Webinar 2: Electricity Sector Competition
February 15th, 2022
Post Webinar Note
Competition in power markets enhances efficiency in the sector, while bringing in additional finance and capital to strengthen the sector. Consumers are provided with greater choices in service providers and business models such as Opex and open access as per their energy requirements, load patterns and economic and financial considerations. This has also led to a greater number of players in the market which makes it more competitive, increases choices for the consumer and widens the scale of deployment of such solutions.
As Tamil Nadu embarks on this journey of strengthening the electricity sector by promoting competition in the sector and introducing new business models, the ‘Citizen consumer and Civic Action Group (CAG)’ in collaboration with MP Ensystems Advisory Pvt. Ltd organized a webinar to discuss the considerations, implications and relevance of ‘Electricity Sector Competition’.
Key Discussion Points
Presentation on electricity sector competition: Dr Mahesh Patankar, MP Ensystems
- Electricity sector has a political economy of its own and the sector has long suffered due to inefficient administration. Most of the state-owned utilities continue to bleed financially as mounting losses continue to affect the reforms that have been undertaken in recent years.
- India is now on a clear path of decarbonisation which was also on display during the Prime Minister’s announcements at the UN COP-26 Summit, where he declared the Panchamrit targets:
- India will get its non-fossil energy capacity to 500 GW by 2030
- India will meet 50% of its energy requirements till 2030 with RE
- India will reduce its projected carbon emission by one billion tons by 2030
- India will reduce the carbon intensity of its economy by 45 % by 2030
- India will achieve net zero by 2070
- The Electricity Act, 2003 which was a landmark Act for the electricity sector in India included provisions of introduction of power exchanges and the facility of availing open access in India. These steps have been fundamental to the strengthening of competition in the electricity sector. The uptake in the number of consumers and volume of electricity availed through open access is a testament to that.
- Various models have been tried in different parts of the country in the electricity sector. Some of the notable examples are Bhiwandi model, which was a distribution franchisee model, New Delhi model, etc which have achieved varying levels of success in promoting efficiency in the electricity sector.
- Tamil Nadu has been an active participant in implementing energy sector reforms and striving for universal access to energy as the state has already achieved 100% electrification of households. It also has the highest number of open access consumers in the country. In this perspective, promoting efficiency and competition in the electricity sector is vital.
Panel Discussion: Promoting Electricity Sector Competition
Ashwini Swain, Centre for Policy Research
- There have already been numerous models that have been tried throughout the country to promote efficiency in the retail sector but judging by the degree of success achieved by different models, it cannot be said that privatisation is the cure to all maladies.
- Despite going down the privatisation path, Bhiwandi and Odisha models achieved contrasting results. While Delhi saw an improvement in efficiency, provision of quality supply and reduction in Transmission and Distribution losses, the same was not the case in Odisha. Hence, it is essential to take a holistic view of the issues in the sector in different geographies instead of taking a one size fits all approach.
- The case of Punjab is different than the other two cases as Punjab State Power Corporation Limited became financially crippled not on account of operational inefficiency but due to delays in provision of subsidy requirement. Thus, there are many issues that plague the power sector distributed throughout the whole ecosystem and there is a need to analyse all aspects before finalising a particular approach for reforms.
Ann Josey, Prayas Energy Group
- Just a change in ownership is not the solution to improving efficiency in the electricity sector. The current model followed predominantly in India is based on a cost-plus framework, which has no incentives for the organisations for improvement of efficiency.
- Prayas Group’s analysis of private sector distribution companies illustrates that there is no real competition when it comes to power procurement by these companies. These Discoms go through the route of competitive bidding for their power procurement, but it was found that most of these companies had contracted power with their own sister concerns, thus rendering the competitive bidding meaningless. Example- Torrent Power.
- To promote efficiency in the sector, there is a need to promote competition in the entire supply chain. The retail structural model of California is a good case study in this regard.
- There is a need to share the risk as well as the rewards for the players in the electricity ecosystem, with a focus on the consumers.
Netra Walawalkar, Customized Energy Solutions
- Many large commercial and industrial consumers are now willing to explore open access to reduce their electricity cost, as it is a fixed structure with Discoms, and manage their power requirements as per demand projections. There is also a growing interest in Renewable energy purchase.
- Short term power trade through power exchanges has also increased, but has stagnated in recent years, and there is scope to increase participation through this medium.
- For consumers signing third party power agreements via PPAs with generators, the landed cost for the consumer often does not make sense due to cross subsidy and other charges. Even though Electricity Act says cross subsidy and other charges should increase, this is not happening practically.
- Despite these charges, there has been an increase in availing through Open access by industrial and commercial consumers who have been able to reduce their electricity costs.
Arijit Maitra, Independent Counsel and Lawyer
- Indian Electricity Act, 1910 provided for private licensees, which led to the existence of Tata Power, India Power Company, BSES, etc. In 1948, State Electricity Boards were formed. Between 1948-1998, there was a huge mismanagement by state Discoms and a high level of inefficiency.
- The burning issues in the power sector are:
- Failure to pay the outstanding dues to suppliers
- Failure to have tariffs fixed rationally and scientifically
- Failure to arrest arrears
Due to these issues, there is a need to bring in efficient private players, Delhi being a good example.
- Privatisation can have various models.
- In Shrirampur of Maharashtra, Mula Pravara Electric Cooperative Society were rejected renewal of license on the ground that they failed to pay the bulk supply tariff to MSEDCL, and they were supplying to the rich consumers without recovering tariffs. Now the assets of Mula Pravara are with MSEDCL, for which it is paying user charges. Thus, despite not being a licensee, it is not being paid for the assets.
- Delhi model is another model of privatisation. Delhi DISCOMs have regulatory assets exceeding Rs 10,000 crore but are still unable to clear the outstanding dues of the suppliers.
- Chandigarh presents another model for privatisation.
- Many states are currently failing. Even in Tamil Nadu, the outstanding dues with generators have been increasing consistently, while there has also been an inability to assess the grid situation. Hence, there is a need for efficient players to be brought onboard.
Concluding Remarks: Vishnu Rao, CAG
- The corporate governance of electricity sector warrants adequate scrutiny as well. Utilities can be private or public, but procedural safeguards in the corporate governance structure helps ensure more accountability and transparency in the operational setup.
- More transparency akin to share markets where investors’ presentations are put online can be thought of to provide the company some value. A push towards sustainability and governance can be given more priority to make utilities more accountable. This type of an alternate approach where competition not just in the sector, but also in the governance part as well can improve the electricity ecosystems.