Why in news?
The Finance Minister announced the reform of power tariff policy — announced as part of the stimulus package following the pandemic.
- 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.
- At the core of DISCOM woes is the two-part tariff policy, mandated by the Ministry of Power in the 1990s at the behest of the World Bank.
- As more private developers came forward to invest in generation, DISCOMs were required to sign long-term power purchase agreements (PPA), committing to pay a fixed cost to the power generator, irrespective of whether the State draws the power or not, and a variable charge for fuel when it does.
- Due to the CEA’s overestimates, the all-India plant load factor of coal power plants is at an abysmal 56% even before COVID-19.
Factor of renewable energy
- From 2010, solar and wind power plants were declared as “must-run”, requiring DISCOMs to absorb all renewable power as long as there was sun or wind, in excess of mandatory renewable purchase obligations.
- This means backing down thermal generation to accommodate all available green power, entailing further idle fixed costs payable on account of two-part tariff PPAs.
- Since the power demand peaks after sunset, in the absence of viable storage, every megawatt of renewable power requires twice as much spinning reserves to keep lights on after sunset.
- 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: Electricity Act 2020
- 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 amendment proposes even greater concessions to renewable power developers, with its cascading impact on idling fixed charges, impacting the viability of DISCOMs even more.
- The Amendment seeks to eliminate in one stroke, the cross-subsidies in retail power tariff. This means each consumer category would be charged what it costs to service that category. Rural consumers requiring long lines and numerous step-down transformers and the attendant higher line losses will pay the steepest tariffs.
- State regulators will henceforth be appointed by a central selection committee, the composition of which inspires little confidence in its objectivity, jeopardising not only regulatory autonomy and independence but also the concurrent status of the electricity sector.
- 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.
-Source: The Hindu