promote cross-border electricity trade to utilize existing/upcoming generation assets. The SAARC Electricity grid is a step in the CORRECT direction.

Conclusion:

• A solution that has now been furled forward to deal with the infirm DISCOM, is the creation of a national power distribution company.
• However, it is difficult to see how a sustainable flip-flop in the financial and operational position of DISCOM can be engineered without solving the systemic challenges.

-Khyati Khare

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